10-K
Table of Contents
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Table of Contents
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM
10-K
 
 
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
    
        
    
    
to
    
    
        
    
Commission file number:
001-38541
 
 
Magenta Therapeutics, Inc.
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
81-0724163
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
   
100 Technology Square
Cambridge, Massachusetts
 
02139
(Address of principal executive offices)
 
(Zip Code)
(857)
242-0170
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Trading
Symbol(s)
 
Name of each exchange
on which registered
Common Stock, $0.001 Par Value
 
MGTA
 
The Nasdaq Global Market
Securities registered pursuant to Section 12(g) of the Act:
None
 
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☐    No  ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ☐    No  ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
 
Large accelerated filer
 
  
Accelerated filer
 
       
Non-accelerated
filer
 
  
Smaller reporting company
 
       
 
 
 
  
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).    Yes  ☐    No  
The aggregate market value of Common Stock held
by non-affiliates of
the registrant computed by reference to the price of the registrant’s Common Stock as of June 30, 2020, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $246.4 million (based on the last reported sale price on the Nasdaq Global Market as of such date). For this computation, the registrant has excluded the market value of all shares of Common Stock reported as beneficially owned by its executive officer and directors; such exclusion shall not be deemed to constitute an admission that any such person is an affiliate of the registrant.
As of January 31, 2021, there were 48,556,135 shares of the registrant’s Common Stock, $0.001 par value per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement for its 2021 Annual Meeting of Stockholders, which the registrant intends to file with the Securities and Exchange Commission not later than 120 days after the registrant’s fiscal year ended December 31, 2020, are incorporated by reference into Part III of this Annual Report on Form
10-K.
 
 
 

Table of Contents
Magenta Therapeutics, Inc.
Index
 
         
Page
 
PART I
  
Item 1.
   Business      6  
Item 1A.
   Risk Factors      67  
Item 1B.
   Unresolved Staff Comments      129  
Item 2.
   Properties      129  
Item 3.
   Legal Proceedings      129  
Item 4.
   Mine Safety Disclosures      129  
PART II
  
Item 5.
   Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities      130  
Item 6.
   Selected Financial Data      131  
Item 7.
   Management’s Discussion and Analysis of Financial Condition and Results of Operations      132  
Item 7A.
   Quantitative and Qualitative Disclosures About Market Risk      143  
Item 8.
   Financial Statements and Supplementary Data      144  
Item 9.
   Changes in and Disagreements With Accountants on Accounting and Financial Disclosure      166  
Item 9A.
   Controls and Procedures      166  
Item 9B.
   Other Information      166  
PART III
  
Item 10.
   Directors, Executive Officers and Corporate Governance      167  
Item 11.
   Executive Compensation      167  
Item 12.
   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters      167  
Item 13.
   Certain Relationships and Related Transactions, and Director Independence      167  
Item 14.
   Principal Accounting Fees and Services      167  
PART IV
  
Item 15.
   Exhibits, Financial Statement Schedules      168  
Item 16.
   Form 10-K Summary      168  
     173  
 
2

Table of Contents
FORWARD-LOOKING STATEMENTS
This Annual Report on Form
10-K
of Magenta Therapeutics, Inc. (the “Company”) contains or incorporates statements that constitute forward-looking statements within the meaning of the federal securities laws. Any express or implied statements that do not relate to historical or current facts or matters are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “could,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “projects,” “seeks,” “endeavor,” “potential,” “continue” or the negative of these terms or other comparable terminology. Forward-looking statements appear in a number of places in this Annual Report on Form
10-K
and include, but are not limited to, statements about:
 
   
the timing and the success of clinical trials of
MGTA-145
and any other product candidates;
 
   
the outcomes of our preclinical studies, including of
MGTA-117;
 
   
our ability to enroll patients in our clinical trials at the pace that we project;
 
   
whether the results of our trials will be sufficient to support domestic or foreign regulatory approvals for
MGTA-145
or any other product candidates we may develop;
 
   
our ability to establish clinical programs moving forward in multiple indications, with a rapidly advancing portfolio and sustainable platform;
 
   
regulatory actions with respect to our product candidates or our competitors’ products and product candidates;
 
   
our ability to obtain, including on an expedited basis, and maintain regulatory approval of
MGTA-145
or any other product candidates we may develop;
 
   
the level of expenses related to any of our product candidates or clinical development programs;
 
   
our expectation that our existing capital resources will be sufficient to enable us to fund our planned development of
MGTA-145
and any other product candidates we may identify and pursue;
 
   
the benefits of the use of
MGTA-145
or any other product candidate, if approved;
 
   
our ability to successfully commercialize
MGTA-145
or any other product candidates we may identify and pursue, if approved;
 
   
our ability to successfully find collaborators for E478 or any of our current and future programs and product candidates;
 
   
the rate and degree of market acceptance of
MGTA-145
or any other product candidates we may identify and pursue;
 
   
our ability to obtain orphan drug designation for any of our product candidates we may identify and pursue;
 
   
our expectations regarding government and third-party payor coverage and reimbursement;
 
   
our ability to manufacture
MGTA-145
or any other product candidate in conformity with the U.S. Food and Drug Administration’s requirements and to scale up manufacturing of our product candidates to commercial scale, if approved;
 
   
our ability to successfully build a specialty sales force and commercial infrastructure;
 
   
our ability to compete with companies currently producing or engaged in the clinical development of treatments for the disease indications that we pursue and treatment modalities that we develop;
 
   
our reliance on third parties to conduct our clinical trials;
 
   
our reliance on third-party contract manufacturers to manufacture and supply our product candidates for us;
 
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Table of Contents
   
our ability to retain and recruit key personnel;
 
   
our ability to obtain and maintain intellectual property protection for
MGTA-145
or any other product candidates we may identify and pursue;
 
   
our estimates of our expenses, ongoing losses, future revenue, capital requirements and our needs for or ability to obtain additional financing;
 
   
our expectations regarding the time during which we will continue to be an emerging growth company or smaller reporting company as defined in federal securities regulations;
 
   
our financial performance; and
 
   
developments and projections relating to our competitors or our industry.
Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. You are urged to carefully review the disclosures we make concerning these risks and other factors that may affect our business and operating results under “Item 1A. Risk Factors” in this Annual Report on Form
10-K,
as well as our other reports filed with the Securities and Exchange Commission (the “SEC”). Any public statements or disclosures by us following this Annual Report on
Form 10-K
that modify or impact any of the forward-looking statements contained in this Annual Report on
Form 10-K
will be deemed to modify or supersede such statements in this Annual Report on Form
10-K.
You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this document. The Company does not intend, and undertakes no obligation, to update any forward-looking information to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events, unless required by law to do so.
RISK FACTOR SUMMARY
The risk factors detailed in Item 1A entitled “Risk Factors” in this Annual Report on Form
10-K
are the risks that we believe are material to our investors and a reader should carefully consider them. Those risks are not all of the risks we face and other factors not presently known to us or that we currently believe are immaterial may also affect our business if they occur. The following is a summary of the risk factors detailed in Item 1A:
 
   
The novel coronavirus, or
COVID-19,
pandemic has caused, and could continue to cause, severe disruption in the U.S., regional and global economies and could seriously harm our development efforts, increase our costs and expenses and have a material adverse effect on our employees, business, financial condition and results of operations.
 
   
We are a clinical stage company with a limited operating history, have incurred significant losses since our inception, and anticipate that we will continue to incur significant losses for the foreseeable future.
 
   
We have no products approved for commercial sale and have not generated any revenue from product sales. If we are unable to raise additional capital when needed or on terms acceptable to us, we could be forced to significantly delay, scale back or discontinue our development or commercialization efforts.
 
   
Although we have initiated and conducted clinical trials for some of our product candidates, including
MGTA-145,
we have not yet demonstrated the ability to successfully advance our clinical trials for our product candidates through the final regulatory processes and obtain marketing approvals for such products. Similarly, we have not yet demonstrated an ability to manufacture a commercial-scale drug product or conduct sales and marketing activities necessary for successful commercialization. If we are unable to obtain regulatory approval for
MGTA-145
or any other product candidates that we may identify or develop, our business will be substantially harmed.
 
4

Table of Contents
   
The results of earlier studies may not be predictive of future clinical trial results, and we may fail to establish an adequate safety or efficacy profile to conduct advanced clinical trials or obtain regulatory approval for
MGTA-145
or any other product candidates that we may pursue.
 
   
Stem cell transplant is a high-risk procedure that may result in complications or adverse events for patients in our clinical trials or for patients that use any of our product candidates, if approved. If serious adverse events, undesirable side effects, or unexpected characteristics are identified during the development of any of our product candidates, we may need to limit, delay or abandon our further clinical development of those product candidates, even if such events, effects or characteristics were the result of stem cell transplant or related procedures generally, and not directly or specifically caused or exacerbated by our product candidates.
 
   
If we are not able to identify a safe and effective dose for any of our antibody-drug conjugates, or ADCs, we may need to delay, abandon or limit our development of any potential product candidates.
 
   
If we are unable to successfully develop our current programs into a comprehensive portfolio of product candidates, or experience significant delays in doing so, we may not realize the full commercial potential of our current and future product candidates.
 
   
We are developing E478 specifically to partner with gene therapy and genome editing companies, and if we are unable to find willing collaborators, this may adversely affect the development of E478 and our business.
 
   
The commercial success of any of our product candidates will depend upon the degree of market acceptance by physicians, patients, third-party payors and others in the medical community.
 
   
We face substantial competition, including from companies with greater financial, technical, research, manufacturing, marketing, distribution and other resources than us, which may result in others discovering, developing or commercializing products before or more successfully than we do.
 
   
We expect to continue to rely on third parties to manufacture our clinical product supplies, and we intend to rely on third parties to produce and process our product candidates, if approved.
 
   
We have entered into collaborations and may enter into additional collaborations, strategic alliances or additional licensing arrangements in the future, and we may not realize the benefits of such collaborations, alliances or licensing arrangements.
 
   
We are highly dependent on intellectual property licensed from third parties and termination of any of these licenses could result in the loss of significant rights, which would harm our business.
 
   
It is difficult and costly to protect our intellectual property and our proprietary technologies, and we may not be able to ensure their protection. If we are unable to obtain and maintain sufficient intellectual property protection for MGTA-145, any of our other current or any future product candidates, or our technologies, we may not be able to compete effectively in our markets; and
 
   
Our future success depends in part upon our ability to attract and retain highly skilled personnel, including the members of our executive team and key scientific and medical personnel employees.
 
   
Changes in tax law could adversely affect our business and financial condition.
This section contains forward-looking statements. You should refer to the explanation of the qualifications and limitations on forward-looking statements beginning on page three.
 
5

Table of Contents
PART I
Except where the context otherwise requires or where otherwise indicated, the terms “Magenta,” “we,” “us,” “our,” “our company,” “the company,” and “our business” refer to Magenta Therapeutics, Inc. and its consolidated subsidiary.
 
ITEM 1.
BUSINESS
Overview
Magenta Therapeutics is a clinical-stage biotechnology company developing novel medicines to bring the curative power of stem cell transplants to more patients with blood cancers, genetic diseases and autoimmune diseases.
Magenta’s drug development pipeline includes multiple product candidates designed to improve stem cell transplants. Our lead clinical program is designed to more efficiently and reliably mobilize and collect sufficient functional stem cells for use in stem cell transplantation, a process known as mobilization. We are also developing product candidates that are designed to deplete targeted cells in the bone marrow to make space for the bone marrow to receive newly transplanted stem cells, a process known as conditioning. Our mobilization program is intended to enable rapid, reliable, predictable and safe mobilization and collection of high numbers of functional stem cells for transplant. Magenta’s targeted conditioning programs are intended to enhance the efficacy of and/or reduce the dosing levels, intensity or, in some cases, even the need for chemotoxic agents.
Stem cell transplant is an established and, for certain patients, can be a curative medical procedure that can reset a patient’s blood and immune system after the patient has received treatment for certain blood cancers, genetic diseases or autoimmune diseases. Stem cell transplants involve a three-step process: (i) stem cells are mobilized out of the patient’s or donor’s bone marrow and collected from the blood (or, in rare cases, surgically extracted from their bone marrow); (ii) the patient’s bone marrow is cleared of any remaining stem cells in order to make space to receive new transplanted stem cells; and (iii) the stem cells are transplanted into the patient via infusion where they fasten to, or engraft in, the bone marrow and grow into the blood cells and platelets that form the basis of a reset and rebuilt blood and immune system. All transplants are categorized as either autologous or allogeneic depending on the source of the new stem cells for the transplant. In an autologous transplant, the patient’s own stem cells are used. In an allogeneic transplant, patients receive cells from a stem cell donor.
Stem cell transplant, whether autologous or allogeneic, has broad applicability across disease settings, including blood cancers, gene therapies for genetic diseases and autoimmune diseases. It is the current standard of care for certain blood cancers such as acute myeloid leukemia, or AML, myelodysplastic syndromes, or MDS, multiple myeloma and
non-Hodgkin’s
lymphoma. Hematopoietic stem cell, or HSC, -based gene therapies also rely on the same steps of the stem cell transplant process with an additional step where collected stem cells are gene-corrected or modified to address the underlying disease prior to transplant. Such gene therapy approaches that leverage the stem cell transplant procedure are being investigated by numerous companies in a variety of diseases, including sickle cell disease, beta-thalassemia and lysosomal storage disorders. Autoimmune diseases such as multiple sclerosis and systemic sclerosis may also benefit from resetting the immune system through stem cell transplant.
Currently, the number of days required to mobilize and collect a patient’s or donor’s stem cells is a minimum of five days in blood cancer patients and healthy donors and as many as 30 days or more in patients with sickle cell disease. When planning for a patient’s transplant, transplanting physicians cannot reliably predict at the outset how long it will take for patients to mobilize the number of cells required. Many patients require multiple collections, including approximately 40% of blood cancer patients and 75% of sickle cell disease patients. In addition, each day scheduled for attempted mobilization and collection can cause an accumulation of both the direct costs associated with the repeated use of mobilization agents and other healthcare resources,
 
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including personnel time, and the indirect costs associated with the need to block time in the limited number of chairs in transplant centers that are used to collect stem cells. Similarly,
HSC-based
gene therapies could benefit from more efficient collection of stem cells which could potentially reduce gene therapy manufacturing timelines and costs. Additionally, there are no approved mobilization options for patients with sickle cell disease and autoimmune diseases, and the
off-label
use of currently available medicines is associated with significant safety risks including vaso-occlusive events in sickle cell disease patients.
Magenta is developing
MGTA-145
for stem cell mobilization in a broad range of diseases, for both autologous and allogeneic transplants.
MGTA-145
is Magenta’s biologic stem cell mobilization product candidate designed to address these time and cost inefficiencies while enabling the rapid, reliable, predictable and safe collection of functional blood stem cells for transplant in a single day. In 2020, we completed a Phase 1 clinical trial in healthy volunteers to evaluate the ability of
MGTA-145,
in combination with plerixafor, to mobilize stem cells. Based on the results of the study, we have advanced the program into three ongoing and planned Phase 2 clinical trials, including an autologous transplant trial in multiple myeloma patients; an allogeneic transplant trial with healthy donor cells collected for transplant in patients with acute myeloid leukemia, myelodysplastic syndromes or acute lymphocytic leukemia, or ALL; and lastly, a planned trial in partnership with bluebird bio, Inc. to mobilize and collect the stem cells of sickle cell disease patients.
In addition to the opportunity to address the challenges in mobilization and collection of stem cells, Magenta also seeks to improve patient conditioning prior to transplant. Conditioning is the process by which patients are treated with chemotherapy prior to transplant to ensure that the bone marrow has sufficient space to receive newly transplanted stem cells. Currently, only approximately 50% of eligible patients receive a stem cell transplant, in part because of the risks and toxicities of the chemotherapeutic agents available today. Magenta’s lead conditioning program,
MGTA-117,
is designed to selectively deplete stem cells and reduce the need for high-dose or high-intensity chemotherapeutic agents in oncology applications and potentially eliminate the use of busulfan in gene therapy applications. Our additional research-stage conditioning programs target stem and/or immune cells and are being designed to eliminate toxic chemotherapy conditioning regimens across multiple disease settings. Our C100 program focuses on addressing opportunities in immune reset for autoimmune diseases. Our C300 program is being designed to provide for lymphodepletion prior to cell therapies such as chimeric antigen receptor T cells, or
CAR-T.
Our G100 program is being designed to provide prophylaxis of graft-versus-host disease, a common post-transplant complication following allogeneic stem cell transplant.
Magenta is also evaluating two programs with potential in cell therapy. Each is a small molecule used to manufacture a high number of functional stem cells, from either a donor or gene-modified stem cells from a patient.
MGTA-456
is a cell therapy designed to generate higher cell doses that are well matched to the patient, which has been shown to improve the speed and success of engraftment in stem cell transplant and improve disease outcomes. In June 2020, we announced that we discontinued enrollment in our Phase 2 trial of
MGTA-456
in inherited metabolic diseases. Enrollment in an investigator-initiated trial in patients with blood cancers has been completed, and we plan to use these data, when available, to inform a decision regarding future program development in blood cancers. Our second cell therapy program, E478, is a small molecule aryl hydrocarbon receptor, or AHR, antagonist which
uses the same mechanism used to manufacture
MGTA-456
to expand gene-modified HSCs for stem cell-based gene therapy and genome editing.
Magenta intends to become a fully integrated discovery, development and commercial company in the field of stem cell transplant. We are developing our product candidates to be used individually or, in some cases, in combination with each other. As a result, our portfolio could be tailored to the patient’s disease, such that a patient may receive more than one Magenta therapy as part of his or her individual stem cell transplant.
Our goal is to advance our product candidates through regulatory approval and bring them to the commercial market based on the data from our clinical trials and communications with regulatory agencies and payer communities. We expect to continue to advance our portfolio and innovate through our productive research platform.
 
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Stem Cell Transplant: The Process and Current Opportunities
A stem cell transplant procedure involves three main steps: (i) stem cells from the patient’s or donor’s bone marrow are collected; (ii) the patient’s bone marrow is cleared of any remaining stem cells in order to make space to receive new transplanted stem cells; and (iii) the stem cells are transplanted into the patient via infusion where they fasten to, or engraft in, the bone marrow and grow into the blood cells and platelets that form the basis of reset and rebuilt blood and immune systems. All transplants are categorized as either autologous or allogeneic, depending on the source of the new stem cells for the transplant.
In an autologous transplant—used for conditions such as multiple myeloma,
non-Hodgkin’s
lymphoma and autoimmune diseases—the patient’s own stem cells are used. In the case of stem cell gene therapy and genome editing, once the cells are collected from the patient, these cells are then modified to either insert a functioning gene into, or correct a defective gene within, the collected stem cells before they are transplanted into the patient via infusion.
In an allogeneic transplant—used for conditions such as acute leukemias and myelodysplastic syndromes—patients receive cells from a stem cell donor. The preferred source of stem cells for an allogeneic transplant is a donor from a biological relative who has a well-matched immune system. For patients without a matched related donor, the second option is a matched unrelated donor identified through a bone marrow donor registry. For patients without a matched related or unrelated donor, other options include mismatched donors, who can either be unrelated or related; however, transplant outcomes are not optimal with these donor types.
 
Our Strategy
Magenta’s mission and culture are centered around the goal of enabling more patients with severe or life-threatening diseases to have access to the transformative benefit of stem cell transplant. We intend to provide transplant physicians with a tailored, multi-product treatment regimen based on the disease setting and the individual needs of patients. Our strategic priorities are as follows:
Bring the curative power of blood and immune reset through stem cell transplant to all patients who can benefit by advancing an integrated product portfolio
:
We believe we are the only company that is committed to
 
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addressing both mobilization and conditioning opportunities in stem cell transplant and
HSC-based
gene therapies. We are focused on creating a comprehensive portfolio of therapies to optimize the blood and immune reset process. Our initial focus is on blood cancers, genetic diseases and autoimmune diseases, and we also plan to address other diseases for which blood and immune reset could represent a
one-time,
curative treatment.
Build on our deep expertise in stem cell biology to lead a new era in blood and immune reset through stem cell transplant
:
We have assembled a group of experts in the fields of stem cell biology, biotherapeutics and transplant medicine. With this team, we plan to convert recent scientific breakthroughs into a pipeline of product candidates for blood and immune reset therapies.
Create a fully integrated patient-focused biotechnology company
:
We are building a fully integrated biotechnology company with
end-to-end
capabilities in research, development and commercialization, and we believe the broad and synergistic nature of our portfolio will allow us to address many of the significant limitations of stem cell transplant and transplant-based therapies.
Commercialize our drug products to bring tailored blood and immune reset solutions to patients and physicians
:
Our commercial planning centers around hospital-based prescribers, and this is consistent across all product candidates in our portfolio. Stem cell transplants are performed in approximately 450 accredited medical centers in the U.S. and Europe, with more than half of the U.S. procedures performed at 20% of transplant centers. We have established relationships with key stakeholders within many of these top transplant centers. We believe the synergies among our programs and the well-defined structure of the current stem cell transplant provider network will allow us to commercialize our therapeutics through a focused, targeted commercial and medical affairs organization.
Leverage
MGTA-145
as our most advanced product candidate in the clinic and as a possible first commercial product for our portfolio
:
In addition to the potential to bring meaningful clinical benefit to patients,
MGTA-145
provides strategic value to Magenta by allowing us to accelerate the
build-out
of our clinical development infrastructure and footprint and to establish key prescriber relationships that will be important for future commercialization of our products.
Continue to integrate our innovative collaboration with National Marrow Donor Program/Be the Match with our science, medicine and business approaches
:
National Marrow Donor Program (as successor in interest to Be the Match Biotherapies, LLC), or Be the Match, is a leading patient-focused stem cell transplant organization in the U.S. Because of our shared patient focus, we and Be the Match established a broad,
first-of-its-kind
collaboration in 2017. This collaboration positions us as a partner with high-priority access to many services that will continue to enable us to establish relationships across transplant centers and with key transplant physicians. Through our partnership, we access clinical strategy support and clinical development operational support, including a cell supply platform which will enable our commercialization efforts across several programs. We also have access to the Be the Match payer and policy group to inform and support our pricing and reimbursement plans across the portfolio. In June 2020, we announced a clinical collaboration agreement with Be the Match, as an extension of our existing strategic partnership, to evaluate the potential utility of
MGTA-145,
in combination with plerixafor, for mobilizing and collecting HSCs from donors more efficiently and then using them for allogeneic transplants in patients.
Strategically collaborate to realize the full potential of our portfolio
:
We own all product rights across our mobilization and conditioning programs, including
MGTA-145
and
MGTA-117.
We will evaluate additional collaborations when available to:
 
   
maximize the patient impact of our portfolio by finding value-creating partnerships to enable gene and cell therapies, including stem cell-based gene therapies, genome editing and
CAR-T
therapies;
 
   
build relationships with partners to access complementary expertise and capabilities to bring our therapies as quickly as possible to all patients who can benefit; and
 
   
opportunistically bring in preclinical or clinical assets that fit with our integrated portfolio.
 
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Our Pipeline of Stem Cell Transplant Product Candidates
We are developing a portfolio of novel product candidates that we believe have the potential to meaningfully improve stem cell transplant for patients with blood cancers, genetic diseases and autoimmune diseases. Additionally, we believe our product candidates have the potential to allow more patients with debilitating or life-threatening diseases to access a
one-time,
transformative blood and immune reset through stem cell transplant with better outcomes and reduced risk of toxicities and mortality. We are developing our product candidates so that they can be used individually or in combination with each other, such that a patient may receive more than one Magenta therapy as part of his or her individual transplant journey. In addition to our first set of clinical product candidates, we are in the process of identifying several other potential candidates from our conditioning research platform.
 
We are applying our expertise in stem cell biology and biotherapeutics discovery to bring innovative product candidates to the stem cell transplant field through our programs, specifically designed to address each of the key opportunities in the stem cell transplant journey for patients:
 
   
Stem Cell Mobilization
 & Collection Program
: Our
MGTA-145
program is focused on enabling rapid, reliable, predictable and safe mobilization and collection of high numbers of functional blood stem cells for transplant.
 
   
Targeted Conditioning Program
: Our
MGTA-117
program is focused on selectively depleting stem cells from patients prior to transplant or
HSC-based
gene therapy to lessen the need for high-dose or high-intensity chemotherapeutic agents or, in the case of gene therapy applications, to potentially eliminate the need for chemotherapeutic agents altogether.
 
   
Conditioning Research Platform:
Our targeted conditioning research platform is designed to identify future product candidates that selectively deplete stem cells and/or immune cells from a patient prior to transplant or
HSC-based
gene therapy. These programs focus on developing targeted products that remove specific cell types, with an approach that is tailored to the patient’s disease and transplant requirements.
 
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Initial applications of our research-stage programs include immune reset for autoimmune diseases; lymphodepletion prior to cell therapies such as
CAR-T;
and prophylaxis of graft-versus-host disease, or GvHD, a post-transplant complication following allogeneic stem cell transplant.
 
   
Cell Therapy Programs
: Our
MGTA-456
program is focused on generating higher cell doses that are well matched to the patient, which has been shown to improve the speed and success of engraftment in stem cell transplant and improve disease outcomes. Our E478 program is designed to expand gene-modified HSCs for gene therapy and genome editing.
Stem Cell Mobilization & Collection Program
MGTA-145:
A CXCR2 agonist biologic combined with plerixafor, a CXCR4 antagonist small molecule, as the preferred first-line mobilization regimen for rapid, reliable, predictable and safe mobilization and collection of functional stem cells for use in stem cell transplantation.
Opportunity
Once the patient and physician agree that stem cell transplant is the best treatment option, the source of stem cells must be identified and then the cells are collected. There are three methods of collecting stem cells from either patients or healthy donors for transplant:
 
   
mobilization into the peripheral blood, which typically requires several days of injections of a drug or combination of drugs to mobilize the cells, or move them from the bone marrow into the bloodstream, where they are then collected through a process called apheresis;
 
   
extraction from the bone marrow in a process known as bone marrow harvest, which requires a procedure performed under general anesthesia where cells are withdrawn directly from the bone marrow with needle aspirates; or
 
   
harvesting from umbilical cord blood units, which are stored in cord blood banks.
Successful stem cell transplant requires collection of HSCs in both sufficient number and functionality, whether from the patient or a donor, to allow for robust engraftment and rebuilding of the blood and immune systems. Higher cell doses are associated with better outcomes and are especially important for gene therapy applications, which require processing of the stem cells following collection.
Mobilizing stem cells from the bone marrow to the blood has been shown to be an effective way to collect stem cells for transplant. Approximately 85% of the approximately 90,000 stem cell transplants performed globally each year use mobilized peripheral blood from either donors or patients as a source of stem cells.
The current standard of care for mobilization in most patients and donors is granulocyte colony-stimulating factor, or
G-CSF,
which mobilizes stem cells indirectly, requires repeated daily injections and is associated with significant side effects, including bone pain and, in some cases, splenic rupture and death. The
multi-day
regimen requires at least five days of injections of
G-CSF,
and side effects can be disruptive for both patients having their cells collected for autologous transplants and for healthy volunteers donating their cells for allogeneic transplants.
The current unreliable and inefficient mobilization and collection process can also pose a significant logistical burden on transplant and apheresis centers. When planning for a patient’s transplant, transplanting physicians cannot reliably predict at the outset how long it will take to collect the number of cells required. In addition, each day scheduled for attempted mobilization and collection can cause an accumulation of both the direct costs associated with the repeated use of mobilization agents and other healthcare resources, including personnel time, and the indirect costs associated with the need to block time in the limited number of chairs in transplant centers that are used to collect stem cells. It is difficult to predict whether mobilization with
G-CSF
will be successful, especially in heavily treated blood cancer patients. Many patients require multiple collections,
 
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including approximately 40% of blood cancer patients. Additionally, of the biologically unrelated donors identified for patients, approximately half decline to donate, in part due to the lengthy and cumbersome donation process, which reduces the chance for finding a well-matched donor for the patient. Finally, patients with sickle cell disease can have severe side effects with
G-CSF,
including potentially fatal complications, and therefore, this agent is not used in these patients, leaving few mobilization options.
For patients who are unable to mobilize a sufficient number of functional stem cells with
G-CSF,
physicians may then be required to
re-treat
with
G-CSF
and add another drug, known as plerixafor. Plerixafor is a small molecule CXCR4 antagonist that blocks a pathway that otherwise plays an essential role in attracting and retaining HSCs in the bone marrow. It is approved for use in combination with
G-CSF
for patients who fail to achieve sufficient mobilization of stem cells with
G-CSF
alone. It can mobilize stem cells as a single agent but not to sufficient levels to be effective as a standalone agent in most disease settings. However, because plerixafor is the only available mobilization option for sickle cell disease patients who, as stated, cannot use
G-CSF
due to safety concerns, it is used as a single agent in this specific setting. Because of its poor efficacy as a standalone agent and the high number of stem cells required for a transplant, multiple doses of plerixafor and collections are needed in approximately 75% of sickle cell disease patients.
 
Current state of stem cell mobilization: an unreliable, inefficient,
multi-day
process
Our
MGTA-145
Product Candidate
Magenta is developing
MGTA-145
as a new first-line standard of care for stem cell mobilization in a broad range of diseases, for both autologous and allogeneic transplants.
MGTA-145,
a CXCR2 agonist, works in combination with plerixafor, a CXCR4 antagonist, to harness the physiological mechanism of stem cell mobilization.
The goal of
MGTA-145
is to be the preferred first-line mobilization option for all patients and donors through rapid, reliable, predictable and safe mobilization and collection of high numbers of functional stem cells.
In May 2020, we received Orphan Drug Designation from the U.S. Food and Drug Administration, or the FDA, for
MGTA-145
for the mobilization of HSCs to the peripheral blood for collection and subsequent transplant.
 
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Mechanism of action
CXCR2 is a chemokine receptor expressed on the surface of neutrophils. Binding of
MGTA-145
to the receptor results in neutrophil activation. Published data from Magenta founders and scientists show that a key event for mobilization of stem cells is the
MGTA-145-mediated
release of proteases from activated neutrophils, which together with the actions of the CXCR4 antagonist, plerixafor, results in the rapid release of HSCs from the bone marrow into the blood. Blocking CXCR4 using plerixafor and activating neutrophils with
MGTA-145
has been shown to produce an effective and synergistic untethering and release of HSCs from bone marrow into the blood, resulting in rapid, reliable, predictable and safe mobilization of HSCs.
 
MGTA-145
in combination with plerixafor harnesses the natural mechanism of stem cell mobilization.
Clinical data
We have completed a Phase 1 trial of
MGTA-145
plus plerixafor in healthy subjects. The trial met all primary and secondary endpoints.
The Phase 1 trial was a dose-finding trial to evaluate safety and activity of
MGTA-145
and consisted of four parts:
 
   
In Part A, healthy volunteers were dosed with
MGTA-145
(0.0075 – 0.3 mg/kg) or a placebo.
 
   
In Part B, subjects received a single dose of
MGTA-145
(0.03 – 0.15 mg/kg) or a placebo in combination with a single dose of plerixafor (0.24 mg/kg).
 
   
In Part C, subjects received
MGTA-145
or a placebo plus plerixafor administered on day one and day two.
 
   
In Part D, subjects received a single dose of
MGTA-145
(0.03 or 0.015 mg/kg) plus plerixafor followed by a single apheresis collection of multiple blood volumes.
Clinical endpoints included safety and tolerability, pharmacokinetics, target engagement and pharmacodynamic effects.
Data from the trial presented at the American Society of Hematology, or ASH, in December 2020 showed that
MGTA-145
was safe and well tolerated as a single agent and in combination with plerixafor, and that
MGTA-145
in combination with plerixafor demonstrated rapid,
single-day
mobilization and collection of sufficient numbers of functional stem cells.
MGTA-145
was shown to engage CXCR2 on neutrophils to mobilize CD34+ cells into peripheral blood with limited neutrophil activation, which may minimize risk of vaso-occlusive crises in patients with sickle cell disease.
 
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Six subjects who received a single dose of
MGTA-145
at the 0.03 mg/kg dose level and plerixafor in Part B mobilized a median of 40 CD34+ cells/microliter compared with a median of 26 CD34+ cells/microliter in subjects receiving plerixafor alone. Subjects in Part C demonstrated reliable mobilization of CD34+ cells on day two with peak counts that were comparable to day one mobilization yields, which suggests that
two-day
dosing and collection is feasible.
Single-day
dosing and apheresis collection in eight subjects across two dose ranges in Part D yielded a median of four million CD34+ cells/kg. The clinically accepted threshold for a successful transplant is two million cells/kg.
 
MGTA-145
in combination with plerixafor enables safe,
same-day
dosing, mobilization and collection of sufficient numbers of functional stem cells for transplant.
MGTA-145
in combination with plerixafor mobilized a greater proportion and number (three- to four-fold higher) of CD34+CD90+CD45RA- cells (a cell type enriched for functional stem cells) compared to subjects mobilized with either
G-CSF
or plerixafor alone.
 
MGTA-145
in combination with plerixafor enables greater collection of HSCs after apheresis in a Phase 1 healthy volunteer study. (
A) CD34+ cell number, (B) CD34+CD90+CD45RA- cell frequency and
 
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(C) CD34+CD90+CD45RA- cell number collected from healthy subjects mobilized with a single dose of
MGTA-145
in combination with plerixafor (n=eight donors), a
five-day
regimen of
G-CSF
(n=three donors) or a single dose of plerixafor (n=six donors). Flow cytometric data shows that a median of 1.4x10
6
(0.50-2.8x10
6
) CD34+CD90+CD45RA- cells/kg were collected from
MGTA-145+plerixafor
mobilized donors, compared to 0.40x10
6
(0.36-0.48x10
6
) for
G-CSF
mobilized subjects (p<0.05) or 0.32x10
6
(0.12-0.67x10
6
) for plerixafor mobilized subjects (p<0.01). Bars represent median, each symbol represents an individual subject. Statistics were calculated by
one-way
ANOVA with
post-hoc
Tukey test. Plerixafor control data were first presented at the Transplant and Cellular Therapy, or TCT, annual meeting in February 2021.
Cells collected from four subjects dosed in Part D led to up to
23-fold
higher multilineage engraftment in primary and secondary transplants in the immunodeficient NSG mouse model compared to cells mobilized by either
G-CSF
or plerixafor alone. These data demonstrate rapid and durable multilineage engraftment of
MGTA-145
+ plerixafor mobilized cells relative to other graft sources.
 
MGTA-145
+ plerixafor CD34+ cells from Phase 1 healthy volunteer study show higher multilineage engraftment compared to
G-CSF
and plerixafor mobilized CD34+ cells.
(A) CD34+ cells collected from healthy subjects mobilized with a single injection of
MGTA-145
+ plerixafor, five daily injections of
G-CSF,
or a single injection of plerixafor
(n=3-4
donors) were transplanted into sublethally irradiated (200 cGy) NSG mice at limit dilution (3 cell doses). Engraftment of human CD45+ (hCD45+) cells in peripheral blood was measured at week 16 post-transplant by flow cytometry and SCID-repopulating cell (SRC) number was determined by ELDA in primary (B) and secondary (C) recipients. Data represent
7-8
mice per cell dose and are expressed as SRC number per 1x10
6
cells +/- 95% CI.
 
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Cells collected from healthy subjects mobilized with a single dose of
MGTA-145
in combination with plerixafor in Part D were capable of efficient gene-modification and engraftment in a
pre-clinical
NSG mouse transplant study. Knockout of
beta-2
microglobulin by CRISPR-Cas9 led to approximately 90% editing
in vitro
of CD34+CD90+CD45RA- cells and these cells engrafted in NSG mice, with maintenance of high levels of editing.
 
MGTA-145
+ plerixafor CD34+ cells from Phase 1 healthy volunteer study can be efficiently gene modified and engraft in NSG mice.
(A) CD34+ cells collected from healthy donors mobilized with a single injection of
MGTA-145
in combination with plerixafor were gene-modified with CRISPR/Cas9 to knockout
beta-2
microglobulin. (B) Edited cells (electroporated in the presence of guide RNA and Cas9) were compared to mock edited cells (electroporated in the absence of guide RNA and Cas9) and CD34+CD90+CD45RA- cell number and editing rates were measured by flow cytometry (n=2). (C) Mock edited or edited cells were transplanted into sublethally irradiated (200 cGy) NSG mice and engraftment of human CD45+ (hCD45+) cells and editing rates were measured at week 16 post-transplant in the peripheral blood by flow cytometry
(n=7-8
mice).
MGTA-145
+ plerixafor mobilized grafts resulted in significantly less GvHD than
G-CSF
(p<0.01) or plerixafor (p<0.001) grafts
(n=3-6
donors/source) in a xenogeneic mouse model.
 
MGTA-145
+ plerixafor grafts from Phase 1 healthy volunteer study are immunosuppressive in a xenograft mouse model
. (A) 6x10
6
peripheral blood mononuclear cells, or PBMCs, collected from healthy
 
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subjects mobilized with a single injection of
MGTA-145
in combination with plerixafor, five daily injections of
G-CSF,
or a single injection of plerixafor
(n=3-6
donors) were transplanted into sublethally irradiated (200 cGy) NSG mice at limit dilution
(n=6-8
mice/donor). Graft sources were compared to unmobilized whole blood controls. (B) Kaplan-Meier survival curve of transplanted NSG mice. Pooled data from individual donors and mice show significantly enhanced survival after transplant with
MGTA-145
in combination with plerixafor. Statistics were determined by a
log-rank
test.
Pre-clinical
data presented at ASH in December 2020 showed that
MGTA-145
plus plerixafor could be an efficient, single-dose mobilization regimen for
in vivo
HSC gene therapy.
MGTA-145,
when administered with plerixafor to wild-type mice or a mouse model of thalassemia, led to robust HSC mobilization, with no significant elevation of cytokines and significantly less leukocytosis than that observed following a
five-day
mobilization regimen with
G-CSF
plus plerixafor.
MGTA-145
plus plerixafor mobilized cells were capable of efficient
in vivo
transduction using a helper dependent adenovirus (HDAd5/35++)-based vector platform. After in vivo selection, stable long-term, multilineage engraftment of gene-modified cells was observed in primary and secondary recipients (>90% gene marking). In a mouse disease model for thalassemia, phenotypic disease correction was observed after
MGTA-145
plus plerixafor mobilization and
in vivo
transduction.
 
MGTA-145
+ plerixafor can mobilize HSCs in mice prior to
in vivo
gene therapy
. CD46-transgenic animals were mobilized with
G-CSF
+ plerixafor (5 days) or
MGTA-145
+ plerixafor (single dose) and then injected one hour later with an integrating HDAd5/35++ mgmt./GFP vector, GFP marking was measured at the various time points after transduction. Arrows indicate timing and dose of the
in vivo
selection agent, O
6
BG/BCNU. By week 12 post-transduction, >90% of PBMCs expressed GFP. No significant differences in gene marking were observed with the different selection agents.
Clinical development plan
We plan to develop
MGTA-145
as a first-line therapy for stem cell mobilization in a broad range of diseases, for both autologous and allogeneic transplants. We have announced three ongoing and planned Phase 2 clinical trials to evaluate the potential utility of
MGTA-145,
in combination with plerixafor, for the mobilization and collection of stem cells in multiple autologous and allogeneic transplant settings:
 
   
Autologous Stem Cell Transplant of Multiple Myeloma Patients.
In December 2020, we announced the commencement of an investigator-initiated Phase 2 trial of
MGTA-145,
in combination with plerixafor, to mobilize and collect stem cells for autologous stem cell transplantation in multiple myeloma patients at Stanford University. This trial continues to enroll patients. We expect that this trial will provide data on stem cell mobilization and collection, durability of engraftment in transplanted patients and disease outcomes, including progression-free survival. Initial data from the study are expected in
mid-2021.
 
 
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Allogeneic Donor Stem Cell Mobilization and Collection for Stem Cell Transplant in AML, ALL and MDS Patients.
In June 2020, we announced a clinical trial collaboration with Be the Match to evaluate the potential utility of
MGTA-145,
in combination with plerixafor, to mobilize and collect stem cells from allogeneic donors for transplant in patients with acute myeloid leukemia, or AML, acute lymphocytic lymphoma, or ALL, and myelodysplastic syndromes, or MDS. The clinical trial commenced in February 2021 and will evaluate stem cell mobilization, collection, cell quality, engraftment and disease outcomes, including GvHD, which is of particular importance in the allogeneic transplant setting, as patients receive donor cells. Initial data from this clinical trial are expected in the second half of 2021.
 
   
Sickle Cell Disease – Stem Cell Mobilization and Collection in Patients; Cell Characterization;
Pre-Clinical
Gene Modification Model.
In December 2020, we entered into a Phase 2 clinical collaboration with bluebird bio, Inc. to evaluate the safety and potential utility of
MGTA-145,
in combination with plerixafor, for the mobilization and collection of stem cells in patients with sickle cell disease. Under the agreement, the companies will
co-fund
the clinical trial, which is currently expected to initiate in the second half of 2021. Each party will characterize the collected cells and Magenta plans to gene-modify the cells and transplant them into established
pre-clinical
models to evaluate engraftment. Data from this clinical trial could provide
proof-of-concept
for
MGTA-145,
in combination with plerixafor, as the preferred mobilization regimen for patients with sickle cell disease and, more broadly, across all HSC gene therapy applications.
Targeted Conditioning Program & Conditioning Research Platform
Conditioning: Targeted agents to selectively remove stem and/or immune cells. These product candidates are designed to lessen the need for high-dose or high-intensity chemotherapeutic agents or, in the case of gene therapy applications, potentially eliminate the need for chemotherapeutic agents altogether, and make stem cell transplant more effective.
Opportunity
Once sufficient cells have been mobilized and collected, patients must be prepared, or conditioned, for transplant. This treatment is intended to remove the disease-causing cells and make room for the new stem cells that will rebuild the healthy blood and immune system.
Conditioning for stem cell transplant and gene therapy is currently burdensome and risky for both pediatric and adult patients. The agents used today are
non-targeted
and involve high doses of systemic, toxic chemotherapy and/or radiation. Most of these genotoxic chemotherapy agents, including derivatives of mustard gas, were discovered more than 50 years ago and were never intended for stem cell transplant conditioning. The current treatments eradicate the stem cells, immune cells and diseased cells but also indiscriminately damage DNA and kill normal, healthy cells in the body. These conditioning regimens can cause long-term lung injury and liver toxicity, serious infections, organ failure, infertility, secondary cancers and even death. Nearly all transplant patients experience complications as a result of current conditioning treatments, and conditioning toxicity is responsible for up to 35% of mortality following allogeneic transplants.
These severe short- and long-term side effects and the mortality risk of conditioning are significant challenges for patients currently undergoing stem cell transplants and are also among the major barriers preventing stem cell transplants from being performed even more widely to enable more patients to benefit from a potentially curative treatment.
Whenever possible, physicians use the most aggressive conditioning regimens, known as myeloablative conditioning, or MAC, to generate optimal efficacy outcomes for oncology and gene therapy patients. For oncology patients who can tolerate these high-intensity conditioning regimens to prepare them for stem cell transplant, over 50% are alive and without disease relapse, known as relapse-free survival, at five years post-
 
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transplant, an impressive survival rate in these high-risk patient populations. However, approximately 20% of patients receiving MAC regimens die from complications related to the transplant procedure, known as transplant-related mortality, and a significant majority experience serious short- and long-term side effects.
For the many patients that cannot tolerate such intense and toxic regimens due to advanced age or
co-morbidities,
such as decreased organ function, recent efforts have focused on reducing chemotherapy doses in regimens known as reduced intensity conditioning, or RIC. While significantly better tolerated, these RIC regimens have significantly poorer disease outcomes at five years post-transplant. Over 50% of patients receiving RIC relapse and only approximately 30% of patients are alive without relapse at five years following stem cell transplant. Therefore, physicians and patients must currently choose between either the superior long-term efficacy of MAC or the improved safety and tolerability of RIC.
Emerging clinical data have also shown that autoimmune disease can be cured with an immune system reset through autologous stem cell transplant, with recent data in multiple sclerosis and scleroderma. When compared to the standard of care in relapsing remitting multiple sclerosis, clinical trials have shown that the proportion of patients with clinical benefit at two years appears to be double that of the next best treatment and that transplant prolongs the time to disease progression compared with disease modifying therapies. However, the toxicity of the required conditioning regimens has historically led many physicians to conclude that the risks of transplant in these patient populations outweigh the benefits. The current high-dose chemotherapeutic regimens that are used to condition patients can cause severe cardiac, lung, liver and gastrointestinal toxicities, serious infections, organ failure, infertility, secondary cancers and even death. Currently only approximately 6% of eligible patients with multiple sclerosis and scleroderma receive a stem cell transplant, in part due to these significant risks. Magenta believes we can significantly expand the number of autoimmune patients who can benefit from immune reset with effective and safe targeted conditioning.
Our Conditioning Programs
Our targeted conditioning programs are designed to selectively eliminate stem cells and/or immune cells from a patient prior to transplant or gene therapy, and to be far less toxic than the current radiation and chemotherapy-based treatments. These programs focus on developing targeted products that remove specific cell types, with an approach that is tailored to the patient’s disease and transplant requirements.
We are developing a suite of novel ADCs for conditioning, a step in the transplant process that currently relies on the use of systemic chemotherapy agents and radiation. We are seeking to replace these toxic,
non-targeted
conditioning agents with targeted ADCs. While ADCs are an established treatment for certain cancers, we believe this is the first time that ADC technology has been harnessed for transplant medicine. These programs have the potential to extend the curative power of blood and immune reset to all of the currently eligible patients, and also to expand the number of patients who are considered eligible. Additional eligible patients would include more patients with autoimmune diseases, such as multiple sclerosis and systemic sclerosis, where the current risk-benefit tradeoff of transplant is not considered favorable for many patients due to the toxicity of the existing conditioning regimens.
 
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ADCs are a technology developed over the past 20 years where a monoclonal antibody specific for a cell surface protein is coupled to a drug via a molecule known as a linker. The ADC binds the receptor on the target cell, is internalized and degraded to release the drug into the target cell. Coupling the drug to the antibody increases the specificity of drug delivery to the target cell, reducing systemic exposure and increasing the safety and efficacy compared to delivering the drug alone or the antibody without the drug attached. Today, most ADCs are directed toward treating cancer cells expressing specific target receptors enriched on tumor cells. Our programs build on this clinically validated modality and adapt it for preparing patients for blood and immune reset through stem cell transplant.
 
Targeted conditioning with ADCs is more specific compared to traditional conditioning.
Traditional conditioning is performed with total body irradiation and chemotherapy which eliminates all HSCs and nonspecifically damages other organs. Targeted conditioning with an ADC specifically eliminates the disease-causing cells while avoiding systemic side effects.
In our development of ADCs for use in conditioning, we are optimizing for several key parameters:
 
   
First, the antibody must specifically target a receptor that is expressed on the cells of interest.
 
   
Second, to comply with typical stem cell transplant conditioning timelines, the antibody must have suitable efficacy to ensure that the ADC is able to remove the target cells rapidly, in days rather than weeks or months.
 
   
Third, the antibody clearance from the body needs to be accelerated so that it is eliminated by the time the transplanted cells are infused into the patient, typically within a week of starting conditioning. This requirement stems from the fact that the target receptor is expressed on cells present in the patient but also on the similar cell types in the transplanted cells.
 
   
Finally, the drug must be able to remove
non-dividing
cells, as most HSCs and immune cells are not actively dividing. The ADC linker must be chosen to minimize damage to
non-target
cells.
We are addressing each of these requirements through careful selection of the appropriate target receptor as well as antibody properties, including binding site, affinity, half-life and linker-drug.
Our targeted conditioning programs include both our ADC programs and earlier-stage research programs that leverage alternate modalities for targeted cell depletion. This is achieved by tuning the antibodies to specific cellular markers or receptors that are expressed on the particular cell types. These drugs are designed to specifically remove only the cell types required for a successful transplant, with an approach that is tailored to the patient’s disease and transplant requirements:
 
   
MGTA-117:
targets HSCs and genetically mutated stem cells that cause acute myeloid leukemia and myelodysplastic syndromes.
 
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C100:
targets HSCs and immune cells. Our lead target under the C100 program is CD45 and our lead product candidate is referred to as
CD45-ADC.
 
   
C300:
targets only immune cells.
 
   
G100:
targets alloreactive T cells implicated in GvHD.
MGTA-117
product candidate
Our most advanced conditioning product candidate,
MGTA-117,
is designed to specifically remove disease-causing HSCs and genetically mutated cells.
MGTA-117
targets CD117, also known as
c-Kit,
which is highly expressed on HSCs and leukemia cells, making it an ideal target for conditioning across broad sets of diseases. This includes certain blood cancers, hemoglobinopathies (sickle cell disease and beta-thalassemia) and inherited metabolic disorders, with potential applicability in both stem cell transplant and
HSC-based
gene therapies. We have declared a development candidate,
MGTA-117,
which is an anti-CD117 antibody conjugated to an amanitin payload.
 
Based on: Nobili et.al., Long
non-coding
RNAs in normal and malignant hematopoiesis. Oncotarget (2016).
Our anti-human CD117 amanitin ADC has been shown in preclinical studies to deplete HSCs and leukemia cells, therefore we hypothesize it will improve conditioning in patients with acute myeloid leukemia and myelodysplastic syndromes where stem cell transplant is already the standard of care. We believe that
MGTA-117,
in combination with reduced-intensity conditioning, has the potential to demonstrate clinical outcomes that preserve the safety and tolerability of RIC while achieving the efficacy of MAC. Likewise, gene therapy is a promising approach to treat a variety of
non-malignant
diseases, including inherited metabolic disorders, sickle cell disease and beta-thalassemia, but the risks and toxicity associated with current chemotherapy-based conditioning approaches may limit the utility of this approach. Through its targeted approach,
MGTA-117
has the potential to provide a safe and effective approach to preparing patients for stem cell transplant or
HSC-based
gene therapy.
 
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Preclinical data
Our experiments have validated the concept of using an ADC targeting CD117 in animal models of conditioning and transplant. We found that a single dose of an experimental anti-murine
CD117-ADC
was able to successfully deplete HSCs in immunocompetent mice and allow successful transplant. We then showed in humanized mice that a single dose of an anti-human CD117 amanitin ADC was able to remove CD34+ HSCs from the bone marrow. In contrast, treatment with an unconjugated CD117 antibody did not have a significant impact on HSCs.
 
The anti-human CD117 amanitin ADC selectively depletes CD34+ human stem and progenitor cells in humanized NSG mice.
The depletion is on target and payload dependent as the naked antibody (Anti-CD117) has no effect. CD117 amanitin ADC or controls were dosed on day 0. Bone marrow was collected on day 21 and analyzed by flow cytometry. The number of CD34+ cells remaining in the bone marrow of CD117 amanitin ADC or control treated mice 21 days after a single administration is shown. * denotes p value < 0.05 vs PBS group.
We subsequently partnered with the National Institutes of Health, or NIH, to investigate an experimental
non-amanitin
CD117-ADC
in a
non-human
primate transplant study using HSCs modified with a lentiviral vector encoding the beta-globin gene, the gene that causes sickle cell disease and beta-thalassemia. Results from the study were presented by Dr. John Tisdale of the NIH at the ASH annual meeting in December 2019.
 
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The experimental
CD117-ADC
was engineered to have a fast half-life to clear the body quickly, and it enabled transplant of gene-modified HSCs within days of dosing in
non-human
primates.
 
The experimental
CD117-ADC
is a full length human IgG1 that has been engineered to have fast clearance and allows for safe graft infusion within five days after dosing.
The engineered half-life experimental
CD117-ADC
demonstrates rapid clearance (10 hour half-life) in
non-human
primates with a half-life suitable for transplant (n=3/group). The wild type CD117 antibody half-life is approximately three days. The experimental
CD117-ADC
drops below limit of detection for the assay after 48 hours and modeled pharmacokinetics (gray line) predicts the ADC will be below cytotoxic concentrations after five days.
This study showed, for the first time, that a single dose of an experimental
CD117-ADC
selectively depleted HSCs in
non-human
primates, while sparing immune cells, which are important for recovery following transplant
.
The single dose of this experimental
CD117-ADC
in
non-human
primates enabled successful transplant and engraftment of HSCs modified with a lentiviral vector encoding the beta-globin gene.
 
Experimental
CD117-ADC
enables engraftment of autologous gene-modified HSCs in a
non-human
primate, or NHP, model.
CD34+ cells were harvested from two rhesus NHPs and transduced with lentiviral
 
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vector encoding beta-globin. The transduced cells were transplanted into the same animals six days after a single dose of experimental
CD117-ADC.
The neutrophil counts before and after transplantation of the transduced cells are shown for animal #1 (magenta line) and animal #2 (teal line). The animals recovered their neutrophils on day eight (animal #1) and day ten (animal #2).
The vector copy number, or VCN, was stable beyond three months, the longest time point in the study, suggesting that the gene-modified cells persisted in the body. This was comparable to historical data with multiple doses of busulfan conditioning.
 
The vector copy number (VCN) of the transduced CD34+ cells used for the experimental
CD117-ADC
conditioned animal was lower compared to the VCN of the cells used in the busulfan conditioned animals.
The peripheral granulocyte VCN is stable over time and in the same range as observed with busulfan conditioned animals shown in gray. This indicates the conditioning with experimental
CD117-ADC
is sufficient to enable engraftment of gene modified HSCs.
The experimental CD117 ADC was well tolerated in
non-human
primates with no evidence of the often severe side effects seen with busulfan conditioning, including veno-occlusive disease, weight loss, diarrhea, mucositis, vomiting, pulmonary fibrosis or seizures. No experimental CD117
ADC-related
blood chemistry changes outside normal range were observed.
We believe these
proof-of-concept
studies validate the use of a
CD117-ADC
for targeted stem cell depletion prior to transplant and support its use as a new conditioning agent for gene therapy and stem cell transplant without toxic chemotherapy or radiation.
 
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Anti-tumor activity of CD117 Amanitin ADC
In data presented at the ASH annual meeting in December 2020, we showed that an anti-human CD117 amanitin ADC was effective at killing human acute myeloid leukemia cells growing
in vitro
. To extend these data, we also assessed the ability of the CD117 amanitin ADC to reduce tumor burden and result in a survival benefit in mice bearing a human acute myeloid leukemia cell line or patient-derived recurrent/relapsed acute myeloid leukemia that was resistant to multiple lines of therapy, including previous allogeneic transplant. Tumor-bearing mice treated with a single dose of CD117-ADC showed improved survival compared to mice left untreated or those treated with isotype ADC or multiple doses of ARA-C.
Clinical development plans
We currently intend to pursue the development of
MGTA-117
(an amanitin-based ADC) for patients with certain blood cancers, such as acute myeloid leukemia and myelodysplastic syndromes, and for patients with genetic diseases who are eligible for stem cell gene therapy.
We have declared a development candidate, MGTA-117, and have moved it into Investigational New Drug, or IND, -enabling studies. We have recently completed GLP toxicology studies and our GMP manufacturing process, as well as completing our pre-IND communications with the FDA. We expect to file an IND application with the FDA in mid-2021. Upon acceptance of this IND, we plan to initiate a Phase 1/2 clinical trial evaluating MGTA-117 in patients with acute myeloid leukemia and myelodysplastic syndromes to generate initial safety and pharmacokinetic data in the fourth quarter of 2021. These initial data are expected to be directional for our dose escalation plans.
In 2020, we also announced two
non-exclusive
research and clinical collaborations to evaluate the potential utility of
MGTA-117
for conditioning of patients prior to stem cell-based gene therapies:
 
   
Lysosomal Storage Disorders.
In May 2020, we entered into an agreement with AVROBIO, Inc. to evaluate the potential utility of
MGTA-117
for conditioning of patients receiving one or more of AVROBIO, Inc.’s investigational lentiviral gene therapies.
 
   
Hemoglobinopathies.
In June 2020, we entered into an agreement with Beam Therapeutics, Inc. to evaluate the potential utility of
MGTA-117
for conditioning of patients with sickle cell disease and beta-thalassemia receiving Beam Therapeutics, Inc.’s base editing gene therapies.
C100 Program
Our second
ADC-based
conditioning program, C100, targets both patient HSCs and disease-causing immune cells. For many stem cell transplant applications, it is important to eliminate both immune cells and HSCs in the patient prior to transplant. This is especially important in the allogeneic setting where host immune cells can elicit an immune-mediated rejection of the incoming foreign stem cells. In addition, immune cell depletion is a key feature of the use of autologous stem cell transplant in patients with severe autoimmune disease. In this case, the goal is to eliminate the disease-causing auto-reactive immune cells that perpetuate the underlying autoimmune disease. Lastly, for cancer patients with tumors expressing CD45, there may also be a direct anti-tumor effect providing additional therapeutic benefit. For these reasons, we are developing product candidates that simultaneously target both HSCs and immune cells.
Our lead target for the C100 program is CD45, an important cell surface molecule broadly expressed throughout the hematopoietic and immune systems. We believe
CD45-ADC
has the potential to significantly increase the number of patients eligible to receive a stem cell transplant, particularly those patients with autoimmune diseases and acute leukemias.
 
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Table of Contents
Preclinical data
Mouse Models of Autoimmune Disease
Data presented at the Transplant and Cellular Therapy, or TCT, and the European League Against Rheumatism, or EULAR, annual meetings in 2020 showed that a single dose of
CD45-ADC
removed disease-causing reactive T cells, enabled successful blood and immune reset and rebuild of the immune system and was well tolerated in a reliable murine model of autoimmune disease, proteoglycan-induced arthritis. Further, a single dose of
CD45-ADC
significantly reduced disease incidence and delayed disease onset in this model that has successfully provided preclinical proof of concept for many clinically validated
standard-of-care
therapies.
 
Therapeutic Treatment with
CD45-ADC
Enables Immune Reset via Congenic Bone Marrow Transplant and results in halt of disease progression in a murine model of Rheumatoid Arthritis.
BALB/c mice (CD45.2
+
) were given three immunizations (study day 0, 21, and 42) with recombinant human core G1 aggrecan (60
m
g in 2 mg DDA) (
A
). Animals were treated on day 11 post the final immunization (study day 53) and conditioned animals were transplanted with Balb/c CD45.1
+
congenic bone marrow 48 hours later. Animals treated with a neutralizing monoclonal antibody to murine TNF
a
received 500
m
g/mouse IP weekly starting on study day 53. Treatment with 2 mg/kg of
CD45-ADC,
but not
Isotype-ADC,
enabled full congenic donor chimerism in peripheral blood (
B
) at three weeks post-transplant. Representative paws from control and
CD45-ADC
–treated animals are shown in (
C
). Scores for the treatment groups over time are graphed in (
D
).
 
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Mouse Models of Transplant
Data presented at the European Society for Blood and Marrow Transplantation, or EMBT, and ASH annual meetings in 2020 and at the TCT annual meeting in February 2021 showed that a single dose of
CD45-ADC
is fully myeloablative and enables complete chimerism in a full mismatch allogeneic stem cell transplant model without the need for additional conditioning agents.
 
A single dose of 5 mg/kg
CD45-ADC
is sufficient to enable allogeneic transplant of Balb/c CD45.1 donor cells into C57BL/6 recipients.
(A-D)
C57BL/six mice were conditioned with 5 mg/kg
Isotype-ADC
or
CD45-ADC.
CD45-ADC
enables
³
95% donor chimerism (A) and peripheral donor engraftment is multilineage through week 20.
(B-D).
Terminal splenic (E) and thymic (F) chimerism in
CD45-ADC
conditioned mice were similar to TBI. *p<0.05 versus TBI; #p<0.05 versus
CD45-ADC;
ANOVA with post hoc Tukey’s multiple comparisons test.
 
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Oncology Model Results
Data presented at the TCT annual meeting in 2020 demonstrated that a single dose administration of a short half-life
CD45-ADC
is well tolerated and is capable of reducing tumor burden by potently targeting leukemia cells in xenograft models. It significantly prolonged the median survival of established cell line and patient derived xenograft models as compared to both untreated controls and a multi-dose regimen of
ARA-C,
a
standard-of-care
chemotherapy.
 
A single dose of a short half-life
CD45-ADC
increases survival (A)
 and effectively decreases tumor burden (B)
 of human acute myeloid leukemia cells in two patient derived xenograft models compared to vehicle (PBS) or
isotype-ADC,
and comparable to a multi-dose regimen of
ARA-C,
a
standard-of-care
chemotherapy.
Treatment began when
2-16%
tumor blasts were detected in the periphery
(n=3-5
mice/group/AML PDX model). Mice were treated with a single intravenous dose of anti-human
CD45-ADC,
isotype-ADC,
or vehicle (PBS).
ARA-C
chemotherapy was administered intravenously once daily for five consecutive days. (A) Survival of CD45+CD117+ PDX AML mice treated with a single intravenous dose of
CD45-ADC
was significantly increased as compared to PBS or
isotype-ADC
controls (B).
CD45-ADC
significantly delayed tumor burden (expressed as %hCD45) in the peripheral blood of treated mice compared to PBS,
isotype-ADC
and standard of care controls.
Development plans
We plan to develop
CD45-ADC
for use in patients with autoimmune diseases, such as multiple sclerosis and scleroderma, and patients with leukemias and myelodysplastic syndromes. We have identified a lead antibody and progressed this program into IND enabling studies, which we plan to further advance in 2021.
 
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C300 Program
Our third
ADC-based
conditioning program, C300, targets T cells, a type of immune cell. T cell depletion is currently performed with highly toxic,
non-specific
drugs which can lead to immune deficiency, infections and other complications, including secondary autoimmune reactions. We are pursuing targets expressed on the surfaces of T cells with the goal of offering a safer and more optimized targeted conditioning approach through T cell depletion before cell therapy such as
CAR-T
for blood cancers, prevention of stem cell rejection prior to allogeneic stem cell transplant or achievement of immune system reset through autologous stem cell transplant in patients with autoimmune diseases.
G100 Program
We are developing our G100 product candidate as a targeted conditioning agent with the aim of preventing acute GvHD. GvHD is a reaction that commonly develops after an allogeneic stem cell transplant and occurs when the transplanted cells see the recipient’s body as foreign. The grafted cells then attack their new host. It is the result of the donor T cells not matching the recipient’s, and this underscores the importance of matching between the donor and the recipient. If they are not well matched, the donor’s T cells recognize the recipient’s cells as foreign and attack them. Recipients who receive poorly matched stem cells are among those at the highest risk of developing this condition. However, GvHD can occur even with proper matching.
Acute GvHD typically occurs within the first 100 days following transplant and can severely damage the skin, liver and gastrointestinal system. It occurs in approximately 50% of patients receiving an allogenic stem cell transplant, depending on several factors including cell source and conditioning regimen, and accounts for approximately 10% of deaths following an allogeneic transplant. Approximately 40% of all stem cell transplants are allogeneic. Current treatments for acute GvHD prevention include the prophylactic use of immune suppressive agents that prevent T cell activation, such as cyclosporine or tacrolimus along with mycophenolic acid, which inhibits DNA base synthesis which is required by proliferating T cells or steroids.
Despite the use of these powerful immune suppressive agents, most allogeneic transplant patients will experience GvHD. For severe cases, patients are treated with high doses of steroids, immune ablating antibodies or chemotherapy. The use of high-dose
non-specific
immune suppressive agents for GvHD treatment is correlated with an increased risk of opportunistic and viral infections, poor immune function and is a leading cause of death in allogenic transplant patients.
Our G100 product candidate is an ADC designed to selectively eliminate the cells that cause acute GvHD, specifically the alloreactive T cells. This ADC product candidate is intended to be dosed
in vivo
at the time of transplant and eliminate the activated alloreactive T cells. By specifically targeting the alloreactive T cells that arise shortly after transplant, this product candidate has the potential to spare the remainder of the immune system to allow immune recovery and protection from opportunistic infections.
Cell Therapy Programs
MGTA-456:
High-dose, well-matched allogeneic investigational stem cell therapy for use in patients with high-risk hematologic malignancies
Opportunity
It is critical that patients receive a sufficiently high dose of well-matched HSCs in a stem cell transplant, as higher cell doses and better matched cells are closely correlated to improved patient outcomes. In allogeneic transplant, up to half of patients will not find a suitable donor within their biological relatives or among registered bone marrow donors. Long search times for unrelated, well-matched donors and their frequent unavailability represent a major challenge, particularly for patients with diseases that can progress rapidly, such as certain inherited metabolic disorders and high-risk acute leukemias. Because of the urgency for these patients to undergo transplant, there is a need for improved options, and the ability to quickly find a well-matched stem cell donor with sufficient volume of cells remains one of the most significant hurdles in achieving successful stem cell transplant.
 
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Cell dose and degree of graft matching are independent risk factors impacting risk of
non-relapse
mortality in individuals undergoing cord blood transplant for acute leukemia. Low numbers of CD34+ stem cells can result in prolonged periods of cytopenia and higher risk of graft failure. The availability of
MGTA-456
could reduce the barriers associated with cell dose and poor matching that currently limit the successful use of cord blood in transplant.
MGTA-456
is currently being evaluated in a Phase 2 study in patients with high-risk blood cancers undergoing stem cell transplant. Enrollment is this study has been completed and patients are currently in a
follow-up
period.
Our
MGTA-456
product candidate
MGTA-456
is an investigational, novel, proprietary allogeneic stem cell therapy designed to provide a high dose of stem cells that are well matched to the patient. Larger stem cell doses and better matched transplants are both correlated with more successful transplant outcomes, reduced risk of transplant failure and faster time to engraftment and immune recovery.
Clinical data: blood cancers
Data were presented at the TCT annual meeting in February 2021 from 18 patients transplanted in a Phase 1/2 clinical trial in patients with blood cancers. The trial showed that expansion of CD34+CD90+ cells in
MGTA-456
results in rapid and sustained hematopoietic recovery, complete engraftment in all subjects, improved matching in adults weighing >59 kg and reduced incidence of GvHD. In addition, neutrophil recovery occurred in 100% of patients at a median of 17 days versus 23 days in recipients of unmodified cord blood. Similarly, platelet recovery was higher (94% vs. 74%) and faster (median 36 days vs. 59 days) for patients receiving
MGTA-456
versus unmodified cord blood, respectively. Both neutrophil and platelet recovery correlated to dose of CD34+CD90+ cells. With all patients now out beyond day 100, only one patient had
grade 3-4
acute GvHD and one had chronic GvHD limited to the oral mucosa (off immunosuppression 15 months after transplant).
Development plan
Previously,
MGTA-456
was evaluated in patients with rare genetic inherited metabolic disorders. In June 2020, we announced that we would discontinue enrollment in our Phase 2 trial of
MGTA-456
in patients with inherited metabolic disorders undergoing stem cell transplant. This decision was the result of several factors, including enrollment challenges common to rare disease populations, which were heightened as a result of the
COVID-19
pandemic; a growing understanding in the transplant field of the current challenges of allogeneic stem cell transplant in patients with
non-malignant
diseases, including inherited metabolic diseases; and feedback from the FDA on endpoints and clinical trial design for registration.
We will continue to evaluate the data for
MGTA-456
in blood cancers through the investigator-initiated Phase 2 trial in blood cancers at the University of Minnesota to inform best next steps for the program.
E478: AHR antagonist for expansion of gene-modified stem cells
Opportunity
Stem cell transplant with gene-modified HSCs, which is referred to as stem cell gene therapy or genome editing, is a promising treatment approach for many diseases. However, this approach is significantly limited by (1) the inability to generate a sufficient dose of gene-modified HSCs that retain the ability to durably engraft in patients and (2) the cost and complexity of manufacturing viral vectors for gene modification of cells. These constraints could limit the commercial viability of this approach.
The ability to expand HSCs
ex vivo
has the potential to improve outcomes with gene therapy or genome editing by increasing the dose of genetically modified stem cells. This has been a long-term goal of the field and
 
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has the potential to reduce manufacturing costs for these therapies by requiring less viral vector for gene modification of the stem cells. Scaling up vector manufacturing in a cost-effective manner has been a significant challenge for
HSC-based
gene therapy companies and a significant cost driver. Such cost and capacity issues could limit the commercial viability and widespread deployment of gene therapies.
Our E478 product candidate
We developed the E478 program in response to an unmet technological need recognized in the field of stem cell gene therapy – the challenge of achieving sufficiently high doses of gene-modified stem cells. E478 is a novel and proprietary small molecule AHR antagonist that was developed to increase the number of gene-modified HSCs
ex vivo
for stem cell based-gene therapy. E478 uses the same clinically validated method used to produce
MGTA-456,
AHR antagonism, to expand gene-modified HSCs.
We believe that E478 could represent a key component for unlocking the full value of gene therapy by providing each patient with an optimal dose of gene-modified HSCs for rapid and successful engraftment. In addition to addressing cell dose limitations, the ability to expand long-term repopulating HSCs
ex vivo
has the potential to reduce manufacturing costs for these therapies by requiring less viral vector for gene modification of the stem cells.
Preclinical data
We have shown that E478 can generate higher numbers of long-term engrafting human HSCs compared to other expansion technologies. We have presented
in vitro
and
in vivo
data demonstrating successful expansion of gene-modified HSCs from both bone marrow and mobilized blood cell sources with E478 and showed that
ex vivo
expansion with E478 leads to higher and durable levels of engraftment in NSG mice compared to conventional culture approaches. Our data demonstrate that HSCs modified via lentiviral transduction, CRISPR/Cas9 and other gene-modifying approaches can be expanded
in vitro
by E478 and engraft
in vivo
in NSG mice.
 
We performed experiments designed to evaluate the ability of E478 to increase HSC numbers for HSC based gene therapy. In these studies, human CD34+ cells isolated from
G-CSF
mobilized peripheral blood were cultured with cytokines in the presence or absence of E478 and transduced with lentiviral vectors expressing a green fluorescent protein to identify cells that were effectively transduced. Inclusion of E478 increased the number of CD34+ cells and significantly improved the level of human cell engraftment in NSG mice while maintaining high levels of transduction. Similar findings were observed using CRISPR-based approaches.
At the American Society of Cell and Gene Therapy annual meeting in May 2020, we presented
in vivo
data showing that
ex vivo
expansion with E478 led to significantly higher rate and number of
NSG-engrafting
gene-corrected cells.
 
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E478 increases the dose of gene-corrected
NSG-engrafting
cells.
Mobilized blood CD34+ cells from healthy subjects were
pre-stimulated
in cytokine-containing media followed by electroporation with CRISPR/Cas9 and AAV.GFP donor and expanded post-editing. Four day
pre-stimulation
followed by a four day expansion (called a 4+4 culture) compared to a conventional two day
pre-stimulation
period followed by a one day expansion (called a 2+1 culture). E478 was added to the 4+4 culture and compared to a conventional 2+1 culture with vehicle control.
(A)
 Engraftment (frequency of human CD45+ cells);
(B)
rate of homology-directed repair, or HDR; and
(C)
 number of engraftable HDR+ cells was measured in the peripheral blood at week 16 post-transplant. Bars represent median and each symbol represents an individual mouse (n=eight). Statistics were determined by a
one-tailed
Student’s
t-test.
Development plan
We are developing E478 specifically to partner with gene therapy, genome editing and cell therapy companies. E478 would be integrated into our potential partners’ cell-based products, leading to newly defined cell/gene therapies.
Commercialization Plan
We plan to establish sales, marketing and commercial product distribution capabilities. As our product candidates advance in clinical development, we are building upon our existing relationships with transplant centers and thought leaders, furthering our understanding of the influences on the transplant decision-making process, refining our market research into reimbursement and market access and leveraging our partnership with Be the Match. Transplants are currently conducted in a small number of specialist sites worldwide. There are approximately 180 transplant centers in the U.S. that are accredited through Be the Match, of which 20% collectively account for over 50% of transplant volume. In Europe, approximately 275 transplant centers are accredited through the Joint Accreditation Committee ISCT-Europe-EMBT. All of our product candidates are focused on the transplant physician as the key prescriber and decision maker.
As we advance our development programs, we will evaluate our sales and marketing resource needs and develop plans to build out a dedicated transplant center-focused medical affairs, sales and marketing
 
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organization. We intend to leverage any infrastructure developed for our lead product candidate,
MGTA-145,
to support commercialization of any additional product candidates in our portfolio for which we gain approval. In addition, we expect to build upon physicians’ familiarity with
MGTA-145
to accelerate adoption of our other potential products. As additional product candidates advance through our pipeline, our commercial plans may change. In particular, some of our discovery-stage pipeline assets target autoimmune disease indications, which could potentially require additional commercial resources in order to engage with referring physicians outside of transplant centers and clinical trial sites.
Our commercial strategy in the U.S., Europe, and Asia may include the use of strategic partners, distributors, a contract salesforce and/or the establishment of our own commercial structure.
Stem Cell Transplant Commercial Market Opportunity
Stem cell transplant is currently a large commercial market opportunity with approximately 90,000 procedures annually in the U.S., Europe and Asia. This is a significant existing potential market for Magenta medicines. However, this number represents only approximately 50% of the patient population that is eligible for stem cell transplant given the existing barriers and risks that can prevent eligible patients from proceeding to transplant.
At Magenta, we believe our portfolio of product candidates could not only improve upon existing approaches but also extend the curative power of stem cell transplant to more patients. Each of our product candidates is designed to address distinct unmet needs in the stem cell transplant patient journey. By using multiple Magenta products, physicians would be able to tailor the transplant procedure, thereby improving patient outcomes and increasing the potential for every eligible patient to benefit from stem cell transplant.
Across diseases where transplant has been shown to result in improved patient outcomes, only a fraction of eligible patients currently receives a transplant because the current risks and challenges associated with the drug products used to prepare patients often outweigh the potential for a cure. Depending on the disease, the barriers for treatment currently include the risk of morbidity and mortality associated with current conditioning regimens, efficiently obtaining an adequate cell dose to complete the transplant and finding a matched donor. We believe that by removing the major barriers to transplant with Magenta’s programs, we can potentially enable safe and effective stem cell transplant for more of the 175,000 eligible patients worldwide. Further, by optimizing the benefit-risk tradeoff, we believe the eligible patient populations could increase beyond the current numbers.
 
 
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We have assessed the existing stem cell transplant market and potential eligible patient population on a
per-indication
basis to estimate the potential number of patients that could benefit from Magenta’s product candidates.
Blood Cancers:
Stem cell transplant is an existing standard of care for many diseases, however outcomes can be impacted by many factors, including lack of a matched donor or poor mobilization, and a significant number of eligible patients do not receive a transplant because of the toxicity of conditioning:
Our
MGTA-145
product candidate has the potential to address the challenges in mobilizing and collecting stem cells faced by patients and healthy donors for transplant in blood cancer patients. Our conditioning programs, including our
MGTA-117
product candidate, have the potential to provide safer and more effective targeted conditioning for blood cancer patients, particularly allogeneic transplant candidates, who currently weight the tradeoffs of long-term efficacy and toxicity with current conditioning regimens that impact patient outcomes. Pending further development for the
MGTA-456
program informed by ongoing data,
MGTA-456
has the potential to offer allogeneic transplant recipients access to a well-matched cell therapy, with a high stem cell dose and the higher likelihood of durable clinical outcomes.
Multiple myeloma, a cancer arising from plasma cells, is diagnosed in approximately 64,000 patients annually in the major global markets: U.S., Germany, France, U.K., Italy, Spain and Japan. Multiple myeloma represents the second most common blood cancer treated by autologous stem cell transplant. Following diagnosis, patients typically undergo treatment with one or more therapeutic classes which may include chemotherapy, immunotherapy, targeted agents, and/or corticosteroids. After one or more courses of initial treatment, patients may proceed to a stem cell transplant depending on whether they are considered an appropriate candidate depending on several patient- and disease-related factors. Currently, approximately 15,300 multiple myeloma patients receive a stem cell transplant annually in the major global markets.
Non-Hodgkin’s
and Hodgkin’s lymphomas, cancers arising from lymphocytes or white blood cells, are diagnosed in approximately 180,000 patients annually in the major global markets.
Non-Hodgkin’s
lymphoma, or NHL is the most common group of blood cancers, the largest of which is Diffuse Large
B-Cell
Lymphoma, comprising approximately 33% of cases. Both major types of lymphomas can be treated by autologous stem cell transplant. Following diagnosis, patients typically undergo treatment with one or more therapeutic classes which may include chemotherapy, immunotherapy, cell therapy, targeted agents, and/or corticosteroids. After one or more courses of initial treatment, patients may proceed to a stem cell transplant depending on whether they are considered an appropriate candidate depending on several patient- and disease-related factors. Currently, approximately 10,500 lymphoma patients receive a stem cell transplant annually in the major global markets.
Acute myeloid leukemia, or AML, a cancer arising from myeloid cells, an immature white blood cell found in the bone marrow, is diagnosed in approximately 36,000 patients annually in the major global markets: U.S., Germany, France, U.K., Italy, Spain and Japan. Eligibility for a stem cell transplant is determined by several criteria including patient fitness (including age and comorbidities), cytogenetic risk status and response to induction therapy. Approximately 40% of newly diagnosed AML patients become eligible for transplant to achieve a more durable remission based on the criteria outlined. However, the current challenges of stem cell transplant, including highly toxic chemotherapy conditioning regimens, limit transplant to approximately 60% of those patients who are otherwise eligible. Currently, approximately 8,400 patients with AML receive a stem cell transplant annually in the major global markets.
Myelodysplastic syndrome, or MDS, occurs when the blood-forming cells in the bone marrow become abnormal, leading to low numbers of one or more types of blood cells. It is diagnosed in approximately 46,000 patients annually in the major global markets. Approximately 35% of newly diagnosed MDS patients have intermediate- to high-risk disease and
one-third
of those are eligible for stem cell transplant based on patient fitness (including age and comorbidities) and blast count. However, the current challenges of stem cell transplant, including highly toxic chemotherapy conditioning regimens, limit transplant to approximately 60% of those
 
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MDS patients who are otherwise eligible. Currently, approximately 2,900 patients with MDS receive a stem cell transplant annually in the major global markets.
Acute lymphocytic leukemia, or ALL, is a cancer that develops from immature white blood cells and is common in children. It is diagnosed in approximately 11,000 patients annually in the major global markets. Currently, approximately 3,800 patients with ALL receive a stem cell transplant annually in the major global markets.
Hematopoietic Stem Cell-Based Gene Therapies:
Stem cell gene therapy is a promising treatment option but is limited by the same conditioning challenges as standard stem cell transplant, as the current standard of care, busulfan, has many risks including long-term infertility and secondary cancers. Additionally, all
HSC-based
gene therapy patients require a high dose of stem cells for gene modification, and sickle cell patients specifically have limited options and experience significant safety risks with current mobilization regimens.
Our
MGTA-145
product candidate has the potential to address patients with sickle cell disease who cannot receive
G-CSF
because of the risk of triggering sickle cell crises, as well as other patients requiring collection of stem cells prior to
HSC-based
gene therapy. Our
MGTA-117
conditioning program has the potential to provide safer, targeted conditioning for patients who are eligible to receive autologous stem cell gene therapies, including but not limited to patients with sickle cell disease, beta thalassemia, and lysosomal storage disorders.
MGTA-117
may also further expand the number of patients who are eligible for these currently investigational gene therapy product candidates. E478 uses the same clinically validated mechanism as
MGTA-456
to generate higher doses of gene-modified stem cells.
Sickle cell disease affects over 100,000 patients in the U.S. and 50,000 patients in Germany, France, U.K., Italy and Spain. Approximately 50,000 of these patients have severe disease (based on annualized sickle cell crises) and are therefore eligible for stem cell transplant or gene therapy.
Beta-thalassemia affects approximately 7,500 patients in the U.S., 7,000 patients in Italy, and 2,600 patients in Germany, France, U.K., Spain and Japan annually. Approximately 70% of these patients, or 12,500 patients, have severe disease, or beta-thalassemia major, and are therefore eligible for stem cell transplant.
Autoimmune Diseases:
emerging data support use of stem cell transplant as a
one-time
therapy, however the high morbidity and mortality associated with current conditioning regimens limit the uptake of transplant as a therapeutic option.
MGTA-145
product candidate has the potential to be the first product specifically indicated for the mobilization of autoimmune disease patients, without the risks associated with
G-CSF.
In addition, our C100 conditioning program has the potential to provide safer, targeted conditioning for autoimmune disease patients eligible to receive autologous transplant. We are developing targeted conditioning approaches to grow the use of transplant in autoimmune disease significantly.
Multiple sclerosis affects over 1 million patients worldwide and approximately 62,000 new patients are diagnosed annually in the major global markets. To assess current eligibility in this population, we focused on the patients with active relapsing-remitting disease and relapsing secondary progressive multiple sclerosis patients who are not adequately treated by current therapies. We believe this population represents more than 6,000 diagnosed severe multiple sclerosis patients annually who are eligible for stem cell transplant under current guidelines. Given stem cell transplant’s proven ability to durably eliminate relapses and disease activity in multiple sclerosis patients, we believe a safe blood and immune reset would be a viable option for those patients with highly active disease beyond what therapeutics can manage. Currently fewer than 10% of eligible multiple sclerosis patients receive a stem cell transplant because the risk of the process outweighs the benefits of a potential cure, and we believe we can significantly expand this number.
Systemic sclerosis, or scleroderma, is a chronic connective tissue disease that is characterized by thickening of the skin. It affects over 245,000 patients and approximately 21,000 new patients are diagnosed annually in the
 
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major global markets. Although 35% of scleroderma patients suffer from diffuse cutaneous disease and are therefore eligible for stem cell transplant today, currently fewer than 10% of eligible scleroderma patients receive a stem cell transplant. However, with the recent addition of stem cell transplant into the EULAR treatment guidelines for scleroderma and with the opportunity for a safer transplant procedure, we believe transplant would be a viable option for the severe scleroderma patient population who have no other therapeutic options available.
Manufacturing
We do not own or operate, and currently have no plans to establish, any manufacturing facilities. We currently depend on third-party contract manufacturing organizations, or CMOs, for all of our requirements of raw materials, drug substance and drug product for our preclinical research and our ongoing clinical trials of
MGTA-145
and
MGTA-456.
We have not entered into long-term agreements with our current CMOs. We intend to continue to rely on CMOs for later-stage development and commercialization of
MGTA-145,
as well as the development and commercialization of
MGTA-117
and other product candidates that we may identify. Although we rely on CMOs, we have personnel and consultants with extensive manufacturing experience to oversee the relationships with our contract manufacturers.
We believe the synthesis of the
MGTA-145
drug substance used to manufacture drug product is reliable and reproducible from readily available starting materials, amenable to commercial-scale production, and does not require unusual equipment or handling in the manufacturing process. We have manufactured, and released for early clinical use, drug products which have been manufactured by our CMO to satisfy our immediate and near term clinical and preclinical needs. We expect to refine, scale, and optimize the process, including the final product formulation, for our development and commercial supply needs.
Our external manufacturing strategy enables us to more efficiently direct financial resources to the research, development, and commercialization of product candidates rather than diverting resources to internally develop manufacturing facilities. As our product candidates advance through development and commercialization, we expect to enter into longer-term commercial supply agreements with key suppliers and manufacturers to fulfill and secure the ongoing and planned preclinical, clinical, and, if our product candidates are approved for marketing, commercial supply needs for ourselves and our collaborators.
Manufacturing of any product candidate is subject to extensive regulations that impose various procedural and documentation requirements, which govern recordkeeping, manufacturing processes and controls, personnel, quality control and quality assurance, among others. We expect that all of our CMOs will manufacture
MGTA-145
and
MGTA-117
under current Good Manufacturing Practice, or cGMP, conditions. cGMP is a regulatory standard for the production of pharmaceuticals to be used in humans.
Competition
The biotechnology industry is extremely competitive in the race to develop new products and treatment modalities. While we believe we have significant competitive advantages with our expertise in transplant medicine, preclinical and clinical development expertise, our comprehensive approach to patient care and intellectual property position, we may face competition for our development programs from companies focused on traditional therapeutic modalities, such as small molecules and antibodies, as well as companies developing next-generation cell therapies. Competition is likely to come from multiple sources, including larger pharmaceutical companies, biotechnology companies and academia. For any products that we may ultimately commercialize, not only will we compete with any existing therapies and those therapies currently in development, we will have to compete with new therapies that may become available in the future. We believe we are the only company that is committed to addressing multiple major opportunities in stem cell transplant to revolutionize an entire field of medicine. We are building a comprehensive portfolio of novel therapeutic development programs to address multiple major unmet medical needs inherent to the existing stem cell transplant process, which distinguishes us from our competition.
 
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Many of our competitors may have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, clinical trials, regulatory approvals and product marketing than we currently do. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.
Stem cell transplant is used to treat a range of diseases and indications. We are aware of many companies that are developing therapeutics, including biologics, small molecules and
CAR-T
therapies that are directed to the treatment of blood cancers, genetic diseases and autoimmune diseases that overlap with current stem cell transplant indications. The following competitive overview is focused on companies that are developing technologies to improve the distinct steps of stem cell transplant.
Competitors for our mobilization program include the following:
 
   
BioLineRx Ltd., which is developing
BL-8040,
a peptide that functions as a high-affinity antagonist for CXCR4; and
 
   
Yifan Pharmaceutical Co., Ltd., which is developing
YF-H-2015005,
a peptide that functions as a high-affinity antagonist for CXCR4.
Competitors for our conditioning programs include the following:
MGTA-117
targeted conditioning program:
 
   
Jasper Therapeutics, Inc., which is developing an antibody to CD117 that is not conjugated to any toxin; and
 
   
Gilead Sciences, Inc., which is developing an antibody to CD117 that is not conjugated to any toxin and is used in combination with an antibody to CD47.
C100 program
(CD45-ADC):
 
   
Actinium Pharmaceuticals, Inc., which is developing an antibody to CD45 that is linked to radioisotope
iodine-131;
and
 
   
Molecular Templates Inc., which is developing an antibody to CD45 that is conjugated to engineered Shiga-toxin.
C300 program:
 
   
Allogene Therapeutics, Inc., which is developing an antibody to CD52 that is not conjugated to any toxin.
G100 program:
 
   
Incyte Corporation, which has a Janus kinase inhibitor, ruxolitinib, that is approved for the treatment of steroid-refractory acute GvHD, and is developing two Janus kinase inhibitors, ruxolitinib and itacitinib, for the treatment of chronic GvHD;
 
   
Bristol Myers Squibb Company, which is developing a selective
T-cell
co-stimulation
inhibitor, abatacept, for the prevention of acute GvHD;
 
   
Sanofi S.A., which is developing an antibody to CD52, alemtuzumab, for the prevention of acute GvHD;
 
   
Mesoblast Ltd., which is developing a cellular therapy,
remestemcel-L,
composed of
ex vivo
-expanded mesenchymal stromal cells, for the treatment of acute GvHD;
 
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Abbvie Inc., which has a Bruton’s tyrosine kinase inhibitor, ibrutinib, that is approved for use in steroid-refractory chronic GvHD;
 
   
Kadmon Holdings, Inc., which is developing a
Rho-associated
kinase 2 (ROCK2) inhibitor, belumosudil, for the treatment of steroid-refractory chronic GvHD; and
 
   
Bellicum Pharmaceuticals, Inc., which is developing a cellular therapy composed of genetically modified allogeneic
T-cells
with the activator agent rimiducid, for the prevention of GvHD.
Competitors for our cell therapy programs include the following:
 
   
Intellia Therapeutics, Inc., which has exclusively licensed from Novartis the AHR antagonist that we use to manufacture
MGTA-456
for expansion of gene-modified HSCs only;
 
   
Gamida Cell Ltd., which is developing a
UCB-derived
cell product that uses a small molecule to inhibit differentiation and enhance functionality of
ex vivo-
expanded HSCs;
 
   
ExCellThera Inc., which is focused on
ex vivo
expansion of stem cells using a pyrimidoindole-derivative small molecule; and
 
   
Angiocrine Bioscience, Inc., which is expanding cord blood and gene-modified HSCs using an endothelial cell feeder layer.
Licenses and Collaborations
Alliance with Novartis
In April 2017, we entered into a license agreement with Novartis pursuant to which Novartis granted us an exclusive, worldwide, sublicensable license to research, develop and commercialize certain licensed products that contain Novartis compounds for the expansion of cord blood derived
non-Gene-Edited/-Modified
HSCs. We refer to this agreement as the Novartis Agreement. The license granted to us under the Novartis Agreement is subject to certain rights retained by Novartis for internal research purposes and certain third parties for research and educational purposes. Certain of the rights licensed to us under the Novartis Agreement are also subject to any retained rights of the U.S. government in the licensed patents. The Novartis Agreement led to the establishment of
MGTA-456
as one of our programs. Under the terms of the Novartis Agreement, we are responsible for all research, development, regulatory and commercialization activities related to licensed products. We are required to use commercially reasonable efforts to develop and commercialize licensed products in the U.S., United Kingdom, France, Germany, Spain, Italy and Japan.
Pursuant to the Novartis Agreement, we issued to Novartis 2,500,000 shares of Series A preferred stock and 643,550 shares of Series B preferred stock. We will be required to make milestone payments to Novartis upon dosing the first patient in Biologic Licensing Application, or BLA, enabling clinical trials and upon regulatory approvals of licensed products across ultra-orphan, hemoglobinopathies and other indications. For ultra-orphan indications, we may be required to pay development and regulatory milestones of up to $13.0 million for each of the first two indications, and up to $5.0 million for a third indication. For hemoglobinopathies, we may be required to pay development and regulatory milestones of up to $13.0 million per indication, for the first two indications. For all other indications that are not an ultra-orphan or hemoglobinopathy, we may be required to pay development and regulatory milestones of up to $75.0 million for the first indication and up to $45.0 million for the second indication. Across all licensed products, we may be required to pay Novartis up to $125.0 million in sales milestones, based on the first achievement of certain aggregate worldwide annual net sales thresholds. We are also required to pay tiered royalties to Novartis on worldwide net sales of licensed products by us, ranging from low single-digit percentages to up to 20% for higher net sales, which royalties are potentially subject to reduction and offset during the royalty term. Royalties are payable on a licensed
product-by-licensed
product and
country-by-country
basis until the later of (i) expiration of the last valid claim of a licensed patent right that covers the manufacture, use or sale of such licensed product, or the licensed compound used in the manufacture of such licensed product, in such country and (ii) ten years following the first commercial sale of such licensed product in such country.
 
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Novartis controls the filing, prosecution, maintenance and enforcement of the licensed patent rights at its expense. We have the right to assume these responsibilities should Novartis not wish to pursue them. We own all rights in any intellectual property related to the licensed compound or licensed products that we solely develop under the Novartis Agreement. The Novartis Agreement does not otherwise allocate ownership of improvements developed thereunder; however, Novartis grants us a
non-exclusive,
royalty-free license to practice any improvements that Novartis owns under the Novartis Agreement in connection with
non-gene-edited/-modified
HSCs, and we grant a
non-exclusive,
royalty-free license to Novartis to practice any improvements that we own under the agreement outside of such field.
The Novartis Agreement will continue until the
last-to-expire
royalty term for a licensed product unless terminated earlier by either party. Each party may terminate the Novartis Agreement due to the other party’s insolvency or uncured breach of a material obligation. We have the right to terminate the Novartis Agreement in its entirety or on a
product-by-product
or
country-by-country
basis for convenience upon 90 days’ prior written notice to Novartis. Upon termination of the Novartis Agreement by us for convenience or by Novartis for cause, the license granted to us by Novartis will terminate and we will grant a worldwide, perpetual,
non-exclusive
license to Novartis to develop and commercialize the licensed products under any intellectual property that we (i) control and used in the development, manufacture or commercialization of licensed products or (ii) developed under the agreement to develop and commercialize the licensed products.
Collaboration with National Marrow Donor Program (as successor in interest to Be The Match Biotherapies, LLC)
In November 2017, we entered into a collaboration agreement with Be The Match BioTherapies, LLC, then a subsidiary of National Marrow Donor Program, or NMDP. We refer to this agreement, as amended, as the NMDP Agreement. Pursuant to the NMDP Agreement, the NMDP grants us priority access to subject matter experts at the NMDP and the CIBMTR, which is an affiliation between the Medical College of Wisconsin and NMDP, for consultation on our clinical development and commercialization needs.
We believe that, through this priority access, the partnership enables us to establish relationships across transplant centers and with transplant physicians, giving us access to clinical strategy and development operational support, and potentially supporting our eventual commercialization efforts across several programs.
Under the NMDP Agreement, we will make quarterly payments to NMDP of $17,500. The term of the NMDP Agreement will continue until December 31, 2021 unless terminated earlier by either party. Either party may terminate the NMDP Agreement in whole or in part (i) for convenience upon 60 days’ notice, (ii) for the other party’s uncured material breach upon ten days’ notice or (iii) upon the other party’s insolvency.
Harvard University License Agreement
In November 2016, we entered into a license agreement with Harvard University, or Harvard, pursuant to which Harvard granted us the worldwide exclusive, subject to Harvard’s retained right solely for research and educational purposes, sublicensable, right, to research, develop and commercialize licensed products under certain conditioning-related and mobilization-related patents. The license granted to us under the Harvard Agreement is also subject to any retained rights of the U.S. government in the licensed patents. Under the terms of the agreement, which we refer to as the Harvard Agreement, we will be responsible for all research, development, regulatory and commercialization activities related to licensed products. We are obligated to use commercially reasonable efforts to commercialize at least two licensed products under the Harvard Agreement, including one for conditioning and one for mobilization. The license from the Harvard Agreement relates to our conditioning and mobilization programs.
Pursuant to the Harvard Agreement, we made an upfront payment to Harvard of $85,000 and issued to Harvard and the other
co-owners
of the licensed patent rights (The General Hospital Corporation d/b/a
 
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Massachusetts General Hospital, and Children’s Medical Center Corporation) 385,063 shares of our common stock. In addition, we reimbursed Harvard for approximately $300,000 in expenses incurred by Harvard in connection with the licensed patent rights. Harvard is also entitled to receive an annual license maintenance fee of $25,000 for each calendar year through 2019 and $50,000 for each calendar year thereafter until expiration or termination of the Harvard Agreement.
Harvard is entitled to payments upon certain development and regulatory milestones for the first two licensed products of up to $7.4 million per licensed product. In addition, we must pay Harvard
low-single
digit royalties on net sales of licensed products. If we or our affiliates or sublicensees under the Harvard Agreement commence a legal action to challenge the validity, enforceability or scope of any licensed patents, the royalty rate payable to Harvard will double during the pendency of such proceeding and will remain double thereafter if such action is determined in Harvard’s favor. Depending on the type of licensed product, royalties are payable on a
product-by-product
and
country-by-country
basis until the later of (i) the last to expire valid claim in the applicable country covering or claiming the composition, manufacture, sale or use of such licensed product and (ii) 12 years from the date of the first commercial sale of such licensed product in such country.
Harvard controls the filing, prosecution and maintenance of the licensed patent rights at our expense. We have the first right, but not the obligation, to enforce licensed patent rights against third-party infringement.
The term of the Harvard Agreement will continue until the later of (i) the expiration of the last to expire valid claim under a licensed patent, and (ii) the expiration of the last royalty period Each party has the right to terminate the Harvard Agreement due to the other party’s uncured material breach or insolvency. In particular, Harvard may terminate the Harvard Agreement upon our uncured failure to meet certain development and regulatory milestone deadlines set forth therein. We have the right to terminate the Harvard Agreement for convenience upon 60 days’ prior written notice to Harvard. Upon termination of the Harvard Agreement for any reason, the license granted to us by Harvard will terminate.
Research, Development Option and License Agreement with Heidelberg Pharma Research GmbH
In March 2018, we entered into an exclusive research, development option and license agreement with Heidelberg Pharma Research GmbH, or Heidelberg Pharma. We refer to this agreement, as amended, as the Heidelberg Agreement. Heidelberg Pharma has developed a proprietary antibody targeted amanitin conjugates platform. This collaboration enables our research and development efforts across several targeted conditioning programs through the combination of our proprietary antibodies and Heidelberg Pharma’s antibody targeted amanitin conjugates platform.
Under the terms of the Heidelberg Agreement, Heidelberg Pharma has granted to us a worldwide,
non-exclusive
research license for a
one-year
period with respect to certain targets set forth in an
agreed-to
research plan. We have the option to extend such license for up to an additional three years. We also have an option to obtain an exclusive target-specific research license, which would expire two years after the exercise of such option. In addition, we will have an option to obtain a target-specific exclusive license for global development and commercialization rights to each of the product candidates resulting from the research collaboration. We may obtain such exclusive target-specific rights to up to four targets. We are required to use commercially reasonable efforts to perform our research activities under the Heidelberg Agreement and, if we exercise our right to obtain a development and commercialization license, we are required to use commercially reasonable efforts to pursue development and commercialization of a product directed to the applicable target.
In addition, we granted Heidelberg Pharma a worldwide,
non-exclusive
license under all of our patents and
know-how,
and any improvements of the foregoing developed under the Heidelberg Agreement, that are reasonably necessary or useful for Heidelberg Pharma to perform its research activities under the Heidelberg Agreement. In addition, we grant Heidelberg Pharma a worldwide, royalty-free,
non-exclusive
license under all joint improvements developed under the Heidelberg Agreement for
non-clinical
research purposes only.
 
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Payment terms to Heidelberg Pharma include an upfront technology access fee, research exclusivity fees with respect to the two initial targets, and payments for research support. Heidelberg Pharma is entitled to additional fees of between $50,000 and $1.1 million in the aggregate if we extend the initial research license or if we exercise our research exclusivity options with respect to additional targets. Upon our exercise of an option for an exclusive development and commercialization license, with respect to a target, we are required to make a low single digit million-dollar payment to Heidelberg Pharma for each exercised option. In addition, we may be required to pay development, regulatory and commercial milestones totaling up to approximately $83.5 million per target. We will pay Heidelberg Pharma
mid-single
digit royalties on a
country-by-country
and
product-by-product
basis, on worldwide net product sales of licensed products. Royalties are payable on a licensed
product-by-licensed
product and
country-by-country
basis until the later of (i) expiration of the last valid claim of a licensed patent right that covers the use, import, offering for sale, or sale of such licensed product in such country, and (ii) ten years following the first commercial sale of such licensed product in such country. We have the option to
buy-down
royalties at certain points during the development path of each product.
Heidelberg Pharma will own all improvements solely related to the intellectual property rights Heidelberg Pharma licensed to us under the Heidelberg Agreement. We will own all improvements solely related to the intellectual property rights that we licensed to Heidelberg Pharma and all other intellectual property rights developed under the Heidelberg Agreement for which ownership is not otherwise allocated.
Heidelberg Pharma controls the filing, prosecution, maintenance and enforcement of the intellectual property that it licenses to us under the Heidelberg Agreement. We have the right to enforce such licensed intellectual property against infringement if the infringement is competitive with our licensed products and Heidelberg Pharma does not pursue enforcement. We control the filing, prosecution, maintenance and enforcement of the intellectual property we license to Heidelberg Pharma under the Heidelberg Agreement.
The term of the Heidelberg Agreement will continue until the last to expire royalty term unless terminated earlier by either party. Each party has the right to terminate the Heidelberg Pharma Agreement due to the other party’s uncured material breach or insolvency on a
product-by-product
or
target-by-target
basis. We have the right to terminate the Heidelberg Agreement for convenience in its entirety or on a
product-by-product,
target-by-target
or
country-by-country
basis upon 60 days’ prior written notice to Heidelberg Pharma if terminating before the first commercial sale of a product in a country or upon six months’ prior written notice to Heidelberg Pharma if terminating after the first commercial sale of any product directed to such target in such country.
Upon termination of the Heidelberg Agreement in its entirety or with respect to a product or target, all applicable licenses granted to us will terminate immediately.
Bachem Master Development and Manufacturing Agreement
In February 2018, we entered into a Master Development and Manufacturing Agreement with Bachem Americas, Inc., or Bachem. This agreement, which we refer to as the Bachem Agreement, governs several projects related to the development and manufacture of CXCR2 agonists, including
MGTA-145,
each pursuant to a separate project plan. The active pharmaceutical ingredient of
MGTA-145
is a 69 amino acid protein. We selected Bachem as our contract manufacturer for this program based on their deep expertise in the synthesis and production of proteins. Financial terms related to this agreement will be determined on a
project-by-project
basis. In April 2018, we entered into an initial
one-year
project plan pursuant to which Bachem will be responsible for producing batches of
MGTA-145
for GLP toxicology studies completed in 2018, as well as GMP material for the Phase 1 trial of
MGTA-145,
which commenced in the second quarter of 2019.
The term of the Bachem Agreement is initially five years and will be automatically renewed for
one-year
periods unless either party provides the other with written notice of nonrenewal at least three months prior to expiry. Each party may terminate the agreement upon a material uncured breach of the other party. During the
 
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term, Bachem will be restricted from producing a
pre-defined
set of agonists, including
MGTA-145,
for clinical or commercial use by any third party without our prior written consent, as long as Bachem remains our primary supplier of CXCR2 agonists. Each project plan may be terminated independently of the agreement as a whole.
Clinical Trial Agreement with University of Minnesota
In January 2018, we entered into a Clinical Trial Agreement with the Regents of the University of Minnesota, or UMinn, pursuant to which UMinn will undertake a Phase 2 clinical trial with
MGTA-456
for the treatment of inherited metabolic disorders. Under this agreement, UMinn is also responsible for the manufacture and supply of the required quantities of
MGTA-456
for the trial, subject to specified quality assurance provisions.
The term of the agreement will run through the course of the trial, unless earlier terminated. Each party may terminate the agreement immediately upon the other party’s material failure to follow the specified protocol for the trial or upon a material uncured breach by the other party.
Intellectual Property
Overview
We strive to protect the proprietary product candidates and technologies that we believe are important to our business, including seeking and maintaining patent protection intended to cover the composition of matter of our product candidates, their methods of use, related technologies, diagnostics and other inventions. As of December 31, 2020, our owned patent portfolio is composed of more than 10 issued patents and more than 200 pending patent applications in the U.S. and foreign jurisdictions. In addition, we have licensed more than 200 issued patents and pending patent applications in the U.S. and foreign jurisdictions.
Company-Owned Patent Rights Relating to Our Targeted Conditioning and Post-Transplant Complications Programs
With regard to our targeted conditioning and post-transplant complications programs, our owned patent portfolio includes approximately five issued U.S. patents, approximately four issued foreign patents, and more than 140 pending patent applications in the U.S. and foreign jurisdictions. Our targeted conditioning and post-transplant complications patent portfolio includes, for example, composition of matter and methods of use claims directed to program-specific ADCs and antibodies, as well as claims directed more generally to our targeted conditioning and post-transplant complications programs that provide coverage for multiple programs.
Our CD117 patent portfolio contains patent families that we own covering compositions and methods for the depletion of CD117+ cells and includes patent families that cover the
MGTA-117
composition of matter and methods of use. As of December 31, 2020, our CD117 patent portfolio includes one issued U.S. patent, approximately eight pending U.S. patent applications, two issued Australian patents, more than 40 pending patent applications in foreign jurisdictions, approximately three families of pending U.S. provisional patent applications, and approximately seven pending PCT applications. The issued U.S. patent and the issued Australian patents would be expected to expire in 2037, absent any applicable patent term extensions. Any other patents that issue from the pending patent applications in this portfolio would be expected to expire between 2037 and 2041, absent any applicable patent term extensions.
Company-Owned Patent Rights Relating to Our Mobilization Program
Our MGTA-145
patent portfolio contains patent families directed to methods of mobilizing HSCs. As of December 31, 2020, we owned one issued U.S. patent, approximately three pending U.S. patent applications, more than 15 pending foreign patent applications, and one pending PCT patent application. The issued U.S.
 
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patent would be expected to expire in 2037, absent any applicable patent term extensions. Any other patents that issue from the pending patent applications would be expected to expire between 2037 and 2040, absent any applicable patent term extensions.
Company-Owned Patent Rights Relating to Our Cell Therapy Programs
Our cell therapy patent portfolio contains patent families directed to compositions of matter for AHR antagonists, including E478, methods of using these compounds, and methods of treatment using expanded HSCs. As of December 31, 2020, we owned two issued U.S. patents, approximately five pending U.S. patent applications, more than 30 pending patent applications in foreign jurisdictions, and approximately three pending PCT patent applications. The issued U.S. patents would be expected to expire in 2038, absent any applicable patent term extensions. Any patents that issue from the pending patent applications would be expected to expire between 2038 and 2039, absent any applicable patent term extensions.
In-Licensed
Harvard Portfolio
We have exclusively licensed a patent portfolio from Harvard applicable to our targeted conditioning and mobilization programs that contains patent families directed to compositions and methods for
non-myeloablative conditioning,
compositions and methods for mobilizing HSCs, and highly engraftable hematopoietic stem cells and their uses. As of December 31, 2020, this patent portfolio includes two issued U.S. patents, approximately six pending U.S. patent applications, and more than 20 pending patent applications in foreign jurisdictions. The issued U.S. patents would be expected to expire in 2036, absent any applicable patent term extensions. Any patents that issue from the pending patent applications in this patent portfolio would be expected to expire between 2034 and 2037, absent any applicable patent term extensions.
In-Licensed
Heidelberg Portfolio
We have licensed a patent portfolio from Heidelberg Pharma applicable to our targeted conditioning and post-transplant complications programs that contains patent families directed to amatoxin conjugates, methods of treatment, and methods of synthesizing amatoxins. As of December 31, 2020, these families include more than 90 issued patents and pending patent applications in jurisdictions worldwide. The issued patents and any other patents that issue from these families would be expected to expire between 2030 and 2040, absent any applicable patent term extensions.
In-Licensed
Novartis Portfolio
We have licensed a patent family from Novartis applicable to our
MGTA-456
program that is directed to AHR antagonists and their use in the expansion of HSCs. As of December 31, 2020, this family includes two issued U.S. patents, one with method claims covering the use of AHR antagonists in the expansion of HSCs and one with composition of matter claims covering AHR antagonists, two pending U.S. patent applications, and more than 80 issued patents and pending patent applications in jurisdictions worldwide. The issued U.S. patents are expected to expire in 2032 and 2031, respectively, absent any applicable patent term extensions. The issued foreign patents and any patents that may issue from U.S. and foreign pending patent applications in this family would be expected to expire in 2029, absent any applicable patent term extensions.
The term of individual patents depends upon the legal term for patents in the countries in which they are obtained. In most countries in which we have filed, including the U.S., the patent term is 20 years from the earliest filing date of
a non-provisional patent
application. In the U.S., a patent’s term may be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the U.S. Patent and Trademark Office in examining and granting a patent, or may be shortened if a patent is terminally disclaimed over an earlier filed patent. The term of a patent that covers a drug or biological product may also be eligible for patent term extension when FDA approval is granted for a portion of the term effectively lost as a result of the
 
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FDA regulatory review period, subject to certain limitations and provided statutory and regulatory requirements are met. Any such patent term extension can be for no more than five years, only one patent per approved product can be extended, the extension cannot extend the total patent term beyond 14 years from approval, and only those claims covering the approved drug, a method for using it or a method for manufacturing it may be extended. We may not receive an extension if we fail to exercise due diligence during the testing phase or regulatory review process, fail to apply within applicable deadlines, fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicable requirements. Moreover, the length of the extension could be less than we request. In the future, if and when our product candidates receive approval from the FDA or foreign regulatory authorities, we expect to apply for patent term extensions on issued patents we may obtain in the future covering those products, depending upon the length of the clinical trials for each product and other factors. There can be no assurance that any of our pending patent applications will issue or that we will benefit from any patent term extension or favorable adjustment to the term of any of our patents.
As with other biotechnology and pharmaceutical companies, our ability to maintain and solidify our proprietary and intellectual property position for our product candidates will depend on our success in obtaining effective patent claims and enforcing those claims if granted. However, our owned and licensed pending patent applications, and any patent applications that we may in the future file or license from third parties may not result in the issuance of patents. We also cannot predict the breadth of claims that may be allowed or enforced in our patents. Any issued patents that we may receive in the future may be challenged, invalidated, infringed or circumvented. In addition, because of the extensive time required for clinical development and regulatory review of a product candidate we may develop, it is possible that, before any of our product candidates can be commercialized, any related patent may expire or remain in force for only a short period following commercialization, thereby limiting the protection such patent would afford the respective product and any competitive advantage such patent may provide. For more information, see the section entitled “Risk Factors—Risks Related to Intellectual Property”.
Other IP Rights
In addition to patents, we rely upon unpatented trade secrets
and know-how and
continuing technological innovation to develop and maintain our competitive position. However, trade secrets
and know-how can
be difficult to protect. We seek to protect our proprietary information, in part, by executing confidentiality agreements with our collaborators and scientific advisors,
and non-competition, non-solicitation, confidentiality,
and invention assignment agreements with our employees and consultants. We have also executed agreements requiring assignment of inventions with selected scientific advisors and collaborators. The confidentiality agreements we enter into are designed to protect our proprietary information and the agreements or clauses requiring assignment of inventions to us are designed to grant us ownership of technologies that are developed through our relationship with the respective counterparty. We cannot guarantee, however, that we have executed such agreements with all applicable counterparties, such agreements will not be breached, or that these agreements will afford us adequate protection of our intellectual property and proprietary rights. For more information, see the section entitled “Risk Factors—Risks Related to Intellectual Property”.
Trademarks
We have filed and obtained trademark protection for the MAGENTA THERAPEUTICS character mark and service mark logo for pharmaceutical research and development services and biochemical research and development services. We have also filed for trademark protection for the #THECOLOROFCURE character mark for promoting public awareness of medical disorders and their treatment, promoting public awareness of bone marrow diseases, cancer, tumors, infectious diseases, autoimmune diseases and related diseases and disorders, providing a website featuring medical information, and providing medical information. We plan to register trademarks in connection with our future products.
 
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Governmental Regulation
Compliance with various governmental regulations has an impact on our business, including our capital expenditures and competitive position, which can be material. We incur costs to monitor and take actions to comply with governmental regulations that are applicable to our business, which include, among others, federal securities laws and regulations, applicable stock exchange requirements, tax laws and regulations, environmental and health and safety laws and regulations and the regulations that govern our products and drug discovery efforts. Government authorities in the U.S. at the federal, state and local level and in other countries extensively 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 drug and biological products, such as
MGTA-145
and any other current or future product candidates. 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 addition to the discussion below, see “Item 1A—Risk Factors” for a discussion of material risks to us, including, to the extent material, to our competitive position, relating to governmental regulations, and see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation” together with our consolidated financial statements, including the related notes included therein, for a discussion of material information relevant to an assessment of our financial condition and results of operations, including, to the extent material, the effects that compliance with governmental regulations may have upon our capital expenditures.
U.S. drug development
In the U.S., 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 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, 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.
MGTA-145
and any other current or future product candidates must be approved by the FDA through either a New Drug Application, or NDA, or a Biologics License Application, or BLA, process before they may be legally marketed in the U.S. The process generally involves the following:
 
   
completion of extensive preclinical studies in accordance with applicable regulations, including studies conducted in accordance with good laboratory practice, or GLP, requirements;
 
   
submission to the FDA of an application for an IND application, which must become effective before human clinical trials may begin;
 
   
approval by an institutional review board, or IRB, or independent ethics committee at each clinical trial site before each trial may be initiated;
 
   
performance of adequate and well-controlled human clinical trials in accordance with applicable IND regulations, good clinical practice, or GCP, requirements and other clinical trial-related regulations to establish the safety and efficacy of the investigational product for each proposed indication;
 
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submission to the FDA of an NDA or BLA;
 
   
a determination by the FDA within 60 days of its receipt of an NDA or BLA to accept the filing for review;
 
   
satisfactory completion of an FDA
pre-approval
inspection of the manufacturing facility or facilities where the drug or biologic will be produced to assess compliance with current good manufacturing processes, or cGMP, requirements to assure that the facilities, methods and controls are adequate to preserve the drug or biologic’s identity, strength, quality and purity;
 
   
potential FDA audit of the clinical trial sites that generated the data in support of the NDA or BLA; and
 
   
FDA review and approval of the NDA or BLA, including consideration of the views of any FDA advisory committee, prior to any commercial marketing or sale of the drug or biologic in the U.S.
The preclinical and clinical testing and approval process requires substantial time, effort and financial resources, and we cannot be certain that any approvals for
MGTA-145
and any other current or future product candidates will be granted on a timely basis, or at all.
Preclinical studies and IND
Preclinical studies include laboratory evaluation of product chemistry and formulation, as well as
in vitro
and animal studies to assess safety 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 tests, 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, such as animal tests of reproductive adverse events and carcinogenicity, 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.
Clinical trials
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. Furthermore, 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.
 
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A sponsor who wishes to conduct a clinical trial outside of the U.S. may, but often 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 an NDA or BLA. The FDA will accept a well-designed and well-conducted foreign clinical trial not conducted under an IND if the trial 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 are generally conducted in three sequential phases, known as Phase 1, Phase 2 and Phase 3, and may overlap.
 
   
Phase 1 clinical trials generally involve a small number of healthy volunteers or disease-affected patients who are initially exposed to a single dose and then multiple doses of the product candidate. The primary purpose of these clinical trials is to assess the metabolism, pharmacologic action, side effect tolerability and safety of the drug.
 
   
Phase 2 clinical trials involve studies in disease-affected patients to determine the dose required to produce the desired benefits. At the same time, safety and further pharmacokinetic and pharmacodynamic information is collected, possible adverse effects and safety risks are identified, and a preliminary evaluation of efficacy is conducted.
 
   
Phase 3 clinical trials generally involve a large number of patients at multiple sites and are designed to provide the data necessary to demonstrate the product candidate’s safety and effectiveness for its intended use, and to establish the overall benefit/risk relationship of the product and provide an adequate basis for product labeling.
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 an NDA or 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, 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 compared to 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 drug or 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, must develop additional information about the chemistry and physical characteristics of the drug or biologic and 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.
 
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NDA/BLA and FDA review process
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 an NDA or BLA, along with proposed labeling, chemistry and manufacturing information to ensure product quality and other relevant data. The NDA or BLA is a request for approval to market the drug or biologic for one or more specified indications and must contain proof of safety and efficacy for a drug or safety, purity and potency for a biologic. The application 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, including studies initiated by investigators. To support marketing approval, the data submitted must be sufficient in quality and quantity to establish the safety and efficacy of the investigational product to the satisfaction of the FDA. FDA approval of an NDA or BLA must be obtained before a drug or biologic may be marketed in the U.S.
Under the Prescription Drug User Fee Act, or PDUFA, as amended, each NDA or 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, 2021, the user fee for an application requiring clinical data, such as an NDA or BLA, is $2,875,842. The sponsor of an approved NDA or BLA is also subject to an annual prescription drug program fee, which for fiscal year 2021 is $336,432. 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 NDAs or BLAs for products designated as orphan drugs, unless the product also includes a
non-orphan
indication.
The FDA reviews all submitted NDAs and BLAs before it accepts them for filing and may request additional information rather than accepting the NDA or BLA for filing. The FDA generally makes a decision on accepting an NDA or BLA for filing within 60 days of receipt. Once the submission is accepted for filing, the FDA begins an
in-depth
review of the NDA or BLA. Under the goals and policies agreed to by the FDA under PDUFA, the FDA has ten months from the filing date to complete its initial review of a new molecular-entity NDA or original BLA and respond to the applicant, and six months from the filing date of a new molecular-entity NDA or original BLA designated for priority review. The FDA does not always meet its PDUFA goal dates for standard and priority NDAs or BLAs, and the review process is often extended by FDA requests for additional information or clarification.
Before approving an NDA or 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 are 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 drug products or drug 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 an NDA or BLA, it will issue an approval letter or a Complete Response Letter. An approval letter authorizes commercial marketing of the drug or 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 NDA or BLA identified by the FDA. The Complete Response Letter may require additional clinical data, additional pivotal Phase 3 clinical trial(s) and/or 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 NDA or BLA, addressing all of the deficiencies
 
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identified in the letter, or withdraw the application. Even if such data and information are submitted, the FDA may decide that the NDA or 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.
Orphan drug designation
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 U.S., or 200,000 or more individuals in the U.S. and for which there is no reasonable expectation that the cost of developing and making the product available in the U.S. for this type of disease or condition will be recovered from sales of the product.
Orphan drug designation must be requested before submitting an NDA or 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 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, provision of 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 could also 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.
Expedited development and review programs
The FDA has a fast track program that is intended to expedite or facilitate the process for reviewing new drugs and 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 can request that the FDA designate the product for fast track status any time before receiving NDA or BLA approval, but ideally no later than the
pre-NDA
or
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
 
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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 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.
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.
As part of the 21
st
Century Cures Act, Congress amended the FDCA to facilitate an efficient development program for, and expedite review of, RMATs which include cell and gene therapies, therapeutic tissue engineering products, human cell and tissue products, and combination products using any such therapies or products. RMATs do not include those human cells, tissues, and cellular and tissue based products regulated solely under section 361 of the PHSA and 21 CFR Part 1271. This program is intended to facilitate efficient development and expedite review of RMATs, which are intended to treat, modify, reverse, or cure a serious or life-threatening disease or condition and for which preliminary clinical evidence indicates that the drug has the potential to address unmet medical needs for such disease or condition. A drug sponsor may request that the FDA designate a drug as a RMAT concurrently with, or at any time after, submission of an IND. The FDA has 60 calendar days to determine whether the drug meets the criteria, including whether there is preliminary clinical evidence indicating that the drug has the potential to address unmet medical needs for a serious or life-threatening disease or condition. A BLA for a regenerative medicine therapy that has received RMAT designation may be eligible for priority review or accelerated approval through use of surrogate or intermediate endpoints reasonably likely to predict long-term clinical benefit, or reliance upon data obtained from a meaningful number of sites. Benefits of RMAT designation also include early interactions with the FDA to discuss any potential surrogate or intermediate endpoint to be used to support accelerated approval. A regenerative medicine therapy with RMAT designation that is granted accelerated approval and is subject to post-approval requirements may fulfill such requirements through the submission of clinical evidence from clinical studies, patient registries, or other sources of real world evidence, such as electronic health records; the collection of larger confirmatory data sets; or post-approval monitoring of all patients treated with such therapy prior to its approval.
Fast track designation, priority review, accelerated approval, breakthrough therapy designation, and RMAT designation do not change the standards for approval, but may expedite the development or approval process.
Pediatric information
Under the Pediatric Research Equity Act, or PREA, certain NDAs and BLAs and certain supplements to an NDA or BLA must contain data to assess the safety and efficacy of the drug 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 FDCA, as amended, requires 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 trial. The initial PSP must include an outline of the pediatric trial or trials 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 trials along with supporting information.
 
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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, and/or other clinical development programs.
Post-marketing requirements
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 drugs for unapproved uses or patient populations, or
off-label
use, and limitations on industry-sponsored scientific and educational activities. Although physicians may prescribe legally available drugs for
off-label
uses, manufacturers may not market or promote such uses. Prescription drug promotional materials must be submitted to the FDA in conjunction with their first use. Further, if there are any modifications to the drug or 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 NDA/BLA or NDA/BLA supplement, which may require the development of additional data or preclinical studies and clinical trials.
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 NDA or BLA must submit a proposed REMS. The FDA will not approve the NDA or 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 approved 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 violative conditions, including failure to conform to cGMP regulations, could result in enforcement actions, and the discovery of problems with a product after approval may result in restrictions on a product, manufacturer or holder of an approved NDA or BLA, including recall.
Companion diagnostics and complementary diagnostics
We believe that the success of our product candidates may depend, in part, on the development and commercialization of either a companion diagnostic or complementary diagnostic. Companion diagnostics and complementary diagnostics can identify patients who are most likely to benefit from a particular therapeutic product; identify patients likely to be at increased risk for serious side effects as a result of treatment with a particular therapeutic product; or monitor response to treatment with a particular therapeutic product for the purpose of adjusting treatment to achieve improved safety or effectiveness. Companion diagnostics and complementary diagnostics are regulated as medical devices by the FDA and, as such, require either clearance or approval prior to commercialization. The level of risk combined with available controls to mitigate risk determines whether a companion diagnostic device requires Premarket Approval Application approval or is cleared through the 510(k) premarket notification process. For a novel therapeutic product for which a
 
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companion diagnostic device is essential for the safe and effective use of the product, the companion diagnostic device should be developed and approved or 510(k)-cleared contemporaneously with the therapeutic. The use of the companion diagnostic device will be stipulated in the labeling of the therapeutic product. This is also true for a complementary diagnostic, although it is not a prerequisite for receiving the therapeutic.
Other regulatory matters
Manufacturing, sales, promotion and other activities following product approval are also subject to regulation by numerous regulatory authorities in the U.S. in addition to the FDA, including the Centers for Medicare & Medicaid Services, or CMS, other divisions of the Department of Health and Human Services, or HHS, 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 will play a primary role in the recommendation and prescription of any products for which we obtain marketing approval. Our future arrangements with third party payors, healthcare providers and physicians may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute any drugs for which we obtain marketing approval. In the U.S., these laws include: the federal Anti-Kickback Statute, the False Claims Act, laws and regulations related to the reporting of payments to physicians and teaching hospitals, and the Health Insurance Portability and Accountability Act of 1996, or HIPAA.
The Anti-Kickback Statute makes it illegal for any person, including a prescription drug manufacturer (or a party acting on its behalf), to knowingly and willfully solicit, receive, offer, pay or provide any remuneration, directly or indirectly, in cash or in kind, that is intended to induce or reward referrals, including the purchase, recommendation, order or prescription of a particular drug, for which payment may be made under a federal healthcare program, such as Medicare or Medicaid. Violations of this law are punishable by up to five years in prison, criminal fines, administrative civil money penalties for each violation, plus up to three times the renumeration involved, and exclusion from participation in federal healthcare programs. In addition, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it.
The federal civil and criminal false claims laws, including the civil False Claims Act, and civil monetary penalty laws impose civil penalties, including through civil whistleblower or qui tam actions, against individuals or entities (including manufacturers) for, among other things, knowingly presenting or causing to be presented false or fraudulent claims for payment by a federal healthcare program or making a false statement or record material to payment of a false claim or avoiding, decreasing or concealing an obligation to pay money to the federal government. Penalties for a False Claims Act violation include three times the actual damages sustained by the government, plus mandatory civil penalties for each separate false claim, the potential for exclusion from participation in federal healthcare programs, and the potential implication of various federal criminal statutes. Manufacturers can be held liable under the federal False Claims Act even when they do not submit claims directly to government payors if they are deemed to “cause” the submission of false or fraudulent claims. The government may deem manufacturers to have “caused” the submission of false or fraudulent claims by, for example, providing inaccurate billing or coding information to customers or promoting a product
off-label.
Claims which include items or services resulting from a violation of the federal Anti-Kickback Statute are false or fraudulent claims for purposes of the False Claims Act. The federal False Claims Act also permits a private individual acting as a “whistleblower” to bring actions on behalf of the federal government alleging violations of the False Claims Act and to share in any monetary recovery. Our future marketing and activities relating to the reporting of wholesaler or estimated retail prices for our products, the reporting of prices used to calculate Medicaid rebate information and other information affecting federal, state and third-party reimbursement for our products, as well as the sale and marketing of our product and any future product candidates, are subject to scrutiny under this law.
 
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HIPAA imposes criminal and civil liability for knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or knowingly and willfully making false statements, and concealing or covering up by any trick or device a material fact or making any materially false statement relating to healthcare matters. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and their implementing regulations, also imposes obligations, including mandatory contractual terms and technical safeguards, with respect to maintaining the privacy, security and transmission of individually identifiable health information held by covered entities and their business associates. HITECH also created new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions.
The Physician Payments Sunshine Act of 2010, as amended by the Health Care and Education Reconciliation Act, which requires applicable manufacturers of covered drugs, biologics, and medical supplies (those paid for by a federal healthcare program) to report annually to CMS information related to any payments and other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members. Effective January 1, 2022, these reporting obligations will extend to include transfers of value made to certain
non-physician
providers such as physician assistants and nurse practitioners.
Analogous state and foreign fraud and abuse laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services. Such laws are generally broad and are enforced by various state agencies and private actions. Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant federal government compliance guidance and require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures. Certain state and local laws require the registration of pharmaceutical sales representatives.
State and foreign laws also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not
pre-empted
by HIPAA, thus complicating compliance efforts. For example, in California, the California Consumer Protection Act, or CCPA, which went into effect on January 1, 2020, establishes a new privacy framework for covered businesses by creating an expanded definition of personal information, establishing new data privacy rights for consumers in the State of California, imposing special rules on the collection of consumer data from minors, and creating a new and potentially severe statutory damages framework for violations of the CCPA and for businesses that fail to implement reasonable security procedures and practices to prevent data breaches. While clinical trial data and information governed by HIPAA are currently exempt from the current version of the CCPA, other personal information may be applicable and possible changes to the CCPA may broaden its scope. In addition, a new California ballot initiative, the California Privacy Rights Act, or CPRA, was passed in November 2020. Effective starting on January 1, 2023, the CPRA imposes additional obligations on companies covered by the legislation and will significantly modify the CCPA, including by expanding consumers’ rights with respect to certain sensitive personal information.
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. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or
 
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other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion of drugs from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians or other healthcare 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. 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 away from the business.
Current and Future Legislation
In the U.S. and 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 to profitably sell any product candidates 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 any collaborators, may receive for any approved products.
In March 2010, the Congress enacted the Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively the ACA, which, among other things:
 
   
created an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs and biologic products, apportioned among these entities according to their market share in certain government healthcare programs;
 
   
expanded eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to certain individuals with income at or below 133% of the federal poverty level, thereby potentially increasing a manufacturer’s Medicaid rebate liability;
 
   
expanded manufacturers’ rebate liability under the Medicaid Drug Rebate Program by increasing the minimum rebate for both branded and generic drugs and revising the definition of “average manufacturer price,” or AMP, for calculating and reporting Medicaid drug rebates on outpatient prescription drug prices;
 
   
addressed a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected;
 
   
expanded the types of entities eligible for the 340B drug discount program;
 
   
established the Medicare Part D coverage gap discount program by requiring manufacturers to provide a 50%
point-of-sale-discount,
which was increased to 70% by the Bipartisan Budget Act of 2018 (as of January 1, 2019), off the negotiated price of applicable brand drugs to eligible beneficiaries during their coverage gap period as a condition for the manufacturers’ outpatient drugs to be covered under Medicare Part D; and
 
   
created a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research.
With the new administration and Congress, there will likely be additional administrative or legislative changes, including modification, repeal, or replacement of all, or certain provisions of the ACA which may impact reimbursement for drugs and biologics. For example the Tax Cuts and Jobs Act of 2017, or TCJA, includes a provision that decreased, effective January 1, 2019, the
tax-based
shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate,” to $0. On December 14, 2018, a U.S. District
 
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Court Judge in the Northern District of Texas, ruled that the individual mandate is a critical and inseverable feature of the ACA, and therefore, because the Trump administration and CMS have both stated that the ruling will have no immediate effect, and on December 18, 2019, the Fifth Circuit U.S. Court of Appeals held the individual mandate unconstitutional, and remanded the case to the lower court to reconsider its earlier invalidation of the full ACA. On March 2, 2020, the U.S. Supreme Court granted the petitions for writs of certiorari to review this case, and held oral arguments on November 10, 2020. It is unclear what effect this will have on the status of the ACA. Congress may also consider other legislation to repeal or replace certain elements of the ACA. In addition, since January 2017, President Trump has signed two Executive Orders 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. On January 20, 2017, President Trump signed an Executive Order directing federal agencies with authorities and responsibilities under the ACA to waive, defer, grant exemptions from, or delay the implementation of any provision of the ACA that would impose a fiscal burden on states or a cost, fee, tax, penalty or regulatory burden on individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. Further, on October 13, 2017, President Trump signed an Executive Order terminating the cost-sharing subsidies that reimburse insurers under the ACA. The Trump administration has concluded that cost-sharing reduction, or CSR, payments to insurance companies required under the ACA have not received necessary appropriations from Congress and announced that it would discontinue these payments immediately until such appropriations are made. Several state attorneys general filed suit to stop the Trump administration from terminating the subsidies, but their request for a restraining order was denied by a federal judge in California on October 25, 2017. On August 14, 2020, the U.S. Court of Appeals for the Federal Circuit ruled in two separate cases that the federal government is liable for the full amount of unpaid CSRs for the years preceding and including 2017. For CSR claims made by health insurance companies for years 2018 and later, further litigation will be required to determine the amounts due, if any. 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 more than $12 billion in ACA risk corridor payments to third-party payors who argued they were owed to them. On April 27, 2020, the U.S. Supreme Court reversed the U.S. Court of Appeals for the Federal Circuit decision and remanded the case to the U.S. Court of Federal Claims, concluding the government has an obligation to pay these risk corridor payments under the relevant formula. It is unclear what impact these rulings will have on our business. In addition, CMS has published a final rule that gives states greater flexibility, starting in 2020, in setting benchmarks for insurers in the individual and small group market places, which may have the effect of relaxing the essential health benefits required under the ACA for plans sold through such marketplaces. Litigation and legislation over the ACA are likely to continue, with unpredictable and uncertain results.
Packaging and Distribution in the U.S.
If our products are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. Products must meet applicable child-resistant packaging requirements under the U.S. Poison Prevention Packaging Act. Manufacturing, sales, promotion and other activities also are potentially subject to federal and state consumer protection and unfair competition laws.
The distribution of pharmaceutical products is subject to additional requirements and regulations, including extensive record-keeping, licensing, storage and security requirements intended to prevent the unauthorized sale of pharmaceutical products.
The failure to comply with any of these laws or regulatory requirements subjects firms to possible legal or regulatory action. Depending on the circumstances, failure to meet applicable regulatory requirements can result in criminal prosecution, fines or other penalties, injunctions, exclusion from federal healthcare programs, requests for recall, seizure of products, total or partial suspension of production, denial or withdrawal of product approvals, or refusal to allow a firm to enter into supply contracts, including government contracts. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. Prohibitions or restrictions on sales or withdrawal of future products marketed by us could materially affect our business in an adverse way.
 
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Changes in regulations, statutes or the interpretation of existing regulations could impact our business in the future by requiring, for example: (i) changes to our manufacturing arrangements; (ii) additions or modifications to product labeling; (iii) the recall or discontinuation of our products; or (iv) additional record-keeping requirements. If any such changes were to be imposed, they could adversely affect the operation of our business.
Other U.S. environmental, health and safety laws and regulations
We may be subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. From time to time and in the future, our operations may involve the use of hazardous and flammable materials, including chemicals and biological materials, and may also produce hazardous waste products. Even if we contract with third parties for the disposal of these materials and waste products, we cannot completely eliminate the risk of contamination or injury resulting from these materials. In the event of contamination or injury resulting from the use or disposal of our hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties for failure to comply with such laws and regulations.
We maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees, but this insurance may not provide adequate coverage against potential liabilities. However, we do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us.
In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. Current or future environmental laws and regulations may impair our research, development or production efforts. In addition, failure to comply with these laws and regulations may result in substantial fines, penalties or other sanctions.
U.S. patent term restoration and marketing exclusivity
Depending upon the timing, duration and specifics of FDA approval of
MGTA-145
and any other current or future product candidates, some of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit restoration of the patent term of up to five years as compensation for patent term lost during product development and FDA regulatory review process. Patent-term restoration, however, cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval date. The patent-term restoration period is generally
one-half
the time between the effective date of an IND and the submission date of an NDA or BLA plus the time between the submission date of an NDA or BLA and the approval of that application, except that the review period is reduced by any time during which the applicant failed to exercise due diligence. Only one patent applicable to an approved drug is eligible for the extension and the application for the extension must be submitted prior to the expiration of the patent. The U.S. Patent and Trademark Office, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. In the future, we may apply for restoration of patent term for our currently owned or licensed patents to add patent life beyond its current expiration date, depending on the expected length of the clinical trials and other factors involved in the filing of the relevant NDA or BLA.
Market exclusivity provisions under the FDCA also can delay the submission or the approval of certain applications. The FDCA provides a five-year period of
non-patent
marketing exclusivity within the U.S. to the first applicant to gain approval of an NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity period, the FDA may not accept for review an abbreviated new drug application, or ANDA, or a 505(b)(2) NDA submitted by another company for another version of such drug where the applicant does not own or have a legal right of reference to all the data
 
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required for approval. However, an application may be submitted after four years if it contains a certification of patent invalidity or
non-infringement.
The FDCA also provides three years of marketing exclusivity for an NDA, 505(b)(2) NDA or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example, new indications, dosages or strengths of an existing drug. This three-year exclusivity covers only the conditions of use associated with the new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs containing the original active agent. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA. However, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.
An abbreviated approval pathway for biological products shown to be similar to, or interchangeable with, an
FDA-licensed
reference biological product was created by the Biologics Price Competition and Innovation Act of 2009 as part of the ACA. This amendment to the PHSA, in part, attempts to minimize duplicative testing. Biosimilarity, which requires that the biological product be highly similar to the reference product notwithstanding minor differences in clinically inactive components and that there be no clinically meaningful differences between the product and the reference product in terms of safety, purity and potency, can be shown through analytical studies, animal studies and a clinical trial or trials. Interchangeability requires that a biological product be biosimilar to the reference product and that the product can be expected to produce the same clinical results as the reference product in any given patient and, for products administered multiple times to an individual, that the product and the reference product may be alternated or switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biological product without such alternation or switch. Complexities associated with the larger, and often more complex, structure of biological products as compared to small molecule drugs, as well as the processes by which such products are manufactured, pose significant hurdles to implementation that are still being worked out by the FDA.
A reference biological product is granted four- and twelve-year exclusivity periods from the time of first licensure of the product. The FDA will not accept an application for a biosimilar or interchangeable product based on the reference biological product until four years after the date of first licensure of the reference product, and the FDA will not approve an application for a biosimilar or interchangeable product based on the reference biological product until twelve years after the date of first licensure of the reference product. “First licensure” typically means the initial date the particular product at issue was licensed in the U.S. Date of first licensure does not include the date of licensure of (and a new period of exclusivity is not available for) a biological product if the licensure is for a supplement for the biological product or for a subsequent application by the same sponsor or manufacturer of the biological product (or licensor, predecessor in interest, or other related entity) for a change (not including a modification to the structure of the biological product) that results in a new indication, route of administration, dosing schedule, dosage form, delivery system, delivery device or strength, or for a modification to the structure of the biological product that does not result in a change in safety, purity, or potency. Therefore, one must determine whether a new product includes a modification to the structure of a previously licensed product that results in a change in safety, purity, or potency to assess whether the licensure of the new product is a first licensure that triggers its own period of exclusivity. Whether a subsequent application, if approved, warrants exclusivity as the “first licensure” of a biological product is determined on a
case-by-case
basis with data submitted by the sponsor.
Pediatric exclusivity is another type of regulatory market exclusivity in the U.S. Pediatric exclusivity, if granted, adds six months to existing regulatory exclusivity periods. This
six-month
exclusivity may be granted based on the voluntary completion of a pediatric trial in accordance with an
FDA-issued
“Written Request” for such a trial.
 
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European Union drug development
In the European Union, our future products also may be subject to extensive regulatory requirements. As in the U.S., medicinal products can be marketed only if a marketing authorization from the competent regulatory agencies has been obtained.
Similar to the U.S., the various phases of preclinical and clinical research in the European Union are subject to significant regulatory controls. Although the European Union Clinical Trials Directive 2001/20/EC, or Directive, has sought to harmonize the European Union clinical trials regulatory framework, setting out common rules for the control and authorization of clinical trials in the European Union, the European Union Member States have transposed and applied the provisions of the Directive differently. This has led to significant variations in the member state regimes. Under the current regime, before a clinical trial can be initiated it must be approved in each of the European Union countries where the trial is to be conducted by two distinct bodies: the National Competent Authority, or NCA, and one or more Ethics Committees, or ECs. Under the current regime all suspected unexpected serious adverse reactions to the investigated drug that occur during the clinical trial have to be reported to the NCA and ECs of the European Union Member State where they occurred.
In April 2014, the European Union adopted a new Clinical Trials Regulation (EU) No 536/2014, which is set to replace the current Clinical Trials Directive 2001/20/EC. It will overhaul the current system of approvals for clinical trials in the European Union, and is aimed at harmonizing and streamlining clinical-trial authorization (for example, by providing for a streamlined application procedure via a single entry point and strictly defined deadlines for the assessment of clinical trial applications), simplifying adverse-event reporting procedures, improving the supervision of clinical trials and increasing their transparency. The new Clinical Trials Regulation ensures that the rules for conducting clinical trials in the European Union will be identical, as no national implementing legislation in each European Union Member State will be required. It is expected that the new Clinical Trials Regulation will come into effect following confirmation of full functionality of the Clinical Trials Information System, the centralized European Union portal and database for clinical trials foreseen by the new Clinical Trials Regulation, through an independent audit, which is currently anticipated to occur in December 2021.
European Union drug marketing
Much like the Anti-Kickback Statue prohibition in the U.S., the provision of benefits or advantages to physicians to induce or encourage the prescription, recommendation, endorsement, purchase, supply, order or use of medicinal products is also prohibited in the European Union and the U.K. The provision of benefits or advantages to induce or reward improper performance generally is governed by the national anti-bribery laws of European Union Member States, and the Bribery Act 2010 in the U.K. Infringement of these laws could result in substantial fines and imprisonment. European Union Directive 2001/83/EC, which is the European Union Directive governing medicinal products for human use, further provides that, where medicinal products are being promoted to persons qualified to prescribe or supply them, no gifts, pecuniary advantages or benefits in kind may be supplied, offered or promised to such persons unless they are inexpensive and relevant to the practice of medicine or pharmacy. This provision has been transposed into the Human Medicines Regulations 2012 and so remains applicable in the U.K. despite its departure from the European Union.
Payments made to physicians in certain European Union Member States must be publicly disclosed. Moreover, agreements with physicians often must be the subject of prior notification and approval by the physician’s employer, his or her competent professional organization and/or the regulatory authorities of the individual European Union Member States. These requirements are provided in the national laws, industry codes or professional codes of conduct, applicable in the European Union Member States. Failure to comply with these requirements could result in reputational risk, public reprimands, administrative penalties, fines or imprisonment.
 
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European Union drug review and approval
In the European Economic Area, or EEA, which is comprised of the Member States of the European Union (plus Norway, Iceland and Liechtenstein), medicinal products can only be commercialized after obtaining a Marketing Authorization, or MA. There are two types of marketing authorizations.
 
   
The Centralized MA is issued by the European Commission through the Centralized Procedure, based on the opinion of the Committee for Medicinal Products for Human Use, or CHMP, of the EMA and is valid throughout the entire territory of the EEA. The Centralized Procedure is mandatory for certain types of products, such as biotechnology medicinal products, orphan medicinal products, advanced-therapy medicines (gene-therapy, somatic cell-therapy or tissue-engineered medicines) and medicinal products containing a new active substance indicated for the treatment of HIV, AIDS, cancer, neurodegenerative disorders, diabetes, auto-immune and other immune dysfunctions and viral diseases. The Centralized Procedure is optional for products containing a new active substance not yet authorized in the EEA, or for products that constitute a significant therapeutic, scientific or technical innovation or which are in the interest of public health in the European Union. Under the Centralized Procedure the maximum timeframe for the evaluation of a Marketing Authorization Application, or MAA, by the EMA is 210 days, excluding clock stops, when additional written or oral information is to be provided by the applicant in response to questions asked by the CHMP. Clock stops may extend the timeframe of evaluation of a MAA considerably beyond 210 days. Where the CHMP gives a positive opinion, it provides the opinion together with supporting documentation to the European Commission, who make the final decision to grant a marketing authorization, which is issued within 67 days of receipt of the EMA’s recommendation. Accelerated assessment might be granted by the CHMP in exceptional cases, when a medicinal product is expected to be of major public health interest, particularly from the point of view of therapeutic innovation. The timeframe for the evaluation of a MAA under the accelerated assessment procedure is 150 days, excluding clock stops, but it is possible that the CHMP may revert to the standard time limit for the centralized procedure if it determines that the application is no longer appropriate to conduct an accelerated assessment.
 
   
National MAs, which are issued by the competent authorities of the Member States of the EEA and only cover their respective territory, are available for products not falling within the mandatory scope of the Centralized Procedure. Where a product has already been authorized for marketing in a Member State of the EEA, this National MA can be recognized in other Member States of the EEA through the Mutual Recognition Procedure. If the product has not received a National MA in any Member State of the EEA at the time of application, it can be approved simultaneously in various Member States of the EEA through the Decentralized Procedure. Under the Decentralized Procedure an identical dossier is submitted to the competent authorities of each of the Member States of the EEA in which a MA is sought, one of which is selected by the applicant as the Reference Member State, or RMS. The competent authority of the RMS prepares a draft assessment report, a draft summary of the product characteristics, or SmPC, and a draft of the labeling and package leaflet, which are sent to the other Member States of the EEA (referred to as the Concerned Member States) for their approval. If the Concerned Member States raise no objections, based on a potential serious risk to public health, to the assessment, SmPC, labeling, or packaging proposed by the RMS, the product is subsequently granted a National MA in all the Member States (i.e., in the RMS and the Concerned Member States).
Under the above described procedures, before granting a MA, the EMA or the competent authorities of the Member States of the EEA make an assessment of the risk-benefit balance of the product on the basis of scientific criteria concerning its quality, safety and efficacy.
Now that the U.K. (which comprises Great Britain and Northern Ireland) has left the European Union, Great Britain will no longer be covered by Centralized MAs (under the Northern Irish Protocol, Centralized MAs will continue to be recognized in Northern Ireland). All medicinal products with a current Centralized MA were automatically converted to Great Britain MAs on January 1, 2021. For a period of two years from January 1,
 
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2021, the Medicines and Healthcare products Regulatory Agency, or MHRA, the U.K. medicines regulator, may rely on a decision taken by the European Commission on the approval of a new MA in the Centralized Procedure, in order to more quickly grant a new Great Britain MA. A separate application will, however, still be required. The MHRA also has the power to have regard to MAs approved in the Member States of the EEA through Decentralized or Mutual Recognition Procedures with a view to more quickly granting a MA in the U.K. or Great Britain.
European Union market and data exclusivity
In the EEA, innovative medicinal products qualify for eight years of data exclusivity upon marketing authorization and an additional two years of market exclusivity. The data exclusivity, if granted, prevents generic or biosimilar applicants from referencing the innovator’s
pre-clinical
and clinical trial data contained in the dossier of the reference product when applying for a generic or biosimilar marketing authorization in the EAA. During the additional
two-year
period of market exclusivity, a generic or biosimilar marketing authorization application can be submitted, and the innovator’s data may be referenced, but no generic or biosimilar product can be marketed until the expiration of the market exclusivity. The overall
ten-year
period will be extended to a maximum of 11 years if, during the first eight years of those ten years, the marketing authorization holder obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to their authorization, are determined to bring a significant clinical benefit in comparison with currently approved therapies. Even if a compound is considered to be a new chemical entity so that the innovator gains the prescribed period of data exclusivity, another company may market another version of the product if such company obtained marketing authorization based on an marketing authorization application with a complete independent data package of pharmaceutical tests, preclinical tests and clinical trials.
European Union orphan designation and exclusivity
In the EEA, the EMA’s Committee for Orphan Medicinal Products grants orphan drug designation to promote the development of products that are intended for the diagnosis, prevention or treatment of life-threatening or chronically debilitating conditions and either (i) such condition affects not more than 5 in 10,000 persons in the EEA or (ii) it is unlikely that the development of the medicine would generate sufficient return to justify the necessary investment in its development. In either case, the applicant must also demonstrate that no satisfactory method of diagnosis, prevention or treatment for the condition has been authorized (or, if a method exists, the product would be a significant benefit to those affected compared to the product available).
In the European Union, orphan drug designation entitles a party to financial incentives such as reduction of fees or fee waivers and ten years of market exclusivity is granted following medicinal product approval. During this market exclusivity period, neither the EMA nor the European Commission nor any of the competent authorities in the EEA Members States can accept an application or grant a marketing authorization for a “similar medicinal product.” A “similar medicinal product” is defined as a medicinal product containing a similar active substance or substances as contained in an authorized orphan medicinal product, and which is intended for the same therapeutic indication. This period may be reduced to six years if the orphan drug designation criteria are no longer met, including where it is shown that the product is sufficiently profitable not to justify maintenance of market exclusivity. Market exclusivity may also be revoked in very select cases, such as if (i) it is established that a similar medicinal product is safer, more effective or otherwise clinically superior; (ii) the marketing authorization holder consents to such revocation; or (iii) the marketing authorization holder cannot supply enough orphan medicinal product. Orphan drug designation must be requested before submitting an application for marketing approval. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process.
From January 1, 2021, a separate process for orphan drug designation will apply in Great Britain. There will be no
pre-marketing
authorization orphan designation (as there is in the EEA) and the application for orphan designation will be reviewed by the MHRA, at the time of the marketing authorization application. The criteria
 
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are the same as in the EEA, save that they apply to Great Britain only (e.g., there must be no satisfactory method of diagnosis, prevention or treatment of the condition concerned in Great Britain).
Brexit and the Regulatory Framework in the U.K.
On June 23, 2016, the electorate in the U.K. voted in favor of leaving the European Union (commonly referred to as Brexit). Thereafter, on March 29, 2017, the country formally notified the European Union of its intention to withdraw pursuant to Article 50 of the Lisbon Treaty. The U.K. formally left the European Union on January 31, 2020. A transition period began on February 1, 2020, during which European Union pharmaceutical law remained applicable to the U.K. and ended on December 31, 2020. Since the regulatory framework for pharmaceutical products in the U.K. covering quality, safety, and efficacy of pharmaceutical products, clinical trials, marketing authorization, commercial sales, and distribution of pharmaceutical products is derived from European Union directives and regulations, Brexit could materially impact the future regulatory regime which applies to products and the approval of product candidates in the U.K., as the U.K. legislation now has the potential to diverge from European Union legislation. It remains to be seen how Brexit will impact regulatory requirements for medicinal products and devices in the U.K. in the long-term. The MHRA has recently published detailed guidance for industry and organizations to follow now the transition period is over, which will be updated as the U.K.’s regulatory position on medicinal products and medical devices evolves over time.
European and United Kingdom Data Collection
The collection and use of personal health data in the European Union is governed, as of May 2018, by the General Data Protection Regulation, or GDPR. The GDPR imposes several requirements on companies that process personal data, including requirements relating to the processing of health and other sensitive data, the consent of the individuals to whom the personal data relates, the information provided to the individuals regarding data processing activities, the notification of data processing obligations to the competent national data protection authorities and certain measures to be taken when engaging third-party processors. The GDPR also imposes strict rules on the transfer of personal data out of the European Economic Area, including to the U.S. Failure to comply with the requirements of the GDPR, and the related national data protection laws of the European Union Member States, may result in fines and other administrative penalties, including potential fines of up to €20 million or 4% of annual global revenues, whichever is greater. The GDPR also confers a private right of action on data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies, and obtain compensation for damages resulting from violations of the GDPR. 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 the new data protection rules, including as implemented by individual countries. This may be onerous and adversely affect our business, financial condition, results of operations and prospects. In addition, further to the U.K.’s exit from the European Union on January 31, 2020, the GDPR ceased to apply in the U.K. at the end of the transition period on December 31, 2020. However, as of January 1, 2021, the U.K.’s European Union (Withdrawal) Act 2018 incorporated the GDPR (as it existed on December 31, 2020 but subject to certain U.K. specific amendments) into U.K. law (referred to as the U.K. GDPR). The U.K. GDPR and the U.K. Data Protection Act 2018 set out the U.K.’s data protection regime, which is independent from but aligned to the European Union’s data protection regime.
Non-compliance
with the U.K. GDPR may result in monetary penalties of up to £17.5 million or 4% of worldwide revenue, whichever is higher. The U.K., however, is now regarded as a third country under the European Union’s GDPR which means that transfers of personal data from the EEA to the U.K. will be restricted unless an appropriate safeguard, as recognized by the European Union’s GDPR, has been put in place. Although, under the
EU-U.K.
Trade Cooperation Agreement it is lawful to transfer personal data between the U.K. and the EEA for a 6 month period following the end of the transition period, with a view to achieving an adequacy decision from the European Commission during that period. Like the European Union GDPR, the U.K. GDPR restricts personal data transfers outside the U.K. to countries not regarded by the U.K. as providing adequate protection (this means that personal data transfers from the U.K. to the EEA remain free flowing). Compliance with the GDPR and the U.K. GDPR is a rigorous and time-intensive process that may increase our cost of doing business or require us to change our business practices, and
 
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despite those efforts, there is a risk that we may be subject to fines and penalties, litigation, and reputational harm in connection with any future European or U.K. activities.
Rest of the world regulation
For other countries outside of the European Union and the U.S., such as countries in Eastern Europe, Latin America or Asia, the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. Additionally, the clinical trials must be conducted in accordance with GCP requirements and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki.
If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.
Additional laws and regulations governing international operations
If we further expand our operations outside of the U.S., we must dedicate additional resources to comply with numerous laws and regulations in each jurisdiction in which we plan to operate. The Foreign Corrupt Practices Act, or FCPA, prohibits any U.S. individual or business from paying, offering, authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the U.S. to comply with certain accounting provisions requiring the company to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations.
Compliance with the FCPA is expensive and difficult, particularly in countries in which corruption is a recognized problem. In addition, the FCPA presents particular challenges in the pharmaceutical industry, because, in many countries, hospitals are operated by the government, and doctors and other hospital employees are considered foreign officials. Certain payments to hospitals in connection with clinical trials and other work have been deemed to be improper payments to government officials and have led to FCPA enforcement actions.
Various laws, regulations and executive orders also restrict the use and dissemination outside of the U.S., or the sharing with certain
non-U.S.
nationals, of information classified for national security purposes, as well as certain products and technical data relating to those products. If we expand our presence outside of the U.S., it will require us to dedicate additional resources to comply with these laws, and these laws may preclude us from developing, manufacturing, or selling certain products and product candidates outside of the U.S., which could limit our growth potential and increase our development costs.
The failure to comply with laws governing international business practices may result in substantial civil and criminal penalties and suspension or debarment from government contracting. The SEC also may suspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA’s accounting provisions.
Reimbursement
Sales of our products will depend, in part, on the extent to which our products will be covered by third-party payors, such as government health programs, commercial insurance and managed healthcare organizations. In the U.S., no uniform policy of coverage and reimbursement for drug or biological products exists. Accordingly, decisions regarding the extent of coverage and amount of reimbursement to be provided for any of our products will be made on a
payor-by-payor
basis. The process for determining whether a third-party payor will provide coverage for a product may be separate from the process for setting the price or reimbursement rate that the
 
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payor will pay for the product once coverage is approved. Third-party payors are increasingly challenging the prices charged, examining the medical necessity, and reviewing the cost-effectiveness of medical products and services and imposing controls to manage costs. Third-party payors may limit coverage to specific products on an approved list, also known as a formulary, which might not include all of the approved products for a particular indication. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our products to each payor separately, with no assurance that coverage and adequate reimbursement will be obtained.
The U.S. government, state legislatures and foreign governments have shown significant interest in implementing cost containment programs to limit the growth of government-paid health care costs, including price-controls, restrictions on reimbursement and requirements for substitution of generic products for branded prescription drugs. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit a company’s revenue generated from the sale of any approved products. For example, the ACA contains provisions that subject biological products to potential competition by lower-cost biosimilars and may reduce the profitability of drug products through increased rebates for drugs reimbursed by Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatory discounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies’ share of sales to federal health care programs. Adoption of general controls and measures, coupled with the tightening of restrictive policies in jurisdictions with existing controls and measures, could limit payments for pharmaceutical drugs.
The Medicaid Drug Rebate Program requires pharmaceutical manufacturers to enter into and have in effect a national rebate agreement with the Secretary of the Department of Health and Human Services as a condition for states to receive federal matching funds for the manufacturer’s outpatient drugs furnished to Medicaid patients. The ACA made several changes to the Medicaid Drug Rebate Program, including increasing pharmaceutical manufacturers’ rebate liability by raising the minimum basic Medicaid rebate on most branded prescription drugs of AMP and adding a new rebate calculation for “line extensions” (i.e., new formulations, such as extended release formulations) of solid oral dosage forms of branded products, creating a new methodology by which rebates owed are calculated for drugs that are inhaled, infused, instilled, implanted or injected, as well as potentially impacting their rebate liability by modifying the statutory definition of AMP. The ACA also expanded the universe of Medicaid utilization subject to drug rebates by requiring pharmaceutical manufacturers to pay rebates on Medicaid managed care utilization and by enlarging the population potentially eligible for Medicaid drug benefits. Pricing and rebate programs must also comply with the Medicaid rebate requirements of the U.S. Omnibus Budget Reconciliation Act of 1990.
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or the MMA, established the Medicare Part D program to provide a voluntary prescription drug benefit to Medicare beneficiaries. Under Part D, Medicare beneficiaries may enroll in prescription drug plans offered by private entities that provide coverage of outpatient prescription drugs. Unlike Medicare Part A and B, Part D coverage is not standardized. While all Medicare drug plans must give at least a standard level of coverage set by Medicare, Part D prescription drug plan sponsors are not required to pay for all covered Part D drugs, and each drug plan can develop its own drug formulary that identifies which drugs it will cover and at what tier or level. However, Part D prescription drug formularies must include drugs within each therapeutic category and class of covered Part D drugs, though not necessarily all the drugs in each category or class. Any formulary used by a Part D prescription drug plan must be developed and reviewed by a pharmacy and therapeutic committee. Government payment for some of the costs of prescription drugs may increase demand for products for which we receive marketing approval. However, any negotiated prices for our products covered by a Part D prescription drug plan likely will be lower than the prices we might otherwise obtain. Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own payment rates. Any reduction in payment that results from the MMA may result in a similar reduction in payments from
non-governmental
payors.
 
 
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For a drug product to receive federal reimbursement under the Medicaid or Medicare Part B programs or to be sold directly to U.S. government agencies, the manufacturer must extend discounts to entities eligible to participate in the 340B drug pricing program. The required 340B discount on a given product is calculated based on the AMP and Medicaid rebate amounts reported by the manufacturer. As of 2010, the ACA expanded the types of entities eligible to receive discounted 340B pricing, although, under the current state of the law, with the exception of children’s hospitals, these newly eligible entities will not be eligible to receive discounted 340B pricing on orphan drugs. In addition, as 340B drug pricing is determined based on AMP and Medicaid rebate data, the revisions to the Medicaid rebate formula and AMP definition described above could cause the required 340B discount to increase.
As noted above, the marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government and third-party payors fail to provide adequate coverage and reimbursement. An increasing emphasis on cost containment measures in the U.S. has increased and we expect will continue to increase the pressure on pharmaceutical pricing. Coverage policies and third-party reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.
In recent years, additional laws have resulted in direct or indirect reimbursement reductions for certain Medicare providers.
 
   
The Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. These changes included aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, which went into effect in April 2013 and will remain in effect through 2030 unless additional Congressional action is taken. However, pursuant to the Coronavirus Aid, Relief and Economic Security Act, or CARES Act, and subsequent legislation, these Medicare sequester reductions are suspended from May 1, 2020 through March 31, 2020 due to the
COVID-19
pandemic.
 
   
The American Taxpayer Relief Act of 2012, among other things, 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.
 
   
The Middle Class Tax Relief and Job Creation Act of 2012 required that the Centers for Medicare & Medicaid Services reduce the Medicare clinical laboratory fee schedule by 2% in 2013, which served as a base for 2014 and subsequent years. In addition, effective January 1, 2014, CMS also began bundling the Medicare payments for certain laboratory tests ordered while a patient received services in a hospital outpatient setting.
In addition, the Trump administration’s budget proposal for fiscal year 2021 includes a $135 billion allowance to support legislative proposals seeking to reduce drug prices, increase competition, lower
out-of-pocket
drug costs for patients, and increase patient access to lower-cost generic and biosimilar drugs. On March 10, 2020, the Trump administration sent “principles” for drug pricing to Congress, calling for legislation that would, among other things, cap Medicare Part D beneficiary
out-of-pocket
pharmacy expenses, provide an option to cap Medicare Part D beneficiary monthly
out-of-pocket
expenses, and place limits on pharmaceutical price increases. Additionally, the Trump administration previously released a “Blueprint” to reduce the cost of drugs. HHS has solicited feedback on some measures and has implemented others under its existing authority. For example, in May 2019, CMS issued a final rule that would allow Medicare Advantage Plans the option of using step therapy, a type of prior authorization, for Part B drugs beginning January 1, 2020. This final rule codified CMS’s policy change that was effective January 1, 2019.
 
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At the state level, legislatures have become increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing. Some of these measures include price or patient reimbursement constraints, discounts, restrictions on certain product access, marketing cost disclosure and transparency measures, and, in some cases, measures designed to encourage importation from other countries and bulk purchasing. In addition, regional health care authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other health care programs.
These laws, and future state and federal healthcare reform measures may be adopted in the future, any of which may result in additional reductions in Medicare and other healthcare funding and otherwise affect the prices we may obtain for any of our product candidates for which we may obtain regulatory approval or the frequency with which any such product candidate is prescribed or used.
In addition, in most foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing and reimbursement vary widely from country to country. For example, the European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. Reference pricing used by various European Union member states and parallel distribution, or arbitrage between
low-priced
and high-priced member states, can further reduce prices. A member state may approve a specific price for the medicinal product, or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. In some countries, we may be required to conduct a clinical trial or other trials that compare the cost-effectiveness of any of our product candidates to other available therapies in order to obtain or maintain reimbursement or pricing approval. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our products. Historically, products launched in the European Union do not follow price structures of the U.S. and generally prices tend to be significantly lower. Publication of discounts by third-party payors or authorities may lead to further pressure on the prices or reimbursement levels within the country of publication and other countries. If pricing is set at unsatisfactory levels or if reimbursement of our products is unavailable or limited in scope or amount, our revenues from sales by us or our strategic partners and the potential profitability of any of our product candidates in those countries would be negatively affected.
Employees and Human Capital
As of December 31, 2020, we had 69 full-time employees, 28 of our employees have Ph.D. or M.D. degrees and 45 of our employees are engaged in research and development activities.
Our human capital resource objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our employees with the common purpose of helping more patients live free from disease. At Magenta, we celebrate our differences and value the power of a diverse array of people who bring all of themselves to their work. We embrace cultural, racial, gender, cognitive, social and professional diversity because we know that the only way we are going to make new cures possible is by working together. We prioritize employee development and seek to align employees’ goals with Magenta’s overall strategic direction. We use our equity incentive plan to attract, retain and motivate selected employees, consultants and directors through the granting of stock-based compensation awards to achieve short- and long-term results that are in the best interests of investors, Magenta’s mission and our patients. For additional information on the impact of
COVID-19
on our employees, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Impact of the
COVID-19
Pandemic”.
Our Corporate Information
We were incorporated under the laws of the State of Delaware on June 17, 2015 under the name HSCTCo Therapeutics, Inc. In February 2016, we changed our name to Magenta Therapeutics, Inc.
 
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On June 25, 2018, we completed the initial public offering, or IPO, pursuant to which we issued and sold 6,666,667 shares of common stock at a public offering price of $15.00 per share, resulting in net proceeds of $89.9 million, after deducting underwriting discounts and commissions and other offering expenses. Upon the closing of the IPO, our outstanding redeemable convertible preferred stock automatically converted into shares of common stock.
See Part II—Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 1 to the consolidated financial statements included in Part II—Item 8 for more information about the above-mentioned transactions.
We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012. We will remain an emerging growth company until the earlier of: (i) the last day of the fiscal year (a) following the fifth anniversary of the completion of the IPO, (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 means the market value of our common stock that is held by
non-affiliates
exceeds $700.0 million as of the prior June 30th, and (ii) the date on which we have issued more than $1.0 billion in
non-convertible
debt during the prior three-year period.
We are also a “smaller reporting company” as defined in the Securities and Exchange Act of 1934, as amended, or the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies until the fiscal year following the determination that our voting and
non-voting
common stock held by
non-affiliates
is more than $250 million measured on the last business day of our second fiscal quarter, or our annual revenues are more than $100 million during the most recently completed fiscal year and our voting and
non-voting
common stock held by
non-affiliates
is more than $700 million measured on the last business day of our second fiscal quarter.
Our principal executive offices are located at 100 Technology Square, Cambridge, MA 02139, and our telephone number is
(857) 242-0170. Our
website address is
www.magentatx.com
. Our website and the information contained on, or that can be accessed through, the website will not be deemed to be incorporated by reference in, and are not considered part of, this Annual Report on Form
10-K.
Available Information
Our Internet address is
www.magentatx.com
. Our Annual Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K,
including exhibits, proxy and information statements and amendments to those reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Exchange Act are available through the “Investors” portion of our website free of charge as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Information on our website is not part of this Annual Report on
Form 10-K
or any of our other securities filings unless specifically incorporated herein by reference. In addition, our filings with the SEC may be accessed through the SEC’s Electronic Data Gathering, Analysis and Retrieval system at
http://www.sec.gov
. All statements made in any of our securities filings, including all forward-looking statements or information, are made as of the date of the document in which the statement is included, and we do not assume or undertake any obligation to update any of those statements or documents unless we are required to do so by law.
 
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ITEM 1A.
RISK FACTORS
Set forth below are the risks that we believe are material to our investors and they should be carefully considered. If any of the following risks and uncertainties actually occurs, our business, prospects, financial condition and results of operations could be materially and adversely affected. The risks described below are not intended to be exhaustive and other factors not presently known to us or that we currently believe are immaterial may affect our business, prospects, financial condition and results of operations if they occur. This section contains forward-looking statements. You should refer to the explanation of the qualifications and limitations on forward-looking statements beginning on page three.
Risks Related to the Current Novel Coronavirus
(COVID-19)
Pandemic on the Company
The current outbreak of the novel coronavirus, or
COVID-19,
pandemic has caused, and could continue to cause, severe disruptions in the U.S., regional and global economies and could seriously harm our development efforts, increase our costs and expenses and have a material adverse effect on our business, financial condition and results of operations.
Widespread outbreak of illness or other communicable diseases, health epidemics, or any other public health crisis could adversely affect our ongoing or planned research and development activities. For example, in December 2019, an outbreak of a novel strain of coronavirus originated in Wuhan, China, and has since spread to a number of other countries, including the U.S. To date, the
COVID-19
pandemic has caused widespread disruptions to the U.S. and global economy and has contributed to significant volatility and negative pressure in financial markets. The global impact of the outbreak is continually evolving and, as additional cases of the virus are identified, many countries, including the U.S., have reacted by instituting quarantines, restrictions on travel and mandatory closures of businesses. Certain states and cities, including where we or the third parties with whom we engage operate, have also reacted by instituting quarantines, restrictions on travel, “stay at home” rules, restrictions on types of business that may continue to operate and restrictions on the types of construction projects that may continue.
The extent to which the
COVID-19
pandemic impacts our business, financial condition and results of operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of such pandemic, the actions taken to contain the pandemic or mitigate its impact, including the adoption of available
COVID-19
vaccines, as well as the effect of any relaxation of current restrictions within the Cambridge community or regions in which our partners and clinical sites are located, and the direct and indirect economic effects of the pandemic and containment measures, among others. The rapid development and fluidity of this situation precludes any prediction as to the full adverse impact of the
COVID-19
pandemic. Nevertheless, the
COVID-19
pandemic has affected, and may continue to adversely affect, our business, financial condition and results of operations, and it has had, and may continue to have, the effect of heightening many of the risks described in this Annual Report on Form
10-K,
including but not limited to, the following:
 
   
The
COVID-19
pandemic has had, and will likely continue to have, an adverse impact on various aspects of our ongoing clinical trials, including our investigator-initiated trial, and on
pre-clinical
studies and clinical trials, including investigator-initiated trials. For example, we staggered the initiation of our Phase 2 trials for
MGTA-145
over the course of 2020 and 2021 due to the clinical trial impacts from
COVID-19.
 
   
Other potential impacts of the
COVID-19
pandemic on our various clinical trials include impacts on patient dosing and study monitoring, which may be paused or delayed due to changes in policies at various clinical sites; federal, state, local or foreign laws, rules and regulations, including quarantines or other travel restrictions; the prioritization of healthcare resources toward pandemic efforts, including diminished attention from physicians serving as our clinical trial investigators and reduced availability of site staff supporting the conduct of our clinical trials; and interruption or delays in the operations of
 
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the Food and Drug Administration, or FDA, among other reasons related to the
COVID-19
pandemic. If the
COVID-19
pandemic continues, other aspects of our clinical trials will likely be adversely affected, delayed or interrupted, including, for example, site initiation, patient recruitment and enrollment, availability of clinical trial materials and data analysis. Some patients and clinical investigators may not be able to comply with clinical trial protocols and patients may choose to withdraw from our studies or we may choose to, or be required to, pause enrollment and or patient dosing in our ongoing clinical trials in order to preserve health resources and protect trial participants. It is unknown how long these pauses or disruptions could continue.
 
   
We currently rely on third parties, including our contract research organizations, or CROs, and our contract manufacturing organizations, or CMOs, and other contractors and consultants to, among other things, conduct our preclinical and clinical trials, manufacture raw materials, manufacture and supply our product candidates, ship investigational drugs and clinical trial samples, perform quality testing and supply other goods and services to run our business. If any such third party is adversely impacted by restrictions resulting from the
COVID-19
pandemic, including staffing shortages, production slowdowns and disruptions in delivery systems, our supply chain may be disrupted, which could limit our ability to manufacture our product candidates for our clinical trials and conduct our research and development operations.
 
   
We have established a work-from-home policy for all employees, other than those who are performing or supporting business-critical research and development operations or other essential activities that must be completed
on-site
and limited the number of staff in any given research and development laboratory. Our increased reliance on personnel working from home may negatively impact productivity, or disrupt, delay, or otherwise adversely impact our business. In addition, this could increase our cyber security risk, create data accessibility concerns and make us more susceptible to communication disruptions, any of which could adversely impact our business operations or delay necessary interactions with local and federal regulators, ethics committees, manufacturing sites, research or clinical trial sites and other important agencies and contractors.
 
   
Our employees and contractors conducting
non-business
critical research and development activities have not been able to, and may not in the future be able to, access our laboratory for an extended period of time as a result of the current work-from-home policy and the possibility that governmental authorities further modify current restrictions. This could delay timely completion of preclinical activities, including completing Investigational New Drug, or IND, enabling studies or our ability to select future development candidates, and initiation of additional clinical trials for our other product candidates.
 
   
Certain government agencies, such as health regulatory agencies and patent offices, within the U.S. or internationally have experienced, and may continue to experience, disruptions in their operations as a result of the
COVID-19
pandemic. The FDA and comparable foreign regulatory agencies may have slower response times or be under-resourced to continue to monitor our clinical trials and, as a result, review, inspection and other timelines may be materially delayed. It is unknown how long these disruptions could continue. Any elongation or
de-prioritization
of our clinical trials or delay in regulatory review resulting from such disruptions could materially affect the development and study of our product candidates. For example, regulatory authorities may require that we not distribute a product candidate lot until the relevant agency authorizes its release. Such release authorization may be delayed as a result of the
COVID-19
pandemic, which would likely result in delays to our ongoing clinical trials.
 
   
The trading prices for our common stock and those of other biopharmaceutical companies have been highly volatile as a result of the
COVID-19
pandemic. As a result, we may face difficulties raising capital through sales of our common stock or such sales may be on unfavorable terms. In addition, a recession, depression or other sustained adverse market event resulting from the
COVID-19
pandemic could materially and adversely affect our business and the value of our common stock.
 
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Risks Related to Our Financial Position and Need for Additional Capital
We have incurred net losses in every year since our inception and anticipate that we will continue to incur net losses in the future.
We are a clinical-stage biotechnology company developing novel medicines to bring the curative power of stem cell transplant to more patients and have 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 effect 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, and we continue to incur significant research and development and other expenses related to our ongoing operations. As a result, we are not profitable and have incurred losses in each period since our inception in June 2015. For the years ended December 31, 2020 and 2019, we reported net losses of $74.9 million and $76.8 million, respectively. As of December 31, 2020, we had an accumulated deficit of $254.4 million. We expect to continue to incur significant losses for the foreseeable future, and we expect these losses to increase as we continue our research and development of, and seek regulatory approvals for, our product candidates.
Even if we succeed in commercializing one or more of our product candidates, we will continue to incur substantial research and development costs 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.
We will require additional capital to fund our operations and if we fail to obtain necessary financing, we will not be able to complete the development and commercialization of our product candidates.
Our operations have consumed substantial amounts of cash since our inception. We expect to continue to spend substantial amounts of cash (including the net proceeds from our initial public offering, or IPO, and our
follow-on
public offerings in May 2019 and June 2020) to conduct further research and development and preclinical testing and clinical trials of our product candidates, to seek regulatory approvals for our product candidates and to launch and commercialize any product candidates for which we receive regulatory approval, including potentially building our own commercial organization to address the U.S., the European Union and certain other markets. As of December 31, 2020, we had approximately $148.8 million in cash, cash equivalents and marketable securities. Our monthly spending levels will vary based on new and ongoing development and corporate activities. Because the length of time and activities associated with successful development of our product candidates is highly uncertain, we are unable to estimate the actual funds we will require for development and any approved marketing and commercialization activities. Our future funding requirements, both near and long-term, will depend on many factors, including, but not limited to:
 
   
the initiation, progress, timing, costs and results of preclinical studies and clinical trials for our product candidates;
 
   
the clinical development plans we establish for these product candidates;
 
   
the number and characteristics of product candidates that we develop or may
in-license;
 
   
the terms of any collaboration agreements we may choose to conclude;
 
   
the outcome, timing and cost of meeting regulatory requirements established by the FDA, the European Medical Agency, or EMA, and other comparable foreign regulatory authorities;
 
   
the cost of filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights;
 
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the cost of defending intellectual property disputes, including patent infringement actions brought by third parties against us or our product candidates;
 
   
the effect of competing technological and market developments;
 
   
the cost and timing of completion of commercial-scale outsourced manufacturing activities; and
 
   
the cost of establishing sales, marketing and distribution capabilities for any product candidates for which we may receive regulatory approval in regions where we choose to commercialize our products on our own.
We cannot be certain that additional funding will be available on acceptable terms, or at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our product candidates or one or more of our other research and development initiatives. We also could be required to seek collaborators for one or more of our current or future product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available or relinquish or license on unfavorable terms our rights to technologies or product candidates that we otherwise would seek to develop or commercialize ourselves.
Any of the above events could significantly harm our business, prospects, financial condition and results of operations and cause the price of our common stock to decline.
Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.
We may seek additional capital through a combination of public and private equity offerings, debt financings, strategic partnerships and alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, our stockholder’s ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect our stockholder’s rights. The incurrence of indebtedness would result in increased fixed payment obligations and could involve certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or product candidates or grant licenses on terms unfavorable to us.
Our company has a limited operating history and no history of commercializing pharmaceutical products, which may make it difficult to evaluate the prospects for our future viability.
We are a clinical stage company. We were founded and commenced operations in June 2015. Our operations to date have been limited to organizing and staffing our company, business planning, raising capital, acquiring and developing our technology, identifying potential product candidates, and undertaking preclinical studies and clinical trials. Although we have initiated clinical trials for
MGTA-145
and
MGTA-456,
we have not yet demonstrated an ability to successfully complete clinical trials of our product candidates; obtain marketing approvals; manufacture a commercial-scale medicine, or arrange for a third party to do so on our behalf; or conduct sales and marketing activities necessary for successful commercialization. Typically, it takes about 10 to 15 years to develop a new medicine from the time it is discovered to when it is available for treating patients. Consequently, any predictions we make about our future success or viability may not be as accurate as they could be if we had a longer operating history.
In addition, as a new business, we may encounter unforeseen expenses, difficulties, complications, delays, and other known and unknown factors. We will need to transition from a company with a research focus to a company capable of supporting commercial activities. We may not be successful in such a transition.
 
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We have never generated revenue from product sales and may never be profitable.
Our ability to generate revenue from product sales and achieve profitability depends on our ability, alone or with collaborative partners, to successfully complete the development of, and obtain the regulatory approvals necessary to commercialize, product candidates we may identify for development. We may not generate revenues from product sales for the next several years, if ever. Our ability to generate future revenues from product sales depends heavily on our, or our collaborators’, ability to successfully:
 
   
identify product candidates and complete research and preclinical and clinical development of any product candidates we may identify;
 
   
seek and obtain regulatory and marketing approvals for any of our product candidates for which we complete clinical trials;
 
   
launch and commercialize any of our product candidates for which we obtain regulatory and marketing approval by establishing a sales force, marketing, and distribution infrastructure or, alternatively, collaborating with a commercialization partner;
 
   
qualify for adequate coverage and reimbursement by government and third-party payors for any of our product candidates for which we obtain regulatory and marketing approval;
 
   
develop, maintain, and enhance a sustainable, scalable, reproducible, and transferable manufacturing process for the product candidates we may develop;
 
   
establish and maintain supply and manufacturing relationships with third parties that can provide adequate, in both amount and quality, products and services to support clinical development and the market demand for any of our product candidates for which we obtain regulatory and marketing approval;
 
   
obtain market acceptance of any product candidates we may develop as viable treatment options;
 
   
address competing technological and market developments;
 
   
implement internal systems and infrastructure, as needed;
 
   
negotiate favorable terms in any collaboration, licensing, or other arrangements into which we may enter and perform our obligations in such collaborations;
 
   
maintain, protect, and expand our portfolio of intellectual property rights, including patents, trade secrets, and
know-how;
 
   
avoid and defend against third-party interference or infringement claims; and
 
   
attract, hire, and retain qualified personnel.
Even if one or more of the product candidates we may develop is approved for commercial sale, we anticipate incurring significant costs associated with commercializing any approved product candidate. Our expenses could increase beyond expectations if we are required by the FDA, the EMA, or other regulatory authorities to perform clinical and other studies in addition to those that we currently anticipate. Even if we are able to generate revenues from the sale of any approved products, we may not become profitable and may need to obtain additional funding to continue operations.
Our insurance policies may be inadequate and potentially expose us to unrecoverable risks.
We have limited director and officer insurance and commercial insurance policies. Any significant insurance claims would have a material adverse effect on our business, financial condition and results of operations. Insurance availability, coverage terms and pricing continue to vary with market conditions. We endeavor to obtain appropriate insurance coverage for insurable risks that we identify; however, we may fail to correctly anticipate or quantify insurable risks, we may not be able to obtain appropriate insurance coverage, and
 
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insurers may not respond as we intend to cover insurable events that may occur. We have observed rapidly changing conditions in the insurance markets relating to nearly all areas of traditional corporate insurance. Such conditions have resulted in higher premium costs, higher policy deductibles and lower coverage limits. For some risks, we may not have or maintain insurance coverage because of cost or availability.
Risks Related to Product Development and Regulatory Approval
We are early in our development efforts. If we are unable to advance our product candidates to obtain regulatory approval and ultimately commercialize our product candidates, or experience significant delays in doing so, our business will be materially harmed.
We are early in our development efforts for our product candidates, including
MGTA-145.
Our ability to generate product revenue, which we do not expect will occur for many years, if ever, will depend heavily on the successful development and eventual commercialization of our product candidates, which may never occur. We currently generate no revenue from sales of any product, and we may never be able to develop or commercialize a marketable product.
Each of our programs and product candidates will require additional preclinical and clinical development; regulatory approval in multiple jurisdictions; obtaining manufacturing supply, capacity and expertise; building of a commercial organization; substantial investment and significant marketing efforts before we generate any revenue from product sales. Our product candidates must be authorized for marketing by the FDA, or certain other foreign regulatory agencies, such as the EMA, before we may commercialize our product candidates.
The success of our product candidates will depend on several factors, including the following:
 
   
successful completion of preclinical studies and successful enrollment and completion of clinical trials, including toxicology studies, biodistribution studies and minimally efficacious dose studies in animals, where applicable, under the FDA’s current Good Clinical Practices, or cGCPs, and the FDA’s current Good Laboratory Practices;
 
   
effective IND applications or Clinical Trial Authorizations that allow commencement of our planned clinical trials or future clinical trials for our product candidates;
 
   
positive results from our future clinical programs that support a finding of safety and effectiveness and an acceptable risk-benefit profile of our product candidates in the intended populations;
 
   
receipt of regulatory approvals from applicable regulatory authorities;
 
   
establishment of arrangements with third-party manufacturers for clinical supply and, where applicable, commercial manufacturing capabilities;
 
   
successful development of our internal manufacturing processes or transfer to larger-scale facilities operated by either a CMO or by us;
 
   
establishment and maintenance of patent and trade secret protection or regulatory exclusivity for our product candidates;
 
   
commercial launch of our product candidates, if and when approved, whether alone or in collaboration with others;
 
   
acceptance of our product candidates, if and when approved, by patients, the medical community and third-party payors;
 
   
effective competition with other therapies;
 
   
establishment and maintenance of healthcare coverage and adequate reimbursement;
 
   
enforcement and defense of intellectual property rights and claims; and
 
   
maintenance of a continued acceptable safety profile of our product candidates following approval.
 
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If we do not succeed in one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize our product candidates, which would materially harm our business. If we do not receive regulatory approvals for our product candidates, we may not be able to continue our operations.
Our ongoing and planned clinical trials or those of our collaborators may reveal significant adverse events not seen in our preclinical studies and may result in a safety profile that could inhibit regulatory approval or market acceptance of any of our product candidates.
Before obtaining regulatory approvals for the commercial sale of our product candidates, we must demonstrate through lengthy, complex and expensive preclinical testing and clinical trials that our product candidates are both safe 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. The results of preclinical studies and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials. There is typically an extremely high rate of attrition from the failure of product candidates proceeding through clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy profile despite having progressed through preclinical studies and initial clinical trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or unacceptable safety issues, notwithstanding promising results in earlier trials. Most product candidates that commence clinical trials are never approved as products.
If significant adverse events or other side effects are observed in any of our current or future clinical trials, we may have difficulty recruiting patients to the clinical trial, patients may drop out of our trial, or we may be required to abandon the trial or our development efforts of that product candidate altogether. We, the FDA or other applicable regulatory authorities, or an institutional review board, or IRB, may suspend clinical trials of a product candidate at any time for various reasons, including a belief that subjects in such trials are being exposed to unacceptable health risks or adverse side effects. Some potential therapeutics developed in the biotechnology industry that initially showed therapeutic promise in early-stage studies have later been found to cause side effects that prevented their further development. Even if the side effects do not preclude the drug from obtaining or maintaining marketing approval, undesirable side effects may inhibit market acceptance of the approved product due to its tolerability versus other therapies. Any of these developments could materially harm our business, financial condition and prospects.
Clinical development involves a lengthy and expensive process, with an uncertain outcome. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of any product candidates.
Our product candidates are in the preclinical development and clinical trial stages, and their risk of failure is high. It is impossible to predict when or if any of our programs will prove effective and safe in humans or will receive regulatory approval. Before obtaining marketing approval from regulatory authorities for the sale of any product candidate, we must complete preclinical development and then conduct extensive clinical trials to demonstrate the safety and efficacy of any of our future product candidates in humans. Preclinical and clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. We may be unable to establish clinical endpoints that applicable regulatory authorities would consider clinically meaningful, and a clinical trial can fail at any stage of testing. The outcome of preclinical studies and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their products.
 
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Successful completion of clinical trials is a prerequisite to submitting a new drug application, or NDA, or a biologics license application, or BLA, to the FDA, a Marketing Authorization Application to the EMA and similar approval filings to comparable foreign regulatory authorities, for each product candidate and, consequently, the ultimate approval and commercial marketing of any product candidates. We do not know whether any of our clinical trials will begin or be completed on schedule, if at all.
We may experience delays in completing our preclinical studies and initiating or completing clinical trials. For example, we staggered the initiation of our Phase 2 trials for
MGTA-145
over the course of 2020 and 2021 due to the clinical trial impacts from
COVID-19.
We also may experience numerous unforeseen events during, or as a result of, any current or future clinical trials that we could conduct that could delay or prevent our ability to receive marketing approval or commercialize our product candidates, including:
 
   
regulators, IRBs, or ethics committees may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;
 
   
we may experience delays in reaching, or fail to reach, agreement on acceptable terms with prospective trial sites and prospective CROs, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;
 
   
clinical trials of any product candidates may fail to show safety or efficacy, produce negative or inconclusive results and we may decide, or regulators may require us, to conduct additional preclinical studies or clinical trials or we may decide to abandon product development programs;
 
   
the number of patients required for clinical trials of any product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate, or participants may drop out of these clinical trials or fail to return for post-treatment
follow-up
at a higher rate than we anticipate;
 
   
our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all, or may deviate from the clinical trial protocol or drop out of the trial, which may require that we add new clinical trial sites or investigators;
 
   
we may elect to, or regulators, IRBs or ethics committees may require, that we or our investigators, suspend or terminate clinical research or trials for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks;
 
   
the cost of preclinical studies and clinical trials of any product candidates may be greater than we anticipate;
 
   
the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate; and
 
   
our product candidates may have undesirable side effects or other unexpected characteristics, causing us or our investigators, regulators, IRBs or ethics committees to suspend or terminate the trials, or reports may arise from preclinical or clinical testing of other blood and immune reset and cell-based therapies that raise safety or efficacy concerns about our product candidates.
We could also encounter delays if a clinical trial is suspended or terminated by us, the IRBs of the institutions in which such trials are being conducted, the Data Safety Monitoring Board for such trial or FDA or other regulatory authorities. Such authorities may impose such a suspension or termination due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a product or treatment, failure to establish or achieve clinically meaningful trial endpoints, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. In
 
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addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates. Further, the FDA or other regulatory authorities may disagree with our clinical trial design and our interpretation of data from clinical trials or may change the requirements for approval even after they have reviewed and commented on the design for our clinical trials.
Our product development costs will increase if we experience delays in clinical testing or marketing approvals. We do not know whether any of our preclinical studies or clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant preclinical or clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates and may allow our competitors to bring products to market before we do, potentially impairing our ability to successfully commercialize our product candidates and harming our business and results of operations. Any delays in our preclinical or future clinical development programs may harm our business, financial condition and prospects significantly.
We have no experience as a company in obtaining regulatory approval for a drug.
As a company, we have never obtained regulatory approval for, or commercialized, a drug. It is possible that the FDA may refuse to accept any or all future NDA or BLAs for substantive review or may conclude after review of our data that our application is insufficient to obtain regulatory approval for any current or future product candidates. If the FDA does not approve any future NDAs or BLAs, it may require that we conduct additional costly clinical, preclinical or manufacturing validation studies before it will reconsider our applications. Depending on the extent of these or any
other FDA-required studies,
approval of any NDA or BLA or other application that we submit may be significantly delayed, possibly for several years, or may require us to expend more resources than we have available. Any failure or delay in obtaining regulatory approvals would prevent us from commercializing
MGTA-145
or any other product candidate, generating revenues and achieving and sustaining profitability. It is also possible that additional studies, if performed and completed, may not be considered sufficient by the FDA to approve any NDA or other application that we submit. If any of these outcomes occur, we may be forced to abandon the development of our product candidates, which would materially adversely affect our business and could potentially cause us to cease operations. We face similar risks for our applications in foreign jurisdictions.
If serious adverse events, undesirable side effects, or unexpected characteristics are identified during the development of any product candidates we may develop, we may need to abandon or limit our further clinical development of those product candidates.
It is impossible to predict when or if any product candidates we may develop will prove safe in humans. If any product candidates we develop are associated with serious adverse events, or undesirable side effects, or have characteristics that are unexpected, we may need to abandon their development or limit development to certain uses or subpopulations in which the serious adverse events, undesirable side effects or other characteristics are less prevalent, less severe, or more acceptable from a risk-benefit perspective, any of which would have a material adverse effect on our business, financial condition, results of operations, and prospects. It is possible that product candidates that initially showed promise in early stage testing will later have been found to cause side effects that prevent further clinical development of the product candidates.
Stem Cell Transplant is a high-risk procedure with curative potential that may result in complications or adverse events for patients in our clinical trials or for patients that use any of our product candidates, if approved.
Stem cell transplant can cure patients across multiple diseases, but its use carries with it risks of toxicity, serious adverse events and death. Because many of our therapies are used to prepare or treat patients undergoing stem cell transplant, patients in our clinical trials or patients that use any of our product candidates may be
 
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subject to many of the risks that are currently inherent to this procedure. In particular, stem cell transplant involves certain known potential post-procedure complications that may manifest several weeks or months after a transplant and which may be more common in certain patient populations. For example, up to 20% of patients with inherited metabolic disorders treated with a transplant experience primary engraftment failure, resulting in severe complications, including death. Another example is autoimmune cytopenia, a known and severe frequent complication of the transplant procedure in patients with
non-malignant
diseases such as inherited metabolic diseases, that can result in death. If these or other serious adverse events, undesirable side effects, or unexpected characteristics are identified during the development of any of our product candidates, we may need to limit, delay or abandon our further clinical development of those product candidates, even if such events, effects or characteristics were the result of stem cell transplant or related procedures generally, and not directly or specifically caused or exacerbated by our product candidates. All serious adverse events or unexpected side effects are continually monitored per the clinical trial’s approved protocol. If serious adverse events are determined to be directly or specifically caused or exacerbated by our product candidates, we would follow the trial protocol’s requirements, which call for our data safety monitoring committee to review all available clinical data in making a recommendation regarding the trial’s continuation.
If we are not able to identify a safe and effective dose for any of our antibody drug conjugates, or ADCs, we may need to delay, abandon or limit our development of any potential product candidates.
ADCs utilize toxins to kill cells, and we may not be able to identify a safe and effective dose for some of our potential product candidates. ADCs, including those that have received marketing approval, have dose-dependent safety findings that can include liver toxicity, depending on the target of the ADC and the drug used in the conjugate. In addition, ADCs may have other adverse side effects including fatalities. Although our
CD117-ADC,
which was designed to deplete hematopoietic stem cells, or HSCs, was generally well tolerated at efficacious doses in
non-human
primate studies, we may not be able to ultimately show that
MGTA-117
can deplete HSCs at a safe and effective dose in humans and we may need to delay, abandon or limit these development efforts. Further,
MGTA-117
utilizes an amanitin toxin that has not been tested as an ADC toxin in humans before. Other companies, for example Heidelberg Pharma, are developing ADCs with amanitin toxins and are expected to enter clinical trials. Heidelberg Pharma has filed an IND with the FDA that has been accepted. If such trials encounter safety or efficacy issues, especially if related to the amanitin toxin, then our
MGTA-117
program may be adversely affected.
Even if we obtain regulatory approval of any of our product candidates, the approved products may be subject to post-approval studies and will remain subject to ongoing regulatory requirements. If we fail to comply, or if concerns are identified in subsequent studies, our approval could be withdrawn, and our product sales could be suspended.
If we are successful at obtaining regulatory approval for
MGTA-145
or any of our other product candidates, regulatory agencies in the U.S. and other countries where a product will be sold may require extensive additional clinical trials or post-approval clinical trials that are expensive and time-consuming to conduct. In particular, therapeutic products administered for the treatment of certain inherited metabolic disorders, such as Hurler syndrome and leukodystrophies, are likely to require extensive
follow-up
studies and close monitoring of patients after regulatory approval has been granted, for any signs of adverse effects that occur over a long period of time. These studies may be expensive and time-consuming to conduct and may reveal side effects or other harmful effects in patients that use our therapeutic products after they are on the market, which may result in the limitation or withdrawal of our drugs from the market. Alternatively, we may not be able to conduct such additional trials, which might force us to abandon our efforts to develop or commercialize certain product candidates. Even if post-approval studies are not requested or required, after our products are approved and on the market, there might be safety issues that emerge over time that require a change in product labeling, additional postmarket studies or clinical trials, imposition of distribution and use restrictions under a Risk Evaluation and Mitigation Strategy, or REMS, or withdrawal of the product from the market, which would cause our revenue to decline.
 
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Additionally, any products that we may successfully develop will be subject to ongoing regulatory requirements after they are approved. These requirements will govern the manufacturing, packaging, marketing, distribution, and use of our products. If we fail to comply with such regulatory requirements, approval for our products may be withdrawn, and product sales may be suspended. We may not be able to regain compliance, or we may only be able to regain compliance after a lengthy delay, significant expense, lost revenues and damage to our reputation.
Because we are developing product candidates for the treatment of diseases in which there is little clinical experience using new technologies, there is increased risk that the FDA, the EMA, or other regulatory authorities may not consider the endpoints of our clinical trials to provide clinically meaningful results and that these results may be difficult to analyze.
During the regulatory review process, we will need to identify success criteria and endpoints such that the FDA, the EMA, or other regulatory authorities will be able to determine the clinical efficacy and safety profile of any product candidates we may develop. As we are initially seeking to identify and develop product candidates to treat diseases in which there is little clinical experience using new technologies, there is heightened risk that the FDA, the EMA, or other regulatory authorities may not consider the clinical trial endpoints that we propose to provide clinically meaningful results (reflecting a tangible benefit to patients). In addition, the resulting clinical data and results may be difficult to analyze. Even if the FDA does find our success criteria to be sufficiently validated and clinically meaningful, we may not achieve the
pre-specified
endpoints to a degree of statistical significance. This may be a particularly significant risk for many of the genetically defined diseases for which we plan to develop product candidates because many of these diseases have small patient populations and designing and executing a rigorous clinical trial with appropriate statistical power is more difficult than with diseases that have larger patient populations. Further, even if we do achieve the
pre-specified
criteria, we may produce results that are unpredictable or inconsistent with the results of the
non-primary
endpoints or other relevant data. The FDA also weighs the benefits of a product against its risks, and the FDA may view the efficacy results in the context of safety as not being supportive of regulatory approval. Other regulatory authorities in the European Union and other countries, such as the Committee for Advanced Therapies may make similar comments with respect to these endpoints and data. Any product candidates we may develop will be based on a novel technology that makes it difficult to predict the time and cost of development and of subsequently obtaining regulatory approval.
A Breakthrough Therapy Designation by the FDA, even if granted for any of our product candidates, may not lead to a faster development or regulatory review or approval process and it does not increase the likelihood that our product candidates will receive marketing approval.
We plan to seek a Breakthrough Therapy Designation for our product candidates if the clinical data support such a designation for one or more product candidates. A breakthrough therapy is defined as a drug or biologic that is intended, alone or in combination with one or more other drugs or biologics, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the drug, or biologic, may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. For product candidates 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 and biologics designated as breakthrough therapies by the FDA may also be 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. 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
non-expedited
FDA review procedures and does not assure ultimate
 
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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 the product no longer meets the conditions for qualification.
The regenerative medicine advanced therapy, or RMAT, designation by the FDA for any of our product candidates may not lead to a faster development or regulatory review or approval process and it does not increase the likelihood that our product candidates will receive marketing approval.
We plan to seek an RMAT designation for our product candidates if the clinical data support such a designation for one or more product candidates. An RMAT is defined as cell and gene therapies, therapeutic tissue engineering products, human cell and tissue products, and combination products using any such therapies or products. Gene therapies, including genetically modified cells that lead to a durable modification of cells or tissues may meet the definition of a regenerative medicine therapy. The RMAT program is intended to facilitate efficient development and expedite review of RMATs, which are intended to treat, modify, reverse, or cure a serious or life-threatening disease or condition and for which preliminary clinical evidence indicates that the drug has the potential to address unmet medical needs for such disease or condition. A BLA for a regenerative medicine therapy that has received RMAT designation may be eligible for priority review or accelerated approval. An RMAT may be eligible for priority review if it treats a serious condition, and, if approved would provide a significant improvement in the safety or effectiveness of the treatment of the condition. An RMAT may be eligible for accelerated approval through (1) surrogate or intermediate endpoints reasonably likely to predict long-term clinical benefit or (2) reliance upon data obtained from a meaningful number of sites. Benefits of such designation also include early interactions with the FDA to discuss any potential surrogate or intermediate endpoint to be used to support accelerated approval. A regenerative medicine therapy with RMAT designation that is granted accelerated approval and is subject to post-approval requirements may fulfill such requirements through the submission of clinical evidence from clinical trials, patient registries, or other sources of real world evidence, such as electronic health records; the collection of larger confirmatory data sets; or post-approval monitoring of all patients treated with such therapy prior to its approval.
Designation as an RMAT is within the discretion of the FDA. Accordingly, even if we believe one of our product candidates meets the criteria for designation as a RMAT, the FDA may disagree and instead determine not to make such designation. In any event, the receipt of RMAT designation for our product candidates 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 ultimate approval by the FDA. In addition, even if one or more of our product candidates qualify for RMAT designation, the FDA may later decide that the biological products no longer meet the conditions for qualification.
Our current product candidates and future product candidates may not be eligible for Orphan Drug status.
The FDA granted Orphan Drug designation to
MGTA-145
for the mobilization of HSCs to the peripheral blood for collection and subsequent transplant in May 2020 and we plan to seek Orphan Drug designation for our other product candidates if the clinical data support such a designation. The U.S. and Europe may designate drugs for relatively small patient populations as orphan drugs. Orphan Drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process, but does make the product eligible for orphan drug exclusivity, reduced filing fees and specific tax credits. Generally, if a company receives the first marketing approval for a product with an Orphan Drug designation in the clinical indication for which it has such designation, the product is entitled to orphan drug exclusivity. Orphan drug exclusivity means that the FDA will not approve another application to market the same drug for the same indication, except in limited circumstances, for a period of seven years in the U.S. This exclusivity, however, could block the approval of our proposed product candidates if a competitor obtains marketing approval before us. However, even if we obtain orphan drug exclusivity for any of our proposed product candidates, we may not be able to maintain it. For example, if a competitive product is shown to be clinically superior to our product candidates, any orphan drug exclusivity we have will not block the approval of such competitive product.
 
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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, including impacts that have resulted, or may in the future result, from the
COVID-19
pandemic. 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:
 
   
the patient eligibility criteria defined in the protocol;
 
   
the size of the patient population required for analysis of the trial’s primary endpoints;
 
   
the proximity of patients to trial sites;
 
   
the design of the trial;
 
   
our ability to recruit clinical trial investigators with the appropriate competencies and experience;
 
   
our ability to obtain and maintain patient consents; and
 
   
the risk that patients enrolled in clinical trials will drop out of the trials before completion.
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, 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 in such clinical trial site.
Delays in patient enrollment may result in increased costs or may affect the timing or outcome of the planned clinical trials, which could prevent completion of these trials and adversely affect our ability to advance the development of our product candidates.
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.
Because we have limited financial and managerial resources, we focus on research programs and product candidates that we identify for specific indications among many potential options. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial medicines or profitable market opportunities. Our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable medicines. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing, or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate. Any such event could have a material adverse effect on our business, financial condition, results of operations, and prospects.
Even if we complete the necessary clinical trials, we cannot predict when, or if, we will obtain regulatory approval to commercialize a product candidate we may develop, and any such approval may be for a more narrow indication than we seek.
We cannot commercialize a product candidate until the appropriate regulatory authorities have reviewed and approved the product candidate. Even if any product candidates we may develop meet their safety and efficacy
 
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endpoints in clinical trials, the regulatory authorities may not complete their review processes in a timely manner, or we may not be able to obtain regulatory approval. Additional delays may result if an FDA Advisory Committee or other regulatory authority recommends
non-approval
or restrictions on approval. In addition, we may experience delays or rejections based upon additional government regulation from future legislation or administrative action, or changes in regulatory authority policy during the period of product development, clinical trials, and the review process.
Regulatory authorities also may approve a product candidate for more limited indications than requested or they may impose significant limitations in the form of narrow indications, warnings or distribution and use restrictions under a REMS. These regulatory authorities may require precautions or contra-indications with respect to conditions of use, or they may grant approval subject to the performance of costly post-marketing clinical trials. In addition, regulatory authorities may not approve the labeling claims that are necessary or desirable for the successful commercialization of any product candidates we may develop. Any of the foregoing scenarios could materially harm the commercial prospects for any product candidates we may develop and materially adversely affect our business, financial condition, results of operations, and prospects.
A Fast Track Designation by the FDA, even if granted for any of our product candidates, may not lead to a faster development or regulatory review or approval process, and does not increase the likelihood that our product candidates will receive marketing approval.
If a drug is intended for the treatment of a serious or life-threatening condition and the drug demonstrates the potential to address unmet medical needs for this condition, the drug sponsor may apply for FDA Fast Track Designation for a particular indication. Marketing applications filed by sponsors of products in Fast Track development may qualify for priority review under the policies and procedures offered by the FDA, but the Fast Track Designation does not assure any such qualification or ultimate marketing approval by the FDA. Receipt of Fast Track Designation may not result in a faster development process, review or approval compared to drugs considered for approval under conventional FDA procedures. In addition, the FDA may withdraw any Fast Track Designation at any time. We may seek Fast Track Designation for our product candidates, but there is no assurance that the FDA will grant this status to any of our proposed product candidates.
We may seek priority review designation for our product candidates, but we might not receive such designation, and even if we do, such designation may not lead to a faster development or regulatory review or approval process.
If the FDA determines that a product candidate offers a treatment for a serious condition and, if approved, the product would provide a significant improvement in safety or effectiveness, the FDA may designate the product candidate for priority review. A priority review designation means that the goal for the FDA to review an application is six months, rather than the standard review period of ten months. We may request priority review for our product candidates, however, we cannot assume that our product candidates will meet the criteria for that designation. The FDA has broad discretion with respect to whether or not to grant priority review status to a product candidate, so even if we believe a particular product candidate is eligible for such designation or status, the FDA may decide not to grant it. Moreover, a priority review designation does not necessarily mean a faster development or regulatory review or approval process or necessarily confer any advantage with respect to approval compared to conventional FDA procedures. Receiving priority review from the FDA does not guarantee approval within the
six-month
review cycle or at all.
Results of preclinical studies and early clinical trials may not be predictive of results of future clinical trials, and such results do not guarantee approval of a product candidate by regulatory authorities.
The outcome of preclinical studies and early clinical trials may not be predictive of the success of later clinical trials, and interim results of clinical trials do not necessarily predict success in the results of completed clinical trials. Many companies in the pharmaceutical and biotechnology industries have suffered significant
 
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setbacks in late-stage clinical trials after achieving positive results in earlier development, and we could face similar setbacks. The design of a clinical trial can determine whether its results will support approval of a product and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced. In addition, preclinical and clinical data are often susceptible to varying interpretations and analyses. Many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain regulatory approval for their product candidates. Even if we complete clinical development of
MGTA-145
or any other product candidates, there can be no assurance that the FDA, EMA, or other regulatory authorities will approve
MGTA-145
or any other product candidates for marketing. Additionally, as of June 23, 2020, the FDA noted it is continuing to ensure timely reviews of applications for medical products during the
COVID-19
pandemic in line with its user fee performance goals, however, the FDA may not be able to continue its current pace and approval timelines could be extended, including where a
pre-approval
inspection or an inspection of clinical sites is required and, due to the
COVID-19
pandemic and travel restrictions, the FDA is unable to complete such required inspections during the review period. In 2020, several companies announced receipt of complete response letters due to the FDA’s inability to complete required inspections for their applications.
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 dosing regimen and other clinical trial procedures and the rate of dropout among clinical trial participants. If we fail to receive positive results in clinical trials of our product candidates, the development timeline and regulatory approval and commercialization prospects for our most advanced product candidate, and, correspondingly, our business and financial prospects would be negatively impacted.
Our product candidates for which we intend to seek approval may face competition from generic drugs or biosimilars sooner than anticipated.
With the enactment of the Biologics Price Competition and Innovation Act of 2009, or BPCIA, an abbreviated pathway for the approval of biosimilar and interchangeable biological products was created. The abbreviated regulatory pathway establishes legal authority for the FDA to review and approve biosimilar biologics, including the possible designation of a biosimilar as interchangeable based on its similarity to an existing reference product. Under the BPCIA, an application for a biosimilar product cannot be approved by the FDA until 12 years after the original branded product is approved under a BLA. On March 6, 2015, the FDA approved the first biosimilar product under the BPCIA. However, the law is complex and is still being interpreted and implemented by the FDA. As a result, its ultimate impact, implementation, and meaning are subject to uncertainty. While it is uncertain when such processes intended to implement BPCIA may be fully adopted by the FDA, any such processes could have a material adverse effect on the future commercial prospects for our biological products.
We believe that if any of our product candidates are approved as a biological product under a BLA it should qualify for the
12-year
period of exclusivity. However, there is a risk that the FDA will not consider any of our product candidates to be reference products for competing products, potentially creating the opportunity for biosimilar competition sooner than anticipated. Additionally, this period of regulatory exclusivity does not apply to companies pursuing regulatory approval via their own traditional BLA, rather than via the abbreviated pathway. Moreover, the extent to which a biosimilar, once approved, will be substituted for any one of our reference products in a way that is similar to traditional generic substitution for
non-biological
products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing. Finally, there has been public discussion of potentially decreasing the period of exclusivity from the current 12 years. If such a change were to be enacted, our product candidates, if approved, could have a shorter period of exclusivity than anticipated.
 
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Enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and may affect the prices we may set.
In the U.S. and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could, among other things, prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell any products for which we obtain marketing approval.
For example, in March 2010, the Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively the ACA, was enacted to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for health care and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. As implementation of the ACA is ongoing, the law appears likely to continue the downward pressure on pharmaceutical pricing, especially under the Medicare program, and may also increase our regulatory burdens and operating costs.
Moreover, the Drug Supply Chain Security Act imposes new obligations on manufacturers of pharmaceutical products related to product tracking and tracing. Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We are not sure whether additional legislative changes will be enacted, or whether the current regulations, guidance or interpretations will be changed, or what the impact of such changes on our business, if any, may be.
We will be competing against numerous large, established companies that have substantially greater financial, technical, research, manufacturing, marketing, distribution and other resources than us, and we will be at a significant competitive disadvantage.
The pharmaceutical and biopharmaceutical industry is characterized by intense competition and rapid and significant technological changes and advancements. Many companies, research institutions and universities are doing research and development work in a number of areas similar to those that we focus on that could lead to the development of new products which could compete with and be superior to our product candidates.
Most of the companies with which we compete have substantially greater financial, technical, research, manufacturing, marketing, distribution and other resources than those of ours. A number of these companies may have or may develop technologies for developing products for treating various diseases, including certain inherited metabolic disorders such as Hurler syndrome and leukodystrophies, that could prove to be superior to ours. We expect technological developments in the pharmaceutical and biopharmaceutical and related fields to occur at a rapid rate, and we believe competition will intensify as advances in these fields are made. Accordingly, we will be required to continue to devote substantial resources and efforts to research and development activities in order to potentially achieve and maintain a competitive position in this field. Products that we develop may become obsolete before we are able to market them or to recover all or any portion of our research and development expenses. We will be competing with respect to our products with companies that have significantly more experience and expertise in undertaking preclinical testing and human clinical trials with new or improved therapeutic products and obtaining regulatory approvals of such products. A number of these companies already market and may be in advanced phases of clinical testing of various drugs that will or may compete with our current product candidates or other future potential product candidates. Our competitors may develop or commercialize products more rapidly than we do or with significant advantages over any products we develop. Our competitors may therefore be more successful in commercializing their products than we are, which could adversely affect our competitive position and business.
In addition to larger pharmaceutical or biopharmaceutical companies that may develop different competing technologies or technologies, we will be competing with a number of smaller biotechnology companies. We are
 
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aware that collaborations between smaller companies and larger established companies may compete with our programs. Colleges, universities, governmental agencies and other public and private research organizations are becoming more active in seeking patent protection and licensing arrangements to collect royalties for use of technologies that they have developed, some of which may be directly competitive with our programs and product candidates. For additional information regarding our competition, see “Item 1. Business – Competition” in our Annual Report on Form
10-K.
Risks Related to Manufacturing and Commercialization
We rely on third parties to conduct our preclinical and clinical trials and will rely on them to perform other tasks for us. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or comply with regulatory requirements, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business could be substantially harmed.
Although we have recruited a team that has experience with clinical trials, as a company we have no experience in conducting clinical trials. Moreover, we do not have the ability to independently conduct preclinical studies and clinical trials, and we have relied upon, and plan to continue to rely upon medical institutions, clinical investigators, contract laboratories and other third parties, or our CROs, to conduct preclinical studies and future clinical trials for our product candidates. We expect to rely heavily on these parties for execution of preclinical and future clinical trials for our product candidates and control only certain aspects of their activities. Nevertheless, we will be responsible for ensuring that each of our preclinical and clinical trials is conducted in accordance with the applicable protocol, legal and regulatory requirements and scientific standards and our reliance on CROs will not relieve us of our regulatory responsibilities. For any violations of laws and regulations during the conduct of our preclinical studies and clinical trials, we could be subject to warning letters or enforcement action that may include civil penalties up to and including criminal prosecution.
We and our CROs will be required to comply with regulations, including cGCPs for conducting, monitoring, recording and reporting the results of preclinical and clinical trials to ensure that the data and results are scientifically credible and accurate and that the trial patients are adequately informed of the potential risks of participating in clinical trials and their rights are protected. These regulations are enforced by the FDA, the Competent Authorities of the Member States of the European Economic Area and comparable foreign regulatory authorities for any drugs in clinical development. The FDA enforces cGCP regulations through periodic inspections of clinical trial sponsors, principal investigators and trial sites. If we or our CROs fail to comply with applicable cGCPs, 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, the FDA will determine that any of our future clinical trials will comply with cGCPs. In addition, our clinical trials must be conducted with product candidates produced in accordance with the requirements in the FDA’s current Good Manufacturing Practices, or cGMPs, requirements. Our failure or the failure of our CROs to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process and could also subject us to enforcement action.
Although we intend to design our planned clinical trials for our product candidates, for the foreseeable future CROs will conduct all of our planned clinical trials. As a result, many important aspects of our development programs, including their conduct and timing, will be outside of our direct control. Our reliance on third parties to conduct future preclinical studies and clinical trials will also result in less
day-to-day
control over the management of data developed through preclinical studies and clinical trials than would be the case if we were relying entirely upon our own staff.
If any of our relationships with these third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs. If CROs do not successfully carry out their contractual duties or obligations
 
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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, regulatory requirements or for other reasons, any preclinical studies or clinical trials with which such CROs are associated with may be extended, delayed or terminated. In such cases, we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. As a result, our financial results and the commercial prospects for our product candidates in the subject indication could be harmed, our costs could increase and our ability to generate revenue could be delayed.
The successful development of biopharmaceuticals and cell-based therapies is highly uncertain.
Successful development of biopharmaceuticals and cell-based therapies is highly uncertain and is dependent on numerous factors, many of which are beyond our control. Blood and immune reset and cell-based therapies that appear promising in the early phases of development may fail to reach the market for several reasons including:
 
   
preclinical study results may show the therapies to be less effective than desired or to have harmful or problematic side effects;
 
   
clinical trial results may show the therapies to be less effective than expected (e.g., the trial failed to meet its primary endpoint) or to have unacceptable side effects or toxicities;
 
   
failure to receive the necessary regulatory approvals or a delay in receiving such approvals. Among other things, such delays may be caused by slow enrollment in clinical trials, length of time to achieve study endpoints, additional time requirements for data analysis, or biologics license application, or BLA, preparation, discussions with the FDA, an FDA request for additional preclinical or clinical data, or unexpected safety or manufacturing issues;
 
   
manufacturing costs, formulation issues, pricing or reimbursement issues, or other factors that make the therapy uneconomical; and
 
   
the proprietary rights of others and their competing products and technologies that may prevent the therapy from being commercialized.
Success in preclinical studies and early clinical trials do not ensure that large-scale clinical trials will be successful. The length of time necessary to complete clinical trials and to submit an application for marketing approval for a final decision by a regulatory authority varies significantly from one therapy to the next, and may be difficult to predict.
Even if we are successful in getting market approval, commercial success of any of our product candidates will also depend in large part on the availability of coverage and adequate reimbursement from third-party payers, including government payers such as the Medicare and Medicaid programs and managed care organizations, which may be affected by existing and future health care reform measures designed to reduce the cost of health care. Third-party payers could require us to conduct additional studies, including post-marketing studies related to the cost effectiveness of a product, to qualify for reimbursement, which could be costly and divert our resources. If government and other health care payers were not to provide adequate coverage and reimbursement levels for any of our products if approved, market acceptance and commercial success would be reduced.
In addition, if one of our product candidates is approved for marketing, we will be subject to significant regulatory obligations regarding the submission of safety and other post-marketing information and reports and registration, and will need to continue to comply (or ensure that our third party providers) comply with the FDA’s cGMPs and cGCPs requirements for any clinical trials that we conduct post-approval. In addition, there is always the risk that we or a regulatory authority might identify previously unknown problems with a product post-approval, such as adverse events of unanticipated severity or frequency. Compliance with these requirements is costly, and any failure to comply or other issues with our product candidates’ post-market approval could have a material adverse effect on our business, financial condition and results of operations.
 
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We may never obtain FDA approval for any of our product candidates in the U.S., and even if we do, we may never obtain approval for or commercialize any of our product candidates in any other jurisdiction, which would limit our ability to realize their full market potential.
In order to eventually market any of our product candidates in any particular foreign jurisdiction, we must establish and comply with numerous and varying regulatory requirements on a
jurisdiction-by-jurisdiction
basis regarding safety and efficacy. Approval by the FDA in the U.S., if obtained, does not ensure approval by regulatory authorities in other countries or jurisdictions. In addition, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not guarantee regulatory approval in any other country. Approval processes vary among countries and can involve additional product testing and validation and additional administrative review periods. Seeking foreign regulatory approval could result in difficulties and costs for us and require additional preclinical studies or clinical trials which could be costly and time-consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of our products in those countries. The foreign regulatory approval process involves all of the risks associated with FDA approval. We do not have any product candidates approved for sale in any jurisdiction, including international markets, and we do not have experience in obtaining regulatory approval in international markets. If we fail to comply with regulatory requirements in international markets or to obtain and maintain required approvals, or if regulatory approvals in international markets are delayed, our target market will be reduced and our ability to realize the full market potential of our products will be unrealized.
Any contamination in our or our third parties’ manufacturing process, shortages of raw materials or reagents or failure of any of our key suppliers to deliver necessary components of our product candidates could result in delays in our clinical development or marketing schedules.
Given the nature of biologics manufacturing, there is a risk of contamination. Any contamination could materially adversely affect our or our third-party vendors’ ability to produce our product candidates on schedule and could therefore harm our results of operations and cause reputational damage.
The raw materials required in our and our third-party vendors’ manufacturing processes are derived from biological sources. We cannot assure you that we or our third-party vendors have, or will be able to obtain on commercially reasonable terms, or at all, sufficient rights to these materials derived from biological sources. Such raw materials are difficult to procure and may also be subject to contamination or recall or be of insufficient quality. A material shortage, contamination, recall, or restriction on the use of biologically derived substances in the manufacture of our product candidates could adversely impact or disrupt the clinical and commercial manufacturing of our product candidates, which could materially and adversely affect our operating results and development timelines.
We rely on third-party suppliers for the supply and manufacture of certain components of our technology and product candidates, including a single supplier in some cases. Should our ability to procure the necessary components for our product candidates from our suppliers be compromised, our ability to continuously operate would be impaired until an alternative supplier is sourced, qualified and tested, which could delay or limit our ability to produce a clinical and commercial supply of our product candidates and harm our business.
If we use biological materials in a manner that causes injury, we may be liable for damages.
Our research and development activities involve the use of biological and hazardous materials. Although we believe our safety procedures for handling and disposing of these materials complies with federal, state and local laws and regulations, we cannot entirely eliminate the risk of accidental injury or contamination from the use, storage, handling or disposal of these materials. We do not carry specific biological waste insurance coverage or property and casualty and general liability insurance policies that include coverage for damages and fines arising from biological exposure or contamination. Accordingly, in the event of contamination or injury, we could be held liable for damages or penalized with fines in an amount exceeding our resources, and our clinical trials or regulatory approvals could be suspended or terminated.
 
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Third-party manufacturers and any third-party collaborators may be unable to successfully
scale-up
manufacturing of our current or future product candidates in sufficient quality and quantity, which would delay or prevent us from developing our product candidates and commercializing approved products, if any.
In order to conduct clinical trials of
MGTA-145,
and our other current and future product candidates, we will need to work with third-party manufacturers to manufacture them in sufficient quantities. Our manufacturing partners or our third-party collaborators may be unable to successfully increase the manufacturing capacity of
MGTA-145
and our other current or future product candidates in a timely or cost-effective manner, or at all. In addition, quality issues may arise during
scale-up
activities. If our manufacturing partners or collaborators are unable to successfully scale up the manufacture of our current or future product candidates in sufficient quality and quantity, the development, testing, and clinical trials of that product candidate may be delayed or infeasible, and marketing approval or commercial launch of any resulting product may be delayed or not obtained, which could significantly harm our business.
The commercial success of any of our product candidates will depend upon the degree of market acceptance by physicians, patients, third-party payors and others in the medical community.
Even with the requisite approvals from the FDA in the U.S., the EMA in the European Union and other regulatory authorities internationally, the commercial success of our product candidates will depend, in part, on the acceptance of physicians, patients and health care payors of our product candidates as medically necessary, cost-effective and safe. Any product that we commercialize may not gain acceptance by physicians, patients, health care payors and others in the medical community. If these products do not achieve an adequate level of acceptance, we may not generate significant product revenue and may not become profitable. Efforts to educate the medical community and third-party payors on the benefits of our product candidates may require significant resources, including management time and financial resources, and may not be successful. The degree of market acceptance of our product candidates, if approved for commercial sale, will depend on several factors, including:
 
   
the efficacy, durability and safety of such product candidates as demonstrated in clinical trials;
 
   
the potential and perceived advantages of product candidates over alternative treatments;
 
   
the cost of treatment relative to alternative treatments;
 
   
our ability to offer the product for sale at competitive prices;
 
   
the clinical indications for which the product candidate is approved by the FDA or the EMA;
 
   
the product’s convenience and ease of administration compared to alternative treatments;
 
   
the willingness of physicians to prescribe new therapies;
 
   
the willingness of the target patient population to try new therapies;
 
   
the prevalence and severity of any side effects;
 
   
product labeling or product insert requirements of the FDA, EMA or other regulatory authorities, including any limitations or warnings contained in a product’s approved labeling;
 
   
relative convenience and ease of administration;
 
   
the strength of marketing and distribution support;
 
   
the timing of market introduction of competitive products;
 
   
publicity concerning our products or competing products and treatments;
 
   
changes in the standard of care for the targeted indications for the product; and
 
   
sufficient third-party payor coverage and adequate reimbursement.
 
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Even if a potential product displays a favorable efficacy and safety profile in preclinical studies and clinical trials, market acceptance of the product will not be fully known until after it is launched. Any failure by a current or potential product candidate of ours that obtains regulatory approval to achieve market acceptance or commercial success would adversely affect our business prospects.
If we are unable to successfully develop our current programs into a comprehensive portfolio of product candidates, or experience significant delays in doing so, we may not realize the full commercial potential of our current and future product candidates.
We are developing our product candidates so that they can each be used individually or in combination with each other. In particular, we are focused on a product development strategy that includes leveraging the synergies among a comprehensive portfolio of our product candidates. Our success may depend, in part, on our ability to develop a complementary product portfolio with product candidates that, together or individually, will address the major opportunities inherent in the existing stem cell transplant process. Given our limited experience in developing product candidates that have received marketing approval, we may not be successful in developing some of our product candidates. The failure of one of our product candidates to obtain regulatory approval or market acceptance may affect our ability to expand our market opportunities for our other product candidates or programs. Although we may develop product candidates that ultimately obtain marketing approval, if we are unable to successfully develop our current programs into a comprehensive portfolio of product candidates, or experience significant delays in doing so, we may not realize the full commercial potential of our current and future product candidates.
Coverage and reimbursement may be limited or unavailable in certain market segments for our product candidates, if approved, which could make it difficult for us to sell any product candidates or therapies profitably.
The success of our product candidates, if approved, depends on the availability of adequate coverage and reimbursement from third-party payors. In addition, because our product candidates represent new approaches to blood and immune reset, we cannot be sure that coverage and reimbursement will be available for, or accurately estimate the potential revenue from our product candidates or assure that coverage and reimbursement will be available for any product that we may develop.
In the U.S. and markets in other countries, patients who are provided medical treatment for their conditions generally rely on third-party payors to reimburse all or part of the costs associated with their treatment. Adequate coverage and reimbursement from governmental healthcare programs, such as Medicare and Medicaid, and commercial payors are critical to new product acceptance.
Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which drugs and treatments they will cover and the amount of reimbursement. Coverage may be more limited than the purposes for which the medicine is approved by the FDA or comparable foreign regulatory authorities. In the U.S., the principal decisions about reimbursement for new medicines are typically made by the Centers for Medicare & Medicaid Services, or CMS, an agency within the Department of Health and Human Services, or HHS. CMS decides whether and to what extent a new medicine will be covered and reimbursed under Medicare and private payors tend to follow CMS to a substantial degree. Coverage and reimbursement by a third-party payor may depend upon a number of factors, including the third-party payor’s determination that use of a product is:
 
   
a covered benefit under its health plan;
 
   
safe, effective and medically necessary;
 
   
appropriate for the specific patient;
 
   
cost-effective; and
 
   
neither experimental nor investigational.
 
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For a drug product to receive federal reimbursement under the Medicaid or Medicare Part B programs or to be sold directly to U.S. government agencies, the manufacturer must extend discounts to entities eligible to participate in the 340B drug pricing program. The required 340B discount on a given product is calculated based on the “average manufacturer price” and Medicaid rebate amounts reported by the manufacturer. As of 2010, the ACA expanded the types of entities eligible to receive discounted 340B pricing, although, under the current state of the law, with the exception of children’s hospitals, these newly eligible entities will not be eligible to receive discounted 340B pricing on orphan drugs. In addition, as 340B drug pricing is determined based on AMP and Medicaid rebate data, the revisions to the Medicaid rebate formula and average manufacturer price definition could cause the required 340B discount to increase.
Further, in the U.S., no uniform policy of coverage and reimbursement for products exists among third-party payors. As a result, obtaining coverage and reimbursement approval of a product from a government or other third-party payor is a time-consuming and costly process that could require us to provide to each payor supporting scientific, clinical and cost-effectiveness data for the use of our products on a
payor-by-payor
basis, with no assurance that coverage and adequate reimbursement will be obtained. Even if we obtain coverage for a given product, the resulting reimbursement payment rates might not be adequate for us to maintain pricing sufficient to achieve or sustain profitability or may require
co-payments
that patients find unacceptably high. Additionally, third-party payors may not cover, or provide adequate reimbursement for, long-term
follow-up
evaluations required following the use of product candidates. Patients are unlikely to use our product candidates unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our product candidates. Because our product candidates may have a higher cost of goods than conventional therapies, and may require long-term follow up evaluations, the risk that coverage and reimbursement rates may be inadequate for us to achieve profitability may be greater. There is significant uncertainty related to insurance coverage and reimbursement of newly approved products. It is difficult to predict at this time what third-party payors will decide with respect to the coverage and reimbursement for our product candidates.
Additionally, payment methodologies may be subject to changes in healthcare legislation and regulatory initiatives. For example, the Middle Class Tax Relief and Job Creation Act of 2012 required that CMS reduce the Medicare clinical laboratory fee schedule by 2% in 2013, which served as a base for 2014 and subsequent years. In addition, effective January 1, 2014, CMS also began bundling the Medicare payments for certain laboratory tests ordered while a patient received services in a hospital outpatient setting. Additional state and federal healthcare reform measures are expected to be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for certain pharmaceutical products or additional pricing pressures.
Moreover, increasing efforts by governmental and third-party payors in the U.S. and abroad to cap or reduce healthcare costs may cause such organizations to limit both coverage and the level of reimbursement for newly approved products and, as a result, they may not cover or provide adequate payment for our product candidates. There has been increasing legislative and enforcement interest in the U.S. with respect to specialty drug pricing practices. Specifically, there have been several recent Congressional inquiries and proposed federal and state legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs. We expect to experience pricing pressures in connection with the sale of any of our product candidates due to the trend toward managed healthcare, the increasing influence of health maintenance organizations, cost containment initiatives and additional legislative changes.
Ongoing healthcare legislative and regulatory reform measures may have a material adverse effect on our business and results of operations.
Changes in regulations, statutes or the interpretation of existing regulations could impact our business in the future by requiring, for example: (1) changes to our manufacturing arrangements; (2) additions or modifications
 
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to product labeling; (3) the recall or discontinuation of our products; or (4) additional record-keeping requirements. If any such changes were to be imposed, they could adversely affect the operation of our business.
In the U.S., there have been and continue to be a number of legislative initiatives to contain healthcare costs. For example, in March 2010 the ACA was passed, which substantially changes the way health care is financed by both governmental and private insurers, and significantly impacts the U.S. pharmaceutical industry. The ACA, among other things, subjects biological products to potential competition by lower-cost biosimilars, addresses a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected, expands the types of entities eligible for the 340B drug discount program, increases the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extends the rebate program to individuals enrolled in Medicaid managed care organizations, establishes annual fees and taxes on manufacturers of certain branded prescription drugs, and creates a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 70%
point-of-sale
discounts (increased from 50% pursuant to the Bipartisan Budget Act of 2018, effective January 1, 2019) off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D.
Some of the provisions of the ACA have yet to be fully implemented, while certain provisions have been subject to judicial and Congressional challenges, as well as efforts by the Trump administration to repeal or replace certain aspects of the ACA. While Congress has not passed comprehensive repeal legislation, some laws affecting the implementation of certain taxes under the ACA have been signed into law. For example, the TCJA includes a provision that decreased, effective January 1, 2019, the
tax-based
shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate,” to $0. On December 14, 2018, a District Court Judge in the Northern District of Texas, ruled that the individual mandate is a critical and inseverable feature of the ACA, and therefore, because it was repealed as part of the TCJA, the remaining provisions of the ACA are invalid as well. The current administration and CMS have both stated that the ruling will have no immediate effect, and on December 18, 2019, the Fifth Circuit U.S. Court of Appeals held the individual mandate unconstitutional, and remanded the case to the lower court to reconsider its earlier invalidation of the full ACA. On March 2, 2020, the U.S. Supreme Court granted the petitions for writs of certiorari to review this case, and held oral arguments on November 10, 2020. It is unclear what effect this will have on the status of the ACA and our business. Congress may also consider other legislation to repeal or replace certain elements of the ACA.
In addition, since January 2017, President Trump has signed two Executive Orders 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. On January 20, 2017, President Trump signed an Executive Order directing federal agencies with authorities and responsibilities under the ACA to waive, defer, grant exemptions from, or delay the implementation of any provision of the ACA that would impose a fiscal burden on states or a cost, fee, tax, penalty or regulatory burden on individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. Further, on October 13, 2017, President Trump signed an Executive Order terminating the cost-sharing subsidies that reimburse insurers under the ACA. Several state Attorneys General filed suit to stop the administration from terminating the subsidies, but their request for a restraining order was denied by a federal judge in California on October 25, 2017. On August 14, 2020, the U.S. Court of Appeals for the Federal Circuit ruled in two separate cases that the federal government is liable for the full amount of unpaid CSRs for the years preceding and including 2017. For CSR claims made by health insurance companies for years 2018 and later, further litigation will be required to determine the amounts due, if any. 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 more than $12 billion in ACA risk corridor payments to third-party payors who argued they were owed to them. On April 27, 2020, the U.S. Supreme Court reversed the U.S. Court of Appeals for the Federal Circuit decision and remanded the case to the U.S. Court of Federal Claims, concluding the government has an obligation to pay these risk corridor payments under the relevant formula. It is unclear what impact these rulings will have on our business.
 
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In addition, CMS has published a final rule that, as of January 1, 2020, gives 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. Litigation and legislation over the ACA are likely to continue, with unpredictable and uncertain results.
Other legislative changes have been proposed and adopted in the U.S. since the ACA was enacted. On August 2, 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers of 2% per fiscal year. These reductions went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2030 unless additional congressional action is taken. However, pursuant to the Coronavirus Aid, Relief and Economic Security Act, or CARES Act, and subsequent legislation, these Medicare sequester reductions are suspended from May 1, 2020 through March 31, 2020 due to the
COVID-19
pandemic. Proposed legislation, if passed, would extend this suspension until the end of the pandemic. On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several types of providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.
These laws, and future state and federal healthcare reform measures may be adopted in the future, any of which may result in additional reductions in Medicare and other healthcare funding and otherwise affect the prices we may obtain for any of our product candidates for which we may obtain regulatory approval or the frequency with which any such product candidate is prescribed or used.
European Union drug marketing and reimbursement regulations may materially affect our ability to market and receive coverage for our products in the European Member States.
We intend to seek approval to market our product candidates in both the U.S. and in selected foreign jurisdictions. If we obtain approval in one or more foreign jurisdictions for our product candidates, we will be subject to rules and regulations in those jurisdictions. In some foreign countries, particularly those in the European Union, the pricing of biologics is subject to governmental control and other market regulations which could put pressure on the pricing and usage of our product candidates. In these countries, pricing negotiations with governmental authorities can take considerable time after obtaining marketing approval of a product candidate. In addition, market acceptance and sales of our product candidates will depend significantly on the availability of adequate coverage and reimbursement from third-party payors for our product candidates and may be affected by existing and future health care reform measures.
Much like the Anti-Kickback Statue prohibition in the U.S., the provision of benefits or advantages to physicians to induce or encourage the prescription, recommendation, endorsement, purchase, supply, order or use of medicinal products is also prohibited in the European Union and the U.K. The provision of benefits or advantages to induce or reward improper performance generally is governed by the national anti-bribery laws of European Union Member States and the U.K. Bribery Act 2010 in the U.K. Infringement of these laws could result in substantial fines and imprisonment. EU Directive 2001/83/EC, which is the EU Directive governing medicinal products for human use, further provides that, where medicinal products are being promoted to persons qualified to prescribe or supply them, no gifts, pecuniary advantages or benefits in kind may be supplied, offered or promised to such persons unless they are inexpensive and relevant to the practice of medicine or pharmacy. This provision has been transposed into the Human Medicines Regulations 2012 and so remains applicable in the U.K. despite its departure from the European Union.
Payments made to physicians in certain European Union Member States must be publicly disclosed. Moreover, agreements with physicians often must be the subject of prior notification and approval by the
 
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physician’s employer, his or her competent professional organization and/or the regulatory authorities of the individual European Union Member States. These requirements are provided in the national laws, industry codes or professional codes of conduct, applicable in the European Union Member States. Failure to comply with these requirements could result in reputational risk, public reprimands, administrative penalties, fines or imprisonment.
In addition, in most foreign countries, including those in the European Economic Area, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing and reimbursement vary widely from country to country. For example, the European Union provides options for its Member States to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. Reference pricing used by various European Union Member States and parallel distribution, or arbitrage between
low-priced
and high-priced Member States, can further reduce prices. A Member State may approve a specific price for the medicinal product, or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. In some countries, we may be required to conduct a clinical trial or other trials that compare the cost-effectiveness of any of our product candidates to other available therapies in order to obtain or maintain reimbursement or pricing approval. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our products. An increasing number of countries are taking initiatives to attempt to reduce large budget deficits by focusing cost-cutting efforts on pharmaceuticals for their
state-run
health care systems. These international price control efforts have impacted all regions of the world, but have been most drastic in the European Union. Historically, products launched in the European Union do not follow price structures of the U.S. and generally prices tend to be significantly lower. Publication of discounts by third-party payors or authorities may lead to further pressure on the prices or reimbursement levels within the country of publication and other countries. If pricing is set at unsatisfactory levels or if reimbursement of our products is unavailable or limited in scope or amount, our revenues from sales by us or our strategic partners and the potential profitability of any of our product candidates in those countries would be negatively affected.
Data collection is governed by restrictive regulations governing the use, processing, and cross-border transfer of personal information.
In the event we decide to conduct clinical trials or continue to enroll subjects in our ongoing or future clinical trials in the European Union, we may be subject to additional privacy restrictions. The collection, use, storage, transfer, and other processing of personal data, including personal health data, regarding individuals in the European Economic Area is governed, as of May 2018, by the General Data Protection Regulation, or GDPR. The GDPR imposes several requirements on companies that process personal data, including requirements relating to the processing of health and other sensitive data, the consent of the individuals to whom the personal data relates, the information provided to the individuals regarding data processing activities, the notification of data processing obligations to the competent national data protection authorities and certain measures to be taken when engaging third-party processors. The GDPR also imposes strict rules on the transfer of personal data out of the European Economic Area, including to the U.S. Failure to comply with the requirements of the GDPR, and the related national data protection laws of the European Union Member States, may result in fines and other administrative penalties , including potential fines of up to €20 million or 4% of annual global revenues, whichever is greater. The GDPR also confers a private right of action on data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies, and obtain compensation for damages resulting from violations of the GDPR. 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 the new data protection rules, including as implemented by individual countries. This may be onerous and adversely affect our business, financial condition, results of operations and prospects. In addition, further to the U.K.’s exit from the European Union on January 31, 2020, the GDPR ceased to apply in the U.K. at the end of the transition period on December 31, 2020. However, as of January 1, 2021, the U.K.’s European Union (Withdrawal) Act 2018 incorporated the GDPR (as it existed on December 31, 2020 but subject to certain U.K. specific amendments) into U.K. law, which is commonly referred to as the U.K. GDPR. The U.K.
 
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GDPR and the U.K. Data Protection Act 2018 set out the U.K.’s data protection regime, which is independent from but aligned to the European Union’s data protection regime.
Non-compliance
with the U.K. GDPR may result in monetary penalties of up to £17.5 million or 4% of worldwide revenue, whichever is higher. The U.K., however, is now regarded as a third country under the European Union’s GDPR which means that transfers of personal data from the EEA to the U.K. will be restricted unless an appropriate safeguard, as recognized by the European Union’s GDPR, has been put in place. Although, under the
EU-U.K.
Trade Cooperation Agreement it is lawful to transfer personal data between the U.K. and the EEA for a 6 month period following the end of the transition period, with a view to achieving an adequacy decision from the European Commission during that period. Like the European Union GDPR, the U.K. GDPR restricts personal data transfers outside the U.K. to countries not regarded by the U.K. as providing adequate protection (this means that personal data transfers from the U.K. to the EEA remain free flowing). Compliance with the GDPR will be a rigorous and time-intensive process that may increase our cost of doing business or require us to change our business practices, and despite those efforts, there is a risk that we may be subject to fines and penalties, litigation, and reputational harm in connection with any future European or U.K. activities.
In the U.S., California recently enacted the California Consumer Privacy Act, or CCPA, which creates new individual privacy rights for California consumers (as defined in the law) and places increased privacy and security obligations on entities handling personal data of consumers or households. The CCPA will require covered companies to provide certain disclosures to consumers about its data collection, use and sharing practices, and to provide affected California residents with ways to
opt-out
of certain sales or transfers of personal information. The CCPA went into effect on January 1, 2020, and became enforceable by the California Attorney General on July 1, 2020. The CCPA provides for civil penalties for violations, as well as a private right of action for certain data breaches that result in the loss of personal information. This private right of action may increase the likelihood of, and risks associated with, data breach litigation. While there is currently an exception for protected health information that is subject to the Health Insurance Portability and Accountability Act of 1996, or HIPAA, and clinical trial regulations, as currently written, the CCPA may impact our business activities. There continues to be uncertainty surrounding the enforcement and implementation of the CCPA, which exemplifies the vulnerability of our business to the evolving regulatory environment related to personal data and protected health information.
Additionally, a new California ballot initiative, the California Privacy Rights Act, or CPRA, was passed in November 2020. Effective starting on January 1, 2023, the CPRA imposes additional obligations on companies covered by the legislation and will significantly modify the CCPA, including by expanding consumers’ rights with respect to certain sensitive personal information. The CPRA also creates a new state agency that will be vested with authority to implement and enforce the CCPA and the CPRA. The effects of the CCPA and the CPRA are potentially significant and may require us to modify our data collection or processing practices and policies and to incur substantial costs and expenses in an effort to comply and increase our potential exposure to regulatory enforcement and/or litigation.
Certain other state laws impose similar privacy obligations and we also anticipate that more states may enact legislation similar to the CCPA, which provides consumers with new privacy rights and increases the privacy and security obligations of entities handling certain personal information of such consumers. The CCPA has prompted a number of proposals for new federal and state-level privacy legislation. Such proposed legislation, if enacted, may add additional complexity, variation in requirements, restrictions and potential legal risk, require additional investment of resources in compliance programs, impact strategies and the availability of previously useful data and could result in increased compliance costs and/or changes in business practices and policies.
Additionally, HIPAA, as amended by the Health Information Technology and Clinical Health Act, or HITECH, and its implementing regulations, imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information. Among other things, HITECH makes HIPAA’s privacy and security standards directly applicable to “business associates,” those independent contractors or agents of covered entities that create, receive, maintain, transmit or obtain protected health information in
 
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connection with providing a service on behalf of a covered entity. HITECH also increased the civil and criminal penalties that may be imposed against covered entities, business associates and possibly other persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney’s fees and costs associated with pursuing federal civil actions. In addition, there may be additional federal, state and
non-U.S.
laws which govern the privacy and security of health and other personal information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.
Laws and regulations governing international operations may preclude us from developing, manufacturing and selling certain products outside of the U.S. and require us to develop, implement and maintain costly compliance programs.
If we further expand our operations outside of the U.S., we must dedicate additional resources to comply with numerous laws and regulations in each jurisdiction in which we plan to operate. The Foreign Corrupt Practices Act, or FCPA, prohibits any U.S. individual or business from paying, offering, authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the U.S. to comply with certain accounting provisions requiring the company to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations.
Compliance with the FCPA is expensive and difficult, particularly in countries in which corruption is a recognized problem. In addition, the FCPA presents particular challenges in the pharmaceutical industry, because, in many countries, hospitals are operated by the government, and doctors and other hospital employees are considered foreign officials. Certain payments to hospitals in connection with clinical trials and other work have been deemed to be improper payments to government officials and have led to FCPA enforcement actions.
Various laws, regulations and executive orders also restrict the use and dissemination outside of the U.S., or the sharing with certain
non-U.S.
nationals, of information classified for national security purposes, as well as certain products and technical data relating to those products. If we expand our presence outside of the U.S., it will require us to dedicate additional resources to comply with these laws, and these laws may preclude us from developing, manufacturing, or selling certain products and product candidates outside of the U.S., which could limit our growth potential and increase our development costs.
The failure to comply with laws governing international business practices may result in substantial civil and criminal penalties and suspension or debarment from government contracting. The SEC also may suspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA’s accounting provisions.
Inadequate funding for the FDA, the SEC and other government agencies, including from government shutdowns, or other disruptions to these agencies’ operations, could hinder their ability to hire and retain key leadership and other personnel, prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal business functions on which the operation of our business may rely, which could negatively impact our business.
The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory and policy changes. Average review times at the agency have fluctuated in recent years as a result. Disruptions at the FDA and other agencies may also slow the time necessary for new product candidates to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. In addition, government funding of the SEC and other government agencies on which our operations may rely, including those that fund research and development activities, is subject to the political process, which is inherently fluid and unpredictable.
 
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Disruptions at the FDA and other agencies may also slow the time necessary for new product candidates to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years the U.S. government has shut down several times and certain regulatory authorities, such as the FDA and the SEC, have had to furlough critical FDA, SEC and other government employees and stop critical activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business. Further, future government shutdowns could impact our ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations.
Separately, in response to the
COVID-19
pandemic, on March 10, 2020 the FDA announced its intention to postpone most inspections of foreign manufacturing facilities while local, national and international conditions warrant. On March 18, 2020, the FDA announced its intention to temporarily postpone routine surveillance inspections of domestic manufacturing facilities and provided guidance regarding the conduct of clinical trials which the FDA continues to update. As of June 23, 2020, the FDA noted it was conducting mission critical domestic and foreign inspections to ensure compliance of manufacturing facilities with FDA quality standards. On July 10, 2020, the FDA announced its goal of restarting domestic
on-site
inspections during the week of July 20, 2020, but such activities will depend on data about the virus’ trajectory in a given state and locality and the rules and guidelines that are put in place by state and local governments. The FDA has developed a rating system to assist in determining when and where it is safest to conduct prioritized domestic inspections. Should FDA determine that an inspection is necessary for approval and an inspection cannot be completed during the review cycle due to restrictions on travel, FDA has stated that it generally intends to issue a complete response letter. Further, if there is inadequate information to make a determination on the acceptability of a facility, FDA may defer action on the application until an inspection can be completed. In 2020, several companies announced receipt of complete response letters due to the FDA’s inability to complete required inspections for their applications. Regulatory authorities outside the U.S. may adopt similar restrictions or other policy measures in response to the
COVID-19
pandemic and may experience delays in their regulatory activities. If a prolonged government shutdown or other disruption occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business. Future shutdowns or other disruptions could also affect other government agencies such as the SEC, which may also impact our business by delaying review of our public filings, to the extent such review is necessary, and our ability to access the public markets.
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, 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. 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 pharmaceutical and biotechnology companies to recruit, hire, train and retain marketing and sales personnel.
If we are unable or decide not to establish internal sales, marketing and distribution capabilities, we will pursue collaborative arrangements regarding the sales and marketing of our products, however, there can be no assurance that we will be able to establish or maintain such collaborative arrangements, or if we are able to do so, that they will have effective sales forces. Any revenue we receive will depend upon the efforts of such third parties, which may not be successful. We may have little or no control over the marketing and sales efforts of such third parties and our revenue from product sales may be lower than if we had commercialized our product candidates ourselves. We also face competition in our search for third parties to assist us with the sales and marketing efforts of our product candidates.
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 U.S. or overseas.
 
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Even if we are able to commercialize any product candidates, such products may become subject to unfavorable pricing regulations, third-party reimbursement practices, or healthcare reform initiatives, which would harm our business.
The regulations that govern marketing approvals, pricing, and reimbursement for new medicines vary widely from country to country. In the U.S., recently enacted legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays in obtaining approvals. Some countries require approval of the sale price of a medicine before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain marketing approval for a medicine in a particular country, but then be subject to price regulations that delay our commercial launch of the medicine, possibly for lengthy time periods, and negatively impact the revenues we are able to generate from the sale of the medicine in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates, even if any product candidates we may develop obtain marketing approval.
Our ability to commercialize any medicines successfully also will depend in part on the extent to which reimbursement for these medicines and related treatments will be available from government health administration authorities, private health insurers, and other organizations. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. For example, the Trump administration’s budget proposal for fiscal year 2021 includes a $135 billion allowance to support legislative proposals seeking to reduce drug prices, increase competition, lower
out-of-pocket
drug costs for patients, and increase patient access to lower-cost generic and biosimilar drugs. On March 10, 2020, the Trump administration sent “principles” for drug pricing to Congress, calling for legislation that would, among other things, cap Medicare Part D beneficiary
out-of-pocket
pharmacy expenses, provide an option to cap Medicare Part D beneficiary monthly
out-of-pocket
expenses, and place limits on pharmaceutical price increases. The Trump administration also previously released a “Blueprint,” or plan, to reduce the cost of drugs. The Trump administration’s Blueprint contains certain measures that the Department of Health and Human Services is already working to implement. HHS has solicited feedback on some of these measures and has implemented others under its existing authority. For example, in May 2019, CMS issued a final rule to allow Medicare Advantage Plans the option of using step therapy, a type of prior authorization for Medicare Party B drugs beginning January 1, 2020. This final rule codified CMS’s policy change that was effective January 1, 2019. On December 27, 2018, the District Court for the District of Columbia invalidated a reimbursement formula change under the 340B drug pricing program and CMS subsequently altered the fiscal years 2019 and 2018 reimbursement formula on specified covered outpatient drugs. The court ruled this change was not an “adjustment” which was within the Secretary’s discretion to make but was instead a fundamental change in the reimbursement calculation. However, most recently, on July 31, 2020, the U.S. Court of Appeals for the District of Columbia Circuit overturned the district court’s decision and found that the changes were within the Secretary’s authority. On September 14, 2020, the plaintiffs-appellees filed a Petition for Rehearing En Banc (i.e, before the full court), but was denied on October 16, 2020. The 340B drug pricing program imposes ceilings on prices that drug manufacturers can charge for medications sold to certain health care facilities. It is unclear how these developments could affect covered hospitals who might purchase our future products and affect the rates we may charge such facilities for our approved products in the future, if any.
While any proposed measures will require authorization through additional legislation to become effective, Congress and the Trump administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs. Individual states in the U.S. have also increasingly passed legislation and implemented regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.
 
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At the state level, legislatures have become increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing. Some of these measures include price or patient reimbursement constraints, discounts, restrictions on certain product access, marketing cost disclosure and transparency measures, and, in some cases, measures designed to encourage importation from other countries and bulk purchasing. In addition, regional health care authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other health care programs. Also, increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. We cannot be sure that reimbursement will be available for any medicine that we commercialize and, if reimbursement is available, the level of reimbursement. Reimbursement may impact the demand for, or the price of, any product candidate for which we obtain marketing approval. If reimbursement is not available or is available only to limited levels, we may not be able to successfully commercialize any product candidate for which we obtain marketing approval.
There may be significant delays in obtaining reimbursement for newly approved medicines, and coverage may be more limited than the purposes for which the medicine is approved by the FDA or similar regulatory authorities outside the U.S. Moreover, eligibility for reimbursement does not imply that any medicine will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale, and distribution. Interim reimbursement levels for new medicines, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement rates may vary according to the use of the medicine and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost medicines and may be incorporated into existing payments for other services. Net prices for medicines may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of medicines from countries where they may be sold at lower prices than in the U.S. For example, on October 1, 2020, the FDA published a final rule that allows for the importation of certain prescription drugs from Canada. Under the final rule, States and Indian Tribes, and in certain future circumstances pharmacists and wholesalers, may submit importation program proposals to the FDA for review and authorization. On September 25, 2020, CMS stated drugs imported by states under this rule will not be eligible for federal rebates under Section 1927 of the Social Security Act and manufacturers would not report these drugs for “best price” or average manufacturer price purposes. Since these drugs are not considered covered outpatient drugs, CMS further stated it will not publish a National Average Drug Acquisition Cost for these drugs. Separately, the FDA also issued a final guidance document outlining a pathway for manufacturers to obtain an additional National Drug Code, or NDC, for an
FDA-approved
drug that was originally intended to be marketed in a foreign country and that was authorized for sale in that foreign country. Lastly, on July 24, 2020 and September 13, 2020, President Trump signed several Executive Orders aimed at lowering drug prices. On July 24, 2020, President Trump signed Executive Orders directing the Secretary of HHS to: (1) eliminate protection under an Anti-Kickback Statute safe harbor for certain retrospective price reductions provided by drug manufacturers to sponsors of Medicare Part D plans or pharmacy benefit managers that are not applied at the
point-of-sale;
(2) allow the importation of certain drugs from other countries through individual waivers, permit the
re-importation
of insulin products, and prioritize finalization of the FDA’s December 2019 proposed rule to permit the importation of drugs from Canada; (3) ensure that payment by the Medicare program for certain Medicare Part B drugs is not higher than the payment by other comparable countries (depending on whether pharmaceutical manufacturers agree to other measures); and (4) allow certain
low-income
individuals receiving insulin and epinephrine purchased by a Federally Qualified Health Center as part of the 340B drug pricing program to purchase those drugs at the discounted price paid by the Federally Qualified Health Center. On September 13, 2020, President Trump signed an Executive Order directing HHS to implement a rulemaking plan to test a payment model, pursuant to which Medicare would pay, for certain high-cost prescription drugs and biological products covered by Medicare Part B, no more than the most-favored-nation price (i.e., the lowest price) after adjustments, for a pharmaceutical product that the drug or biologic manufacturer sells in a member country of the Organization for Economic Cooperation and Development that has a comparable
per-capita
gross domestic product. In response, on November 20, 2020, HHS issued an Interim Final Rule implementing the Most Favored Nation, or MFN, Model under which Medicare Part B reimbursement
 
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rates will be calculated for certain drugs and biologicals based on the lowest price drug manufacturers receive in Organization for Economic Cooperation and Development countries with a similar gross domestic product per capita. The MFN Model regulations mandate participation by identified Part B providers and will apply in all U.S. states and territories for a seven-year period beginning January 1, 2021, and ending December 31, 2027. The Interim Final Rule has not been finalized and is subject to revision and challenge. In addition, on November 20, 2020, finalized another regulation removing the safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy benefit managers, unless the price reduction is required by law. The rule also creates a new safe harbor for price reductions reflected at the
point-of-sale,
as well as a safe harbor for certain fixed fee arrangements between pharmacy benefit managers and manufacturers. The FDA also on October 1, 2020, published a final rule that allows for the importation of certain prescription drugs from Canada as discussed above. It is unclear if, when, and to what extent the Executive Orders may be further implemented. The regulatory and market implications of the Executive Orders are unknown at this time, but legislation, regulations or policies allowing the reimportation of drugs may decrease the price we receive for our products and adversely affect our future revenues and prospects for profitability. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. Our inability to promptly obtain coverage and profitable payment rates from both government-funded and private payors for any approved medicines we may develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize medicines, and our overall financial condition.
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:
 
   
decreased demand for our products;
 
   
injury to our reputation;
 
   
withdrawal of clinical trial participants and inability to continue clinical trials;
 
   
initiation of investigations by regulators;
 
   
costs to defend the related litigation;
 
   
a diversion of management’s time and our resources;
 
   
substantial monetary awards to trial participants or patients;
 
   
product recalls, withdrawals or labeling, marketing or promotional restrictions;
 
   
loss of revenue;
 
   
exhaustion of any available insurance and our capital resources;
 
   
the inability to commercialize any product candidate; and
 
   
a decline in our share price.
 
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Our inability to obtain 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 collaborators. Although we currently carry clinical trial insurance, the amount of such insurance coverage may not be adequate, we may be unable to maintain such insurance, or we may not be able to obtain additional or replacement insurance at a reasonable cost, if at all. Our insurance policies may also have various exclusions, and we may be subject to a product liability claim for which we have no coverage. 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.
Failure to obtain marketing approval in foreign jurisdictions would prevent any product candidates we may develop from being marketed in such jurisdictions, which, in turn, would materially impair our ability to generate revenue.
In order to market and sell any product candidates we may develop in the European Union and many other foreign jurisdictions, we or our third-party collaborators 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 regulatory approval process outside the U.S. generally includes all of the risks associated with obtaining FDA approval. In addition, in many countries outside the U.S., it is required that the product be approved for reimbursement before the product can be approved for sale in that country. We or these third parties may not obtain approvals from regulatory authorities outside the U.S. on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside the U.S. does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA. We may not be able to file for marketing approvals and may not receive necessary approvals to commercialize our medicines in any jurisdiction, which would materially impair our ability to generate revenue.
Foreign governments often impose strict price controls on approved products, which may adversely affect our future profitability in those countries, and recent federal legislation and actions by federal, state and local governments may permit reimportation of drugs from foreign countries into the U.S., including foreign countries where the drugs are sold at lower prices than in the U.S., which could adversely affect our future profitability.
Frequently foreign governments impose strict price controls on newly approved therapeutic products. If we obtain regulatory approval to sell products in foreign countries, we may be unable to obtain a price that provides an adequate financial return on our investment. Furthermore, we may face competition in the U.S. for our development candidates and investigational medicines, if approved, from therapies sourced from foreign countries that have placed price controls on pharmaceutical products. In the U.S., the FDA issued a final guidance document outlining a pathway for manufacturers to obtain an additional National Drug Code, for an
FDA-approved
drug that was originally intended to be marketed in a foreign country and that was authorized for sale in that foreign country. The market implications of the final guidance is unknown at this time. Proponents of drug reimportation may attempt to pass legislation that would directly allow reimportation under certain circumstances. Legislation or regulations allowing the reimportation of drugs, if enacted, could decrease the price we receive for any products that we may develop and adversely affect our future revenues and prospects for profitability.
 
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Even if we, or any collaborators we may have, obtain marketing approvals for any product candidates we develop, the terms of approvals and ongoing regulation of our products could require the substantial expenditure of resources and may limit how we, or they, manufacture and market our products, which could materially impair our ability to generate revenue.
Any product candidate for which we obtain marketing approval, along with the manufacturing processes, post-approval clinical data, labeling, advertising, and promotional activities for such medicine, will be subject to continual requirements of and review by the FDA and other regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, registration and listing requirements, cGMP requirements relating to quality control, quality assurance and corresponding maintenance of records and documents, and requirements regarding the distribution of samples to physicians and recordkeeping. Even if marketing approval of a product candidate is granted, the approval may be subject to limitations on the indicated uses for which the medicine may be marketed or to the conditions of approval or contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the medicine.
Accordingly, assuming we, or any collaborators we may have, receive marketing approval for one or more product candidates we develop, we, and such collaborators, and our and their contract manufacturers will continue to expend time, money, and effort in all areas of regulatory compliance, including manufacturing, production, product surveillance, and quality control. If we and such collaborators are not able to comply with post-approval regulatory requirements, we and such collaborators could have the marketing approvals for our products withdrawn by regulatory authorities and our, or such collaborators’, ability to market any future products could be limited, which could adversely affect our ability to achieve or sustain profitability. Further, the cost of compliance with post-approval regulations may have a negative effect on our business, operating results, financial condition, and prospects.
Risks Related to Intellectual Property
We are highly dependent on intellectual property licensed from third parties and termination of any of these licenses could result in the loss of significant rights, which would harm our business.
In April 2017, we entered into a license agreement with Novartis pursuant to which we were granted a worldwide license to certain intellectual property rights owned or controlled by Novartis, including patents, patent applications, proprietary
information, know-how and
other intellectual property, to develop, commercialize and sell one or more therapeutic products comprising
MGTA-456
in the field of
non-gene-edited/-modified
HSCs. In addition, in November 2016, we entered into a license agreement with Harvard University, or Harvard, pursuant to which we were granted a worldwide license to research, develop and commercialize one or more therapeutic products under certain conditioning- and mobilization-related patents and patent applications owned or controlled by Harvard. Furthermore, in March 2018, we entered into a research, development option and license agreement with Heidelberg Pharma Research GmbH, or Heidelberg Pharma, pursuant to which we intend to combine our proprietary antibodies and Heidelberg Pharma’s amanitin conjugates platform. We are dependent on the patents,
know-how
and proprietary technology, licensed from Novartis and Harvard. Furthermore, if we commercialize any products utilizing Heidelberg Pharma’s amanitin conjugates platform, we will be dependent on the intellectual property rights we license from Heidelberg Pharma. Any termination of these licenses, or a finding that such intellectual property lacks legal effect, could result in the loss of significant rights and could harm our ability to commercialize our current or future product candidates.
Certain of our license agreements, including our agreements with Novartis, Harvard and Heidelberg Pharma, require us to use diligent efforts or meet development thresholds, to maintain the license, including establishing a set timeline for developing and commercializing products. If we fail to comply with the obligations under our license agreements, including payment terms and diligence terms, our licensors may have the right to terminate our agreements, in which event we may not be able to develop, manufacture, market or sell the products covered by our agreements or may face other penalties under our agreements. Such an occurrence could
 
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materially adversely affect the value of the product candidate being developed under any such agreement. Termination of our license agreements or reduction or elimination of our rights under them may result in our having to negotiate a new or reinstated agreement, which may not be available to us on equally favorable terms, or at all, which may mean we are unable to develop or commercialize the affected product candidate or cause us to lose our rights under the agreement. In addition, with respect to our license agreement with Novartis, Novartis has granted an exclusive license to Intellia Therapeutics, Inc., or Intellia, in the field of gene-modified HSCs under the same intellectual property that Novartis licensed to us. Accordingly, such rights are unavailable to us and in prosecuting, maintaining, enforcing and defending the licensed patents, Novartis may make decisions that may not be in our best interest. Moreover, if Novartis or Intellia take any action with respect to the licensed patents that results in a successful challenge to the licensed patents by any third party, such patents may be invalidated or held to be unenforceable and we may lose our rights under such patents, which would harm our business.
Further, the agreements under which we currently license intellectual property or technology from third parties are complex, and certain provisions in such agreements may be susceptible to multiple interpretations. Accordingly, disputes may arise between us and our licensor, or our licensor and its licensors, regarding intellectual property subject to a license agreement, including those relating to:
 
   
the scope of rights, if any, granted under the license agreement and other interpretation-related issues;
 
   
whether and the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the license agreement;
 
   
whether our licensor or its licensor had the right to grant the license agreement;
 
   
whether third parties are entitled to compensation or equitable relief, such as an injunction, for our use of the intellectual property without their authorization;
 
   
our right to sublicense patent and other rights to third parties under collaborative development relationships;
 
   
whether we are complying with our obligations with respect to the use of the licensed technology in relation to our development and commercialization of product candidates;
 
   
our involvement in the prosecution of the licensed patents and our licensors’ overall patent enforcement strategy;
 
   
the allocation of ownership of inventions
and know-how resulting
from the joint creation or use of intellectual property by our licensors and by us and our partners; and
 
   
the amounts of royalties, milestones or other payments due under the license agreement.
The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology, or increase what we believe to be our financial or other obligations under the relevant agreement. If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on acceptable terms, or are insufficient to provide us the necessary rights to use the intellectual property, we may be unable to successfully develop and commercialize the affected product candidates. If we or any such licensors fail to adequately protect this intellectual property, our ability to commercialize our products could suffer. Any disputes with our licensors or any termination of the licenses on which we depend could have a material adverse effect on our business, financial condition, results of operations and prospects.
Our commercial success depends on our ability to obtain, maintain and protect our intellectual property and proprietary technology.
Our commercial success depends in large part on our ability to obtain, maintain and protect intellectual property protection through patents, trademarks, and trade secrets in the U.S. and other countries with respect to
 
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our proprietary product candidates. If we do not adequately 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 achieve profitability.
To protect our proprietary position, we own and have
in-licensed
certain issued patents and have filed and may file provisional and
non-provisional
patent applications in the U.S. or abroad related to our product candidates that are important to our business. Provisional patent applications are not eligible to become issued patents until, among other things, we file a
non-provisional
patent application within 12 months of the filing of one or more of our related provisional patent applications. If we do not timely file
non-provisional
patent applications, we may lose our priority date with respect to our provisional patent applications and any patent protection on the inventions disclosed in our provisional patent applications. While we intend to timely file
non-provisional
patent applications relating to our provisional patent applications, we cannot predict whether any such patent applications will result in the issuance of patents that provide us with any competitive advantage. Moreover, the patent application and approval process is expensive and time-consuming. We may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner.
In some instances, agreements through which we license patent rights may not give us control over patent prosecution or maintenance, so that we may not be able to control which claims or arguments are presented, how claims are amended, and may not be able to secure, maintain, or successfully enforce necessary or desirable patent protection from those patent rights. We have not had and do not have primary control over patent prosecution and maintenance for certain of the patents and patent applications we license, including under our agreement with Novartis, and therefore cannot guarantee that these patents and applications will be prosecuted or maintained in a manner consistent with the best interests of our business. We cannot be certain that patent prosecution and maintenance activities by our licensors have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents. Moreover, some of our
in-licensed
patents and patent applications are, and our future owned and licensed patents may be,
co-owned
with third parties. If we are unable to obtain an exclusive license to any such third-party
co-owners’
interest in such patents or patent applications, such
co-owners
may be able to license their rights to other third parties, including our competitors, and our competitors could market competing products and technology. In addition, we may need the cooperation of any such
co-owners
of our patents in order to enforce such patents against third parties, and such cooperation m