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Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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DOCUMENTS INCORPORATED BY REFERENCE
The registrant intends to file a definitive proxy statement pursuant to Regulation 14A relating to the 2023 Annual Meeting of Stockholders within 120 days of the end of the registrant’s fiscal year ended December 31, 2022. Portions of such definitive proxy statement are incorporated by reference into Part III of this Annual Report on Form 10-K to the extent stated herein.
Table of Contents
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Disclosure Regarding Foreign Jurisdictions That Prevent Inspections
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Cautionary Note Regarding Forward-Looking Statements and Industry Data
This Annual Report on Form 10-K contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical fact, contained in this Annual Report on Form 10-K, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans and objectives of management, are forward-looking statements. The words “anticipate,” “believe,” “continue” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “would,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.
The forward-looking statements in this Annual Report on Form 10-K include, among other things, statements about:
We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Annual Report on Form 10-K, particularly in the “Risk Factor Summary” below and in Part I, Item 1A “Risk Factors,” that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.
You should read this Annual Report on Form 10-K and the documents that we reference herein and have filed or incorporated by reference hereto completely and with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements contained in this Annual Report on Form 10-K are made as
of the date of this Annual Report on Form 10-K, and we do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.
This Annual Report on Form 10-K includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties as well as our own estimates of potential market opportunities. The market data used in this Annual Report on Form 10-K involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such data. Although we are responsible for the disclosure contained in this Annual Report on Form 10-K and we believe the information from industry publications and other third-party sources included in this Annual Report on Form 10-K is reliable, such information is inherently imprecise. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. Our estimates of the potential market opportunities for our product candidates include several key assumptions based on our industry knowledge, industry publications, third-party research and other surveys, which may be based on a small sample size and may fail to accurately reflect market opportunities. While we believe that our internal assumptions are reasonable, no independent source has verified such assumptions.
Risk Factor Summary
Our business is subject to a number of risks of which you should be aware before making an investment decision. Below we summarize what we believe to be the principal risks facing our business, in addition to the risks described more fully in Part I, Item 1A, “Risk Factors” of this Annual Report on Form 10-K and other information included in this report. The risks and uncertainties described below are not the only risks and uncertainties we face. Additional risks and uncertainties not presently known to us or that we presently deem less significant may also impair our business operations.
If any of the following risks occurs, our business, financial condition and results of operations and future growth prospects could be materially and adversely affected, and the actual outcomes of matters as to which forward-looking statements are made in this report could be materially different from those anticipated in such forward-looking statements.
Item 1. Business.
We are a clinical-stage biotechnology company dedicated to discovering and developing transformative treatments for hearing and balance disorders, one of the largest areas of unmet need in medicine. We aim to restore and improve hearing and balance through the restoration and regeneration of functional hair cells and non-sensory support cells within the inner ear. We have built a proprietary platform that integrates single-cell genomics and bioinformatics analyses, precision gene therapy technologies and our expertise in inner ear biology. We are leveraging our platform to advance our pipeline of clinical and preclinical gene therapy programs that are designed to selectively replace genes for the treatment of congenital, monogenic hearing loss and to regenerate inner ear hair cells for the treatment of acquired hearing and balance disorders. We are developing our lead gene therapy product candidate, DB-OTO, to provide durable, high quality, physiological hearing to individuals with profound, congenital hearing loss caused by mutations of the otoferlin, or OTOF, gene. In addition to DB-OTO, we are advancing AAV.103 to restore hearing in individuals with mutations in the gap junction beta-2, or GJB2, gene, AAV.104 to restore hearing in individuals with mutations in the stereocilin, or STRC, gene and AAV.105 to restore hearing in individuals with another single gene mutation. We also have gene therapy programs to convert supporting cells, the cells adjacent to hair cells, into either cochlear or vestibular hair cells in order to restore hearing or balance function. In addition to our gene therapy programs, we are developing DB-020 for the prevention of cisplatin-induced hearing loss. We ceased enrolling patients in our Phase 1b clinical trial of DB-020, subsequent to announcing the positive results from the interim analysis from the first 19 patients enrolled in the trial.
We are focused on both hearing loss and balance disorders due to their widespread impact and shared biology. Hearing loss is one of the largest areas of unmet need in medicine and affects approximately 466 million people worldwide, including 48 million people in the United States. Hearing loss can significantly impact mental health, cognition and language development. Beyond hearing loss, dysfunction of the inner ear can lead to severe impairments in balance. Approximately eight million people in the United States report chronic balance problems, which can lead to significant life impairment and an increased risk of falls, potentially resulting in hospitalization, limited mobility and depression. Despite these impacts, there are no approved therapies for the treatment of hearing loss or balance disorders.
We believe the lack of approved therapies is caused in part by the complex biology of the inner ear, and we have built our platform to overcome this challenge. We are applying proprietary analyses of gene expression in the cochlea, the organ within the inner ear responsible for hearing, and the vestibule, the set of organs within the inner ear responsible for balance, to generate a comprehensive database of expression profiles in every known inner ear cell type. Our database currently includes over three million cellular gene expression profiles from several mammalian species, which we believe is the largest dataset of its kind for the inner ear. We are using this dataset to identify and select targets, including reprogramming factors to promote inner ear hair cell regeneration, and cell-selective promoters to drive precise expression of transgenes in therapeutically relevant cell types of the inner ear. Combining our extensive understanding of the molecular profile of the inner ear with recent learnings and successes in genetic medicine, we are using adeno-associated virus, or AAV, vectors to deliver potentially restorative gene therapies that are designed to selectively express transgenes only in targeted cell types important to hearing and balance. We believe AAV gene therapy is an ideal modality for inner ear disorders because the inner ear is a small, enclosed compartment that provides the opportunity for local delivery of high vector concentrations, which may increase transgene expression in the target cell type, limit systemic exposure to improve safety and reduce the volume of AAV needed. We have observed that hair cells and other non-sensory support cell types are readily transduced by multiple natural AAV serotypes in non-human primates. Additionally, inner ear hair cells are non-dividing, which means that AAV vector genomes are not diluted, eliminating a hurdle for achieving durable expression following a single administration of AAV gene therapy.
We are developing our lead gene therapy product candidate, DB-OTO, which is designed to be a one-time AAV-based gene therapy, to provide durable, high quality, physiological hearing to individuals with profound, congenital hearing loss caused by mutations of the OTOF gene. OTOF is a protein expressed in the inner hair cells of the cochlea that enables communication between sensory cells of the inner ear and the auditory nerve by regulating synaptic transmission. We estimate approximately 20,000 individuals in the United States and the major markets in Europe suffer from hearing loss caused by mutations of the OTOF gene. At present, the only treatment option for these individuals is a cochlear implant, or CI. However, while CIs provide a clear benefit over profound hearing loss, CIs are assistive devices and have significant limitations.
We have designed DB-OTO utilizing a proprietary, cell-selective promoter to provide expression of OTOF that is limited to hair cells. In our preclinical studies, the hair cell-selective expression of OTOF provided by DB-OTO enabled restoration of hearing in mice that was more durable than when OTOF was expressed under the control of a ubiquitous
promoter, which is designed to drive expression in all cells. In addition to the loss of durability, we observed that use of a ubiquitous promoter in mice resulted in the loss of inner hair cells throughout the cochlea. DB-OTO is designed to be delivered locally to patients using the surgical approach employed by neurotologists and pediatric otolaryngologists during a standard cochlear implantation procedure. We believe the cell-selective expression of DB-OTO and its delivery by this established surgical procedure will provide a core competitive advantage important to the success of DB-OTO.
In October 2022, we received clearance from the U.S. Food and Drug Administration, or the FDA, for our Investigational New Drug, or IND, application to initiate CHORDTM, a Phase 1/2 dose escalation clinical trial of DB-OTO in pediatric patients, and in January 2023 we received approval from the United Kingdom, or the U.K., Medicines and Healthcare Products Regulatory Agency, or MHRA, for our Clinical Trial Application, or CTA, for the trial. The Phase 1/2 clinical trial is designed to evaluate the safety, tolerability and efficacy of DB-OTO in pediatric patients with congenital hearing loss caused by mutations of the OTOF gene. In addition to safety and tolerability endpoints, established, clinically relevant, objective and behavioral measurements of hearing will be used as efficacy endpoints in the clinical trial. The auditory brainstem response, or ABR, will serve as an early, objective, clinically accepted readout of hearing thresholds in the clinical trial. ABR is a physiologic measure of hearing sensitivity routinely used in diagnosis of newborn hearing loss. Individuals with OTOF-related hearing loss typically have no detectable ABR. We have previously used ABR to characterize dose-response of DB-OTO after intra-cochlear delivery in translational animal studies. We expect the first two participants in the U.S. portion of the Phase 1/2 clinical trial will be as young as seven years of age and that subsequent participants will include children as young as two years of age and infants younger than two years of age. We expect to dose infants two years of age and younger in the U.K. portion of the Phase 1/2 clinical trial. We have commenced trial site startup activities and expect to initiate the Phase 1/2 clinical trial of DB-OTO in the first half of 2023. We anticipate reporting the initial safety and tolerability data and preliminary efficacy data, as measured by ABR, from the first patients in the Phase 1/2 clinical trial in the first quarter of 2024. The FDA has granted orphan drug designation and rare pediatric disease designation for DB-OTO for the treatment of OTOF-related, congenital hearing loss.
In addition to DB-OTO, we are advancing AAV.103, AAV.104 and AAV.105, gene therapy programs targeting hearing loss resulting from other single gene mutations, or monogenic, forms of hearing loss. AAV.103 aims to restore hearing in individuals with mutations in the GJB2 gene, AAV.104 aims to restore hearing in individuals with mutations in the STRC gene and AAV.105 aims to restore hearing in individuals with another single gene mutation. We have identified a product candidate for our AAV.103 program. We are continuing to conduct preclinical efficacy experiments, which we expect to inform the potential clinical development plan for our AAV.103 program.
We are also using our platform to design and develop a pipeline of gene therapies for hair cell regeneration within the inner ear. We are engineering gene therapies to convert supporting cells, the cells adjacent to hair cells, into either cochlear or vestibular hair cells in order to restore hearing or balance function. These gene therapy programs are designed to express the developmental or reprogramming factors that regulate cell fate and use our proprietary, cell-selective promoters to control expression spatially and temporally. Our vestibular hair cell regeneration program, which includes DB-ATO and AAV.201, is designed to restore balance by promoting regeneration of hair cells in the vestibular system, the sensory system responsible for balance. In this program, we are focused on the development of a treatment for bilateral vestibulopathy, or BVP, a debilitating, acquired condition that significantly impairs balance, mobility and stability of vision. Many BVP patients lack vestibular hair cells yet retain vestibular supporting cells. We estimate there are approximately 130,000 adults in the United States and the major markets in Europe with BVP. There are no approved therapies for BVP and the current standard of care, which is focused on rehabilitation and lifestyle changes, does not address the underlying loss of vestibular hair cells often responsible for the condition. In addition, we are advancing our cochlear hair cell regeneration program to treat acquired hearing loss by regenerating cochlear outer hair cells.
In addition to our gene therapy product candidates and programs, we are developing a clinical-stage product candidate, DB-020, for the prevention of cisplatin-induced hearing loss. DB-020 is a novel formulation of sodium thiosulfate, or STS, that we have optimized for local delivery to the ear. STS inactivates cisplatin, a widely used chemotherapy that often leads to hearing loss and related complications in patients being treated for cancer. We are developing DB-020 to prevent cisplatin-induced hearing loss without impacting the beneficial, anti-tumor effect of cisplatin. In 2019, we completed a randomized, double-blind, placebo-controlled Phase 1 clinical trial of DB-020 in healthy volunteers, in which DB-020 was well tolerated. Following the Phase 1 clinical trial, we initiated a randomized, double-blind, placebo-controlled, multicenter Phase 1b clinical trial in 2020 to evaluate the safety and efficacy of DB-020 for the prevention of cisplatin-induced hearing loss. In June 2022, we reported positive topline data from an interim analysis of the ongoing Phase 1b clinical trial.
We ceased enrollment of patients in our Phase 1b clinical trial of DB-020, subsequent to the positive results from the interim analysis from the first 19 patients enrolled. We plan to report additional data from the interim analysis in 2023, and we are working with key opinion leaders to integrate learnings from the interim analysis into an updated clinical development plan. We expect to consult with regulatory agencies in 2023 as part of that planning. We are considering a range of potential
approaches by which to advance DB-020, including entering into strategic collaborations with third parties for the further development and commercialization of DB-020. The FDA has granted fast track designation for DB-020 for the prevention of cisplatin-related ototoxicity.
In 2017, we entered into a strategic collaboration with Regeneron Pharmaceuticals, Inc., or Regeneron, that is focused on developing gene therapies for monogenic forms of congenital hearing loss. Under the collaboration, we are developing DB-OTO, AAV.103 and AAV.104 with Regeneron using discovery teams from Regeneron and its mouse and human genetics research platforms and gene therapy capabilities. In addition to paying us upfront fees and a fee associated with extending the research term of the collaboration, Regeneron has agreed to pay milestones and reimburse costs on a product-by-product basis intended to reflect approximately half of the development costs. We retain worldwide development and commercialization rights to all products developed under the collaboration and have agreed to pay Regeneron tiered royalties on net sales of products developed under the collaboration. In October 2020, we amended the collaboration with Regeneron, and the ATOH1 target under our vestibular hair cell regeneration program was removed from the collaboration. Because ATOH1 was previously being developed with Regeneron under the collaboration, we agreed, as part of the amendment, to pay to Regeneron a royalty calculated as a low-to mid-single digit percentage of net sales of the product candidate, DB-ATO, designed to express ATOH1. In February 2023, we further amended the collaboration with Regeneron to provide for accelerated payments by Regeneron to us for clinical development milestones for DB-OTO and pre-IND milestones for AAV.103.
We have built a pipeline to further our vision of creating a world of connection for people with hearing and balance disorders. Our portfolio of product candidates and programs is primarily derived from our proprietary platform and is focused in three areas:
We retain worldwide development and commercialization rights to all of our product candidates and programs.
Our goal is to transform the lives of people with hearing and balance disorders. We intend to establish ourselves as the leading biotechnology company focused on hearing and balance disorders by discovering, developing and commercializing innovative gene therapies for restoration of function of hair cells and non-sensory support cells and regeneration of hair cells within the inner ear. We aim to accomplish this goal by implementing the following strategies:
Our Opportunity – Hearing Loss and Balance Disorders
Globally, the World Health Organization, or WHO, estimates that 466 million people, including 34 million children, have disabling hearing loss. There are approximately 48 million people living in the United States with hearing loss. Children with hearing loss often experience delays in language development despite the use of hearing aids or CIs. These children are also at increased risk of impairment in executive functioning, which manifests itself in concentration, problem solving and working memory deficits. In the elderly, the neurocognitive impacts of hearing loss are also profound. Hearing loss during middle age was identified as the highest relative risk for dementia amongst all modifiable and non-modifiable risks according to a recent Lancet Commission report. Across all ages, hearing loss profoundly limits an individual’s connection to the
environment and to other people, resulting in limited social interactions, feelings of loneliness and isolation. The WHO estimates that the global cost of unaddressed hearing loss is approximately $750 billion due to health sector costs (excluding the cost of hearing devices), costs of educational support, loss of productivity and societal costs. Despite these significant costs, no therapies to restore hearing have been approved by the FDA or, to our knowledge, other international regulatory agencies.
There are two primary categories of hearing loss: conductive, which occurs from physical interference of sound transmission in the ear canal or middle ear, and sensorineural, which occurs from dysfunction of the cochlea or auditory nerve in the inner ear. Hearing loss at birth is termed congenital hearing loss and affects approximately 1.7 out of every 1,000 children born in the United States. The majority of permanent, congenital hearing loss cases are sensorineural and result from a single gene defect. To date, over 90 distinct genes have been identified by researchers that lead to non-syndromic, which means accompanied by no other signs or symptoms, congenital hearing loss when mutated. In approximately 80% of these cases, the hearing loss is autosomal recessive, or only occurs when both copies of a gene are mutated. Mutation of the OTOF and GJB2 genes are two of the most common causes of autosomal recessive, non-syndromic, congenital hearing loss. Mutations in the genes STRC, SLC26A4, Myosin15A, Cadherin23, TMPRSS3 and TMC1 are all also associated with autosomal recessive, non-syndromic congenital hearing loss.
Acquired hearing loss, which impacts both adults and children, may originate from both a genetic and non-genetic etiology. Use of certain medicines such as cisplatin, exposure to loud sounds and aging can all result in damage to the inner ear and ultimately hearing loss. Since the regenerative capacity of the mammalian inner ear is limited, damage to hair cells of the inner ear is considered permanent, often accumulates over years and may only be addressed through regenerative approaches. We believe the number of people with disabling hearing loss will continue to increase as the WHO estimates that 1.1 billion people aged 12 to 35 years are at risk of hearing loss due to exposure to elevated noise levels in recreational settings.
Our Sense of Hearing
As shown in the image below, (1) sound waves enter our ear through the air and into the outer ear where they (2) cause the tympanum (eardrum) to vibrate. This causes a series of small bones (ossicles) in the middle ear to vibrate, which (3) transmit these vibrations through a small membrane called the oval window. These vibrations (4) cause displacements of structures within the cochlea that are sensed by hair cells and converted into signals that our brain perceives as sound.
How Sound Waves Move from the Outer Ear to the Inner Ear
There are two types of sensory hair cells in the cochlea: outer hair cells and inner hair cells. Outer hair cells amplify quiet sounds, while inner hair cells primarily detect and transmit sound signals to the brain via the auditory nerve. There are approximately 15,000 hair cells in the human cochlea which are arranged in a tonotopic manner, meaning each region of the cochlea is activated by different sound frequencies. The image below is of a mouse cochlea and depicts three rows of outer hair cells, labeled in blue and indicated by the yellow arrows, and one row of inner hair cells, also labeled in blue, and
highlighted by the white arrows. The sound frequency map moves from the apex of the cochlea, which detects the lowest frequency sounds, to the base of the cochlea, which detects the highest frequency sounds.
Image of Outer Hair Cells and Inner Hair Cells in the Cochlea
Damage or dysfunction within these cells and cellular structures can lead to hearing loss, debilitating sensitivity to sound or tinnitus, which is a ringing in the ears. Importantly, once hair cells are lost for any reason, they do not naturally regenerate, and the resulting loss of function is permanent.
Diagnosis and Treatment of Hearing Loss
Every U.S. state has an established early hearing detection and intervention program and greater than 96% of newborns are screened within one month after birth. Newborns with severe-to-profound congenital hearing loss are routinely identified through this screening, which typically employs either ABR or otoacoustic emission, or OAE, which are non-invasive measures of inner ear hair cell function. ABR measures neural activity between inner hair cells and the brain in response to brief sounds, and OAEs measure whether outer hair cells in the cochlea appropriately respond to sound in the inner ear. Importantly, both ABR and OAE are similar across animal species and are routinely used to assess hearing in both human patients and preclinical animal models. A newborn that fails an initial screen will typically be given a full diagnostic assessment, including genetic testing in some cases, as a follow-up to confirm the finding and to potentially identify the underlying cause of the hearing loss.
Adults that experience hearing loss may initially discuss this with their primary care physician but ultimately are likely to be tested by an audiologist and thereafter managed by an audiologist or otolaryngologist, trained as an ear, nose and throat specialist, or ENT. ENTs are the treating physicians for hearing loss and are trained as surgeons capable of performing cochlear implantation as well. In the United States, there are approximately 12,500 audiologists and 12,000 ENTs.
Current treatment options are severely limited for patients diagnosed with congenital or acquired hearing loss. Individuals with mild-to-moderate hearing loss, or a deficit of 25 to 55 decibels, or dB, from baseline, may be fitted with hearing aids. However, hearing aids are only able to amplify sounds too quiet to hear otherwise. Hearing aids are not able to address hearing loss due to disruptions in the hearing circuit.
Adults and children with severe-to-profound hearing loss, or deficits over 71 dB, are unable to perceive any speech. These individuals, who are not helped by hearing aids, may be candidates for cochlear implantation, which is the only approved treatment for hearing loss. CIs involve a surgically implanted electrode system that stimulates the auditory nerve, an external microphone, sound processor and transmitter system, which receive sounds from the environment. Only approximately 50% of children with severe-to-profound hearing loss in the United States receive a CI. Among adults who have developed severe-to-profound hearing loss in the United States, approximately 5% have chosen to have CIs. Historically, we estimate that the majority of individuals who have received a CI only received a CI in one ear.
CIs do not restore normal hearing and the surgical procedure potentially makes the implant incompatible with future restorative therapeutics of the cochlear hair cells for that ear. Although CIs have had a positive impact on many children with congenital hearing loss, they do not address the underlying pathophysiology and are only an assistive device for patients. The human inner ear has thousands of hair cells which provide a high-resolution signal to the brain to enable complex perception and human communication. CIs use between 8 and 24 electrodes to provide a signal to the brain, which results in a downsampling, or compression, of information and a severely degraded auditory signal. As a result, recipients of CIs often report difficulty understanding speech in real-world environments, even with low levels of background noise, and difficulty distinguishing complex components of sound like pitch and melody. Children with CIs are at risk of missing out on important social cues and information that influences their relationships. As shown in the image below, in an independent study of 46 children with normal hearing or CIs conducted by researchers at The Ohio State University, Columbus, the 27 children with CIs who were evaluated understood less than 20% of words in noise levels consistent with a classroom environment and less than 60% of words in a quiet environment when lip reading cues were not available.
Word Recognition with Normal Hearing vs. Cochlear Implants in Quiet Environment and Noise Levels Consistent with Classroom Settings
In addition, a recent third-party academic study has shown that approximately 50% of children with CIs were held back a grade during elementary school. Teenagers with CIs were also twice as likely as their peers to be enrolled in vocational training rather than tracking for university. Moreover, when the implant is taken off at night or for repair, the children are also once again disconnected from the auditory world. Finally, CIs can fail, resulting in revision surgeries or reimplantation in up to approximately 11% of cases.
Beyond hearing loss, dysfunction of the inner ear may also result in severe impairments in balance due to damage in an individual’s vestibular system. Loss of hair cells in the vestibular system can result from certain medicines or as a result of the aging process, which can lead to chronic balance problems and result in significant life impairment and an increased risk of falls. The National Institutes of Health, or NIH, estimates that up to eight million U.S. adults suffer from a chronic balance disorder. A subset of individuals with chronic balance disorders suffer from BVP, a profound bilateral loss of vestibular sensation. We estimate there are approximately 130,000 adults with BVP in the United States and the major markets in Europe.
Our Sense of Balance
The vestibular system, which is located in the inner ear as shown in the image below, provides information critical to our sense of balance. This system includes five sensory organs – three semicircular canal end organs and two otolith organs called the utricle and saccule – that work together to enable us to determine our position and movement in space. The vestibular system also helps to stabilize and coordinate vision and provide input to our musculoskeletal system by way of the brainstem and cerebellum, the brain’s movement control center. Importantly, vestibular information is encoded by vestibular hair cells, which are evolutionarily linked to the hair cells within the cochlea.
The Vestibular System of the Inner Ear
Diagnosis and Treatment of Balance Disorders
Individuals who experience dizziness, vertigo or balance impairment are typically evaluated with objective, established tests to evaluate the function of the vestibular system. Many of these tests quantify the VOR. Additional objective measurements, including vestibular evoked myogenic potentials, or muscle activity in response to vestibular stimulation, are used to assess vestibular function. Many patients diagnosed with a vestibular disorder are prescribed rehabilitation or pharmacological interventions to manage the impact of symptoms. While there are treatments for the symptoms of vestibular disorders, there are no approved therapies that treat the underlying condition.
We have built a proprietary platform that integrates single-cell genomics and bioinformatics analyses, precision gene therapy technologies and our expertise in inner ear biology. We are leveraging our platform to advance gene therapy product candidates designed to selectively replace genes for congenital, monogenic hearing loss and to regenerate inner ear hair cells for acquired hearing and balance disorders.
Our platform consists of:
Single-Cell Genomics and Bioinformatics
As depicted in the image below, we are optimizing and applying a series of single-cell genomics and bioinformatics approaches we believe to be essential for understanding the complex cellular diversity of the inner ear, including epigenetic capabilities to sequence regions of active DNA within cells, transcriptomic capabilities to characterize cell function and capabilities to enable identification of alternative transcript splicing.
We have applied these approaches to assemble a single-cell database of gene expression profiles from all known cell types within the inner ear. This comprehensive dataset includes over three million cellular transcriptional expression profiles from the cochlea and vestibule of several mammalian species. The proprietary dataset spans key stages of development from embryonic to adult and includes data we generated after various perturbations, including noise, aging and chemical insult. To our knowledge, this is the largest dataset of its kind for the inner ear. We are using this dataset to identify and select targets,
including reprogramming factors to promote inner ear hair cell regeneration, and cell-selective promoters to drive precise expression of transgenes and restore functionality in hair cells and non-sensory support cells of the inner ear.
Precision Gene Therapy and Proprietary, Cell-Selective Promoters
We have evaluated seven naturally occurring and engineered AAVs in non-human primate species and found that multiple AAV capsids reliably transduce a broad set of cell types within the inner ear. Notably, one of these AAV serotypes is AAV1, a well-studied and understood AAV serotype that is used in a gene therapy product approved by European regulatory authorities. The image below presents a cross-section of the cochlea of a non-human primate with red staining indicating AAV1 transduced cells at a dose of 3.2x1011 viral genomes per ear. The broad tropism we observed of AAV1 and other AAV capsids at modest doses in the non-human primate inner ear supports our belief that we can selectively target a large number of cell types within the human inner ear with naturally occurring AAV capsids when coupled with a cell-selective promoter. We believe that because of the broad tropism of these AAVs in human inner ear cells, therapeutics based on these AAVs may not require capsid engineering and thereby avoid potential manufacturing complications and safety concerns attributable to novel capsids.
Cross-section of the Non-human Primate Cochlea with AAV1 Transduced Cells
The favorable transduction profile of multiple AAV capsids within the inner ear coupled with the enclosed compartment of the inner ear generally facilitates the use of a dual vector approach to deliver a full-length transgene, such as the OTOF gene in DB-OTO, that would normally exceed the packaging capacity of AAV vectors. We have evaluated multiple dual vector strategies and employ a proprietary dual-hybrid approach in which our two vectors enable expression of a full-length transgene.
Using proprietary analyses, we have exploited our single-cell genomics capabilities to develop a library of cell-selective promoters for therapeutically relevant cell types within the inner ear. Candidate promoters are designed based on gene expression, local epigenetic state and conservation across mammals, and we then validate each candidate across model systems and across species.
To date, we have generated and confirmed the specificity of cell-selective promoters that limit expression to therapeutically relevant inner ear cells in mice and non-human primates spatially and temporally. The image below shows representative images of green fluorescent protein, or GFP, a reporter gene used as a surrogate for a therapeutic transgene under the control of a cell-selective promoter. Based on our preclinical studies, we believe that cell-selective promoters could enable greater efficacy and durability and minimize potential toxicity in our gene therapies.
Cell-Selective Promoters in Therapeutically Relevant Inner Ear Cells
Reprogramming Factors to Control Cell Fate
Our regeneration strategy is to convert supporting cells, the cells adjacent to hair cells, into new hair cells in the inner ear. Our single-cell genomics and bioinformatics dataset includes hair cells at all stages of development, allowing us to reconstruct a differentiation trajectory that spans nascent hair cells to mature subtypes like inner and outer hair cells, and has enabled us to identify reprogramming factors that control cochlear and vestibular hair cell fate during normal development. Once identified, these can be expressed to reprogram supporting cells into new hair cells during adulthood. As shown in the image below, we identify candidate reprogramming factors expressed during the normal transition from progenitor cell to immature hair cell to mature hair cell, as represented by the figure on the left. We then evaluate the ability of those reprogramming factors to drive a mature hair cell fate via selective expression in inner ear supporting cells as shown by the figure on the right.
Reprogramming Factor Identification
Our portfolio of product candidates and programs is primarily derived from our proprietary platform and is focused in three areas:
Gene Therapies for Congenital, Monogenic Hearing Loss
We are leveraging our platform to advance gene therapy programs designed to selectively replace genes for congenital, monogenic hearing loss. We are developing our lead gene therapy product candidate, DB-OTO, to provide durable, high quality, physiological hearing to individuals with profound, congenital hearing loss caused by mutations of the OTOF gene. In addition to DB-OTO, we are advancing additional gene therapy product candidates and programs targeting hearing loss resulting from other monogenic forms of hearing loss, including AAV.103, which aims to restore hearing in individuals with mutations in the GJB2 gene, AAV.104, which aims to restore hearing in individuals with mutations in the STRC gene and AAV.105, which aims to restore hearing in individuals with another single gene mutation. To date, over 90 distinct genes have been identified by researchers that lead to non-syndromic, congenital hearing loss when mutated. In approximately 80% of these cases, the hearing loss is autosomal recessive.
DB-OTO is an AAV-based dual-vector gene therapy product candidate designed to be administered a single time to selectively express functional OTOF in the inner hair cells of individuals with OTOF deficiency with the goal of enabling the ear to transmit sound to the brain and enable durable, physiological hearing. In October 2022, we received clearance from the FDA for our IND application to initiate CHORDTM, a Phase 1/2 dose escalation clinical trial of DB-OTO in pediatric patients, and in January 2023, we received approval from the MHRA for our CTA for the trial.
OTOF-Related Hearing Loss
Mutations of the OTOF gene are one of the most common causes of genetic, congenital hearing loss, accounting for up to 8% of all cases. We estimate that the prevalence of profound hearing loss from OTOF deficiency in the United States and the major markets in Europe is approximately 20,000 individuals. In these regions and many other locations around the world, newborns with OTOF-mediated hearing loss are typically identified through routine hearing screening using ABR or OAE prior to being discharged from the birthing hospital. A newborn that fails an initial screen will typically be given a full diagnostic assessment, including genetic testing in some cases, as a follow-up to confirm the finding and to potentially identify the underlying cause of the hearing loss.
OTOF is a protein expressed in cochlear inner hair cells that enables communication between the sensory cells of the inner ear and the auditory nerve by regulating synaptic transmission. As shown in the image below, normal functioning OTOF enables inner hair cells to release neurotransmitters in response to stimulation by sound, which then activates the auditory nerve and carries the signal to the brain.
Functional OTOF Enables Inner Hair Cells To Release Neurotransmitters
Newborns born with mutations in the OTOF gene have fully developed structures within the inner ear. However, these newborns have profound hearing loss because signaling between the ear and the brain is disrupted. Importantly, despite OTOF deficiency, preclinical models and human clinical data suggest that the remainder of the inner ear and hearing circuit are fully functional. For example, while OTOF-deficient individuals present with an absent ABR, OAEs can still be detected, suggesting that the sensory cells within the inner ear remain viable and that expression of a functional OTOF gene could enable restoration of hearing.
There are currently no approved therapies to address OTOF-mediated hearing loss. The only available treatment options are assistive devices, such as a hearing aid or CI. Hearing aids provide very little benefit and are only used in a small minority of patients. CIs provide a clear benefit over profound hearing loss. However, they have significant limitations as they provide impoverished signals to the brain. Furthermore, the surgical implantation of a CI into the inner ear potentially makes the implant incompatible with future restorative therapies for that ear. Thus, we believe restoration of hearing would be transformative for these individuals.
DB-OTO is designed to provide durable, high quality, physiological hearing by expressing a functional OTOF gene directly in the hair cells that enable the ear to transmit sound to the brain. DB-OTO is a cell-selective AAV gene therapy that uses AAV1 as a delivery vehicle to facilitate expression of an OTOF transgene under the control of a proprietary Myosin15, or Myo15, promoter. OTOF is a large gene which exceeds the packaging capacity of an AAV vector. As a result, DB-OTO employs a dual vector approach involving the delivery of the transgene in two separate parts, with each part being delivered by a separate AAV vector and then combining through intracellular recombination to express a full length OTOF gene.
DB-OTO is intended to be administered a single time intracochlearly to patients using the surgical approach employed by neurotologists and pediatric otolaryngologists during a standard cochlear implantation procedure. This delivery is a
well-accepted surgical approach for accessing the inner ear. We believe the cell-selective expression of OTOF under the Myo15 promoter and the established surgical procedure will provide competitive advantages important to the success of DB-OTO.
In October 2022, we received clearance from the FDA for our IND application to initiate CHORDTM, a Phase 1/2 dose escalation clinical trial of DB-OTO in pediatric patients, and in January 2023, we received approval from the MHRA for our CTA for the trial. The Phase 1/2 clinical trial is designed to evaluate the safety, tolerability and efficacy of DB-OTO in pediatric patients with congenital hearing loss due to an OTOF deficiency. In addition to safety and tolerability endpoints, established, clinically relevant, objective and behavioral measurements of hearing will be used as efficacy endpoints in the clinical trial. The auditory brainstem response, which was used to characterize the dose-response of DB-OTO after intra-cochlear delivery in translational animal studies, will serve as an early, objective, clinically accepted readout of hearing thresholds in the clinical trial. We expect the first two participants in the U.S. portion of the Phase 1/2 clinical trial will be as young as seven years of age and that subsequent participants will include children as young as two years of age and infants younger than two years of age. We expect to dose infants two years of age and younger in the U.K portion of the Phase 1/2 clinical trial. We have commenced trial site startup activities and expect to initiate the Phase 1/2 clinical trial of DB-OTO in the first half of 2023. We anticipate reporting the initial safety and tolerability data and preliminary efficacy data, as measured by ABR, from the first patients in the Phase 1/2 clinical trial in the first quarter of 2024.
To further support our Phase 1/2 clinical trial, we are conducting a natural history study in collaboration with Hospital Ramon y Cajal in Spain, which utilizes a database that currently is comprised of 149 patients with OTOF mutations. Data from this study were presented at the 2022 Midwinter Meeting of the Association for Research in Otolaryngology and highlighted the unmet medical need associated with OTOF deficiency. We are establishing similar collaborations at additional sites in the United States and within Europe, each of which will involve collection of physiologic, behavioral and patient-reported experience endpoints that may be used to guide our clinical development plans for DB-OTO and other gene therapy programs for congenital hearing loss. We believe the conduct and results of these natural history studies will also encourage diagnostic practices at clinical trial sites to support patient identification for our Phase 1/2 clinical trial of DB-OTO and our other gene therapy programs for congenital hearing loss. We have also launched Amplify, a sponsored testing program. Through this program, Prevention Genetics is performing genetic testing using one of its comprehensive gene panels in eligible patients with auditory neuropathy at collaborating sites. We believe this testing program will provide a greater understanding of genetic sensorineural hearing loss and will promote enrollment in our future clinical trials.
We have been granted orphan drug designation and rare pediatric disease designation by the FDA for DB-OTO for the treatment of patients with OTOF-related, congenital hearing loss and plan to seek fast track designation for DB-OTO.
The feasibility of restoring functional hearing in a mouse model of OTOF-deficiency has been established in a number of independent, academic studies. For example, researchers from the University of California, San Francisco and the University of Florida utilized a dual vector approach to deliver two different recombinant vectors directly to the cochlea of OTOF knockout mice. In that study, a single intracochlear injection of the vector pair in a fully developed mouse ear was able to generate the full length OTOF gene, express OTOF protein in the inner hair cells and restore hearing indistinguishable from wildtype, as measured by ABR.
In developing DB-OTO, we generated a novel knock-in mouse model that has a nonsense mutation, Q828X, commonly seen in individuals with OTOF-related hearing loss. We refer to the mice in the model as Q828X mice. We have used this model to conduct multiple preclinical studies of DB-OTO. For instance, we have conducted preclinical studies using this model to assess OTOF expression and the restoration of ABR waveforms. As shown by the representative image in the leftmost panel below, in this model, heterozygous mice with one mutant OTOF and one functional copy of the OTOF gene expressed OTOF protein in inner hair cells, as shown by the pink cells in the highlighted box, and a normal ABR waveform, shown in red, in response to an 80 dB sound pressure level, or SPL, stimulus. An 80 dB stimulus is equivalent to a gasoline-powered lawn mower. We observed similar ABR waveforms across 12 heterozygous mice and expression of OTOF across 12 heterozygous mice. As shown by the representative image in the middle panel below, in untreated Q828X mice with two mutant copies of OTOF, no OTOF protein can be visualized within the cochlea, as seen by the lack of pink cells in the highlighted box, and the ABR waveform, shown in blue, is undetectable in response to an 80 dB stimulus. We observed similar ABR waveforms in seven untreated Q828X mice and expression of OTOF across 16 untreated Q828X mice. Consistent with previous academic studies, and as shown in the representative image in the rightmost panel below, treatment with a pair of recombinant AAV vectors expressing two parts of the OTOF transgene that was delivered by a single intracochlear injection resulted in expression of functional OTOF protein within the cochlea of the Q828X mice, as shown by the pink cells in the highlighted box, and restoration of normal ABR waveforms, as shown by the black trace. Furthermore, in
these mice, we observed restoration of normal ABR waveforms in a fully developed mouse ear up to 12 months of age. We observed similar ABR waveforms and expression of OTOF across 13 studies of treated Q828X mice.
Preclinical Studies Demonstrated Restoration of Hearing in Mouse Model with Dual AAV-OTOF
Because the anatomy of the inner ear, an accessible, small, enclosed compartment, enables direct delivery of high viral titers, we believe that dual vector approaches are able to generate sufficient levels of full-length transcript within the cochlea. In preclinical studies, across AAV-OTOF injections in Q828X mice, we have observed that achieving OTOF expression in greater than 20% of inner hair cells was sufficient to restore ABR sensitivities within normal ranges. In these studies, we evaluated 76 Q828X mice that were between ten weeks and 44 weeks of age at time of hearing assessment and histology for OTOF-positive inner hair cell counts. As shown in the chart below, we observed that in those mice with OTOF expression in fewer than 20% of inner hair cells, 75% showed no recovery of ABR sensitivity, 16% showed some improvement of ABR sensitivity and 9% showed ABR sensitivity within the normal range. In those mice with OTOF expression in 20% or greater of inner hair cells, all showed some improvement in ABR sensitivity, including 83% to 92% that had ABR sensitivities within the normal range. For purposes of this analysis, normal range indicates the mean plus or minus two standard deviations we observed in untreated heterozygous mice. ABR sensitivity for both heterozygous controls and treated OTOF-deficient animals was recorded in response to a 22 kHz stimulus, which we believe represents a mid-to-high cochlear frequency location in mice that may translate to a frequency important for perception of human speech.
Expression of OTOF in Greater than 20% of Inner Hair Cells Restored Normal ABR Sensitivity in Q828X Mice
We have evaluated in several preclinical studies, including dose-response studies, the dependence of OTOF expression and functional recovery on dosing increments at one month-post DB-OTO infusion. In these studies, we administered by intracochlear injection DB-OTO in doses that ranged from 1.4x1010 to 1.9x1011 viral genomes per ear to 189 mice that were four to eight weeks of age. At these ages, the inner ear was fully developed and is expected to replicate translational conditions for future treatment in infants and young children. Over the dosing range, we observed a pronounced dose response in which low dosing resulted in minimal OTOF expression and minimal recovery of ABR sensitivity while mid-to-high doses resulted in a higher percentage of inner hair cells expressing OTOF and meaningful recovery of ABR sensitivity across vocalization frequency ranges for the mice. Using DB-OTO manufactured using our proposed clinical grade manufacturing process, we have demonstrated a dose response in the Q828X model over a 10-fold range. In wild type mice that were also dosed over this same 10-fold range with DB-OTO manufactured using our proposed clinical grade manufacturing process, we also observed good tolerability as assessed by the ABR. These findings, along with a volumetric scaling approach, were used to inform dose selection for our exploratory safety and distribution studies in Q828X mice and non-human primates, as well as the design of our good laboratory practice, or GLP, toxicology studies and planned human clinical trials.
Because we have observed that AAV capsids transduce a broad set of cell types within the inner ear, the use of AAV capsids to deliver therapy necessitates strategies to minimize toxicity associated with expression of OTOF in cells that do not typically express OTOF. To address this concern, we leveraged our molecular insights and capabilities to identify and engineer a Myo15 cell-selective promoter to control transgene expression such that OTOF is expressed only in hair cells. We have observed this selectivity in multiple preclinical studies in mice and non-human primates. In one study, to evaluate translation of DB-OTO, we delivered by intracochlear injection dual vectors encoding GFP in which the GFP complementary DNA is split between two AAV vectors under the control of the Myo15 promoter to the inner ears of six non-human primates. In the study, our dual vector technology dosed at 2.0x1012 viral genomes per ear was able to drive highly selective expression of GFP in the majority of hair cells of the non-human primate inner ear. The image below presents a representative section of the non-human primate inner ear in which GFP, shown in green, is present only in hair cells, the cells located between the dotted white lines and identified with the hair cell marker Myo7a. Nuclei of hair cells and other cells are shown in blue, as stained by DAPI, a fluorescent stain that binds strongly to DNA.
Dual Vector AAV and Myo15 Drove Highly Selective Expression of GFP in Hair Cells of Non-Human Primates
The fraction of inner hair cells expressing dual vector GFP was assessed at several different frequencies across the six non-human primates in the study. In frequency regions we believe to be important for non-human primate vocalization, we observed expression of GFP in greater than 75% of inner hair cells as highlighted in the graph below.
Dual Vector AAV and Myo15 Drove Full Length GFP Expression in Most Inner Hair Cells of Non-Human Primates Across Frequency Regions
To compare durability of hearing restoration between OTOF expressed by our cell-selective promoter, Myo15, and a ubiquitous promoter, smCBA, we conducted a preclinical study in 15 Q828X mice with DB-OTO or AAV-smCBA-hOTOF, respectively, and followed their recovery over a seventeen-week period. In this study, we administered DB-OTO by intracochlear injection. We measured ABR in response to frequency-specific tones intended to activate specific regions of the cochlea, as well as in response to gross broadband click stimuli which activate multiple frequencies. In the study, we observed that ABR waveforms were restored within four weeks following injection with DB-OTO and were maintained through week seventeen as measured in response to frequency-specific stimuli. While we also saw initial functional recovery with the ubiquitous promoter at four weeks post-infusion, we observed that the response to frequency-specific stimuli had deteriorated when measured at eight weeks post-treatment. The image below shows ABR thresholds in response to 22 kHz stimulus with the blue trace depicting DB-OTO treated mice and the red trace depicting AAV-smCBA-hOTOF treated mice.
Durability of ABR Sensitivity with DB-OTO Compared to AAV Vector with a Ubiquitous Promoter in Q828X Mice
When hearing in this study was assessed by gross broadband click stimuli spanning multiple frequencies, the test was less sensitive to this loss of durability. Histological analysis revealed degeneration of inner hair cells throughout the cochlea after treatment using the ubiquitous promoter, which was pronounced in specific regions. Importantly, this loss of function was not observed in the Q828X mice that were infused with DB-OTO. Taken together, we believe that these observations support our belief that cell-selective regulation of expression may provide significant advantages in the development of gene therapies for the durable restoration of hearing.
To further understand the improvement in durable restoration of hearing with our hair cell-selective promoter, in a separate study, we delivered DB-OTO and the same comparison vector by intracochlear injection to a total of 40 wild type and heterozygous carriers of the Q828X mutations to assess impacts on hearing. We found that DB-OTO had no negative impact on hearing as measured by ABR in response to frequency-specific tones or gross broadband click stimuli in the heterozygous mice. Histological analysis revealed normal inner hair cells up to one month after DB-OTO infusion. By contrast, we observed loss of inner hair cells throughout the cochlea and loss of hearing for frequency specific ABR tone
responses after infusion of the comparison vector under the control of the ubiquitous promoter. Of note, we again observed that this gross broadband click response was less sensitive to the distributed pathology that we observed.
We performed GLP toxicology studies to support the conduct of human clinical trials of DB-OTO. In these studies, we used OTOF-deficient mice and wild type non-human primates to characterize the pharmacology, toxicity and biodistribution of DB-OTO after inner ear delivery. In the studies involving non-human primates, we modeled the surgical approach and delivery of DB-OTO that we plan to use in our Phase 1/2 clinical trial.
We quantified human OTOF mRNA transcript levels and observed that they peaked four weeks after DB-OTO injection in mice and six weeks after DB-OTO injection in non-human primates, plateauing thereafter. A similar time course was observed for ABR improvements post DB-OTO injection in the congenitally deaf rodent model. We followed Q828X mice for eight months post-administration of DB-OTO and observed stability of the instated ABR throughout that period at therapeutically active doses.
In our GLP studies, we did not observe any adverse DB-OTO-related findings in otic or non-otic tissues across any evaluation in Q828X mice or non-human primates. We also assessed the distribution of vector genomes and human OTOF mRNA expression outside of the ear following DB-OTO injection in non-human primates. We observed limited vector distribution into peripheral tissues and limited vector shedding in non-human primates. Human OTOF mRNA expression was shown to be restricted to the cochlea at 27 weeks, supporting the selectivity of the promoter and the potential ability to drive sustained human OTOF transgene expression.
The proposed volumetric dose scaling was directly proportional to the total cochlea perilymph volumes of mouse, non-human primate and humans. Comparable vector genome DNA and human OTOF mRNA levels in mouse and non-human primate GLP studies provided additional supporting evidence for the validity of this volumetric scaling approach for dose adjustments of DB-OTO between these species.
In our preclinical studies, the presence of pre-existing neutralizing antibodies was not associated with an impact on transgene expression in the ear or safety post DB-OTO injection, suggesting that there may be limited impact of systemic pre-existing neutralizing antibodies on local administration of AAV gene therapies to the inner ear.
AAV.103, AAV.104 and AAV.105
We believe that additional autosomal recessive mutations that result in congenital hearing loss can potentially be addressed by AAV gene replacement therapies. We are designing AAV.103 to restore hearing to individuals with a GJB2 deficiency, the most common cause of congenital hearing loss. Most GJB2 mutations result in severe-to-profound hearing loss, and we estimate the prevalence in the United States and the major markets in Europe is at least 280,000 individuals. GJB2 encodes the connexin 26 gap junction protein, which is expressed in non-sensory cells of the inner ear such as supporting cells. Connexins are a family of transmembrane proteins that form channels between adjacent cells. Gap junction channels are believed to be involved in the recycling of ions, such as potassium, to maintain the electric voltage needed to enable normal hearing. We are designing AAV.103 to selectively express GJB2 in only the cells that normally express GJB2, a strategy we believe could potentially restore gap junctions and restore hearing. Using our single-cell genomics capabilities, we have identified the sequence of the GJB2 promoter and a promoter/enhancer combination that selectively limited expression of a reporter gene in preclinical studies of mice. We have identified a product candidate for our AAV.103 program. We are continuing to conduct preclinical efficacy experiments, which we expect to inform the potential clinical development plan. We are working in collaboration with Regeneron to develop AAV.103.
We are designing AAV.104 to restore hearing to individuals with an STRC deficiency, the second most common cause of autosomal recessive, non-syndromic, congenital hearing loss. We estimate that the prevalence of individuals with this form of hearing loss in the United States and the major markets in Europe is approximately 70,000. STRC is a large, extracellular, structural protein expressed in outer hair cells of the cochlea. Functional outer hair cells amplify sound within the ear, a process required for normal hearing sensitivity and frequency selectivity. AAV.104 is designed to express STRC selectively in outer hair cells, thus providing STRC specifically in its natural cellular location. We believe this strategy has the potential to restore expression of the protein and hearing in individuals with an STRC deficiency. We have identified the sequence of the STRC promoter and observed that it is selective for outer hair cells in preclinical studies of mice and nonhuman primates. We are currently conducting preclinical studies in our AAV.104 program to evaluate preclinical efficacy. We are working in collaboration with Regeneron to develop AAV.104.
Beyond AAV.103 and AAV.104, we are designing AAV.105 to restore hearing in individuals with another single gene mutation. We are independently working on AAV.105, and AAV.105 is not subject to our collaboration with Regeneron.
Gene Therapies for Hair Cell Regeneration
We are leveraging our platform to advance gene therapy programs to regenerate inner ear hair cells for acquired hearing and balance disorders. Our vestibular hair cell regeneration program aims to restore balance in patients with BVP by regenerating lost hair cells within the vestibule. We also have an additional gene therapy program that aims to treat acquired hearing loss by regenerating cochlear outer hair cells.
Vestibular Hair Cell Regeneration
We are designing AAV-based gene therapies that utilize a proprietary vestibular supporting cell-selective promoter to express ATOH1, a transcription factor required for hair cell differentiation, alone or in combination with reprogramming factors, in vestibular supporting cells to promote the regeneration of vestibular hair cells. We are developing this program, which includes DB-ATO and AAV.201, for the treatment of BVP. In February 2023, we presented new preclinical data from our vestibular regeneration efforts at the Association for Research in Otolaryngology.
BVP is a debilitating condition that is often caused by certain antibiotics such as gentamicin. Patients with BVP may experience dramatic loss of hair cells and have difficulty maintaining a stable gaze and posture. These individuals have a 70% incidence of oscillopsia, or blurred vision during head movement, and may experience chronic disequilibrium and postural instability. Most patients with BVP are unable to work due to disability and are at a 31-fold increased risk of falls. Many BVP patients lack vestibular hair cells, yet retain vestibular supporting cells and neurons, which we believe makes them amenable to a regenerative approach. We estimate there are approximately 130,000 adults with BVP in the United States and the major markets in Europe. Despite the severity, there are no approved therapies for BVP, and the standard of care is focused on rehabilitation and lifestyle changes that do not address the underlying loss of vestibular hair cells often responsible for the condition.
Our vestibular hair cell regeneration programs aim to restore balance by promoting regeneration of hair cells in the vestibule within the inner ear. The intended mechanism of action is direct conversion of vestibular supporting cells into vestibular hair cells through expression of ATOH1, alone or in combination with reprogramming factors. ATOH1 is a well-studied gene within the inner ear field as it is both necessary and sufficient to generate hair cells during development. In a number of published, independent preclinical studies, ATOH1 has been shown to convert adult vestibular supporting cells into vestibular hair cells. We have evaluated multiple AAV capsids in preclinical studies to assess their ability to reliably transduce vestibular supporting cells in both mice and non-human primates. Because many patients with BVP have normal hearing, in order to minimize any impact on hearing, we intend to utilize an AAV capsid in combination with a selective promoter to limit cochlear expression. In multiple preclinical studies, we have observed that the promoters under consideration, for example the human SLC6A14 promoter, were selective for vestibular supporting cells when delivered by intravestibular injection to the adult mouse and non-human primate ear in vivo.
We have developed two mouse models of BVP in which we can selectively ablate vestibular hair cells in vivo without killing vestibular supporting cells. In a preclinical study in these mice, as quantified in the image below, intravestibular delivery of AAV with an ATOH1 transgene under control of the human SLC6A14 promoter resulted in selective expression of ATOH1 in vestibular support cells and regeneration of vestibular hair cells in the utricle, as measured by the hair cell marker Pou4f3. Similar results were observed in the crista, one of the semicircular end organs of the vestibular system.
In Vivo Regeneration of Vestibular Hair Cells in Utricle in Mouse Model of BVP Following Delivery of ATOH1
We applied our single-cell genomics and bioinformatics capabilities to characterize the newly generated hair cells in the study and confirmed that their transcriptional profiles resembled mature vestibular hair cells. We also evaluated preclinical efficacy in vivo using behavioral assays but did not observe significant functional recovery. We are continuing to evaluate whether ATOH1 expression alone might be sufficient to restore lost vestibular function. In parallel, we are currently conducting preclinical studies in our mouse models of BVP to explore whether a single AAV vector delivered with an intravestibular injection expressing a combination of ATOH1 and reprogramming factors may further enhance maturation of specific vestibular hair cell types. We believe this combination may enable superior restoration of balance in patients with BVP.
Loss of hair cells in the vestibular system can also result from the aging process, which may lead to chronic balance problems and result in significant life impairment and an increased risk of falls. We believe that our strategy of regenerating vestibular hair cells through conversion of neighboring supporting cells could restore balance, and we may explore whether any product candidate we develop for BVP is able to regenerate vestibular hair cells as a treatment for acquired age-related and other balance disorders.
Cochlear Hair Cell Regeneration
Age-related hearing loss and noise-induced hearing loss affect millions of people in the United States and Europe. Research has shown that the degree of hearing loss in these populations is best predicted by the amount of cochlear hair cell loss. We believe that restoring cochlear hair cells could restore hearing in these individuals. In our cochlear hair cell regeneration program, we are designing an AAV-based gene therapy that utilizes cell-selective expression of reprogramming factors to convert supporting cells into cochlear hair cells. We are currently conducting preclinical studies to evaluate the feasibility of our approach.
We are developing DB-020 for the prevention of cisplatin-induced hearing loss in cancer patients receiving chemotherapy. DB-020 is a novel formulation of STS, a naturally occurring metabolite which inactivates cisplatin through covalent binding. We have optimized the DB-020 formulation for local delivery to the ear, which we believe may enable DB-020 to protect hearing without impacting the beneficial effect of cisplatin chemotherapy. We have completed a Phase 1 clinical trial of DB-020 in Australia and are conducting a randomized, double-blind, placebo-controlled, multicenter Phase 1b clinical trial to evaluate the safety and efficacy of DB-020 in preventing hearing loss in cancer patients undergoing chemotherapy with cisplatin. In June 2022, we reported positive topline data from an interim analysis of the ongoing Phase 1b clinical trial and ceased enrollment. We are in the safety follow-up portion of the clinical trial, which we anticipate completing in the first half of 2023. The FDA has granted fast track designation for DB-020 for the prevention of cisplatin-related ototoxicity.
Cisplatin-Induced Hearing Loss
Cisplatin is systemically delivered and one of the most commonly used chemotherapeutics despite severe, dose-limiting side effects. Ototoxicity is one of the most common, serious adverse effects of cisplatin-based chemotherapy, leading to permanent hearing loss in the majority of patients. We estimate that approximately 270,000 patients per year in the United States, the major markets in Europe and Japan receive cisplatin-based chemotherapy with more than 85% of these patients
receiving high doses that correlate to a greater risk to hearing. This hearing loss can be devastating and is often associated with imbalance, tinnitus and a debilitating sensitivity to sound. Oncologists indicate that cisplatin is commonly used with curative intent, suggesting that protecting patients’ quality of life after chemotherapy is of high concern to both physicians and patients. Due to the irreversible nature, we believe that prophylactic use of DB-020 could benefit patients receiving cisplatin.
Multiple third-party Phase 3 clinical trials in pediatric patients have shown prevention of ototoxicity associated with cisplatin through inactivation of cisplatin by STS. In the most recent trial, intravenous infusion of STS reduced the incidence of ototoxicity by nearly 50%. To mitigate the risk that systemic delivery of STS concurrent with cisplatin infusion would inactivate cisplatin throughout the body and prevent or reduce the beneficial chemotherapeutic effect, administration of STS in this trial was delayed until six hours post-treatment with cisplatin. Importantly, even in the context of delayed systemic administration of STS, a negative impact on overall survival was observed in patients with metastatic disease, suggesting that eventual use in pediatric patients would need to be limited to those with localized, non-metastatic solid tumors.
We are developing DB-020 as a formulation of STS to be delivered to the inner ear to mitigate cisplatin-induced ototoxicity in patients of all ages. To accomplish this, we formulated DB-020 to achieve high cochlear concentrations of STS following a local injection through the ear drum, or transtympanically, into the middle ear. Transtympanic administration is a brief, minimally invasive, routine, office-based procedure performed by ENTs and is generally well-tolerated. As highlighted in the image below, we believe DB-020’s route of administration and pharmacologic profile allows for flexible timing at multiple points in the typical chemotherapy patient workflow and can be administered at any point in the three hours prior to receiving cisplatin.
Potential Timeline for Administration of DB-020 to Patients Receiving Cisplatin
In 2019, we completed a randomized, double-blind, placebo-controlled Phase 1 clinical trial of DB-020 to assess safety in healthy volunteers in Australia. In the Phase 1 clinical trial, a total of 32 subjects were randomized to receive one of four doses of DB-020 or placebo in one ear. Ten additional subjects were randomized to receive bilateral doses, or doses in both ears, of DB-020 or placebo. In the trial, DB-020 was well-tolerated with adverse events generally mild to moderate. There were no serious treatment-emergent adverse events, or TEAEs, study drug-related serious TEAEs, discontinuations due to TEAEs, or deaths in the trial. Notably, administration of DB-020 resulted in only nominal systemic increases of STS, which we believe suggests that DB-020 should have no impact on the efficacy of cisplatin therapy throughout the body. The maximal thiosulfate concentration above endogenous levels ranged from 0.80 to 2.45 µM. In preclinical, in vitro studies in five human cancer cell lines, we determined that DB-020 concentrations less than or equal to 30 µM did not reduce cisplatin anti-tumor or cell-killing.
Based on the results of our Phase 1 clinical trial, we submitted an IND for DB-020 to the FDA and initiated a randomized, double-blind, placebo-controlled, multicenter Phase 1b clinical trial of DB-020 in patients undergoing treatment with cisplatin in 2019. In June 2022, we reported topline data from an interim analysis of the ongoing Phase 1b clinical trial. Patients enrolled in the Phase 1b clinical trial were randomized to receive one of two doses of DB-020 in one ear while the contralateral ear received placebo, enabling each patient to serve as their own control. Patients were administered DB-020 and placebo up to three hours prior to each cisplatin infusion. Consistent with the results of the Phase 1 clinical trial, data from the interim analysis demonstrated that DB-020 was well tolerated, with mostly mild to moderate adverse events and no significant safety issues observed. Furthermore, DB-020 administered prior to cisplatin had no apparent effect on systemic cisplatin levels. In the data from the interim analysis, 13 of 17 (76.5%) patients experienced cisplatin-induced ototoxicity in the placebo ear after the first cycle of cisplatin; 15 of 17 (88.2%) patients experienced cisplatin-induced ototoxicity in the placebo ear by the last evaluable test. Ototoxicity was defined according to the American Speech-Language-Hearing-Association criteria for significant ototoxic change. Placebo-treated ears lost approximately 30dB on average from baseline in
high frequencies, shifting patients from normal or slight hearing loss to moderate hearing loss (two hearing loss categories) on average. In the 15 patients who experienced ototoxicity in the placebo ear by the last evaluable test, DB-020 protected 13 (87%) from ototoxicity in their DB-020-treated ear. Eight of 15 (53.3%) were completely protected, and five of 15 (33.3%) were partially protected. Complete protection was defined as no change in hearing from baseline in the ear that received DB-020 according to the ASHA ototoxicity criteria in the clinically assessed range. Ears treated with DB-020 lost approximately 8dB on average from baseline. DB-020 reduced cisplatin-induced loss of speech audibility by 80% as measured by the Speech Intelligibility Index, suggesting treatment with DB-020 may reduce the risk of needing assistive hearing devices after receiving cisplatin.
We ceased enrolling patients in our Phase 1b clinical trial of DB-020, following our announcement of the positive interim analysis results from the first 19 patients enrolled in the trial. Patients who remain in the study have completed the treatment portion of the study and are being followed for safety follow up activities, which we anticipate completing in the first half of 2023. We plan to report additional data from the interim analysis in 2023, and we are working with key opinion leaders to integrate learnings from the interim analysis into an updated clinical development plan. We expect to consult with regulatory agencies in 2023 as part of that planning. We are considering a range of potential approaches by which to advance DB-020, including entering into strategic collaborations for the further development and commercialization of DB-020. The FDA has granted fast track designation for DB-020 for the prevention of cisplatin-related ototoxicity.
To assess the potential efficacy of DB-020, we established four rodent models of cisplatin-induced ototoxicity. In preclinical studies in these models, cisplatin treatment alone resulted in profound hearing loss in the rodents and histological analyses demonstrated significant loss of outer hair cells, while treatment with DB-020 by local injection one hour before and one hour after treatment with cisplatin resulted in protection of hearing and outer hair cells. As shown in the blue trace in the image below, treatment with 0.5M of DB-020 at one hour after cisplatin injection resulted in almost complete hearing protection as measured by ABR across a range of frequencies in every rodent tested in one of our models, while rodents exposed to cisplatin alone experienced profound hearing loss as shown in the red trace in the image below.
Mean Auditory Response Across Frequencies for Cisplatin-Exposed Rodents Treated with DB-020
As shown in the representative image below taken seven days after intervention, histological analyses also revealed outer hair cells were protected in rodents treated with DB-020.
Histological Analysis of Outer Hair Cells in Cisplatin-Exposed Rodents Treated with DB-020
In pharmacokinetic experiments conducted in a total of 40 rodents, cochlear concentrations above the predicted minimal efficacious dose persisted for 16 hours after injection. Importantly, local delivery minimized systemic exposure of STS to within the range of endogenous plasma levels.
We believe the inner ear is particularly well suited for gene therapy treatments as its small, enclosed nature and accessibility for direct, local delivery facilitate efficient transduction of target cells with a small volume of viral vectors. For a given product, we believe we will only need to deliver a small volume and low dose of vector to achieve near-complete transduction of the target cells in the cochlea or vestibule. As such, we expect that the manufacturing requirements for our inner ear gene therapies will be significantly lower than systemically delivered gene therapies or gene therapies that target larger organs.
Due to the expected AAV tropism for inner ear cell types, we plan to utilize naturally occurring AAV serotypes for which third party manufacturers have clinical and manufacturing experience. Accordingly, our production process utilizes an approach with HEK293 mammalian cells and transient plasmid transfection, a commonly used host cell and approach for many clinical and commercial AAV gene therapies that are familiar to global regulatory agencies. Commercial raw materials and reagents are readily available from multiple third-party suppliers.
Our relationship with Regeneron provides us access to established, research-stage AAV capabilities. We believe working with an experienced contract development and manufacturing organization, or CDMO, with an extensive history of clinical and commercial AAV expertise will enable rapid development of our lead gene therapy product candidate, DB-OTO. We have established a relationship with Catalent Maryland, Inc. (formerly Paragon Bioservices, Inc), a CDMO, to perform process development and current good manufacturing practices, or cGMP, manufacturing for DB-OTO. We have completed technology transfer and process development at Catalent, and Catalent has manufactured cGMP clinical material of DB-OTO to support the Phase 1/2 clinical trial. Catalent has significant AAV development experience through to commercial manufacturing and has produced over 100 clinical GMP batches across multiple third-party programs utilizing the same production platform approach that was used for the manufacture of DB-OTO.
We believe that manufacturing expertise and capacity is of critical importance for the development of gene therapies, and we intend to continue to work with and rely upon CDMOs for production of future gene therapies. We also plan to continue to evaluate our options for ensuring manufacturing capacity on an ongoing basis, including strategic partnerships, contractual relationships with other CDMOs, as well as investment in internal manufacturing.
Our DB-020 product candidate is a proprietary formulation of STS optimized for local delivery to the ear for which we utilize well-established manufacturing and drug-delivery technologies developed by the pharmaceutical industry for small molecule manufacturing. We rely on third-party contract manufacturers and contract research organizations with a track record of FDA-compliant manufacturing and testing for the drug product. After appropriate testing and meeting
specifications, we release these materials to additional contract manufacturers for packaging into finished drug product for clinical use.
We strive to protect and enhance the proprietary technology, inventions and improvements that are commercially important to the development of our business, including by seeking, maintaining and defending patent rights, whether developed internally or licensed from third parties. We also rely on trade secrets, know-how, continuing technological innovation and in-licensing opportunities to develop, strengthen and maintain our proprietary position in our field. Additionally, we intend to rely on regulatory protection afforded through rare drug designations, data exclusivity and market exclusivity as well as patent term extensions, where available.
Our future commercial success depends, in part, on our ability to: obtain and maintain patent and other proprietary protection for commercially important technology, inventions and know-how related to our business; defend and enforce our intellectual property rights, in particular our patents rights; preserve the confidentiality of our trade secrets and operate without infringing, misappropriating or violating the valid and enforceable patents and proprietary rights of third parties. Our ability to stop third parties from making, using, selling, offering to sell or importing our products may depend on the extent to which we have rights under valid and enforceable patents or trade secrets that cover these activities.
The patent positions of biotechnology and pharmaceutical companies like ours are generally uncertain and can involve complex legal, scientific and factual issues. We cannot predict whether the patent applications we are currently pursuing will issue as patents in any particular jurisdiction or whether the claims of any issued patents will provide sufficient proprietary protection from competitors. We also cannot ensure that patents will issue with respect to any patent applications that we or our licensors may file in the future, nor can we ensure that any of our owned or licensed patents or future patents will be commercially useful in protecting our product candidates and methods of manufacturing the same. In addition, the coverage claimed in a patent application may be significantly reduced before a patent is issued, and its scope can be reinterpreted and even challenged after issuance. As a result, we cannot guarantee that any of our products will be protected or remain protectable by enforceable patents. Moreover, any patents that we hold may be challenged, circumvented or invalidated by third parties. See “Risk Factors—Risks Related to Our Intellectual Property” for a more comprehensive description of risks related to our intellectual property.
We generally file patent applications directed to our key programs in an effort to secure our intellectual property positions vis-a-vis these programs. Additionally, we file patent applications and in-license patents and patent applications directed to our platform, our product candidates, our programs, which includes gene therapies and related technology, methods and other related technologies. As of March 1, 2023, our owned, co-owned and in-licensed patent estate included four U.S. granted patents, 15 pending U.S. non-provisional patent applications, 76 foreign pending patent applications, seven pending Patent Cooperation Treaty, or PCT, applications and five pending U.S. provisional patent applications.
Prosecution is a lengthy process, during which the scope of the claims initially submitted for examination by the U.S. Patent and Trademark Office, or USPTO, may be significantly narrowed before issuance, if issued at all. We expect this may be the case with respect to some of our pending patent applications referred to below.
With regard to our DB-OTO product candidate, we co-own with Regeneron three pending U.S. non-provisional patent applications and 19 pending foreign patent applications with claims directed to compositions of matter covering DB-OTO and methods of use thereof. These applications and patent applications claiming the benefit of the PCT application, if issued, are expected to expire in 2040, without giving effect to any potential patent term extensions and patent term adjustments and assuming payment of all appropriate maintenance, renewal, annuity or other governmental fees. We also own two pending U.S. non-provisional patent applications, one pending PCT application, six pending foreign patent applications, and one pending U.S. provisional patent application with claims directed to compositions of matter covering DB-OTO and methods of use thereof. These applications and patent applications claiming the benefit of the PCT application or the provisional application, if issued, are expected to expire in 2039, 2042, and 2044, without giving effect to any potential patent term extensions and patent term adjustments and assuming payment of all appropriate maintenance, renewal, annuity or other governmental fees. We also exclusively license from the Regents of the University of California, and exclusively license from University of Florida, a patent family co-owned by University of Florida and Regents of the University of California comprised of a pending U.S. application with claims directed to methods of increasing expression of OTOF and eight pending foreign patent applications in such jurisdictions as Australia, China, Europe, and Japan, which if issued, are expected to expire in 2038, assuming payment of all appropriate maintenance, renewal, annuity or other governmental fees. We also exclusively license from the University of Missouri a U.S. patent with claims directed to a hybrid dual vector system such as
the system used in DB-OTO, which is expected to expire in 2030, without giving effect to any potential patent term extension assuming payment of all appropriate maintenance, renewal, annuity or other governmental fees.
With regards to our DB-020 product candidate, we own three granted U.S. patents with claims directed to pharmaceutical compositions covering our DB-020 product candidate or methods of mitigating hearing loss using DB-020, which are expected to expire in 2039, without giving effect to any potential patent term extensions and patent term adjustments and assuming payment of all appropriate maintenance, renewal, annuity or other governmental fees. We also own a pending U.S. patent application and 12 corresponding pending foreign patent applications in such jurisdictions as Australia, Brazil, Canada, China, Europe, and Japan, with claims directed to pharmaceutical compositions and methods of their use, which if issued, are expected to expire in 2039, assuming payment of all appropriate maintenance, renewal, annuity or other governmental fees. We also own a pending U.S. non-provisional patent application with claims directed to methods of mitigating hearing loss using DB-020, which if issued, is expected to expire in 2039, without giving effect to any potential patent term extensions and patent term adjustments and assuming payment of all appropriate maintenance, renewal, annuity or other governmental fees, and 11 pending foreign patent applications in such jurisdictions as Australia, Brazil, Canada, China, Europe, and Japan. The foreign patent applications, if issued, are expected to expire in 2040, without giving effect to any potential patent term extensions and patent term adjustments and assuming payment of all appropriate maintenance, renewal, annuity or other governmental fees.
The patent portfolio for our integrated, propriety platform includes patents and patent applications relating to our gene therapy for hair cell regeneration programs, our gene therapies for congenital, monogenic hearing loss, our gene therapy technologies, our cell-selective promoters and our formulations. Our platform portfolio is based upon our owned patent portfolio that includes patents and patent applications directed generally to the compositions of matter, pharmaceutical compositions, and methods of delivering and using the same. As of March 1, 2023, we owned or co-owned 37 pending U.S., PCT and foreign patent applications and one foreign granted patent covering components of our platform, including our cell-selective promoters. While we believe that the specific and generic claims contained in our pending applications provide protection for our platform, third parties may nevertheless challenge such claims in our patents. If any such claims are invalidated or rendered unenforceable for any reason, we will lose valuable intellectual property rights and our ability to prevent others from competing with us would be impaired. Any U.S. or ex-U.S. patents that may issue from pending applications that we control, if any, for our platform are projected to have a statutory expiration date in between 2039 and 2043, excluding any additional term for patent term adjustments or patent term extensions, if applicable.
The term of individual patents depends upon the legal term of the patents in the countries in which they are obtained. In most countries in which we file, the patent term is 20 years from the earliest date of filing a non-provisional patent application.
In the United States, the term of a patent covering an FDA-approved drug may, in certain cases, be eligible for a patent term extension under the Hatch-Waxman Act as compensation for the loss of patent term during the FDA regulatory review process. The period of extension may be up to five years, but cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval. Only one patent among those eligible for an extension and only those claims covering the approved drug, a method for using it or a method for manufacturing it may be extended. Similar provisions are available in Europe and in certain other jurisdictions to extend the term of a patent that covers an approved drug. It is possible that issued U.S. patents covering the use of products from our intellectual property may be entitled to patent term extensions. If our use of drug candidates or the drug candidate itself receive FDA approval, we intend to apply for patent term extensions, if available, to extend the term of patents that cover the approved use or drug candidate. We also intend to seek patent term extensions in any jurisdictions where available, however, there is no guarantee that the applicable authorities, including the FDA, will agree with our assessment of whether such extensions should be granted, and, even if granted, the length of such extensions.
In addition to patent protection, we rely upon confidential know-how and continuing technological innovation to develop and maintain our competitive position. However, confidential know-how is difficult to protect. We seek to protect our proprietary information, in part, using confidentiality agreements with any collaborators, scientific advisors, employees and consultants and invention assignment agreements with our employees. We also have agreements requiring assignment of inventions with selected consultants, scientific advisors and collaborators. These agreements may not provide meaningful protection. These agreements may also be breached, and we may not have an adequate remedy for any such breach. In addition, our confidential know-how may become known or be independently developed by a third party or misused by any collaborator to whom we disclose such information. Despite any measures taken to protect our intellectual property,
unauthorized parties may attempt to copy aspects of our products or obtain or use information that we regard as proprietary. Although we take steps to protect our proprietary information, third parties may independently develop the same or similar proprietary information or may otherwise gain access to our proprietary information. As a result, we may be unable to meaningfully protect our proprietary information.
Our commercial success will also depend in part on not infringing upon the proprietary rights of third parties. It is uncertain whether the issuance of any third-party patent would require us to alter our development or commercial strategies, or our drugs or processes, obtain licenses or cease certain activities. Our breach of any license agreements or failure to obtain a license to proprietary rights that we may require to develop or commercialize our future drugs may have an adverse impact on us. If third parties have prepared and filed patent applications prior to March 16, 2013 in the United States that also claim technology to which we have rights, we may have to participate in interference proceedings in the USPTO to determine priority of inventions.
As of March 1, 2023, we owned 48 U.S. and international trademark applications and registrations related to our business. We plan to register trademarks in connection with our products.
License and Collaboration Agreements
We are a party to a number of agreements under which we license patents, patent applications and other intellectual property from and/or collaborate with third parties. These agreements impose various diligence and financial payment obligations on us. We consider the following agreements to be material to our business.
License and Collaboration Agreement with Regeneron Pharmaceuticals, Inc.
In November 2017, we entered into a license and collaboration agreement, which was amended in October 2020 and February 2023, with Regeneron, or the Regeneron Agreement. The Regeneron Agreement had an original research term of five years and granted Regeneron the right to extend the research term for up to two years in one-year intervals. In November 2021, Regeneron exercised its right to extend the research term by one year to November 2023. The Regeneron Agreement is focused on the discovery and development of new potential therapies directed to a set of defined collaboration targets. We are currently developing DB-OTO, AAV.103 and AAV.104 in collaboration with Regeneron under the Regeneron Agreement. In October 2020, we entered into the first amendment to the Regeneron Agreement pursuant to which, among other things, ATOH1, the target of our DB-ATO program, was removed as a collaboration target and the terms and plans for the DB-OTO and AAV.103 programs were modified. We issued 10,000,000 shares of our Series C preferred stock to Regeneron in consideration for its entry into the first amendment to the Regeneron Agreement, which shares converted into 791,439 shares of our common stock upon the consummation of our initial public offering. In February 2023, we further amended the collaboration with Regeneron to provide for accelerated development milestone payments by Regeneron to us for clinical development milestones for DB-OTO and pre-IND milestones for AAV.103.
Pursuant to the Regeneron Agreement, during the research term, we have established research plans that specify the activities each party undertakes with respect to the discovery or development of therapies directed to specific collaboration targets, which we refer to as collaboration products. Each party is responsible for its own respective costs and has agreed to use commercially reasonable efforts to complete the activities as designated in the agreed-upon research plan. For the DB-OTO program, we have also committed to utilize a specified level of research personnel in the program. Additional collaboration targets may be added to the Regeneron Agreement by mutual consent or if they arise from certain novel target identification activities conducted under the Regeneron Agreement and achieve mutually agreed validation criteria. As between the parties, we are primarily responsible for the direction and conduct of the research program, however, Regeneron contributes various technologies and expertise of its own as well as employees and research services by mutual agreement. A joint research committee oversees the research program.
A joint product committee oversees development and commercialization of a collaboration product following IND acceptance for such collaboration product. As between the parties, we are solely responsible for developing and commercializing collaboration products in the field of hearing loss and balance disorders. We have an obligation to use commercially reasonable efforts to develop and commercialize such collaboration products in the field. During the term of the Regeneron Agreement, neither we nor Regeneron may develop or commercialize any products directed to collaboration targets in the field of treatment and prevention of disease involving loss of hearing or balance, other than pursuant to the Regeneron Agreement.
Pursuant to the Regeneron Agreement, Regeneron paid us an upfront fee of $25.0 million and purchased 12,500,000 shares of our Series B preferred stock at price per share of $2.00, which shares converted into 989,299 shares of our common stock upon the consummation of our initial public offering. In November 2021, Regeneron exercised its right to extend the research term for one-year to November 15, 2023. Regeneron paid us the extension fee of $10.0 million in the fourth quarter of 2022. If Regeneron elects to extend the term of the research program for an additional year, it will be obligated to pay us an additional $10.0 million for the final one-year extension. On a collaboration-product-by-collaboration-product basis, upon achievement of pre-defined milestones which begin at initiation of manufacturing to support GLP toxicology studies and conclude at initiation of a Phase 2 clinical trial, Regeneron is obligated to pay us milestone payments up to $35.5 million in aggregate if the collaboration product is a biologic or up to $33.5 million in the aggregate if the collaboration product is a small molecule. Such milestone payments are intended to reflect approximately half of the total cost needed to achieve the next milestone. From and after the initiation of a registration enabling trial, unless Regeneron decides to opt-out, we have agreed to split development and regulatory costs with Regeneron on an equal basis through the registration enabling trials.
Under the Regeneron Agreement, we are required to pay Regeneron tiered royalties on the worldwide net sales of collaboration products at percentages which range from mid-single digit to mid-thirties, with the exact royalty rate depending on the extent to which Regeneron shared in the funding of the collaboration product, the level of net sales of the collaboration product, the nature of any intellectual property contributed by Regeneron included in the collaboration product and whether the product is sold inside or outside the field. In the case of collaboration products for which Regeneron does not opt-out, our obligation to pay tiered royalties on the worldwide net sales ranges from percentages in the mid-twenties to mid-thirties. In the case of collaboration products for which Regeneron opts-out, our obligation to pay tiered royalties on the worldwide net sales ranges from percentages in the mid-single digits to mid-twenties. Our obligation to make royalty payments to Regeneron on account of worldwide net sales of collaboration products continues so long as we, our affiliates, licensees or sublicensees sell collaboration products. To date, we have not made any royalty or other payments to Regeneron under the Regeneron Agreement.
Pursuant to the Regeneron Agreement, we have granted to Regeneron a right of first negotiation if we choose to license or otherwise transfer rights to develop or commercialize collaboration products. Regeneron may opt-out of the collaboration with respect to any collaboration product following submission of the IND to the FDA for a collaboration product: immediately prior to the initiation of a registration enabling trial, immediately prior to the submission of a marketing authorization application and at any time following the initiation of the registration enabling trial, upon notice to us within a specified time period. If Regeneron opts out with respect to a collaboration product, it does not owe further milestones on that collaboration product and will no longer share development expenses for such collaboration product. Regeneron may opt back into a collaboration product under certain circumstances.
Pursuant to the first amendment to the Regeneron Agreement, Regeneron agreed to pay us $0.3 million to fund our ongoing research program and $0.5 million to help secure the services of a CDMO. The $0.5 million payment is creditable against the milestone associated with the initiation of manufacturing to support GLP toxicology studies of DB-OTO. Additionally, Regeneron agreed to reimburse us for up to $10.5 million of third-party costs related to the GLP toxicology studies of DB-OTO as such costs are incurred and paid by us, and we agreed that the aggregate potential milestone payments for DB-OTO would be reduced by $15.0 million. In addition, notwithstanding its removal from the collaboration, for DB-ATO, we agreed to pay to Regeneron a royalty calculated as a low- to mid-single digit percentage of net sales of DB-ATO, on a country-by-country basis, until the latest of the expiration of the last patent covering DB-ATO in such country, the expiration of all applicable regulatory exclusivities for DB-ATO in such country and the tenth anniversary of the first commercial sale of DB-ATO in such country. Through December 31, 2022, we had received an aggregate of $5.5 million in milestone payments from Regeneron pursuant to the collaboration.
The term of the Regeneron Agreement will continue until neither we nor any of our affiliates nor any of our sublicensees is developing or commercializing any collaboration products. Either party may terminate the agreement for cause for the other party’s uncured material breach on prior written notice, if the other party becomes insolvent or in certain circumstances in which either party challenges the patent rights of the other party. In addition, if we suspend development activities for a specified period of time, or if we fail to invest specified levels of committed resources to the DB-OTO program, Regeneron would have certain remedies, including the ability to obtain control over further development and commercialization of DB-OTO and AAV.103, subject to payments to us to be negotiated, and the ability to terminate its obligations to us with respect to other collaboration products.
License Agreements with The Regents of The University of California and the University of Florida Research Foundation, Incorporated
We are a party to license agreements with each of The Regents of The University of California, or UCSF, and University of Florida Research Foundation, Incorporated, or UFRF, pursuant to which we separately and independently
license from each institution patent rights they jointly own related to compositions and methods for expressing OTOF, which cover DB-OTO, our product candidate for profound hearing loss due to an otoferlin deficiency.
License Agreement with The Regents of The University of California
In October 2019, we entered into a license agreement with UCSF relating to certain patent rights related to compositions and methods for expressing OTOF, which we refer to as the UCSF License.
Under the UCSF License, we acquired an exclusive, sublicensable, worldwide license to make, have made, use, sell, offer for sale and import products, services, and methods covered by the licensed patent rights, and to perform licensed processes. Under the UCSF License, UCSF retains the right to make, use and practice certain of the licensed intellectual property rights for research and educational purposes, and the right to license to other academic and nonprofit organizations to practice the patent rights for research and educational purposes. The UCSF License is also subject to pre-existing rights of the U.S. government and the NIH.
In connection with our entry into the UCSF License, we paid to UCSF a small upfront fee and agreed to pay UCSF an additional small fee following the issuance of the first patent under the UCSF License. In addition, under the terms of the UCSF License, we are required to pay to UCSF certain nominal annual license maintenance fees unless we are selling or otherwise exploiting licensed products or services paying royalties to UCSF on net sales for such licensed products or services. With respect to such royalty obligations, we agreed to pay UCSF low single-digit royalties on annual net sales of licensed products and services. Our obligation to pay royalties continues until the expiration or abandonment of the last of the patent rights licensed under the UCSF License. In addition, we are obligated to make contingent milestone payments to UCSF totaling up to $500,000 upon the achievement of certain regulatory milestones and up to $5.0 million upon the achievement of certain commercial sales milestones whether achieved by us or a sublicensee of ours. In the event that we sublicense the licensed patent rights, UCSF is also entitled to receive a percentage of the sublicensing income received by us.
In addition, if we grant a sublicense under our license from UCSF, we are also required to concurrently grant a sublicense under the UCSF License on the terms and conditions of the UCSF License.
Under the UCSF License, we are obligated to diligently proceed with the development, manufacture and sale of at least one licensed product and/or service, and to earnestly and diligently market such licensed product and/or service after receipt of any requisite regulatory approvals and in quantities sufficient to meet market demand. We have also agreed to meet specified development, regulatory and commercialization milestones for the licensed patent rights by specified dates, subject to extensions that may be granted by UCSF under certain circumstances. For example, we agreed to dose the first subject in a clinical trial for a licensed product by September 30, 2023. UCSF has the right to revoke our right to sublicense the UCSF License or reduce the license to a nonexclusive license if we are unable to perform our diligence obligations.
The agreement will continue until the last to expire or abandonment of the patent rights under the UCSF License. The patent rights we have licensed under the UCSF License are expected to expire in 2038, assuming payment of all appropriate maintenance, renewal, annuity or other governmental fees. We may terminate the agreement by providing prior written notice to UCSF or we may terminate the rights under patent rights on a country-by-country basis by giving notice in writing to UCSF. UCSF has the right to terminate the agreement if we fail to make any payments, challenge any UCSF patent rights or otherwise materially breach the agreement and fail to cure such breach within a specified grace period.
License Agreement with University of Florida Research Foundation
In October 2020, we entered into a license agreement with UFRF, which was amended in June 2022 and March 2023, relating to certain patent rights related to compositions and methods for expressing OTOF, which we refer to collectively as the UFRF License.
Under the UFRF License, we acquired an exclusive, sublicensable, worldwide license to make, have made, use, sell, have sold, and import products covered by the licensed patent rights. Under the UFRF License, UFRF retains the right for itself and any non-profit institution or governmental entity to practice and have practiced certain of the licensed intellectual property rights for research, clinical, and educational purposes. The UFRF License is also subject to pre-existing rights of the U.S. government.
In connection with our entry into the UFRF License, we paid to UFRF an upfront fee of $100,000 and agreed to pay UFRF an additional $100,000 following the issuance of the first patent under the UFRF License. In addition, under the terms of the UCSF License, we are required to pay to UFRF certain nominal annual license maintenance fees until the first year in which we sell a licensed product. Under the UFRF License, we have agreed to pay UFRF a low single-digit royalty on annual net sales of licensed products. Our obligation to pay royalties continues on a licensed-product-by-licensed-product and country-by-country basis until the expiration of the last of the patent rights licensed under the UFRF License. In addition, we are obligated to make contingent milestone payments to UFRF totaling up to $800,000 in the aggregate upon the achievement
of certain clinical and regulatory milestones and up to an additional $11,150,000 in the aggregate upon the achievement of certain commercial sales milestones, in each case, whether achieved by us or by a sublicensee of ours. In the event that we sublicense the licensed patent rights, UFRF is also entitled to receive a percentage of the sublicensing revenue received by us.
Under the UFRF License, we are obligated to use commercially reasonable efforts to develop, commercialize and maintain supply of licensed product. We have also agreed to meet specified development, regulatory and commercialization milestones for the licensed patent rights by specified dates, subject to extensions that may be granted by UFRF under certain circumstances. Our milestone relating to dosing the first subject in a clinical trial for a licensed product by March 31, 2023 was modified to initiating our Phase 1/2 clinical trial of DB-OTO by June 30, 2023. UFRF has the right to terminate our license if we fail to perform our diligence obligations.
The agreement will continue on a licensed-product-by-licensed-product and country-by-country basis until the last to expire of the patent rights under the UFRF License. The patent rights we have licensed under the UFRF License are expected to expire in 2038, assuming payment of all appropriate maintenance, renewal, annuity or other governmental fees. We may terminate the agreement by providing prior written notice to UFRF. UFRF has the right to terminate the agreement if we fail to make any payments, bring action or proceeding against UFRF or otherwise breach the agreement and fail to cure such breach within a specified grace period. In addition, the agreement will immediately terminate upon certain events of insolvency of either party.
License Agreement with The Curators of the University of Missouri
In August 2019, we entered into a license agreement with The Curators of the University of Missouri, or the University of Missouri, which was amended in February 2021, May 2022 and March 2023 relating to certain patent rights related to the AAV vectors we are using in the gene therapies we are developing for congenital, monogenic hearing loss due to an OTOF deficiency and due to a deficiency in another specified gene, which we refer to collectively as the University of Missouri License.
Under the University of Missouri License, we acquired an exclusive license to make, have made, use, sell, have sold, import, distribute or otherwise transfer products, or the licensed products, covered by the licensed patent rights. We may sublicense the licensed patent rights with the University of Missouri’s prior written approval. Under the University of Missouri License, the University of Missouri retains the right to make, use and practice certain of the licensed intellectual property rights for non-commercial research purposes and the right to license to nonprofit, academic or government institutions the patent rights for non-commercial research purposes. The University of Missouri License is also subject to pre-existing rights of the U.S. government and the NIH.
In connection with our entry into the University of Missouri License, we paid to the University of Missouri an upfront fee of $100,000 and agreed to pay the University of Missouri a nominal annual license maintenance fee. In addition, we agreed to pay to the University of Missouri a low single-digit royalty on annual net sales of licensed products sold regardless of where such licensed products are manufactured and an additional low single-digit royalty on annual net sales of licensed products that are sold outside of the United States but manufactured within the United States, with a specified minimum annual royalty requirement. Our obligation to pay royalties continues until the expiration or abandonment of the last of the patent rights licensed under the University of Missouri License. In addition, we are obligated to make milestone payments on a licensed-product-by-licensed-product basis to the University of Missouri totaling up to $772,500 in the aggregate upon the achievement of certain development and regulatory milestones and up to $13.1 million in the aggregate upon the achievement of certain commercial sales milestones, whether achieved by us or a sublicensee of ours. In the event that we sublicense the licensed patent rights, the University of Missouri is also entitled to receive a tiered percentage of the sublicensing revenue received by us, which varies depending on the stage of development at which we enter into such sublicense.
Under the University of Missouri License, we are obligated to use reasonable commercial efforts to advance the licensed product towards commercialization. We have also agreed to meet specified development, regulatory and commercialization milestones for the licensed patent rights by specified dates. Our milestone relating to dosing the first subject in a clinical trial for a licensed product by March 31, 2023 was modified to initiating our Phase 1/2 clinical trial of DB-OTO by June 30, 2023. We paid less than $0.1 million to the University of Missouri with respect to a milestone that became payable upon our submission of an IND application for DB-OTO. The University of Missouri has the right to unilaterally terminate the University of Missouri License or reduce the license to a nonexclusive license if we fail to meet such specified milestones.
The agreement will continue until the last to expire or abandonment of the patent rights under the University of Missouri License. The patent rights we have licensed under the University of Missouri License are expected to expire in 2030, without giving effect to any potential patent term extension assuming payment of all appropriate maintenance, renewal, annuity or other governmental fees. We may terminate the agreement by providing prior written notice to the University of
Missouri or upon the uncured material breach of the agreement by the University of Missouri. The University of Missouri has the right to terminate the agreement if we fail to make any payments, upon the occurrence of certain events of insolvency for us, challenge any University of Missouri patent rights or otherwise materially breach the agreement and fail to cure such breach within a specified grace period.
We plan to directly market and commercialize our lead gene therapy product candidate, DB-OTO, if approved in the United States and Europe, by developing our own sales and marketing force, targeting ENTs and audiologists. Outside of these regions and for any other product candidates that may be approved, we intend to establish marketing and commercialization strategies for each as we approach potential approval and expect to be able to leverage our then-existing sales and marketing force. We believe that the benefits of a strategic collaboration could be particularly valuable to us with respect to the further development and commercialization of DB-020 and intend to evaluate such opportunities on the basis of the clinical data we generate in our ongoing Phase 1b clinical trial of DB-020.
We face competition from a wide array of companies in the pharmaceutical, specialty pharmaceutical, biotechnology and medical device industries that have products or programs focused on hearing or balance disorders. We may also compete with the intellectual property, technology and product development efforts of academic, governmental and other public and private research institutions.
Our competitors, which include both small companies and large companies, may have significantly greater financial resources, an established presence in the market, a longer operating history than us and greater expertise in research and development, manufacturing, preclinical and clinical testing, obtaining regulatory approvals and reimbursement, and marketing approved products than we do. Smaller or earlier-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific, sales, marketing, and management personnel, establishing clinical trial sites and patient registration for clinical trials and potentially acquiring technologies complementary to, or necessary for, our programs.
The key competitive factors affecting the success of any products that we commercialize are likely to be their efficacy, safety, convenience, price and the availability of reimbursement from government and other third-party payors. Our commercial opportunity for any of our product candidates could be reduced or eliminated if our competitors develop and commercialize products that are more effective, have fewer or less severe side effects, are more convenient, or are less expensive than any products that we may develop. Our competitors also may obtain approval from the FDA or other regulators for their products before we may obtain approval for ours, which may result in regulatory exclusivity, and may commercialize products before we are able to.
We expect that our product candidates and programs for congenital, monogenic hearing loss and for acquired hearing loss will compete with product candidates and programs being advanced by:
We are aware of PEDMARK, a formulation of sodium thiosulfate delivered via systemic injection, developed by Fennec Pharmaceuticals, Inc. that in September 2022 received FDA approval for use to reduce the risk of ototoxicity associated with cisplatin in pediatric patients one month of age and older with localized, non-metastatic solid tumors. We are also aware of product candidates in development, including SENS-401, a small molecule being developed by Sensorion that is in Phase 2 clinical trials for prevention of chemotherapy related hearing loss, D-methionine, an amino acid that has been shown to protect against hearing loss in experimental settings, and SPI-3005, an oral agent primarily being developed by
Sound Pharmaceuticals, Inc. for noise and age-related hearing loss that is in Phase 2 clinical trials for chemotherapy related hearing loss. We are also aware of additional therapeutic approaches in preclinical development that may target prevention of hearing loss in patients receiving cisplatin chemotherapy. We are also aware that Sound Pharmaceuticals, Inc. is pursuing treatments for Meniere’s Disease, a balance disorder.
We are aware of other companies developing product candidates for balance disorders, including Sound Pharmaceuticals, Inc. which is pursuing treatments for Meniere’s Disease.
Government authorities in the United States, at the federal, state and local levels, and in other countries and jurisdictions, including the European Union, extensively regulate, among other things, the research, development, testing, manufacture, pricing, quality control, approval, licensing, packaging, storage, record-keeping, labeling, advertising, promotion, distribution, marketing, post-approval monitoring and reporting and import and export of pharmaceutical products. The processes for obtaining marketing approvals in the United States and in foreign countries and jurisdictions, along with subsequent compliance with applicable statutes and regulations and other regulatory authorities, require the expenditure of substantial time and financial resources.
Regulation of Drugs and Biologics in the United States
In the United States, the FDA approves and regulates drugs under the Federal Food, Drug and Cosmetic Act, or FDCA, and implementing regulations. Biologic products, including gene therapy products, are licensed for marketing under the Public Health Service Act, or PHSA, and regulated under the FDCA and implementing regulations. Both drugs and biologics are also subject to other federal, state and local statutes and regulations. We, along with our vendors, collaboration partners, clinical research organizations, or CROs, clinical trial investigators, and CDMOs will be required to navigate the various preclinical, clinical, manufacturing and commercial approval requirements of the governing regulatory agencies of the countries in which we wish to conduct studies or seek approval or licensure of our product candidates.
A drug candidate must be approved by the FDA through an NDA. A biological product candidate is licensed by FDA through a biologics license application, or BLA. A company, institution or organization that takes responsibility for the initiation and management of a clinical development program for such products, and for their regulatory approval, is typically referred to as a sponsor. A sponsor seeking approval to market and distribute a new product in the United States must typically undertake the following:
Before a sponsor begins testing a compound with potential therapeutic value in humans, the product candidate enters the preclinical testing stage. Preclinical studies include laboratory evaluation of chemistry, toxicity and formulation, purity and stability, as well as in vitro and animal studies to assess the potential safety and activity of the product candidate for initial testing in humans and to establish a rationale for therapeutic use. These studies are generally referred to as IND-enabling studies. The conduct of preclinical studies is subject to federal regulations and requirements, including GLP regulations and standards and the U.S. Department of Agriculture’s Animal Welfare Act, if applicable. The results of the preclinical tests, together with manufacturing information and analytical data, are submitted to the FDA as part of an IND application.
An IND is an exemption from the FDCA that allows an unapproved product to be shipped in interstate commerce for use in an investigational clinical trial and a request for FDA authorization to administer an investigational product to humans. Such authorization must be secured prior to interstate shipment and administration of any product candidate that is not the subject of an approved application. The central focus of an IND submission is on the general investigational plan and the protocol(s) for clinical studies. In support of a request for an IND, sponsors must submit a protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. In addition, the results of the preclinical studies, together with manufacturing information, analytical data and any available clinical data or literature to support the use of the investigational product and plans for clinical trials, among other things, are submitted to the FDA as part of an IND. The FDA requires a 30-day waiting period after the filing of each IND before clinical trials may begin. This waiting period is designed to allow the FDA to review the IND to determine whether human research subjects will be exposed to unreasonable health risks. The IND will become effective automatically 30 days after receipt by the FDA, unless the FDA raises concerns or questions about the conduct of the trials as outlined in the IND prior to that time and imposes a clinical hold on the IND or partial clinical hold. In this case, the IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can begin. The FDA may nevertheless initiate a clinical hold after the 30 days if, for example, significant public health risks arise.
Following commencement of a clinical trial under an IND, the FDA may also place a clinical hold or partial clinical hold on that trial. Clinical holds are imposed by the FDA whenever there is concern for patient safety and may be a result of new data, findings, or developments in clinical, nonclinical, and/or chemistry, manufacturing, and controls. A clinical hold is an order issued by the FDA to the sponsor to delay a proposed clinical investigation or to suspend an ongoing investigation. A partial clinical hold is a delay or suspension of only part of the clinical work requested under the IND. For example, a specific protocol or part of a protocol is not allowed to proceed, while other protocols may do so.
Human Clinical Trials in Support of a Marketing Application
Clinical trials involve the administration of the investigational product candidate to healthy volunteers or patients with the disease or condition to be treated under the supervision of qualified principal investigators in accordance with GCP requirements, which include the requirement that all research subjects provide their informed consent in writing for their participation in any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives of the trial, inclusion and exclusion criteria of subjects, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND.
A sponsor who wishes to conduct a clinical trial outside the United States may, but need not, obtain FDA authorization to conduct the clinical trial under an IND. When a foreign clinical trial is conducted under an IND, all FDA IND requirements must be met unless waived. When a foreign clinical trial is not conducted under an IND, the sponsor must ensure that the trial complies with certain regulatory requirements of the FDA in order to use the trial as support for an IND or application for marketing approval. Specifically, the FDA requires that such trials be conducted in accordance with GCP, including review and approval by an independent ethics committee and informed consent from participants. The GCP requirements encompass both ethical and data integrity standards for clinical trials. The FDA’s regulations are intended to help ensure the protection of human subjects enrolled in non-IND foreign clinical trials, as well as the quality and integrity of
the resulting data. They further help ensure that non-IND foreign trials are conducted in a manner comparable to that required for clinical trials in the United States.
Further, each clinical trial must be reviewed and approved by an IRB, either centrally or individually, at each institution at which the clinical trial will be conducted. The IRB will consider, among other things, clinical trial design, patient informed consent, ethical factors, the safety of human subjects and the possible liability of the institution. 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 completion. An IRB must operate in compliance with FDA regulations. The FDA, IRB, or sponsor may suspend or discontinue a clinical trial at any time for various reasons, including a finding that the clinical trial is not being conducted in accordance with FDA requirements or that the participants are being exposed to an unacceptable health risk. There also are requirements governing the reporting of ongoing clinical trials and completed clinical trials to public registries. In the United States, information about applicable clinical trials, including clinical trial results, must be submitted within specific timeframes for publication on the www.clinicaltrials.gov website. Failure to do so can result in fines, adverse publicity and civil and criminal sanctions.
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 DSMB. This group provides authorization for whether or not a study may move forward at designated check points based on certain available data from the trial to which only the DSMB has access. Finally, under the NIH Guidelines for Research Involving Recombinant DNA Molecules, or the NIH Guidelines, supervision of human gene transfer trials includes evaluation and assessment by an institutional biosafety committee, or IBC, a local institutional committee that reviews and oversees research utilizing recombinant or synthetic nucleic acid molecules at that institution. The IBC assesses the safety of the research and identifies any potential risk to public health or the environment, and such review may result in some delay before initiation of a clinical trial. While the NIH Guidelines are not mandatory unless the research in question is being conducted at or sponsored by institutions receiving NIH funding of recombinant or synthetic nucleic acid molecule research, many companies and other institutions not otherwise subject to the NIH Guidelines voluntarily follow them.
Clinical trials typically are conducted in three sequential phases, but the phases may overlap or be combined. Additional studies may be required after approval. These phases generally include the following:
A clinical trial may combine the elements of more than one phase and the FDA often requires more than one Phase 3 trial to support marketing approval of a product candidate. A company’s designation of a clinical trial as being of a particular phase is not necessarily indicative that the study will be sufficient to satisfy the FDA requirements of that phase because this determination cannot be made until the protocol and data have been submitted to and reviewed by the FDA. Generally, pivotal trials are Phase 3 trials, but they may be Phase 2 trials if the design provides a well-controlled and reliable assessment of clinical benefit, particularly in an area of unmet medical need.
In December 2022, with the passage of the Food and Drug Omnibus Reform Act, or FDORA, Congress required sponsors to develop and submit a diversity action plan for each Phase 3 clinical trial or any other “pivotal study” of a new drug or biological product. These plans are meant to encourage the enrollment of more diverse patient populations in late-stage clinical trials of FDA-regulated products. Specifically, actions plans must include the sponsor’s goals for enrollment, the underlying rationale for those goals, and an explanation of how the sponsor intends to meet them. In addition to these requirements, the legislation directs the FDA to issue new guidance on diversity action plans.
In some cases, the FDA may require, or companies may voluntarily pursue, additional clinical trials to further assess the product candidate’s safety and effectiveness after approval. Such post-approval trials are typically referred to as Phase 4 clinical trials. These studies are used to gain additional experience from the treatment of patients in the intended therapeutic indication and to document a clinical benefit in the case of products approved under accelerated approval regulations. If the FDA approves a product while a company has ongoing clinical trials that were not necessary for approval, a company may be able to use the data from these clinical trials to meet all or part of any Phase 4 clinical trial requirement or to request a change in the product labeling. Failure to exhibit due diligence with regard to conducting Phase 4 clinical trials could result in withdrawal of approval for products.
Progress reports detailing the results of clinical trials must be submitted at least annually to the FDA and more frequently if serious adverse events occur. In addition, IND safety reports must be submitted to the FDA within 15 calendar days after the sponsor determines that the information qualifies for reporting for any of the following: serious and unexpected suspected adverse reactions; findings from other studies or animal or in vitro testing that suggest a significant risk in humans exposed to the product candidate; and any clinically important increase in the case of a serious suspected adverse reaction over that listed in the protocol or investigator brochure. The sponsor also must notify the FDA of any unexpected fatal or life-threatening suspected adverse reaction within 7 calendar days after the sponsor’s initial receipt of the information.
Finally, sponsors of clinical trials are required to register and disclose certain clinical trial information on a public registry (clinicaltrials.gov) maintained by the NIH. In particular, information related to the product, patient population, phase of investigation, study sites and investigators and other aspects of the clinical trial is made public as part of the registration of the clinical trial. Both the NIH and the FDA have recently signaled the government’s willingness to begin enforcing those requirements against non-compliant clinical trial sponsors. The failure to submit clinical trial information to clinicaltrials.gov, as required, is a prohibited act under the FDCA with violations subject to potential civil monetary penalties of up to $10,000 for each day the violation continues. Although the FDA has historically not enforced these reporting requirements due to the U.S. Department of Health and Human Services’, or HHS, long delay in issuing final implementing regulations, those regulations have now been issued and the FDA has issued several Notices of Noncompliance to manufacturers since April 2021.
Manufacturing and Other Regulatory Requirements
Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the drug or biological characteristics of the product candidate and finalize a process for manufacturing the drug product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and manufacturers must develop, among other things, methods for testing the identity, strength, quality and purity of the final drug product. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life and to identify appropriate storage conditions for the product candidate.
Manufacturers and others involved in the manufacture and distribution of products must also register their establishments with the FDA and certain state agencies. Both domestic and foreign manufacturing establishments must register and provide additional information to the FDA upon their initial participation in the manufacturing process. Any product manufactured by or imported from a facility that has not registered, whether foreign or domestic, is deemed misbranded under the FDCA. Establishments may be subject to periodic unannounced inspections by government authorities to ensure compliance with cGMPs and other laws. Inspections must follow a “risk-based schedule” that may result in certain establishments being inspected more frequently. Manufacturers may also have to provide, on request, electronic or physical records regarding their establishments. Delaying, denying, limiting, or refusing inspection by the FDA may lead to a product being deemed to be adulterated. The PREVENT Pandemics Act, which was enacted in December 2022, clarifies that foreign drug manufacturing establishments are subject to registration and listing requirements even if a drug or biologic undergoes further manufacture, preparation, propagation, compounding, or processing at a separate establishment outside the United States prior to being imported or offered for import into the United States.
Under the Pediatric Research Equity Act of 2003, a marketing application or supplement thereto must contain data that are adequate to assess the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. Sponsors must also submit pediatric study plans prior to the assessment data. Those plans must contain an outline of the proposed pediatric study or studies the sponsor plans to conduct, including study objectives and design, any deferral or waiver requests and other information required by regulation. The sponsor, the FDA and the FDA’s internal review committee must then review the information submitted, consult with each other, and agree upon a final plan. The FDA or the sponsor may request an amendment to the plan at any time.
For products intended to treat a serious or life-threatening disease or condition, the FDA must, upon the request of a sponsor, meet to discuss preparation of the initial pediatric study plan or to discuss deferral or waiver of pediatric assessments. In addition, FDA will meet early in the development process to discuss pediatric study plans with sponsors and FDA must meet with sponsors by no later than the end-of-phase 1 meeting for serious or life-threatening diseases and by no later than 90 days after FDA’s receipt of the study plan.
The FDA may, on its own initiative or at the request of the sponsor, grant deferrals for submission of some or all pediatric data until after approval of the product for use in adults, or full or partial waivers from the pediatric data requirements. A deferral may be granted for several reasons, including a finding that the product or therapeutic candidate is ready for approval for use in adults before pediatric trials are complete or that additional safety or effectiveness data needs to be collected before the pediatric trials begin. The law requires the FDA to send a Pediatric Research Equity Act, or PREA, Non-Compliance letter to sponsors who have failed to submit their pediatric assessments required under PREA. Unless otherwise required by regulation, the pediatric data requirements do not apply to products with orphan designation, although the FDA has recently taken steps to limit what it considers abuse of this statutory exemption.
Special Regulations and Guidance Governing Gene Therapy Products
The FDA has defined a gene therapy product as one that mediates its effects by transcription or translation of transferred genetic material or by specifically altering host genetic sequences, such as products that include nucleic acids, or genetically engineered microorganisms, engineered site-specific nucleases used for human genome editing and ex vivo genetically modified human cells. The products may be used to modify cells in vivo or transferred to cells ex vivo prior to administration to the recipient. Within the FDA, the Center for Biologics Evaluation and Research, or CBER, regulates gene therapy products. Within the CBER, the review of gene therapy and related products is consolidated in the Office of Tissues and Advanced Therapies, and the FDA has established the Cellular, Tissue and Gene Therapies Advisory Committee to advise the CBER on its reviews.
The FDA has issued various guidance documents regarding gene therapies, including recent final guidance documents released in January 2020 relating to chemistry, manufacturing, and controls information for gene therapy INDs, long-term follow-up after the administration of gene therapy products and gene therapies for rare diseases. Although the FDA has indicated that these and other guidance documents it previously issued are not legally binding, compliance with them is likely necessary to gain approval for any gene therapy product candidate. The guidance documents provide additional factors that the FDA will consider at each stage of development and relate to, among other things: the proper preclinical assessment of gene therapies; the chemistry, manufacturing, and control information that should be included in an IND application; the proper design of tests to measure product potency in support of an IND or BLA application; and measures to observe for potential delayed adverse effects in participants who have received investigational gene therapies with the duration of follow-up based on the potential for risk of such effects. For AAV vectors specifically, the FDA typically recommends that sponsors continue to monitor participants for potential gene therapy-related adverse events for up to a five-year period.
For a gene therapy product, the FDA also will not approve the product if the manufacturer is not in compliance with Good Tissue Practices, or GTP. These standards are found in FDA regulations and guidance that govern the methods used in, and the facilities and controls used for, the manufacture of human cells, tissues, and cellular and tissue-based products, or HCT/Ps, which are human cells or tissue intended for implantation, transplant, infusion, or transfer into a human recipient. The primary intent of the GTP requirements is to ensure that cell and tissue-based products are manufactured in a manner designed to prevent the introduction, transmission, and spread of communicable disease. FDA regulations also require tissue establishments to register and list their HCT/Ps with the FDA and, when applicable, to evaluate donors through screening and testing.
Submission and Filing of NDAs and BLAs
If clinical trials are successful, the next step in the development process is the preparation and submission to the FDA of a marketing application. The application is the vehicle through which sponsors formally propose that the FDA approve a new drug or biologic for marketing and sale in the United States for one or more indications. The application must contain a description of the manufacturing process and quality control methods, as well as results of all preclinical studies, toxicology studies and clinical trials, including negative or ambiguous results as well as positive findings, and proposed labeling, among other things. Every new product candidate must be the subject of an approved application before it may be commercialized in the United States. Under federal law, the submission of most applications is subject to an application user fee. Further, the sponsor of an approved application is also subject to an annual program fee. Certain exceptions and waivers are available for some of these fees, such as an exception from the application fee for products with orphan designation and a waiver for certain small businesses.
Following submission of an application, the FDA conducts a preliminary review of the application within 60 calendar days of its receipt and must inform the sponsor by that time or before whether the application is sufficiently complete to permit substantive review. In the event that the FDA determines that an application does not satisfy this standard, it will issue a Refuse to File determination to the sponsor. The FDA may request additional information and studies, and the application must be resubmitted with the additional information. The resubmitted application is also subject to review before the FDA accepts it for filing.
Once the NDA or BLA is accepted for filing, the FDA sets a user fee goal date that informs the sponsor of the specific date by which the FDA intends to complete its review. The fee required for the submission and review of an application under the Prescription Drug User Fee Act, or PDUFA, is substantial (for example, for fiscal year 2023 this application fee is approximately $3.25 million), and the sponsor of an approved application is also subject to an annual program fee, currently more than $394,000 per eligible prescription product. Under the PDUFA, the FDA has agreed to specified performance goals in the review process of applications. Under that agreement, 90% of applications seeking approval of New Molecular Entities, or NMEs, are meant to be reviewed within ten months from the date on which FDA accepts the application for filing, and 90% of applications for NMEs that have been designated for “priority review” are meant to be reviewed within six months of the filing date. For applications seeking approval of drugs that are not NMEs, the ten-month and six-month review periods run from the date that FDA receives the application. The review process and the PDUFA goal date may be extended by the FDA for three additional months to consider new information or clarification provided by the sponsor to address an outstanding deficiency identified by the FDA following the original submission. The FDA does not always meet its PDUFA goal dates for standard or priority NDAs or BLAs, and the review process is often extended by FDA requests for additional information or clarification. The FDA reviews NDAs and BLAs to determine, among other things, whether the proposed product candidate is safe and effective for its intended use, and whether the product is being manufactured in accordance with cGMPs to assure and preserve the product’s identity, strength, quality and purity.
In connection with its review of an application, the FDA typically will inspect the facility or facilities where the product candidate is manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in full compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. The PHSA emphasizes the importance of manufacturing control for products like biologics whose attributes cannot be precisely defined. Additionally, before approving an application, the FDA will typically inspect one or more clinical sites to assure compliance with GCP. With passage of the FDORA, Congress clarified the FDA’s authority to conduct inspections by expressly permitting inspection of facilities involved in the preparation, conduct, or analysis of clinical and non-clinical studies submitted to the FDA as well as other persons holding study records or involved in the study process.
The FDA is also required to refer an application for a novel product candidate to an advisory committee or explain why such referral was not made. Typically, an advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.
The FDA’s Decision on an Application
Under the PHSA, the FDA may approve a BLA if it determines that the product is safe, pure, and potent, and the facility where the product will be manufactured meets standards designed to ensure that it continues to be safe, pure, and potent. The FDA may approve an NDA for a drug product if it determines that the product is safe and effective for its proposed use. In each case, the FDA must determine that the expected benefits of the proposed product outweigh its potential risks to patients. This “benefit-risk” assessment is informed by the extensive body of evidence about the product’s safety and efficacy in the BLA or NDA. On the basis of the FDA’s evaluation of the application and accompanying information, including the results of the inspection of the manufacturing facilities and any FDA audits of clinical trial sites to assure compliance with GCPs, the FDA may issue an approval letter or a complete response letter.
If the application is not approved, the FDA will issue a complete response letter, which will contain details of the deficiencies in the submission and the conditions that must be met in order to secure final approval of the application, and when possible will outline recommended actions the sponsor might take to obtain approval of the application. Sponsors that receive a complete response letter may submit to the FDA information that represents a complete response to the issues identified by the FDA, withdraw the application or request a hearing. Such resubmissions are classified under PDUFA as either Class 1 or Class 2. The classification of a resubmission is based on the information submitted by a sponsor in response to an action letter. Under the goals and policies agreed to by the FDA under PDUFA, the FDA has two months to review a Class 1 resubmission and six months to review a Class 2 resubmission. The FDA will not approve an application until issues identified in the complete response letter have been addressed. If a complete response letter is issued, the sponsor will have
one year to respond to the deficiencies identified by the FDA, at which time the FDA can deem the application withdrawn or, in its discretion, grant the sponsor an additional six month extension to respond.
An approval letter, on the other hand, authorizes commercial marketing of the product with specific prescribing information for specific indications. The FDA may limit the approved indication(s) for use of the product. It may also require that contraindications, warnings, or precautions be included in the product labeling. In addition, the FDA may call for post-approval studies, including Phase 4 clinical trials, to further assess the product’s efficacy and/or safety after approval. The agency may also require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution restrictions or other risk management mechanisms, including REMS, to help ensure that the benefits of the product outweigh the potential risks. REMS can include medication guides, communication plans for healthcare professionals, and elements to assure safe use, or ETASU. ETASU can include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring, and the use of patent registries. If the FDA concludes a REMS is needed, the sponsor must submit a proposed REMS, and the FDA will not approve the NDA or BLA without an approved REMS, if required. The FDA may prevent or limit further marketing of a product based on the results of post-market studies or surveillance programs. After approval, many types of changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further testing requirements and FDA review and approval.
Fast Track, Breakthrough Therapy, Priority Review, and Regenerative Medicine Advanced Therapy Designations
The FDA is authorized to designate certain products for expedited review if they demonstrate the potential to address an unmet medical need in the treatment of a serious or life-threatening disease or condition. These programs are referred to as fast track designation, breakthrough therapy designation, priority review designation, and regenerative medicine advanced therapy designation. The purpose of these programs is to provide important new drugs to patients earlier than under standard review procedures. None of these expedited programs change the standards for approval but each may help expedite the development or approval process governing product candidates.
Specifically, the FDA may designate a product for fast track review if it is intended, whether alone or in combination with one or more other products, for the treatment of a serious or life-threatening disease or condition, and it demonstrates the potential to address unmet medical needs for such a disease or condition. The FDA will determine that a product will fill an unmet medical need if it will provide a therapy where none exists or provide a therapy that may be potentially superior to existing therapy based on efficacy of safety factors. For fast track products, sponsors may have a higher number of interactions with the FDA during preclinical and clinical development and the FDA may initiate review of sections of a fast track product’s application before the application is complete. This rolling review may be available if the FDA determines, after preliminary evaluation of clinical data submitted by the sponsor, that a fast track product may be effective. The sponsor must also provide, and the FDA must approve, a schedule for the submission of the remaining information and the sponsor must pay applicable user fees upon submission of the first section of the NDA or BLA. In addition, the fast track designation may be withdrawn by the FDA if the FDA believes that the designation is no longer supported by data emerging in the clinical trial process.
In addition, a new drug or biological product candidate may be eligible for breakthrough therapy designation if it is intended, either alone or in combination with one or more other products, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The FDA may take certain actions with respect to breakthrough therapies, including holding meetings with the sponsor throughout the development process; providing timely advice to the product sponsor regarding development and approval; involving more senior staff in the review process; assigning a cross-disciplinary project lead for the review team; and taking other steps to design the clinical trials in an efficient manner.
With passage of the 21st Century Cures Act in December 2016, Congress authorized the FDA to accelerate review and approval of products designated as regenerative medicine advanced therapies, or RMAT. An RMAT is defined as cell therapies, therapeutic tissue engineering products, human cell and tissue products, and combination products using any such therapies or products. A product is eligible for this designation if it is a regenerative medicine therapy that is intended to treat, modify, reverse or cure a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the product has the potential to address unmet medical needs for such disease or condition. In a recent guidance on expedited programs for regenerative medicine therapies for serious conditions, FDA specified that its interpretation of the definition of regenerative medicine advanced therapy products includes gene therapies that lead to a sustained effect on cells or tissues, such as in vivo AAV vectors delivered to non-dividing cells. The benefits of an RMAT designation include early interactions with FDA to expedite development and review, benefits available to breakthrough therapies, potential eligibility for priority review, and accelerated approval based on surrogate or intermediate endpoints.
Any product submitted to the FDA for approval, including a product with fast track, breakthrough, or RMAT designation, may also be eligible for priority review. A product is eligible for priority review if it is a product that is intended to treat a serious condition and, if approved, would provide a significant improvement in safety or effectiveness. The FDA determines, on a case-by-case basis, whether the proposed product represents a significant improvement when compared with other available therapies. Significant improvement may be illustrated by evidence of increased effectiveness in the treatment of a condition, elimination or substantial reduction of a treatment-limiting product reaction, documented enhancement of patient compliance that may lead to improvement in serious outcomes, and evidence of safety and effectiveness in a new subpopulation. A priority designation is intended to direct overall attention and resources to the evaluation of such applications, and to shorten the FDA’s goal for taking action on a marketing application from ten months to six months of the 60-day filing date.
Rare Pediatric Disease Designation and Priority Review Vouchers
In 2012, Congress enacted the Food and Drug Administration Safety and Innovation Act requiring the FDA to award priority review vouchers to sponsors of certain rare pediatric disease product applications. This program is designed to encourage development of new drug and biological products for prevention and treatment of “rare pediatric diseases” by, upon initial approval of an application meeting certain specified criteria, providing companies with a voucher that can be redeemed to receive a priority review of a subsequent marketing application for a different product. The sponsor of a rare pediatric disease product receiving a priority review voucher may sell or otherwise transfer the voucher to another company. The voucher may be further transferred any number of times before the voucher is used, as long as the sponsor making the transfer has not yet submitted an application relying on the priority review voucher. The FDA may also revoke any priority review voucher if the rare pediatric disease product for which the voucher was awarded is not marketed in the United States within one year following the date of approval.
In order to receive a priority review voucher upon BLA or NDA approval, the product must receive designation from the FDA as a product for a rare pediatric disease prior to submission of the marketing application. A “rare pediatric disease” is a disease that is serious or life-threatening, in which the serious or life-threatening manifestations primarily affect individuals aged from birth to 18 years and affects fewer than 200,000 people in the United States, or affects more than 200,000 people in the United States but there is no reasonable expectation that the cost of developing and making available in the United States a product for such disease or condition will be recovered from sales in the United States of such product. In addition to receiving rare pediatric disease designation, in order to receive a priority review voucher, the NDA or BLA must be given priority review, rely on clinical data derived from studies examining a pediatric population and dosages of the product intended for that population, not seek approval for a different adult indication in the original rare pediatric disease product application and be for a product that does not include a previously approved active ingredient.
The Rare Pediatric Disease Priority Review Voucher Program was scheduled to expire after September 30, 2020. After that, only drugs designated as rare pediatric treatments and approved by the FDA by October 1, 2022, could receive a voucher. In December 2020, however, Congress renewed the program as part of the 2021 Coronavirus Response and Relief Supplemental Consolidated Appropriations Act through the federal fiscal year 2024. Thus, under the current statutory sunset provisions, the FDA may only award priority review vouchers for approved rare pediatric disease product applications if sponsors have rare pediatric disease designation for the drug granted by September 30, 2024. The FDA may not award any rare pediatric disease priority review vouchers after September 30, 2026.
If regulatory approval for marketing of a product or new indication for an existing product is obtained, the sponsor will be required to comply with all regular post-approval regulatory requirements as well as any post-approval requirements that the FDA have imposed as part of the approval process. The sponsor will be required to report certain adverse reactions and production problems to the FDA, provide updated safety and efficacy information and comply with requirements concerning advertising and promotional labeling requirements. Manufacturers and certain of their subcontractors are required to register their establishments with the FDA and certain state agencies and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with ongoing regulatory requirements, including cGMP regulations, which impose certain procedural and documentation requirements upon manufacturers. Accordingly, the sponsor and its third-party manufacturers must continue to expend time, money, and effort in the areas of production and quality control to maintain compliance with cGMP regulations and other regulatory requirements.
A product may also be subject to official lot release, meaning that the manufacturer is required to perform certain tests on each lot of the product before it is released for distribution. If the product is subject to official lot release, the manufacturer
must submit samples of each lot, together with a release protocol showing a summary of the history of manufacture of the lot and the results of all of the manufacturer’s tests performed on the lot, to the FDA. The FDA may in addition perform certain confirmatory tests on lots of some products before releasing the lots for distribution. Finally, the FDA will conduct laboratory research related to the safety, purity, potency, and effectiveness of pharmaceutical products. Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution or other restrictions under a REMS program. Other potential consequences include, among other things:
The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Products may be promoted only for the approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability. If a company is found to have promoted off-label uses, it may become subject to adverse public relations and administrative and judicial enforcement by the FDA, the Department of Justice, or the Office of the Inspector General of HHS as well as state authorities. This could subject a company to a range of penalties that could have a significant commercial impact, including civil and criminal fines and agreements that materially restrict the manner in which a company promotes or distributes drug products. In September 2021, the FDA published final regulations which describe the types of evidence that the agency will consider in determining the intended use of a drug or biologic. It may be permissible, under very specific, narrow conditions, for a manufacturer to engage in nonpromotional, non-misleading communication regarding off-label information, such as distributing scientific or medical journal information. Moreover, with passage of the Pre-Approval Information Exchange Act in December 2022, sponsors of products that have not been approved may proactively communicate to payors certain information about products in development to help expedite patient access upon product approval. Previously, such communications were permitted under FDA guidance, but the new legislation explicitly provides protection to sponsors who convey certain information about products in development to payors, including unapproved uses of approved products.
In addition, the distribution of prescription drug products is subject to the Prescription Drug Marketing Act, or PDMA, and its implementing regulations, as well as the Drug Supply Chain Security Act, or DSCA, which regulate the distribution and tracing of prescription drugs and prescription drug samples at the federal level, and set minimum standards for the regulation of drug distributors by the states. The PDMA, its implementing regulations and state laws limit the distribution of prescription pharmaceutical product samples, and the DSCA imposes requirements to ensure accountability in distribution and to identify and remove counterfeit and other illegitimate products from the market.
Orphan Drug Designation and Exclusivity
Orphan drug designation in the United States is designed to encourage sponsors to develop products intended for rare diseases or conditions. In the United States, a rare disease or condition is statutorily defined under the Orphan Drug Act as a condition that affects fewer than 200,000 individuals in the United States or that affects more than 200,000 individuals in the United States and for which there is no reasonable expectation that the cost of developing and making available in the United States a product for this type of disease or condition will be recovered from sales of the product in the United States.
Orphan drug designation qualifies a company for tax credits and market exclusivity for seven years following the date of the product’s marketing approval if granted by the FDA. An application for designation as an orphan product can be made any time prior to the filing of an application for approval to market the product. A product becomes an orphan when it receives orphan drug designation from the Office of Orphan Products Development at the FDA based on acceptable confidential requests made under the regulatory provisions. The product must then go through the review and approval process like any other product.
A sponsor may request orphan drug designation of a previously unapproved product or new orphan indication for an already marketed product. In addition, a sponsor of a product that is otherwise the same product as an already approved orphan drug may seek and obtain orphan drug designation for the subsequent product for the same rare disease or condition if it can present a plausible hypothesis that its product may be clinically superior to the first drug. More than one sponsor may receive orphan drug designation for the same product for the same rare disease or condition, but each sponsor seeking orphan drug designation must file a complete request for designation before submitting an NDA or BLA.
If a product with orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such designation or for a select indication or use within the rare disease or condition for which it was designated, the product generally will receive orphan drug exclusivity. Orphan drug exclusivity means that the FDA may not approve another sponsor’s marketing application for the same product for the same indication for seven years, except in certain limited circumstances. For large molecule drugs, including gene therapies, sameness is determined based on the principal molecular structural features of a product. As applied to gene therapies, the FDA issued final guidance in September 2021 suggesting that it would not consider two gene therapy products to be different drugs solely based on minor differences in the transgenes or vectors. The FDA also intends to consider whether additional features of the final gene therapy product, such as regulatory elements and the cell type that is transduced (for genetically modified cells), should also be considered to be principal molecular structural features.
The period of market exclusivity begins on the date that the marketing application is approved by the FDA. If a product designated as an orphan drug ultimately receives marketing approval for an indication broader than what was designated in its orphan drug application, it may not be entitled to exclusivity. Further, orphan drug exclusivity will not bar approval of another product under certain circumstances, including if the company with orphan drug exclusivity is not able to meet market demand or the subsequent product is shown to be clinically superior to the approved product on the basis of greater efficacy or safety, or providing a major contribution to patient care. This is the case despite an earlier court opinion holding that the Orphan Drug Act unambiguously required the FDA to recognize orphan drug exclusivity regardless of a showing of clinical superiority. Under Omnibus legislation signed by President Trump on December 27, 2020, the requirement for a product to show clinical superiority applies to drug products that received orphan drug designation before enactment of amendments to the FDCA in 2017 but have not yet been approved by FDA.
In September 2021, the Court of Appeals for the 11th Circuit held that, for the purpose of determining the scope of market exclusivity, the term “same disease or condition” in the statute means the designated “rare disease or condition” and could not be interpreted by the FDA to mean the “indication or use.” Thus, the court concluded, orphan drug exclusivity applies to the entire designated disease or condition rather than the “indication or use.” Although there have been legislative proposals to overrule this decision, they have not been enacted into law. On January 23, 2023, the FDA announced that, in matters beyond the scope of that court order, the FDA will continue to apply its existing regulations tying orphan-drug exclusivity to the uses or indications for which the orphan drug was approved.
Pediatric exclusivity is another type of non-patent marketing exclusivity in the United States and, if granted, provides for the attachment of an additional six months of regulatory exclusivity. For drug products, the six-month exclusivity may be attached to the term of any existing patent or regulatory exclusivity. For biologic products, the six-month period may be attached to any existing regulatory exclusivities but not to any patent terms. This six-month exclusivity may be granted if a sponsor submits pediatric data that fairly respond to a written request from the FDA for such data. The data do not need to show the product to be effective in the pediatric population studied; rather, if the clinical trial is deemed to fairly respond to the FDA’s request, the additional protection is granted. If reports of requested pediatric studies are submitted to and accepted by the FDA within the statutory time limits, whatever statutory or regulatory periods of exclusivity that cover the product are extended by six months. This is not a patent term extension, but it effectively extends the regulatory period during which the FDA cannot approve another application.
Abbreviated New Drug Applications for Generic Drugs
In 1984, with passage of the Hatch-Waxman Amendments to the FDCA, Congress established an abbreviated regulatory scheme authorizing the FDA to approve generic drugs that are shown to contain the same active ingredients as, and to be bioequivalent to, drugs previously approved by the FDA pursuant to NDAs. To obtain approval of a generic drug, a sponsor must submit an abbreviated new drug application, or ANDA, to the agency. An ANDA is a comprehensive submission that contains, among other things, data and information pertaining to the active pharmaceutical ingredient, bioequivalence, drug product formulation, specifications and stability of the generic drug, as well as analytical methods, manufacturing process validation data and quality control procedures. ANDAs are “abbreviated” because they generally do
not include preclinical and clinical data to demonstrate safety and effectiveness. Instead, in support of such applications, a generic manufacturer may rely on the preclinical and clinical testing previously conducted for a drug product previously approved under an NDA, known as the reference-listed drug, or RLD.
Specifically, in order for an ANDA to be approved, the FDA must find that the generic version is identical to the RLD with respect to the active ingredients, the route of administration, the dosage form, the strength of the drug and the conditions of use of the drug. At the same time, the FDA must also determine that the generic drug is “bioequivalent” to the innovator drug. Under the statute, a generic drug is bioequivalent to a RLD if “the rate and extent of absorption of the drug do not show a significant difference from the rate and extent of absorption of the listed drug...” Upon approval of an ANDA, the FDA indicates whether the generic product is “therapeutically equivalent” to the RLD in its publication “Approved Drug Products with Therapeutic Equivalence Evaluations,” also referred to as the “Orange Book.” Physicians and pharmacists consider a therapeutic equivalent generic drug to be fully substitutable for the RLD. In addition, by operation of certain state laws and numerous health insurance programs, the FDA’s designation of therapeutic equivalence often results in substitution of the generic drug without the knowledge or consent of either the prescribing physician or patient.
Under the Hatch-Waxman Amendments, the FDA may not approve an ANDA until any applicable period of non-patent exclusivity for the RLD has expired. The FDCA provides a period of five years of non-patent data exclusivity for a new drug containing a new chemical entity. For the purposes of this provision, a new chemical entity, or NCE, is a drug that contains no active moiety, which is the molecule or ion responsible for the action of the drug substance, that has previously been approved by the FDA in any other NDA. This interpretation of the FDCA by the FDA was confirmed with enactment of the Ensuring Innovation Act in April 2021. In cases where such NCE exclusivity has been granted, an ANDA may not be filed with the FDA until the expiration of five years unless the submission is accompanied by a Paragraph IV certification, in which case the sponsor may submit its application four years following the original product approval. The FDCA also provides for a period of three years of exclusivity if the NDA includes reports of one or more new clinical investigations, other than bioavailability or bioequivalence studies, that were conducted by or for the sponsor and are essential to the approval of the application.
Section 505(b)(2) NDAs
As an alternative path to FDA approval for modifications to formulations or uses of products previously approved by the FDA pursuant to an NDA, a sponsor may submit an NDA under Section 505(b)(2) of the FDCA. Section 505(b)(2) was enacted as part of the Hatch-Waxman Amendments and permits the filing of an NDA that contains full reports of investigations of safety and effectiveness, but where at least some of the information required for approval comes from studies not conducted by, or for, the sponsor and for which the sponsor has not obtained a right of reference or use from the person by or for whom the investigations were conducted. This type of application permits reliance for such approvals on literature or on FDA’s previous findings of safety and/or effectiveness for an approved drug product, and may eliminate the need to conduct certain preclinical or clinical studies of the new product. The FDA may also require companies to perform additional studies or measurements, including clinical trials, to support the change from the previously approved reference listed drug, or RLD. The FDA may then approve the new product candidate for all, or some, of the label indications for which the RLD has been approved, as well as for any new indication sought by the 505(b)(2) sponsor.
Hatch-Waxman Patent Certification and the 30-Month Stay
Upon approval of an NDA or a supplement thereto, NDA sponsors are required to list with the FDA each patent with claims that cover the sponsor’s product or an approved method of using the product. Each of the patents listed by the NDA sponsor is published in the Orange Book. When a 505(b)(2) sponsor files its application with the FDA, the sponsor is required to certify to the FDA concerning any patents listed for the RLD in the Orange Book, except for patents covering methods of use for which the sponsor is not seeking approval. To the extent that the Section 505(b)(2) sponsor is relying on studies conducted for an already approved product, the sponsor is required to certify to the FDA concerning any patents listed for the approved product in the Orange Book.
Specifically, the sponsor must certify with respect to each patent that:
A certification that the new product will not infringe the already approved RLD’s listed patents or that such patents are invalid or unenforceable is called a Paragraph IV certification. If the sponsor does not challenge the listed patents or indicates that it is not seeking approval of a patented method of use, the application will not be approved until all the listed patents claiming the referenced product have expired (other than method of use patents involving indications for which the sponsor is not seeking approval).
If the 505(b)(2) sponsor has provided a Paragraph IV certification to the FDA, the sponsor must also send notice of the Paragraph IV certification to the NDA and patent holders once the 505(b)(2) application has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days after the receipt of a Paragraph IV certification automatically prevents the FDA from approving the 505(b)(2) application until the earlier of 30 months after the receipt of the Paragraph IV notice, expiration of the patent, or a decision in the infringement case that is favorable to the sponsor. The 505(b)(2) application also will not be approved until any applicable non-patent exclusivity listed in the Orange Book for the branded reference drug has expired.
To the extent that the Section 505(b)(2) sponsor is relying on studies conducted for an already approved product, the sponsor is required to certify to the FDA concerning any patents listed for the approved product in the Orange Book. As a result, approval of a Section 505(b)(2) NDA can be stalled until all the listed patents claiming the referenced product have expired, until any non-patent exclusivity, such as exclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the referenced product has expired, and, in the case of a Paragraph IV certification and subsequent patent infringement suit, until the earlier of 30 months, settlement of the lawsuit or a decision in the infringement case that is favorable to the Section 505(b)(2) sponsor.
Biosimilars and Exclusivity
The 2010 Patient Protection and Affordable Care Act included a subtitle called the Biologics Price Competition and Innovation Act, or BPCIA. The BPCIA established a regulatory scheme authorizing the FDA to approve biosimilars and interchangeable biosimilars. A biosimilar is a biological product that is highly similar to an existing FDA-licensed “reference product.” To date, the FDA has approved a number of biosimilars and the first interchangeable biosimilar product was approved on July 30, 2021, and a second product previously approved as a biosimilar was designated as interchangeable in October 2021. The FDA has issued several guidance documents outlining an approach to review and approval of biosimilars in the United States.
Under the BPCIA, a manufacturer may submit an application for licensure of a biological product that is “biosimilar to” or “interchangeable with” a previously approved biological product or “reference product.” In order for the FDA to approve a biosimilar product, it must find that there are no clinically meaningful differences between the reference product and the proposed biosimilar product in terms of safety, purity, and potency as shown through analytical studies, animal studies, and a clinical study or studies. For the FDA to approve a biosimilar product as interchangeable with a reference product, the agency must find that the biosimilar 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 biologic and the reference product may be altered or switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic. In December 2022, Congress clarified through the FDORA that the FDA may approve multiple first interchangeable biosimilar biological products so long as the products are all approved on the first day on which such a product is approved as interchangeable with the reference product.
Under the BPCIA, a reference biological product is granted 12 years of data exclusivity from the time of first approval of the product, and an application for a biosimilar product may not be submitted to the FDA until four years following the date of the initial approval of the reference product.
Even if a product is considered to be a reference product eligible for exclusivity, another company could market a competing version of that product if the FDA approves a full BLA for such product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity, and potency of their product. The BPCIA also created certain exclusivity periods for biosimilars approved as interchangeable products. There have been recent government proposals to reduce the 12-year reference product exclusivity period, but none has been enacted to date. At the same time, since passage of the BPCIA, many states have passed laws or amendments to laws, which address pharmacy practices involving biosimilar products. At this juncture, it is unclear whether products deemed “interchangeable” by the FDA will, in fact, be readily substituted by pharmacies, which are governed by state pharmacy law. Since the passage of the BPCIA, many states have passed laws or amendments to laws, including laws governing pharmacy practices, which are state regulated, to regulate the use of biosimilars.
Patent Term Restoration and Extension
A patent claiming a new product or its method of use may be eligible for a limited patent term extension, also known as patent term restoration, under the Hatch-Waxman Amendments, which permits a patent restoration of up to five years for patent term lost during product development and the FDA regulatory review. Patent term extension is generally available only for products whose active ingredient has not previously been approved by the FDA. The restoration period granted is typically one-half the time between the effective date of an IND and the submission date of an application, plus the time between the submission date of an application and the ultimate approval date. Patent term extension cannot be used to extend the remaining term of a patent past a total of 14 years from the product’s approval date. Only one patent applicable to an approved drug product is eligible for the extension, and the application for the extension must be submitted prior to the expiration of the patent in question. A patent that covers multiple drugs for which approval is sought can only be extended in connection with one of the approvals. The USPTO reviews and approves the application for any patent term extension in consultation with the FDA.
FDA Approval of Companion Diagnostics
In August 2014, the FDA issued final guidance clarifying the requirements that will apply to approval of therapeutic products and in vitro companion diagnostics. According to the guidance, for novel drugs, a companion diagnostic device and its corresponding therapeutic should be approved or cleared contemporaneously by the FDA for the use indicated in the therapeutic product’s labeling. Approval or clearance of the companion diagnostic device will ensure that the device has been adequately evaluated and has adequate performance characteristics in the intended population. In July 2016, the FDA issued a draft guidance intended to assist sponsors of the drug therapeutic and in vitro companion diagnostic device on issues related to co-development of the products.
The 2014 guidance also explains that a companion diagnostic device used to make treatment decisions in clinical trials of a biologic product candidate generally will be considered an investigational device, unless it is employed for an intended use for which the device is already approved or cleared. If used to make critical treatment decisions, such as patient selection, the diagnostic device generally will be considered a significant risk device under the FDA’s Investigational Device Exemption, or IDE, regulations. Thus, the sponsor of the diagnostic device will be required to comply with the IDE regulations. According to the guidance, if a diagnostic device and a product are to be studied together to support their respective approvals, both products can be studied in the same investigational study, if the study meets both the requirements of the IDE regulations and the IND regulations. The guidance provides that depending on the details of the study plan and subjects, a sponsor may seek to submit an IND application alone, or both an IND- and IDE-application.
In April 2020, the FDA issued additional guidance which describes considerations for the development and labeling of companion diagnostic devices to support the indicated uses of multiple drug or biological oncology products, when appropriate. This guidance builds upon existing policy regarding the labeling of companion diagnostics. In its 2014 guidance, the FDA stated that if evidence is sufficient to conclude that the companion diagnostic is appropriate for use with a specific group of therapeutic products, the companion diagnostic’s intended use/indications for use should name the specific group of therapeutic products, rather than specific products. The 2020 guidance expands on the policy statement in the 2014 guidance by recommending that companion diagnostic developers consider a number of factors when determining whether their test could be developed, or the labeling for approved companion diagnostics could be revised through a supplement, to support a broader labeling claim such as use with a specific group of oncology therapeutic products (rather than listing an individual therapeutic product(s)).
Under the FDCA, in vitro diagnostics, including companion diagnostics, are regulated as medical devices. In the United States, the FDCA and its implementing regulations, and other federal and state statutes and regulations govern, among other things, medical device design and development, preclinical and clinical testing, premarket clearance or approval, registration and listing, manufacturing, labeling, storage, advertising and promotion, sales and distribution, export and import, and post-market surveillance. Unless an exemption applies, diagnostic tests require marketing clearance or approval from the FDA prior to commercial distribution.
The FDA previously has required in vitro companion diagnostics intended to select the patients who will respond to the product candidate to obtain premarket approval, or PMA, simultaneously with approval of the therapeutic product candidate. The PMA process, including the gathering of clinical and preclinical data and the submission to and review by the FDA, can take several years or longer. It involves a rigorous premarket review during which the sponsor must prepare and provide the FDA with reasonable assurance of the device’s safety and effectiveness and information about the device and its components regarding, among other things, device design, manufacturing and labeling. PMA applications are subject to an application fee.
Federal and State Data Privacy and Security Laws
Under the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, the HHS has issued regulations to protect the privacy and security of protected health information, or PHI, used or disclosed by covered entities, including certain healthcare providers, health plans, and healthcare clearinghouses. HIPAA also regulates standardization of data content, codes, and formats used in healthcare transactions and standardization of identifiers for health plans and providers. HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and their regulations, including the omnibus final rule published on January 25, 2013, also imposes certain obligations on the business associates of covered entities that obtain protected health information in providing services to or on behalf of covered entities. In addition to federal privacy regulations, there are a number of state laws governing confidentiality and security of health information that are applicable to our business. In addition to possible federal civil and criminal penalties for HIPAA violations, state attorneys general are authorized to file civil actions for damages or injunctions in federal courts to enforce HIPAA and seek attorney’s fees and costs associated with pursuing federal civil actions. Accordingly, state attorneys general (along with private plaintiffs) have brought civil actions seeking injunctions and damages resulting from alleged violations of HIPAA’s privacy and security rules. New laws and regulations governing privacy and security may be adopted in the future as well.
Additionally, California recently enacted legislation that has been dubbed the first “GDPR-like” law in the United States. Known as the California Consumer Privacy Act, or CCPA, it creates new individual privacy rights for consumers (as that word is broadly defined in the law) and places increased privacy and security obligations on entities handling personal data of consumers or households. The CCPA went into effect on January 1, 2020 and requires covered companies to provide new disclosures to California consumers, provide such consumers new ways to opt-out of certain sales of personal information, and allow for a new cause of action for data breaches. The CCPA could impact our business activities depending on how it is interpreted and exemplifies the vulnerability of our business to not only cyber threats but also the evolving regulatory environment related to personal data and protected health information. In November 2020, California voters passed a ballot initiative for the California Privacy Rights Act, or the CPRA, which went into effect on January 1, 2023 and significantly expanded the CCPA to incorporate additional “GDPR-like” provisions including requiring that the use, retention, and sharing of personal information of California residents be reasonably necessary and proportionate to the purposes of collection or processing, granting additional protections for sensitive personal information, and requiring greater disclosures related to notice to residents regarding retention of information. The CPRA also created a new enforcement agency, the California Privacy Protection Agency, whose sole responsibility is to enforce the CPRA, which will further increase compliance risk. The provisions in the CPRA may apply to some of our business activities. In addition, other states, including Virginia, Colorado, Utah and Connecticut already have passed state privacy laws. Virginia’s privacy law also went into effect on January 1, 2023, and the laws in the other three states will go into effect later in the year. Other states will be considering these laws in the future, and Congress has also been debating passing a federal privacy law. These laws may impact our business activities, including our identification of research subjects, relationships with business partners and ultimately the marketing and distribution of our products.
Because of the breadth of these laws and the narrowness of the statutory exceptions and regulatory safe harbors available under such laws, it is possible that some of our current or future business activities, including certain clinical research, sales, and marketing practices and the provision of certain items and services to our customers, could be subject to challenge under one or more of such privacy and data security laws. The heightening compliance environment and the need to build and maintain robust and secure systems to comply with different privacy compliance and/or reporting requirements in multiple jurisdictions could increase the possibility that a healthcare company may fail to comply fully with one or more of these requirements. If our operations are found to be in violation of any of the privacy or data security laws or regulations described above that are applicable to us, or any other laws that apply to us, we may be subject to penalties, including potentially significant criminal, civil, and administrative penalties, damages, fines, imprisonment, contractual damages, reputational harm, diminished profits and future earnings, additional reporting requirements, and/or oversight if we become subject to a consent decree or similar agreement to resolve allegations of non-compliance with these laws, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations. To the extent that any of our product candidates, once approved, are sold in a foreign country, we may be subject to similar foreign laws.
Regulation and Procedures Governing Approval of Medicinal Products in the European Union
In order to market any product outside of the United States, a company must also comply with numerous and varying regulatory requirements of other countries and jurisdictions regarding quality, safety, and efficacy, and governing, among other things, clinical trials, marketing authorization, commercial sales, and distribution of products. Whether or not it obtains FDA approval for a product, a sponsor will need to obtain the necessary approvals by the comparable foreign regulatory authorities before it can commence clinical trials or marketing of the product in those countries or jurisdictions. Specifically,
the process governing approval of medicinal products in the European Union generally follows the same lines as in the United States. It entails satisfactory completion of preclinical studies and adequate and well-controlled clinical trials to establish the safety and efficacy of the product for each proposed indication. It also requires the submission to the relevant competent authorities of a marketing authorization application, or MAA, and granting of a marketing authorization by these authorities before the product can be marketed and sold in the European Union.
Clinical Trial Approval
On January 31, 2022, the new Clinical Trials Regulation (EU) No 536/2014 became effective in the European Union and replaced the prior Clinical Trials Directive 2001/20/EC. The new regulation aims at simplifying and streamlining the authorization, conduct and transparency of clinical trials in the European Union. Under the new coordinated procedure for the approval of clinical trials, the sponsor of a clinical trial to be conducted in more than one Member State of the European Union will only be required to submit a single application for approval. The submission will be made through the Clinical Trials Information System, a new clinical trials portal overseen by the European Medicines Agency, or the EMA, and available to clinical trial sponsors, competent authorities of the European Union Member States and the public.
The main characteristics of the regulation include: a streamlined application procedure via a single entry point, the “EU Portal and Database”; a single set of documents to be prepared and submitted for the application as well as simplified reporting procedures for clinical trial sponsors; and a harmonized procedure for the assessment of applications for clinical trials, which is divided in two parts. Part I is assessed by the appointed reporting European Union Member State, whose assessment report is submitted for review by the sponsor and all other competent authorities of all European Union Member States in which an application for authorization of a clinical trial has been submitted, or concerned member states. Part II is assessed separately by each concerned European Union Member State. Strict deadlines have been established for the assessment of CTAs. The role of the relevant ethics committees in the assessment procedure will continue to be governed by the national law of the concerned European Union Member State. However, overall related timelines will be defined by the Clinical Trials Regulation.
The new regulation did not change the preexisting requirement that a sponsor must obtain prior approval from the competent national authority of the European Union Member State in which the clinical trial is to be conducted. If the clinical trial is conducted in different European Union Member States, the competent authorities in each of these European Union Member States must provide their approval for the conduct of the clinical trial. Furthermore, the sponsor may only start a clinical trial at a specific study site after the applicable ethics committee has issued a favorable opinion.
Parties conducting certain clinical trials must, as in the United States, post clinical trial information in the European Union at the EudraCT website: https://eudract.ema.europa.eu.
PRIME Designation in the European Union
In March 2016, the EMA launched an initiative to facilitate development of product candidates in indications, often rare, for which few or no therapies currently exist. The PRIority Medicines, or PRIME, scheme is intended to encourage drug development in areas of unmet medical need and provides accelerated assessment of products representing substantial innovation reviewed under the centralized procedure. Products from small- and medium-sized enterprises may qualify for earlier entry into the PRIME scheme than larger companies. Many benefits accrue to sponsors of product candidates with PRIME designation, including but not limited to, early and proactive regulatory dialogue with the EMA, frequent discussions on clinical trial designs and other development program elements, and accelerated marketing authorization application assessment once a dossier has been submitted. Importantly, a dedicated EMA contact and rapporteur from the Committee for Human Medicinal Products, or CHMP, or Committee for Advanced Therapies, or CAT, are appointed early in the PRIME scheme facilitating increased understanding of the product at the EMA’s Committee level. A kick-off meeting initiates these relationships and includes a team of multidisciplinary experts at the EMA to provide guidance on the overall development and regulatory strategies.
To obtain a marketing authorization for a product under the European Union regulatory system, a sponsor must submit an MAA, either under a centralized procedure administered by the EMA or one of the procedures administered by competent authorities in European Union Member States (decentralized procedure, national procedure, or mutual recognition procedure). A marketing authorization may be granted only to a sponsor established in the European Union. Regulation (EC) No 1901/2006 provides that prior to obtaining a marketing authorization in the European Union, a sponsor must demonstrate compliance with all measures included in an EMA-approved Pediatric Investigation Plan, or PIP, covering all subsets of the
pediatric population, unless the EMA has granted a product-specific waiver, class waiver, or a deferral for one or more of the measures included in the PIP.
The centralized procedure provides for the grant of a single marketing authorization by the European Commission that is valid for all European Union member states. Pursuant to Regulation (EC) No. 726/2004, the centralized procedure is compulsory for specific products, including for medicines produced by certain biotechnological processes, products designated as orphan medicinal products, advanced therapy products and products with a new active substance indicated for the treatment of certain diseases, including products for the treatment of cancer. For products with a new active substance indicated for the treatment of other diseases and products that are highly innovative or for which a centralized process is in the interest of patients, the centralized procedure may be optional. Manufacturers must demonstrate the quality, safety, and efficacy of their products to the EMA, which provides an opinion regarding the MAA. The European Commission grants or refuses marketing authorization in light of the opinion delivered by the EMA.
Specifically, the grant of marketing authorization in the European Union for products containing viable human tissues or cells such as gene therapy medicinal products is governed by Regulation 1394/2007/EC on advanced therapy medicinal products, read in combination with Directive 2001/83/EC of the European Parliament and of the Council, commonly known as the Community code on medicinal products. Regulation 1394/2007/EC lays down specific rules concerning the authorization, supervision, and pharmacovigilance of gene therapy medicinal products, somatic cell therapy medicinal products, and tissue engineered products. Manufacturers of advanced therapy medicinal products must demonstrate the quality, safety, and efficacy of their products to EMA which provides an opinion regarding the application for marketing authorization. The European Commission grants or refuses marketing authorization in light of the opinion delivered by EMA.
Under the centralized procedure, the CHMP established at the EMA is responsible for conducting an initial assessment of a product. Under the centralized procedure in the European Union, the maximum timeframe for the evaluation of an MAA is 210 days, excluding clock stops when additional information or written or oral explanation is to be provided by the sponsor in response to questions of the CHMP. Accelerated evaluation may be granted by the CHMP in exceptional cases, when a medicinal product is of major interest from the point of view of public health and, in particular, from the viewpoint of therapeutic innovation. If the CHMP accepts such a request, the time limit of 210 days will be reduced to 150 days, but it is possible that the CHMP may revert to the standard time limit for the centralized procedure if it determines that it is no longer appropriate to conduct an accelerated assessment.
Specialized Procedures for Gene Therapies
The EMA’s CAT is responsible for assessing the quality, safety and efficacy of advanced-therapy medicinal products. Advanced-therapy medical products include gene therapy medicine, somatic cell therapy medicines and tissue-engineered medicines. The role of the CAT is to prepare a draft opinion on an application for marketing authorization for a gene therapy medicinal candidate that is submitted to the EMA. In the European Union, the development and evaluation of a gene therapy medicinal product must be considered in the context of the relevant European Union guidelines. The EMA may issue new guidelines concerning the development and marketing authorization for somatic cell therapy medicinal products and require that we comply with these new guidelines. Similarly, complex regulatory environments exist in other jurisdictions in which we might consider seeking regulatory approvals for our product candidates, further complicating the regulatory landscape. As a result, the procedures and standards applied to gene therapy products and cell therapy products may be applied to any of our gene therapy or genome editing product candidates, but that remains uncertain at this point.
The grant of marketing authorization in the European Union for gene therapy products is governed by Regulation 1394/2007/EC on advanced therapy medicinal products, read in combination with Directive 2001/83/EC of the European Parliament and of the Council, commonly known as the Community code on medicinal products. Regulation 1394/2007/EC includes specific rules concerning the authorization, supervision, and pharmacovigilance of gene therapy medicinal products. Manufacturers of advanced therapy medicinal products must demonstrate the quality, safety, and efficacy of their products to the EMA, which provides an opinion regarding the MAA. The European Commission grants or refuses marketing authorization in light of the opinion delivered by the EMA.
Regulatory Data Protection in the European Union
In the European Union, new chemical entities approved on the basis of a complete independent data package qualify for eight years of data exclusivity upon marketing authorization and an additional two years of market exclusivity pursuant to Regulation (EC) No 726/2004, as amended, and Directive 2001/83/EC, as amended. Data exclusivity prevents regulatory authorities in the European Union from referencing the innovator’s data to assess a generic (abbreviated) application for a period of eight years. During the additional two-year period of market exclusivity, a generic marketing authorization application can be submitted, and the innovator’s data may be referenced, but no generic medicinal product can be marketed until the expiration of the market exclusivity. The overall ten-year period will be extended to a maximum of eleven 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 authorization, is held to bring a significant clinical benefit in comparison with existing 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 MAA with a complete independent data package of pharmaceutical tests, preclinical tests and clinical trials.
Patent Term Extensions in the European Union and Other Jurisdictions
The European Union also provides for patent term extension through Supplementary Protection Certificates, or SPCs. The rules and requirements for obtaining a SPC are similar to those in the United States. An SPC may extend the term of a patent for up to five years after its originally scheduled expiration date and can provide up to a maximum of fifteen years of marketing exclusivity for a drug. In certain circumstances, these periods may be extended for six additional months if pediatric exclusivity is obtained, which is described in detail below. Although SPCs are available throughout the European Union, sponsors must apply on a country-by-country basis. Similar patent term extension rights exist in certain other foreign jurisdictions outside the European Union.
Periods of Authorization and Renewals
A marketing authorization is valid for five years, in principle, and it may be renewed after five years on the basis of a reevaluation of the risk-benefit balance by the EMA or by the competent authority of the authorizing member state. To that end, the marketing authorization holder must provide the EMA or the competent authority with a consolidated version of the file in respect of quality, safety and efficacy, including all variations introduced since the marketing authorization was granted, at least six months before the marketing authorization ceases to be valid. Once renewed, the marketing authorization is valid for an unlimited period, unless the European Commission or the competent authority decides, on justified grounds relating to pharmacovigilance, to proceed with one additional five-year renewal period. Any authorization that is not followed by the placement of the drug on the European Union market (in the case of the centralized procedure) or on the market of the authorizing member state within three years after authorization ceases to be valid.
Regulatory Requirements after Marketing Authorization
Following approval, the holder of the marketing authorization is required to comply with a range of requirements applicable to the manufacturing, marketing, promotion and sale of the medicinal product. These include compliance with the European Union’s stringent pharmacovigilance or safety reporting rules, pursuant to which post-authorization studies and additional monitoring obligations can be imposed. In addition, the manufacturing of authorized products, for which a separate manufacturer’s license is mandatory, must also be conducted in strict compliance with the EMA’s cGMP requirements and comparable requirements of other regulatory bodies in the European Union, which mandate the methods, facilities, and controls used in manufacturing, processing and packing of drugs to assure their safety and identity. Finally, the marketing and promotion of authorized products, including industry-sponsored continuing medical education and advertising directed toward the prescribers of drugs and/or the general public, are strictly regulated in the European Union under Directive 2001/83EC, as amended.
Orphan Drug Designation and Exclusivity
Regulation (EC) No 141/2000 and Regulation (EC) No. 847/2000 provide that a product can be designated as an orphan drug by the European Commission if its sponsor can establish: that the product is intended for the diagnosis, prevention or treatment of (1) a life-threatening or chronically debilitating condition affecting not more than five in ten thousand persons in the European Union when the application is made, or (2) a life-threatening, seriously debilitating or serious and chronic condition in the European Union and that without incentives it is unlikely that the marketing of the drug in the European Union would generate sufficient return to justify the necessary investment. For either of these conditions, the sponsor must demonstrate that there exists no satisfactory method of diagnosis, prevention, or treatment of the condition in question that has been authorized in the European Union or, if such method exists, the drug will be of significant benefit to those affected by that condition.
An orphan drug designation provides a number of benefits, including fee reductions, regulatory assistance, and the possibility to apply for a centralized European Union marketing authorization. Marketing authorization for an orphan drug leads to a ten-year period of market exclusivity. During this market exclusivity period, neither the EMA nor the European Commission or the member 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. The market exclusivity period for the authorized therapeutic indication may, however, be reduced to six years if, at the end of the
fifth year, it is established that the product no longer meets the criteria for orphan drug designation because, for example, the product is sufficiently profitable not to justify market exclusivity.
Approval of Companion Diagnostic Devices
In the European Union, medical devices such as companion diagnostics must comply with the General Safety and Performance Requirements, or SPRs, detailed in Annex I of the European Union Medical Devices Regulation (Regulation (EU) 2017/745), or MDR which came into force on May 26, 2021, and replaced the previously applicable EU Medical Devices Directive (Council Directive 93/42/EEC). Compliance with SPRs and additional requirements applicable to companion medical devices is a prerequisite to be able to affix the CE Mark of Conformity to medical devices, without which they cannot be marketed or sold. To demonstrate compliance with the SPRs, a manufacturer must undergo a conformity assessment procedure, which varies according to the type of medical device and its classification. The MDR is meant to establish a uniform, transparent, predictable, and sustainable regulatory framework across the European Union for medical devices.
Separately, the regulatory authorities in the European Union also adopted a new In Vitro Diagnostic Regulation (EU) 2017/746, which became effective in May 2022. The new regulation will replace the In Vitro Diagnostics Directive (IVDD) 98/79/EC. Manufacturers wishing to apply to a notified body for a conformity assessment of their in vitro diagnostic medical device had until May 2022 to update their Technical Documentation to meet the requirements and comply with the new, more stringent regulation. The regulation will, among other things: strengthen the rules on placing devices on the market and reinforce surveillance once they are available; establish explicit provisions on manufacturers’ responsibilities for the follow-up of the quality, performance, and safety of devices placed on the market; improve the traceability of medical devices throughout the supply chain to the end-user or patient through a unique identification number; set up a central database to provide patients, healthcare professionals and the public with comprehensive information on products available in the European Union; and strengthen rules for the assessment of certain high-risk devices, such as implants, which may have to undergo an additional check by experts before they are placed on the market.
Brexit and the Regulatory Framework in the United Kingdom
The United Kingdom’s withdrawal from the European Union took place on January 31, 2020. The European Union and the United Kingdom reached an agreement on their new partnership in the Trade and Cooperation Agreement, which was applied provisionally beginning on January 1, 2021, and which entered into force on May 1, 2021. The Trade and Cooperation Agreement focuses primarily on free trade by ensuring no tariffs or quotas on trade in goods, including healthcare products such as medicinal products. Thereafter, the European Union and the United Kingdom. will form two separate markets governed by two distinct regulatory and legal regimes. As such, the Trade and Cooperation Agreement seeks to minimize barriers to trade in goods while accepting that border checks will become inevitable as a consequence that the United Kingdom is no longer part of the single market. As of January 1, 2021, the Medicines and Healthcare products Regulatory Agency, or the MHRA, became responsible for supervising medicines and medical devices in Great Britain, comprising of England, Scotland and Wales, under domestic law whereas Northern Ireland continues to be subject to European Union rules under the Northern Ireland Protocol. The MHRA will rely on the Human Medicines Regulations 2012 (SI 2012/1916) (as amended), or the HMR, as the basis for regulating medicines. The HMR has incorporated into the domestic law the body of European Union law instruments governing medicinal products that pre-existed prior to the United Kingdom’s withdrawal from the European Union.
Since a significant proportion of the regulatory framework for pharmaceutical products in the United Kingdom covering the 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 may have a material impact upon the regulatory regime with respect to the development, manufacture, importation, approval and commercialization of our product candidates in the United Kingdom. For example, the United Kingdom is no longer covered by the centralized procedures for obtaining European Union-wide marketing authorization from the EMA, and a separate marketing authorization will be required to market our product candidates in the United Kingdom. Until December 31, 2023, it is possible for the MHRA to rely on a decision taken by the European Commission on the approval of a new marketing authorization via the centralized procedure.
Furthermore, while the Data Protection Act of 2018 in the United Kingdom that “implements” and complements the European Union General Data Protection Regulation, or GDPR, has achieved Royal Assent on May 23, 2018 and is now effective in the United Kingdom, it is still unclear whether transfer of data from the EEA to the United Kingdom will remain lawful under GDPR. The Trade and Cooperation Agreement extended the application of the GDPR in the United Kingdom until the earlier of (1) the date on which adequacy decisions in relation to the United Kingdom are adopted by the European Commission under Article 36(3) of Directive (EU) 2016/680 and under Article 45(3) of Regulation (EU) 2016/679 or (2)
April 30, 2021 (which may be extended to June 30, 2021 unless either the European Union or the United Kingdom objects). The Trade and Cooperation Agreement also includes provisions that may end such period if the United Kingdom makes changes to its data protection legal framework, unless the European Union agrees upon such change. After such period, the United Kingdom will be a “third country” under the GDPR. We may incur liabilities, expenses, costs and other operational losses under GDPR and applicable European Union Member States and the United Kingdom privacy laws in connection with any measures we take to comply with them.
General Data Protection Regulation
The collection, use, disclosure, transfer, or other processing of personal data regarding individuals in the European Union, including personal health data, is subject to the GDPR, which became effective on May 25, 2018. The GDPR is wide-ranging in scope and imposes numerous requirements on companies that process personal data, including requirements relating to processing health and other sensitive data, obtaining consent of the individuals to whom the personal data relates, providing information to individuals regarding data processing activities, implementing safeguards to protect the security and confidentiality of personal data, providing notification of data breaches, and taking certain measures when engaging third-party processors. The GDPR also imposes strict rules on the transfer of personal data to countries outside the European Union, including the United States, and permits data protection authorities to impose large penalties for violations of the GDPR, 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. Compliance with the GDPR will be a rigorous and time-intensive process that may increase the cost of doing business or require companies to change their business practices to ensure full compliance.
Additionally, in October 2022, President Biden signed an executive order to implement the European Union-U.S. Data Privacy Framework, which would serve as a replacement to the European Union-U.S. Privacy Shield. The European Commission initiated the process to adopt an adequacy decision for the European Union-U.S. Data Privacy Framework in December 2022. It is unclear if and when the framework will be finalized and whether it will be challenged in court. The uncertainty around this issue may further impact our business operations in the European Union.
Coverage, Pricing and Reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of any product candidates for which we may seek regulatory approval by the FDA or other government authorities. In the United States and markets in other countries, patients who are prescribed treatments for their conditions and providers performing the prescribed services generally rely on third-party payors to reimburse all or part of the associated healthcare costs. Patients are unlikely to use any product candidates we may develop unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of such product candidates. Even if any product candidates we may develop are approved, sales of such product candidates will depend, in part, on the extent to which third-party payors, including government health programs in the United States such as Medicare and Medicaid, commercial health insurers, and managed care organizations, provide coverage, and establish adequate reimbursement levels for, such product candidates. The process for determining whether a payor will provide coverage for a product may be separate from the process for setting the price or reimbursement rate that the 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.
In order to secure coverage and reimbursement for any product that might be approved for sale, a company may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of the product, in addition to the costs required to obtain FDA or other comparable marketing approvals. Nonetheless, product candidates may not be considered medically necessary or cost- effective. A decision by a third-party payor not to cover any product candidates we may develop could reduce physician utilization of such product candidates once approved and have a material adverse effect on our sales, results of operations and financial condition. Additionally, a payor’s decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved. Further, one payor’s determination to provide coverage for a product does not assure that other payors will also provide coverage and reimbursement for the product, and the level of coverage and reimbursement can differ significantly from payor to payor. Third-party reimbursement and coverage may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. In addition, any companion diagnostic tests require coverage and reimbursement separate and apart from the coverage and reimbursement for their companion pharmaceutical or biological products. Similar challenges to obtaining coverage and reimbursement applicable to pharmaceutical or biological products will apply to any companion diagnostics.
The containment of healthcare costs also has become a priority of federal, state and foreign governments and the prices of pharmaceuticals have been a focus in this effort. Governments have shown significant interest in implementing cost-containment programs, including price controls, restrictions on reimbursement, and requirements for substitution of generic products. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit a company’s revenue generated from the sale of any approved products. 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 a company or its collaborators receive marketing approval, less favorable coverage policies and reimbursement rates may be implemented in the future.
Outside the United States, ensuring adequate coverage and payment for any product candidates we may develop will face challenges. Pricing of prescription pharmaceuticals is subject to governmental control in many countries. Pricing negotiations with governmental authorities can extend well beyond the receipt of regulatory marketing approval for a product and may require us to conduct a clinical trial that compares the cost-effectiveness of any product candidates we may develop to other available therapies. The conduct of such a clinical trial could be expensive and result in delays in our commercialization efforts.
In the European Union, pricing and reimbursement schemes vary widely from country to country. Some countries provide that products may be marketed only after a reimbursement price has been agreed. Some countries may require the completion of additional studies that compare the cost-effectiveness of a particular product candidate to currently available therapies (so called health technology assessments) in order to obtain reimbursement or pricing approval. For example, the European Union provides options for its member states to restrict the range of products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union member states may approve a specific price for a product, or they may instead adopt a system of direct or indirect controls on the profitability of the company placing the product on the market. Other member states allow companies to fix their own prices for products but monitor and control prescription volumes and issue guidance to physicians to limit prescriptions. Recently, many countries in the European Union have increased the amount of discounts required on pharmaceuticals and these efforts could continue as countries attempt to manage healthcare expenditures, especially in light of the severe fiscal and debt crises experienced by many countries in the European Union. The downward pressure on healthcare costs in general, particularly prescription products, has become intense. As a result, increasingly high barriers are being erected to the entry of new products. Political, economic, and regulatory developments may further complicate pricing negotiations, and pricing negotiations may continue after reimbursement has been obtained. Reference pricing used by various European Union member states, and parallel trade (arbitrage between low-priced and high-priced member states), can further reduce prices. 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, if approved in those countries.
Healthcare Law and Regulation
Healthcare providers and third-party payors play a primary role in the recommendation and prescription of pharmaceutical products that are granted marketing approval. Arrangements with providers, consultants, third-party payors, and customers are subject to broadly applicable fraud and abuse, anti-kickback, false claims laws, reporting of payments to physicians and teaching physicians and patient privacy laws and regulations and other healthcare laws and regulations that may constrain our business and/or financial arrangements. Restrictions under applicable federal and state healthcare laws and regulations, include the following:
Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring pharmaceutical manufacturers to report information related to payments to physicians and other healthcare providers or marketing expenditures. In addition, certain state and local laws require drug manufacturers to register 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 preempted by HIPAA, thus complicating compliance efforts.
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, disgorgement, exclusion from government funded healthcare programs, such as Medicare and Medicaid, integrity oversight, and reporting obligations, and the curtailment or restructuring of our operations.
A primary trend in the U.S. healthcare industry and elsewhere is cost containment. There have been a number of federal and state proposals during the last few years regarding the pricing of pharmaceutical and biopharmaceutical products, limiting coverage and reimbursement for drugs and other medical products, government control and other changes to the healthcare system in the United States.
By way of example, the United States and state governments continue to propose and pass legislation designed to reduce the cost of healthcare. In March 2010, the United States Congress enacted the PPACA, which, among other things, includes changes to the coverage and payment for products under government healthcare programs. Among the provisions of the PPACA of importance to our potential product candidates are:
Other legislative changes have been proposed and adopted in the United States since the PPACA was enacted. For example, in August 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2012 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers of up to 2% per fiscal year, which went into effect in April 2013 and will remain in effect through 2031 under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act. These Medicare sequester reductions have been suspended through the end of March 2022. From April 2022 through June 2022 a 1% sequester cut will be in effect, with the full 2% cut resuming thereafter. The American Taxpayer Relief Act of 2012, which was enacted in January 2013, among other things, further reduced Medicare payments to several providers, including hospitals, imaging centers, and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.
Since enactment of the PPACA, there have been, and continue to be, numerous legal challenges and Congressional actions to repeal and replace provisions of the law. For example, with enactment of the Tax Cuts and Jobs Act of 2017, or TCJA, which was signed by President Trump on December 22, 2017, Congress repealed the “individual mandate.” The repeal of this provision, which requires most Americans to carry a minimal level of health insurance, became effective in 2019. Further, on December 14, 2018, a U.S. District Court judge in the Northern District of Texas ruled that the individual mandate portion of the PPACA is an essential and inseverable feature of the PPACA, and therefore because the mandate was repealed as part of the TCJA, the remaining provisions of the PPACA are invalid as well. The U.S. Supreme Court heard this case on November 10, 2020 and, on June 17, 2021, dismissed this action after finding that the plaintiffs do not have standing to challenge the constitutionality of the PPACA. Litigation and legislation over the PPACA are likely to continue, with unpredictable and uncertain results.
The Trump Administration also took executive actions to undermine or delay implementation of the PPACA, including directing federal agencies with authorities and responsibilities under the PPACA to waive, defer, grant exemptions from, or delay the implementation of any provision of the PPACA that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. On January 28, 2021, however, President Biden revoked those orders and issued a new Executive Order which directs federal agencies to reconsider rules and other policies that limit Americans’ access to health care, and consider actions that will protect and strengthen that access. Under this Order, federal agencies are directed to re-examine: policies that undermine protections for people with pre-existing conditions, including complications related to COVID-19; demonstrations and waivers under
Medicaid and the PPACA that may reduce coverage or undermine the programs, including work requirements; policies that undermine the Health Insurance Marketplace or other markets for health insurance; policies that make it more difficult to enroll in Medicaid and the PPACA; and policies that reduce affordability of coverage or financial assistance, including for dependents.
The prices of prescription pharmaceuticals have also been the subject of considerable discussion in the United States. There have been several recent U.S. congressional inquiries, as well as proposed and enacted state and federal legislation designed to, among other things, bring more transparency to pharmaceutical pricing, review the relationship between pricing and manufacturer patient programs, and reduce the costs of pharmaceuticals under Medicare and Medicaid. In 2020, President Trump issued several executive orders intended to lower the costs of prescription products and certain provisions in these orders have been incorporated into regulations. These regulations include an interim final rule implementing a most favored nation model for prices that would tie Medicare Part B payments for certain physician-administered pharmaceuticals to the lowest price paid in other economically advanced countries, effective January 1, 2021. That rule, however, has been subject to a nationwide preliminary injunction and, on December 29, 2021, CMS issued a final rule to rescind it. With issuance of this rule, CMS stated that it will explore all options to incorporate value into payments for Medicare Part B pharmaceuticals and improve beneficiaries' access to evidence-based care.
In addition, in October 2020, HHS and the FDA published a final rule allowing states and other entities to develop a Section 804 Importation Program, or SIP, to import certain prescription drugs from Canada into the United States. The final rule is currently the subject of ongoing litigation, but at least six states (Vermont, Colorado, Florida, Maine, New Mexico and New Hampshire) have passed laws allowing for the importation of drugs from Canada with the intent of developing SIPs for review and approval by the FDA. Further, on November 20, 2020, HHS finalized a regulation removing 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 new safe harbor for certain fixed fee arrangements between pharmacy benefit managers and manufacturers, the implementation of which has been delayed until January 1, 2026 by the Infrastructure Investment and Jobs Act.
More recently, on August 16, 2022, the Inflation Reduction Act of 2022, or IRA, was signed into law by President Biden. The new legislation has implications for Medicare Part D, which is a program available to individuals who are entitled to Medicare Part A or enrolled in Medicare Part B to give them the option of paying a monthly premium for outpatient prescription drug coverage. Among other things, the IRA requires manufacturers of certain drugs to engage in price negotiations with Medicare (beginning in 2026), with prices that can be negotiated subject to a cap; imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation (first due in 2023); and replaces the Part D coverage gap discount program with a new discounting program (beginning in 2025). The IRA permits the Secretary of the HHS to implement many of these provisions through guidance, as opposed to regulation, for the initial years.
Specifically, with respect to price negotiations, Congress authorized Medicare to negotiate lower prices for certain costly single-source drug and biologic products that do not have competing generics or biosimilars and are reimbursed under Medicare Part B and Part D. CMS may negotiate prices for ten high-cost drugs paid for by Medicare Part D starting in 2026, followed by 15 Part D drugs in 2027, 15 Part B or Part D drugs in 2028, and 20 Part B or Part D drugs in 2029 and beyond. This provision applies to drug products that have been approved for at least 9 years and biologics that have been licensed for 13 years, but it does not apply to drugs and biologics that have been approved for a single rare disease or condition. Further, the legislation subjects drug manufacturers to civil monetary penalties and a potential excise tax for failing to comply with the legislation by offering a price that is not equal to or less than the negotiated “maximum fair price” under the law or for taking price increases that exceed inflation. The legislation also requires manufacturers to pay rebates for drugs in Medicare Part D whose price increases exceed inflation. The new law also caps Medicare out-of-pocket drug costs at an estimated $4,000 a year in 2024 and, thereafter beginning in 2025, at $2,000 a year.
At the state level, individual states are increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical and biological 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. A number of states, for example, require drug manufacturers and other entities in the drug supply chain, including health carriers, pharmacy benefit managers, wholesale distributors, to disclose information about pricing of pharmaceuticals. In addition, regional health care organizations 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 measures could reduce the ultimate demand for our products, once approved, or put pressure on our product pricing. We expect that additional state and federal healthcare reform measures will 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 our product candidates or additional pricing pressures.
There have been, and likely will continue to be, additional legislative and regulatory proposals at the foreign, federal, and state levels directed at broadening the availability of healthcare and containing or lowering the cost of healthcare. Such reforms could have an adverse effect on anticipated revenues from product candidates that we may successfully develop and for which we may obtain marketing approval and may affect our overall financial condition and develop product candidates.
Human Capital Resources
As of March 1, 2023, we had 68 full-time employees, including a total of 29 employees with M.D., Pharm.D. or Ph.D. degrees. Of these full-time employees, 48 employees are engaged in research and development. None of our employees are represented by labor unions or covered by collective bargaining agreements. We consider our relationship with our employees to be good.
Diversity and Inclusion
We are committed to creating and maintaining a workplace free from discrimination or harassment on the basis of color, race, sex, national origin, ethnicity, religion, age, disability, sexual orientation, gender identification or expression, or any other status protected by applicable law. All of our employees must adhere to a code of conduct that sets standards for appropriate behavior. We believe that we will Succeed Through Diversity (one of our core values). We are committed to building a diverse employee population to enhance our ability to advance new drugs and benefit from our employees’ broad range of experiences. At our company, compensation and advancement are based on qualifications, performance, skills and experience without regard to gender, race and ethnicity or any other status protected by applicable law.
Competitive Pay and Benefits
We strive to provide pay, comprehensive benefits, and services that help meet the varying needs of our employees. Our total rewards package includes competitive pay; comprehensive healthcare benefits package for employees, with family member healthcare benefits covered at 90%; health reimbursement account and health savings account options with company contribution; commuter benefits; tuition reimbursement benefits; unlimited discretionary paid time off and paid holidays; full pay for 12 weeks of parental leave; family medical leave; and hybrid and flexible work schedules. In addition, we offer every full-time employee, both exempt and non-exempt, the benefit of equity ownership in the company through stock options and other equity award grants. We also sponsor a 401(k) plan with a 4% match, with immediate vesting.
Employee Development and Training
We focus on attracting, retaining, and cultivating talented individuals. Employees are encouraged to attend scientific, clinical, and technological meetings and conferences and have access to broad resources they need to be successful. We actively work with managers to develop, create, and support individual development plans for our employees.
The safety, health, and wellness of our employees is a top priority. In response to the COVID-19 pandemic, we implemented safety protocols that are designed to comply with health and safety standards as required by federal, state, and local government agencies, taking into consideration guidelines of the Centers for Disease Control and Prevention and other public health authorities. Our protocols are updated in response to changes in those requirements and guidelines.
Our Corporate Information
We were incorporated under the laws of the state of Delaware under the name Hearing, Inc. in November 2013. We changed our name in April 2014. Our principal executive offices are located at 1325 Boylston Street, Suite 500, Boston, Massachusetts 02215, and our telephone number is (617) 370-8701. Our website address is www.decibeltx.com.
We own or have rights to trademarks, service marks and trade names that we use in connection with the operation of our business, including our corporate name, logos and website names. Other trademarks, service marks and trade names appearing in this Annual Report on Form 10-K are the property of their respective owners. Solely for convenience, some of the trademarks, service marks and trade names referred to in this Annual Report on Form 10-K are listed without the ® and symbols, but we will assert, to the fullest extent under applicable law, our rights to our trademarks, service marks and trade names.
We make available free of charge through our website our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We make these reports available through our website as soon as reasonably practicable after we electronically file such reports with, or furnish such reports to, the SEC. We also make available, free of charge on our website, the reports filed with the SEC by our executive officers, directors and 10% stockholders pursuant to Section 16 under the Exchange Act as soon as reasonably practicable after copies of those filings are provided to us by those persons.
The foregoing references to our website are not intended to, nor shall they be deemed to, incorporate information on our website into this Annual Report on Form 10-K by reference. We have included our website address in this Annual Report on Form 10-K as an inactive textual reference.
Item 1A. Risk Factors.
Our business is subject to a number of risks. You should carefully consider the risks and uncertainties described below together with all of the other information contained in this Annual Report on Form 10-K, including the Management’s Discussion and Analysis of Financial Condition and Results of Operations section and the consolidated financial statements and the related notes thereto in evaluating our company. The risks described below are not the only risks facing us. The occurrence of any of the following risks, or of additional risks and uncertainties not presently known to us or that we currently believe to be immaterial, could cause our business, prospects, results of operations and financial condition to suffer materially.
Risks Related to Our Financial Position and Need for Additional Capital
We have incurred significant losses since our inception, have no products approved for sale and we expect to incur substantial losses for the foreseeable future and may never achieve or maintain profitability.
Since inception, we have incurred significant operating losses. Our net losses were $63.0 million and $51.8 million for the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022, we had an accumulated deficit of $277.5 million. To date, we have financed our operations primarily with proceeds from sales of preferred stock (including borrowings under convertible promissory notes, which converted into preferred stock in 2015), payments under the license and collaboration agreement, or the Regeneron Agreement, to which we are a party with Regeneron Pharmaceuticals, Inc., or Regeneron, from the sale of common stock in our initial public offering, or IPO and from the sale of common stock under our “at-the-market offering” program. Since inception, we have devoted substantially all of our resources on organizing and staffing, business planning, raising capital, establishing our intellectual property portfolio and performing research and development of our product candidates, programs and platform. We are still in the early stages of development of our product candidates, and we have not completed development of any product candidates. We expect to continue to incur significant expenses and operating losses over the next several years. Our operating expenses and net losses may fluctuate significantly from quarter to quarter and year to year. We anticipate that our expenses and capital expenditures will increase substantially if and as we:
In addition, we expect that our expenses will increase if, among other things:
We have no products for which we have obtained marketing approval and have not generated any revenue from product sales. Even if we obtain marketing approval of and are successful in commercializing one or more of our product candidates, we expect to incur substantial research and development and other expenditures to develop and market additional product candidates. We may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue.
We have never generated revenue from product sales and may never achieve or maintain profitability.
We have never generated revenue from product sales and our most advanced product candidate is in early clinical trials. We expect that it will be many years, if ever, before we have a product candidate ready for commercialization. To become and remain profitable, we must succeed in developing, and eventually commercializing, a product or products that generate significant revenue. The ability to achieve this success will require us to be effective in a range of challenging activities, including completing preclinical testing and clinical trials of our product candidates, discovering additional product candidates, obtaining marketing approval for these product candidates and manufacturing, marketing and selling any products for which we may obtain marketing approval. We are only in the preliminary stages of these activities. We may never succeed in these activities and, even if we do, may never generate revenues that are significant enough to achieve profitability. Because of the numerous risks and uncertainties associated with biopharmaceutical product development, we are unable to accurately estimate or know the nature, timing or costs of the efforts that will be necessary to complete the preclinical and clinical development and commercialization of our product candidates or when, or if, we will be able to generate revenues or achieve profitability.
Our ability to generate revenue from product sales and achieve profitability depends on our ability to successfully develop and obtain the marketing approvals necessary to commercialize our product candidates. We do not have any products approved for sale and do not anticipate generating revenue from product sales for the next several years, if ever. Our ability to generate future revenue from product sales depends heavily on our success in:
Even if one or more of our product candidates is approved for commercial sale, we anticipate incurring significant costs in commercializing any approved product candidate. Our expenses could increase beyond expectations if we are required by the FDA, MHRA, EMA or other regulatory agencies to perform clinical trials or studies in addition to those that
we currently anticipate. Even if we are able to generate revenue from the sale of any approved products, we may not become profitable and may need to obtain additional funding to continue operations.
Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis as we expect to continue to engage in substantial research and development activities and to incur substantial expenses to develop and commercialize product candidates.
Our failure to become and remain profitable would depress our market value and could impair our ability to raise capital, expand our business, maintain our research and development efforts, diversify our pipeline of product candidates or even continue our operations. A decline in the value of our company could also cause our stockholders to lose all or part of their investment.
We will need substantial additional funding. If we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our research and development programs or commercialization efforts.
Since inception, we have used substantial amounts of cash. The development of biopharmaceutical product candidates is capital intensive and we expect that we will continue to expend substantial resources for the foreseeable future in connection with our ongoing activities. In particular, substantial resources will be required as we continue to conduct additional preclinical studies and prepare for and initiate our planned Phase 1/2 clinical trial of DB-OTO, advance our platform, continue research and development of AAV.103, AAV.104, AAV.105, our vestibular hair cell regeneration program, our cochlear hair cell regeneration program and any product candidates that may arise from our current or future research programs, and if and as we continue the clinical development of DB-020. Identifying potential product candidates, conducting preclinical testing and clinical trials and potentially submitting approvals of our product candidates is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain regulatory approval and achieve product sales. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. Furthermore, we have incurred and expect to continue to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital or obtain adequate funds when needed or on acceptable terms, we may be required to delay, limit, reduce or terminate our research and development programs or any future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
We believe that our cash, cash equivalents and available-for-sale securities as of December 31, 2022 will enable us to fund our operating expenses and capital expenditure requirements into the first half of 2024. However, we have based this estimate on assumptions that may prove to be wrong, and our operating plan may change as a result of many factors currently unknown to us. As a result, we could deplete our capital resources sooner than we currently expect.
Our future capital requirements will depend on many factors, including:
Our independent registered public accounting firm has included an explanatory paragraph relating to our ability to continue as a going concern in its report on our audited financial statements included in this Annual Report on Form 10-K.
As a result of our recurring losses from operations and limited financial resources, there is substantial doubt about our ability to continue as a going concern. The report from our independent registered public accounting firm for the year ended December 31, 2022 includes an explanatory paragraph stating that our recurring losses and limited financial resources raise substantial doubt about our ability to continue as a going concern. If we seek additional financing to fund our business activities and there remains substantial doubt about our ability to continue as a going concern, investors or other financing sources may be unwilling to provide additional funding to us on commercially reasonable terms or at all. If we are unable to obtain sufficient funding, we could be forced to delay, reduce or eliminate all of our research and development programs or other business activities, and our financial condition and results of operations will be materially and adversely affected and we may be unable to continue as a going concern. In the future, reports from our independent registered public accounting firm may also contain statements expressing substantial doubt about our ability to continue as a going concern.
Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.
Until such time, if ever, as we can generate substantial revenues from product sales, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. We do not have any committed external source of funds, other than the funds to which we are entitled under the Regeneron Agreement. To the extent that we raise additional capital through the sale of equity or convertible debt securities, our stockholders’ ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect their rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, selling or licensing our assets, making capital expenditures or declaring dividends. Such restrictions could adversely impact our ability to conduct our operations and execute our business plan. In addition, securing financing could require a substantial amount of time and attention from our management and may divert a disproportionate amount of their attention away from day-to-day activities, which may adversely affect our management’s ability to oversee the development of our product candidates.
If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed or on terms acceptable to us, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Our limited operating history may make it difficult for stockholders to evaluate the success of our business to date and to assess our future viability.
We commenced operations in 2013, and our operations to date have been limited to organizing and staffing our company, business planning, raising capital, conducting research and development activities, identifying potential product candidates, soliciting input from regulators regarding development of these product candidates, securing intellectual property rights and undertaking preclinical studies and clinical trials. Other than DB-OTO, which received clearance from the FDA and authorization from the MHRA to initiate a Phase 1/2 clinical trial, all of our gene therapy product candidates are still in
the research or preclinical stage of development. We have not yet demonstrated our ability to successfully develop any product candidate, obtain marketing approvals, manufacture a commercial scale product, arrange for a third party to do so on our behalf, or conduct sales, marketing and distribution activities necessary for successful product commercialization. Consequently, any predictions about our future success or viability may not be as accurate as they could be if we had a longer operating history or a history of successfully developing and commercializing products.
In addition, as our business grows, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. We will need to transition at some point from a company with a research and development focus to a company capable of supporting commercial activities. We may not be successful in such a transition.
We expect our financial condition and operating results to fluctuate significantly from quarter-to-quarter and year-to-year due to a variety of factors, many of which are beyond our control. Accordingly, stockholders should not rely upon the results of any quarterly or annual periods as indications of future operating performance.
Our ability to use our NOLs and research and development tax credit carryforwards to offset future taxable income may be subject to certain limitations.
As of December 31, 2022, we had U.S. federal net operating loss carryforwards of approximately $217.9 million to offset future federal taxable income. Federal net operating losses, or NOLs, of $41.7 million will expire beginning in 2033. As of December 31, 2022, we had NOLs of $176.2 million which had an indefinite life. As of December 31, 2022, we had state net operating loss carryforwards of $210.5 million to offset future state taxable income, which will begin to expire in 2035. As of December 31, 2022, we had federal research and development tax credit carryforwards of $1.9 million, which expire beginning in 2033, state research and development tax credit carryforwards of $0.9 million, which expire beginning in 2032 and Orphan Drug credit carryforwards of $1.3 million, which expire beginning in 2043. These net operating loss and tax credit carryforwards could expire unused and be unavailable to offset future income tax liabilities.
We have a history of cumulative losses and anticipate that we will continue to incur significant losses in the foreseeable future; thus, we do not know whether or when we will generate taxable income necessary to utilize our NOLs or research and development tax credit carryforwards.
In general, under Section 382 of the Code and corresponding provisions of state law, a corporation that undergoes an “ownership change,” generally defined as a greater than 50 percentage point change (by value) in its equity ownership by certain stockholders over a three-year period, is subject to limitations on its ability to utilize its pre-change NOLs and research and development tax credit carryforwards to offset future taxable income. We have not conducted a study to assess whether any such ownership changes have occurred. We may have experienced such ownership changes in the past and may experience such ownership changes in the future as a result of subsequent changes in our stock ownership (which may be outside our control). As a result, if, and to the extent that, we earn net taxable income, our ability to use our pre-change NOLs and research and development tax credit carryforwards to offset such taxable income may be subject to limitations. Our NOLs or credits may also be impaired under state law.
There is also a risk that due to regulatory changes, such as suspensions on the use of NOLs, or other unforeseen reasons, our existing NOLs could expire or otherwise become unavailable to offset future income tax liabilities. As described below in “Changes in tax laws or in their implementation or interpretation may adversely affect our business and financial condition,” the Tax Cuts and Jobs Act of 2017, or TCJA, includes changes to U.S. federal tax rates and the rules governing NOL carryforwards that may significantly impact our ability to utilize our NOLs to offset taxable income in the future. For these reasons, even if we attain profitability, we may be unable to use a material portion of our NOLs and other tax attributes.
Risks Related to Discovery and Development
We are early in our development efforts. Our business is dependent on our ability to advance our lead gene therapy product candidate, DB-OTO, and our other current and future product candidates through preclinical studies and clinical trials, obtain marketing approval and ultimately commercialize them. If we are unable to complete preclinical and clinical development, obtain regulatory approval for or commercialize our product candidates, or experience significant delays in doing so, our business will be materially harmed.
We are early in our development efforts. We have advanced only one product candidate, DB-020, into clinical trials, and it is still in early clinical trials. In addition, while DB-OTO has been cleared by the FDA and the MHRA to be evaluated in humans, we have not yet initiated a clinical trial of DB-OTO. Additionally, we have a portfolio of programs that are in preclinical development, and we may never advance another gene therapy product candidate to clinical-stage development. 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, marketing approval and eventual commercialization of our product candidates, which may never
occur. We have not sought regulatory approval for DB-OTO or any other product candidate and do not expect to be in a position to do so for the foreseeable future. We currently generate no revenue from sales of any product, and we may never be able to develop or commercialize a marketable product.
The clinical and commercial success of our product candidates will depend on several factors, including the following:
Many of these factors are beyond our control, including preclinical and clinical outcomes, the regulatory review process, potential threats to our intellectual property rights and the manufacturing, marketing, distribution and sales efforts of any collaborator. 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 develop and commercialize our product candidates, which would materially harm our business. If we are unable to advance our gene therapy product candidates to clinical development, obtain regulatory approval and ultimately commercialize our product candidates, or experience significant delays in doing so, our business will be materially harmed. Our limited experience in conducting clinical development activities, including with respect to gene therapies, may adversely impact the likelihood that we will be successful in advancing our product candidates or programs.
We are heavily dependent on the success of our lead gene therapy product candidate, DB-OTO.
We currently have no products that are approved for commercial sale and may never be able to develop marketable products. We expect that a substantial portion of our efforts and expenditures for the foreseeable future will be devoted to DB-OTO. Accordingly, our business currently depends heavily on the successful development, regulatory approval and commercialization of DB-OTO. We cannot be certain that DB-OTO will receive regulatory approval or be successfully commercialized even if we receive regulatory approval. If we were required to discontinue development of DB-OTO, or if DB-OTO does not receive regulatory approval, fails to achieve significant market acceptance or fails to receive reimbursement, we would be delayed in our ability to achieve profitability, if ever.
Clinical development involves a lengthy and expensive process with uncertain outcomes, and results of earlier studies and trials may not be predictive of future clinical trial results. If our preclinical studies and clinical trials are not sufficient to
support regulatory approval of any of our product candidates, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development of such product candidate.
All of our product candidates are in preclinical development or early clinical trials and their risk of failure is high. Clinical testing is expensive, is difficult to design and implement, can take many years to complete and is uncertain as to outcome. We cannot guarantee that any of our clinical trials will be conducted as planned or completed on schedule, or at all. A failure of one or more clinical trials can occur at any stage of testing, which may result from a multitude of factors, including, but not limited to, flaws in trial design, dose selection issues, participant enrollment criteria and failure to demonstrate favorable safety or efficacy traits.
Our preclinical programs are in the early stage, and we may not advance additional product candidates into clinical development when anticipated or at all. In addition, even if we identify a product candidate for a program, before we can commence clinical trials for such product candidate, we must complete extensive preclinical testing and studies that support our INDs and other regulatory filings in the United States and abroad. We cannot be certain of the timely completion or outcome of our preclinical testing and studies and cannot predict if regulatory authorities will accept our proposed clinical programs or if the outcome of our preclinical testing and studies will ultimately support the further advancement of any product candidates. We cannot be sure that we will be able to submit INDs, CTAs, or other regulatory filings for our preclinical product candidates on the timelines we expect, if at all, and we cannot be sure that submission of INDs will result in the FDA or other regulatory authorities allowing clinical trials to begin or to continue once commenced. Furthermore, product candidates are subject to continued preclinical safety studies and testing with respect to chemistry, manufacturing and controls data, which may be conducted concurrently with our clinical testing. The outcomes of these safety studies and other testing may delay the launch of or enrollment in future clinical trials and could impact our ability to continue to conduct our clinical trials.
The time required to obtain approval from the FDA, MHRA, EMA or other comparable foreign regulatory authorities is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of regulatory authorities. 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 our product candidates in humans. We have not yet completed a clinical trial of any of our product candidates other than the Phase 1 clinical trial of DB-020 in healthy volunteers. Clinical trials may fail to demonstrate that our product candidates are safe for humans and effective for indicated uses. Even if the clinical trials are successful, changes in marketing approval policies during the development period, changes in or the enactment or promulgation of additional statutes, regulations or guidance or changes in regulatory review for each submitted product application may cause delays in the approval or rejection of an application.
Furthermore, product candidates are subject to continued preclinical safety studies, which may be conducted concurrently with our clinical testing. The outcomes of these safety studies may delay the launch of or enrollment in future clinical trials and could impact our ability to continue to conduct our clinical trials.
Other events that may prevent successful or timely completion of clinical development include:
Any inability to successfully complete preclinical studies and clinical trials could result in additional costs to us or impair our ability to generate revenues from product sales, regulatory and commercialization milestones and royalties. In addition, if we make manufacturing or formulation changes to our product candidates, we may need to conduct additional preclinical studies or clinical trials to bridge our modified product candidates to earlier versions. Clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do, which could impair our ability to successfully commercialize our product candidates and may harm our business, financial condition, results of operations and prospects.
Gene therapy is an emerging field of drug development that poses many risks. We have only limited prior experience in gene therapy research and no prior experience in gene therapy clinical development. Our lack of experience and the limited patient populations for our gene therapy programs may limit our ability to be successful or may delay our development efforts.
Gene therapy is an emerging field of drug development with a limited number of gene therapies having received regulatory approval to date. Our gene therapy programs are at an early stage and there remain several areas of drug development risk, which pose particular uncertainty for our programs given the relatively limited development history of, and our limited prior experience with, gene therapies. Translational science, manufacturing materials and processes, safety concerns, regulatory pathway and clinical trial design and execution all pose particular risk to our drug development activities. Furthermore, the medical community’s understanding of the genetic causes of many diseases continues to evolve and further research may change the medical community’s views on what therapies and approaches are most effective for addressing certain diseases.
As an organization, we have not previously conducted any clinical trials of gene therapies. We have begun to establish our own gene therapy technical capabilities, but we will need to continue to expand those capabilities by either hiring internally or seeking assistance from outside service providers. Gene therapy is an area of significant investment by biotechnology and pharmaceutical companies and there may be a scarcity of talent available to us in these areas. If we are not able to expand our gene therapy capabilities, we may not be able to develop in the way we intend or desire any promising product candidates that emerge from our program or our other collaborative gene therapy sponsored research programs, which would limit our prospects for future growth. We may require more time and incur greater costs than our competitors and may not succeed in obtaining regulatory approvals of gene therapy product candidates that we develop. Failure to commence or complete, or delays in, our planned clinical trial or future clinical trials of gene therapy product candidates could prevent us from or delay us in commercializing our gene therapy product candidates.
As we prepare for the initiation of our first gene therapy clinical trial, we will need to build our internal and external capabilities in designing and executing a gene therapy clinical trial. There are many known and unknown risks involved in
translating preclinical development of gene therapies to clinical development, including selecting appropriate endpoints and dosage levels for dosing humans based on preclinical data. If we are unable to initiate and conduct our gene therapy clinical trials in a manner that satisfies our expectations or regulatory requirements, the value of our gene therapy programs may be diminished.
Our gene therapy product candidates and programs are based on a relatively novel technology, which makes it difficult to predict the time and cost of development and of subsequently obtaining regulatory approval, if at all.
We are concentrating our therapeutic product research and development efforts primarily on our gene therapy programs. Our future success is almost entirely dependent on this therapeutic approach. Because our gene therapy product candidates are based on relatively novel technology, development problems we experience in the future related to our gene therapy platform may be difficult to solve and may cause delays and unanticipated costs. We may also experience delays in developing a sustainable, reproducible and scalable manufacturing process or transferring that process to commercial partners, which may prevent us from initiating or conducting clinical trials or commercializing our products on a timely or profitable basis, if at all.
Our gene therapy product candidates will need to meet purity, potency and safety standards applicable to any new biologic under the regulatory framework administered by the FDA. In addition to FDA oversight and oversight by IRBs, under guidelines promulgated by the U.S. National Institutes of Health, or NIH, gene therapy clinical trials may also be subject to review and oversight by an IBC, a local institutional committee that reviews and oversees research utilizing recombinant or synthetic nucleic acid molecules at that institution. Although the FDA decides whether individual gene therapy protocols may proceed, the review process and determinations of other reviewing bodies can impede or delay the initiation of a clinical trial, even if the FDA has reviewed the trial and approved its initiation.
In the European Union, the EMA’s Committee for Advanced Therapies, or CAT, is responsible for assessing the quality, safety and efficacy of advanced-therapy medicinal products. Advanced-therapy medicinal products include gene therapy medicines, somatic-cell therapy medicines and tissue-engineered medicines. The role of the CAT is to prepare a draft opinion on an application for marketing authorization for a gene therapy medicinal candidate that is submitted to the EMA. In the European Union, the development and evaluation of a gene therapy product must be considered in the context of the relevant European Union guidelines. The EMA may issue new guidelines concerning the development and marketing authorization for gene therapy products and require that we comply with these new guidelines. As a result, the procedures and standards applied to gene therapy products and cell therapy products may be applied to any gene therapy product candidate we may develop, but that remains uncertain at this point.
Adverse developments in preclinical studies or clinical trials of gene therapies conducted by others may cause the FDA, the EMA and other regulatory bodies to revise the requirements for approval of any gene therapy product candidates we may develop or limit the use of products utilizing gene regulation technologies, either of which could harm our business. The regulatory approval process for gene therapy product candidates such as ours can be more expensive and take longer than for other, better known, or more extensively studied pharmaceutical or other product candidates. Further, as we are developing novel potential treatments for diseases in which, in some cases, there is little clinical experience with potential new endpoints and methodologies, there is heightened risk that the FDA, the EMA or other regulatory bodies may not consider the clinical trial endpoints to provide clinically meaningful results, and the resulting clinical data and results may be more difficult to analyze. Any natural history studies that we may conduct or rely upon in our clinical development may not be accepted by the FDA, MHRA, EMA or other regulatory authorities. Regulatory agencies administering existing or future regulations or legislation may not allow production and marketing of gene therapy products in a timely manner or under technically or commercially feasible conditions. In addition, regulatory action or private litigation could result in expenses, delays, or other impediments to our research programs or the commercialization of resulting products. Further, approvals by one regulatory agency may not be indicative of what other regulatory agencies may require for approval.
The regulatory review committees and advisory groups described above and the new guidelines they promulgate may lengthen the regulatory review process, require us to perform additional preclinical studies or clinical trials, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of these treatment candidates, or lead to significant post-approval limitations or restrictions. As we advance our research programs and develop future product candidates, we will be required to consult with these regulatory and advisory groups and to comply with applicable guidelines. If we fail to do so, we may be required to delay or discontinue development of any product candidates we identify and develop. These additional processes may result in a review and approval process that is longer than we otherwise would have expected. Delays as a result of an increased or lengthier regulatory approval process or further restrictions on the development of our product candidates can be costly and could negatively impact our ability to complete clinical trials and commercialize our current and future product candidates in a timely manner, if at all. The first approvals of gene therapy products by the FDA only occurred in 2017. As a result, it is
difficult to determine how long it will take or how much it will cost to obtain regulatory approvals for our product candidates in either the United States or the European Union, or how long it will take to commercialize any product candidate that receives marketing approval.
The outcome of preclinical studies and earlier-stage clinical trials may not be predictive of future results or the success of later-stage clinical trials.
The results of preclinical studies may not be predictive of the results of clinical trials, and the results of any early-stage clinical trials may not be predictive of the results of the later-stage clinical trials or from clinical trials of the same product candidates in other indications. In addition, initial success in clinical trials may not be indicative of results obtained when such trials are completed. For example, the results of the Phase 1 clinical trial of DB-020 in healthy volunteers and the interim data from the Phase 1b clinical trial of DB-020 in patients undergoing treatment with cisplatin may not be indicative of the results of a later-stage clinical trial. In addition, if successful, the results of our planned Phase 1/2 clinical trial of DB-OTO may not be predictive of the results of further clinical trials of this product candidate or any other gene therapy product candidates. 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. Our future clinical trials may not ultimately be successful or support further clinical development of any of our product candidates. There is a high failure rate for product candidates proceeding through clinical trials, and because our gene therapy product candidates are based on a relatively novel technology, the likelihood of success is harder to determine. A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in clinical development even after achieving encouraging results in earlier studies. Any such setbacks in our clinical development could materially harm our business, financial condition, results of operations and prospects.
Interim and preliminary results from our clinical trials that we announce or publish from time to time may change as more participant data become available and are subject to audit and verification procedures, which could result in material changes in the final data.
From time to time, we may publish interim or preliminary results from our clinical trials, such as the data from the interim analysis of our Phase 1b clinical trial of DB-020 that we announced in June 2022. Interim results from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as more participant data become available. We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully evaluate all data. Preliminary or top-line results also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. Additionally, preliminary data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. As a result, interim and preliminary data should be viewed with caution until the final data are available. Differences between preliminary or interim data and final data could be material and could significantly harm our reputation and business prospects and may cause the trading price of our common stock to fluctuate significantly.
If we experience delays or difficulties in participant enrollment for clinical trials, our research and development efforts and the receipt of necessary regulatory approvals could be significantly delayed or prevented.
Identifying and qualifying individuals to participate in clinical trials is critical to our success. We may not be able to identify, recruit and enroll a sufficient number of participants, or those with required or desired characteristics, to complete our clinical trials in a timely manner. Any delay or difficulty in participant enrollment could significantly delay or otherwise hinder our research and development efforts and delay or prevent receipt of necessary regulatory approvals.
Participant enrollment and trial completion is affected by factors including:
For example, due to the continued impact of the COVID-19 pandemic on the pace of patient screening and enrollment and the closure of trial sites in the United States that we had expected to re-open, we experienced a delay in when we expected to report results from an interim analysis of our Phase 1b clinical trial of DB-020.
Our gene therapy programs are initially targeting orphan diseases with relatively small populations, which limits the pool of potential participants for our gene therapy clinical trials. Because gene therapy trials generally require participants who have not previously received any other gene therapy or potentially other pharmacological therapeutics for the same indication or treatment with medical devices (for example, cochlear implants), we will also need to compete with others who are also developing gene therapies or pharmacologic therapeutics for these same indications for the same group of potential clinical trial participants. This competition could reduce the number and types of potential participants available to us, as some potential participants who might have opted to enroll in our clinical trials may instead opt to enroll in one being conducted by one of our competitors. In addition, individuals may also be unwilling to participate in our clinical trials because of negative publicity from adverse events in the biotechnology or biopharmaceutical industries, particularly to the extent that such negative publicity is related to gene therapy. Challenges in recruiting and enrolling sufficient numbers of suitable participants in clinical trials could increase costs, affect the timing and outcome of our planned clinical trial or future clinical trials and result in delays to our current development plan for our product candidates. If we have difficulty enrolling a sufficient number of individuals to conduct our clinical trials as planned, we may need to delay, limit or terminate ongoing or planned clinical trials, any of which would harm our business, financial condition, results of operations and prospects.
Our product candidates or the process for administering our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit their commercial potential or result in significant negative consequences following any potential marketing approval.
We have only conducted a clinical trial of DB-020 and have not conducted clinical trials in any of our gene therapy programs.
In past clinical trials that were conducted by others with non-AAV vectors, several significant side effects were caused by gene therapy product candidates, including reported cases of leukemia and death. Other potential side effects associated with both AAV and non-AAV vectors could include immunologic reactions or insertional oncogenesis, which is the process whereby the insertion of a functional gene near a gene that is important in cell growth or division results in uncontrolled cell division, which could potentially enhance the risk of malignant transformation. If our gene therapy product candidates demonstrate a similar adverse effect, or other adverse events, we may be required to halt or delay further clinical development of our gene therapy product candidates.
In addition to side effects caused by the product candidate itself, the administration process also can cause side effects. Although the procedure we have developed to deliver our gene therapy product candidate is based on the surgical approach employed by neurotologists and pediatric otolaryngologists during a standard cochlear implantation procedure, any surgical procedure runs risks related to infection and damage to parts of the body adjacent to the treated area. In addition, until we are able to test the procedure on humans, we cannot be certain that our delivery mechanism will be successful. If side effects were to occur in connection with the surgical procedure during our planned clinical trials or if we fail to successfully apply our delivery approach in humans, our clinical trials could be suspended or terminated.
If, in the future, we are unable to demonstrate that trial side effects were not caused by our product candidates or the related procedures, the FDA, the MHRA, the EMA or other regulatory authorities could order us to cease further development of, or deny approval of, our product candidates for any or all targeted indications. Even if we are able to demonstrate that any future serious adverse events are not product-related, and regulatory authorities do not order us to cease further development of our product candidates, such occurrences could cause our reputation to suffer and affect patient recruitment or the ability of enrolled participants to complete the trial. Moreover, if we elect, or are required, to delay, suspend or terminate any clinical trial of any of our product candidates, the commercial prospects of such product candidates may be harmed and our ability to generate product revenues from any of these product candidates may be delayed or eliminated. Any of these occurrences may harm our ability to develop other product candidates, and may harm our business, financial condition, results of operations and prospects significantly.
Regulatory approval of and/or demand for our potential products will depend in part on public acceptance of the use of gene therapies for the prevention or treatment of human diseases. Public attitudes may be influenced by claims that gene therapies are unsafe, unethical or immoral and, consequently, our products may not gain the acceptance of the public or the medical community. Adverse public attitudes may adversely impact our ability to enroll clinical trials. Moreover, our success will depend upon physicians prescribing, and their patients being willing to receive, treatments that involve the use of product candidates we may develop. In 1999, there was public backlash against the field of gene therapy following the death of a participant in a clinical trial, which utilized a different type of gene therapy product candidate vector, from an extreme type of immune response that can be life-threatening. Any of these events could prevent us from achieving or maintaining market acceptance of our product candidates and could significantly harm our business, financial condition, results of operations and prospects.
We may not be successful in our efforts to identify or discover additional potential product candidates.
A key element of our strategy is to apply our proprietary platform to expand our pipeline of gene therapies for the treatment of acquired hearing and balance disorders. The discovery activities that we are conducting may not be successful in identifying product candidates that are useful in restoring or improving hearing or balance. The process by which we identify product candidates may fail to yield product candidates for clinical development for a number of reasons, including those discussed in these risk factors and also:
We may expend our limited resources to pursue a particular program, product candidate or indication and fail to capitalize on programs, product candidates or indications that may be more profitable or for which there is a greater likelihood of success.