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Excrept from filing document 2024-10-31

Certain statements in this Annual Report on Form 10 K the Annual Report may constitute forward looking statements within the meaning of U S securities laws and forward looking information within the meaning of Canadian securities laws collectively forward looking statements enGene s forward looking statements include but are not limited to statements regarding enGene s management teams expectations hopes beliefs intentions goals or strategies regarding the future In addition any statements that refer to projections forecasts or other characterizations of future events or circumstances including any underlying assumptions are forward looking statements The words anticipate appear approximate believe continue could estimate expect foresee intends may might plan possible potential predict project seek should would and similar expressions or the negative version of such words or expressions may identify forward looking statements but the absence of these words does not mean that a statement is not forward looking Forward looking statements in this Annual Report may include for example statements about
You should not place undue reliance on these forward looking statements which speak only as of the date hereof The forward looking statements contained in this Annual Report are based primarily on current expectations and projections about future events and trends that may affect our business financial condition and operating results The following uncertainties and factors among other things including those described in Risk Factors in this Annual Report could affect future performance and actual results to differ materially and adversely from those expressed in anticipated or implied by forward looking statements
In addition statements that we believe and similar statements reflect beliefs and opinions on the relevant subject These statements are based on information available to us as of the date of this Annual Report While we believe that information provides a reasonable basis for these statements that information may be limited or incomplete Our statements should not be read to indicate that we have conducted an exhaustive inquiry into or review of all relevant information These statements are inherently uncertain and investors are cautioned not to unduly rely on these statements
The forward looking statements made in this Annual Report relate only to events as of the date on which the statements are made We undertake no obligation to update any forward looking statements made in this Annual Report to reflect events or circumstances after the date of this Annual Report or to reflect new information or the occurrence of unanticipated events except as required by law 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
enGene Holdings Inc together with its consolidated subsidiaries enGene or the Company formed in connection with the Merger Agreement as defined below was incorporated as 14963148 Canada Inc under the federal laws of Canada on April 24 2023 and changed its name to enGene Holdings Inc on May 9 2023 On October 31 2023 enGene Holdings Inc continued from being a corporation incorporated under and governed by the Canada Business Corporations Act to a company continued to and governed by the Business Corporations Act British Columbia
Forbion European Acquisition Corporation FEAC was a special purpose acquisition company SPAC incorporated as a Cayman Island exempted company on August 9 2021 and formed for the purpose of effecting a merger capital stock exchange asset acquisition share purchase reorganization or similar business combination with one or more business or entities On October 31 2023 the Closing Date the Company FEAC and enGene Inc consummated the merger the Reverse Recapitalization or the Business Combination pursuant to a business combination agreement dated as of May 16 2023 the Merger Agreement
As a result of the Reverse Recapitalization the Company became a publicly traded company and listed its Common Shares and Warrants on the Nasdaq Global Market under the symbols ENGN and ENGNW respectively commencing trading on November 1 2023 with Old enGene a subsidiary of the Company continuing the existing business operations
We are a clinical stage biotechnology company focused on developing genetic medicines to improve the lives of patients suffering from bladder cancer We are developing non viral genetic medicines based on our novel and proprietary dually derived chitosan or DDX gene delivery platform which allows localized delivery of complex genetic cargos directly to mucosal tissues and other organs Our lead product candidate detalimogene voraplasmid or detalimogene formerly known as EG 70 is a therapy designed to generate a local immune reaction in proximity to tumors We believe this enables the immune system to durably clear the tumor and develop memory to resist recurrence Because this treatment is designed to work by delivering genetic cargo to the broader tumor tissue environment rather than tumor cells specifically we believe it has the potential to be widely utilized across tumor types Currently we are developing detalimogene as a monotherapy to treat non muscle invasive bladder cancer NMIBC with carcinoma in situ CIS in patients that have been unresponsive to treatment with Bacillus Calmette Guérin or BCG or what is referred to as BCG unresponsive NMIBC with CIS We are also exploring the clinical application of detalimogene to other forms of NMIBC namely papillary only BCG unresponsive NMIBC i e NMIBC without CIS as well as BCG naïve NMIBC patients with CIS and BCG exposed NMIBC patients with CIS i e patients who have been treated with some BCG but who do not qualify as BCG unresponsive in accordance with FDA and urology practice guidelines
In NMIBC carcinoma in situ or CIS is a flat high grade tumor that has a high likelihood of invading the deeper layers of the bladder wall A high or low tumor risk describes the degree to which the tumor pathology appears more likely to grow quickly and invade non cancerous tissue NMIBC with CIS is typically initially treated with a solution containing the bacterium BCG that is instilled into the bladder multiple times over the course of several months Despite this treatment many of these cancers recur and become unresponsive to additional BCG allowing the cancer to spread throughout and deeper into the bladder often requiring surgical removal of the bladder this procedure is called a radical cystectomy We believe patients with BCG unresponsive NMIBC with CIS are currently underserved with limited FDA approved treatment options and that there is a market opportunity for detalimogene as a monotherapy for patients with this condition While the potential market for detalimogene may not ultimately be limited to these patients that is our current initial focus in working to bring detalimogene to market
Within the United States we estimate that there are approximately 83 000 new patients each year diagnosed with bladder cancer of which up to 80 present with non muscle invasive disease Bladder cancer also poses a long term management burden with an estimated 730 000 people living with disease See Lead Product Candidate and Pipeline Development Lead Program NMIBC Background and Unmet Need for further information
Our detalimogene program is currently enrolling patients in a combined Phase 1 2 open label study with a pivotal cohort referred to as LEGEND ClinicalTrials gov identifier NCT04752722 The Phase 2 portion of LEGEND is enrolling three cohorts cohort 1 is a pivotal cohort enrolling BCG unresponsive NMIBC patients with CIS cohort 2 is enrolling BCG naïve NMIBC patients with CIS cohort 2a and BCG exposed NMIBC patients with CIS cohort 2b and cohort 3 is enrolling patients with BCG unresponsive NMIBC who have papillary disease only i e no CIS In addition our preclinical research is focused on expanding the cancer indications that can be treated with detalimogene as well as discovering new opportunities to apply our DDX technology platform to treat other indications with high unmet medical needs
Our lead product candidate is detalimogene voraplasmid which we are developing as a monotherapy for the treatment of NMIBC via the LEGEND study a multi cohort Phase 2 open label study comprised of single arm cohorts ClinicalTrials gov identifier NCT04752722 Cohort 1 of LEGEND which is enrolling BCG unresponsive NMIBC patients with CIS is pivotal and we plan to incorporate the data from this study in a BLA that we plan to submit following the conclusion of the Phase 2 portion of the Cohort 1 In addition to this pivotal cohort LEGEND is also enrolling two additional cohorts and three patient groups cohort 2a is enrolling BCG naïve NMIBC patients with CIS cohort 2b is enrolling BCG exposed NMIBC patients with CIS and cohort 3 is enrolling patients with BCG unresponsive NMIBC who have papillary disease only i e no CIS
Our detalimogene drug product candidate comprises lyophilized nanoparticles which in turn comprise DNA nanoplasmid encapsulated by a non viral DDX polymer based delivery vehicle The DDX delivery vehicle a unique technology proprietary to enGene consists of a highly derivatized chitosan backbone and includes reversible PEGylation where PEG stands for polyethylene glycol to facilitate diffusion through the non cellular GAG glycosaminoglycan layer in the bladder The detalimogene drug substance plasmid DNA encodes three distinct genes a single chain interleukin 12 protein IL 12 and two non protein coding RNA products eRNA11a and VA1 which collectively stimulate the retinoic acid inducible gene I RIG I pathway Together this combination of RIG I activation and IL 12 secretion serves to activate both innate and adaptive immunity creating a pro inflammatory tumor killing environment
Mechanistically detalimogene s dual RIG I agonists work by initiating a signaling cascade that results in the production of Type I interferons IFN and proinflammatory cytokines upon recognizing certain double stranded RNA molecules typically associated with cellular pathogens This in turn stimulates a potent inflammatory response that results in direct tumor cell killing cytokine mediated activation of innate immune cells and the recruitment and cross priming of T cells Detalimogene s third genetic cargo IL 12 is an immunomodulatory cytokine that signals primarily through the IL 12 receptor complex which is expressed on natural killer NK NK T and activated effector CD4 and CD8 T cells For these cells receptor engagement of IL 12 enhances cytotoxicity e g by driving T cell proliferation polarization to a type 1 helper Th1 phenotype and interferon gamma IFNg production In summary the activation of RIG I is intended to induce an innate immune response that will trigger T cell recruitment and cross presentation of tumor antigens to T cells through induction of mediators such as C X C motif chemokine ligand 10 CXCL10 and Type I IFNs respectively The
expression of the IL 12 protein is intended to synergistically augment the anti tumor activity of indwelling effector T cells Together RIG I agonism and IL 12 receptor stimulation function in a two step mechanism to recruit and activate immune cells to the tumor microenvironment TME Importantly detalimogene does not need to transfect tumor cells specifically to drive the above effects and can exert its anti tumor effect by transfecting healthy epithelial cells within the tumor or bladder microenvironment Importantly we believe restricting expression of IL 12 to the bladder and tumor microenvironment yields meaningful safety advances This is important as historically clinical trials using systemic administration of IL 12 to treat various solid malignancies have resulted in severe dose limiting toxicities resulting in a marginal therapeutic window We believe the clinical data observed to date demonstrate that coupling the potent stimulation of the innate immune system by RIG I agonism to stimulation of the adaptive immune response by IL 12 provides robust and persistent anti tumor activity
Bladder cancer represents a serious life threatening condition Based on data reported through 2020 bladder cancer is expected to result in an estimated 2 7 of all cancer deaths in 2023 while comprising an estimated 4 2 of all new cancer cases according to the National Institute of Health Overall according to the American Cancer Society and the National Institute of Health the chance men will develop this cancer during their life is about 1 in 28 and for women the chance is about 1 in 91 Fortunately due to early warning signals such as hematuria the presence of blood in the urine many instances of bladder cancer are diagnosed while still localized to the bladder urothelium These tumors referred to as non muscle invasive bladder cancer NMIBC represent approximately 80 of newly diagnosed bladder tumors
When diagnosed at the non muscle invasive stage the goal of treatment is to prevent further tissue invasion e g into the muscle layers of the bladder or beyond thereby potentially reducing the intensity of needed treatment regimens e g allowing local intravesical treatment versus systemic intravenous treatment and forestalling surgical bladder removal if indicated Since the 1970s the primary therapy for high risk NMIBC has been intravesical BCG therapy and or transurethral resection of bladder tumor surgery TURBT despite the adverse effects of both treatment approaches Due to the increased use of BCG in the high risk CIS containing setting and loss of several manufacturers of BCG supply constraints have resulted in a shortage of the BCG for commercial use To manage the limited supply available in the United States as of February 2019 the American Urological Association and their collaborative physician groups have introduced rationing guidelines that limit use of BCG to high risk NMIBC patients only This situation is projected to continue late into the current decade and has brought urgency to the unmet medical need for effective intravesical treatments for patients with high grade NMIBC according to the American Urological Association
We estimate that there are approximately 83 000 new patients each year diagnosed with bladder cancer in the United States of which up to 80 are initially diagnosed with NMIBC Within this group we estimate approximately 30 present with high risk NMIBC where risk level describes the risk of disease progression to muscle invasion 35 present with intermediate risk disease and 35 present with low risk disease NMIBC lesions are further characterized as CIS Ta and T1 based on their physical attributes Ta and T1 lesions are papillary urothelial carcinomas which have not yet penetrated the muscle wall of the bladder These tumor types are not mutually exclusive within the bladder at any given time an NMIBC patient can have papillary lesions only CIS and papillary lesions or CIS lesions only In general while most NMIBC patients respond favorably to treatment e g transurethral resection of bladder tumor surgery TURBT and or treatment with BCG we estimate that as many as 60 will experience a recurrence within one year depending on the patient and tumor characteristics For patients with BCG unresponsive NMIBC standard therapy has been radical cystectomy or treatment with systemic therapy both of which have been associated with significant toxicities and complications including a lower quality of life and increased treatment related morbidity and mortality No salvage medical or intravesical treatments have been shown to have durable efficacy in BCG unresponsive NMIBC patients and therefore there is an unmet medical need for novel non systemic therapies to treat these patients This recurrent population represents a population of patients with a need to keep their cancer from becoming invasive while being able to preserve their bladders
Importantly we believe that the frequency of newly incident high risk NMIBC per year does not fully capture the number of patients living with this disease This is because there are multiple channels through which a patient previously diagnosed with low or intermediate risk NMIBC may through the course of their treatment and disease evolution ultimately present with high risk disease For example a patient whose tumor was initially diagnosed and treated as low or intermediate risk NMIBC may recur as high risk NMIBC Similarly a patient treated for BCG unresponsive high risk NMIBC with CIS may recur a second time with another high risk NMIBC lesion and be eligible for another round of treatment Thus we believe that the real world high risk NMIBC burden is best understood as a combination of both incident and prevalent disease Unfortunately for individuals with BCG unresponsive NMIBC with CIS which represents the focus of LEGEND s pivotal cohort FDA approved non surgical treatment options remain limited
LEGEND is a Phase 1 2 open label multicenter safety and dose finding study conducted in the United States that is currently enrolling a pivotal Phase 2 study cohort in adult patients with NMIBC with CIS who have failed BCG therapy and who are recommended for radical cystectomy The study consists of two phases beginning with a now completed Dose Escalation Phase Phase 1 The key
objective for the Phase 1 portion of the study was evaluation of safety and tolerability and selection of a dose for the Phase 2 portion and it was not designed to evaluate efficacy in a statistically meaningful way While not statistically powered for efficacy an evaluation of efficacy was a secondary objective with a Phase 2 study to be conducted at the recommended dose Eligible BCG unresponsive NMIBC patients with CIS were enrolled in Phase 1 and patients with these criteria are being enrolled in cohort 1 of Phase 2 which has already begun
In addition to the pivotal cohort 1 the Phase 2 portion of LEGEND is enrolling two additional cohorts cohort 2 is enrolling patients with BCG naïve NMIBC patients with CIS cohort 2a and BCG exposed NMIBC patients with CIS cohort 2b and cohort 3 is enrolling patients with BCG unresponsive NMIBC who have papillary disease only i e no CIS
The Phase 1 portion of the study was an open label multi dose study designed to evaluate the safety of detalimogene high risk BCG unresponsive NMIBC patients with CIS with or without co occurring papillary disease to help determine an appropriate dose for the Phase 2 portion of LEGEND This study enrolled a total of 24 patients across multiple dose groups
All patients in Phase 1 received at least one cycle of treatment with detalimogene A cycle is 12 weeks or approximately three months in duration which corresponds to exploratory efficacy endpoint of the Phase 1 study see below Those patients who have complete response CR or stable disease SD at the end of the first three month treatment cycle may in association and consultation with their physician optionally elect to continue receiving treatment for up to a total of four cycles provided they do not have progressive disease PD on evaluation for response at the end of each cycle Patients who complete cycle 1 and the additional 3 cycles without PD are followed until PD or for approximately 2 years following their End of Treatment Visit whichever occurs first In general we use the terminology 3 month 6 month 9 month and 12 month timepoint to refer to 12 week 24 week 36 week and 48 week timepoints respectively We use these terms interchangeably
Twenty four patients received at least one dose of detalimogene in the Phase 1 study with the total number of treatment related adverse events TRAEs and most commonly reported TRAEs across all 24 patients defined in the table below The majority 75 of TRAEs experienced by patients were Grade 1 or 2 and largely consistent with the same events seen with instrumentation catheterization and instillation of any intravesical agent One Grade 3 TRAE was observed in Phase 1 However on review it was observed that the patient had a history of renal failure and recurrent obstructive uropathy prior to treatment that was present at screening and the enrollment criteria for LEGEND were subsequently modified to exclude patients with similar medical history There was no association between the severity or incidence of AEs and the dose level In addition TRAEs were not more frequent or severe in later cycles of dosing The following table summarizes the Phase 1 safety results
Efficacy at 3 months was assessed by the standard three criteria evaluation used for NMIBC namely urinary cytology cystoscopic appearance i e an inspection with a cystoscope a thin tube with video camera that is inserted into the bladder and biopsy results of suspicious areas Biopsies in the former area of CIS were required even if the appearance was normal In Phase 1 patients without progressive disease were allowed to electively continue study drug after the 3 month visit In total 22 patients were dosed with the study drug and evaluable for efficacy at the 3 month visit One patient included in evaluations for safety evaluation was excluded from efficacy
Overall across all doses 16 of 22 patients dosed with detalimogene achieved a CR rate at any time of 73 At the 3 month timepoint this CR rate was 68 15 of 22 with 82 18 of 22 of patients continuing to receive additional doses of the study drug beyond 3 months The 6 month CR rate across all doses was 45 10 of 22 Within the dose selected for the pivotal portion of the study the CR rates at 3 and 6 months were 70 and 60 respectively with 90 of patients continuing on the study drug beyond 3 months
The Phase 2 portion of the study is open label and is comprised of three independent single arm cohorts of patients Cohort 1 the pivotal cohort is enrolling high risk BCG unresponsive NMIBC patients with CIS with or without co occurring papillary disease Cohort 2 is enrolling high risk BCG naïve NMIBC patients with CIS cohort 2a or high risk BCG exposed NMIBC patients with CIS cohort 2b Cohort 3 includes high risk BCG unresponsive papillary only NMIBC patients Although the treatment is the same for each cohort an independent set of analysis will occur for each cohort
On September 26 2024 we announced important amendments to the LEGEND Phase 2 protocol that when fully implemented will modify how patients are evaluated and treated at key points in their therapy The amended LEGEND protocol stipulates that at the end of the first 12 week cycle patients will be evaluated as follows i patients with no evidence of high risk tumor will be classified as being in complete response CR will remain on study and enter the next 12 week course of therapy ii patients with CIS or high risk Ta disease or a combination thereof will be classified as not in complete response non CR will remain on study to allow their tumors additional time to respond to detalimogene s immunostimulatory mechanism of action and will enter the next 12 week course of therapy and iii patients with high risk T1 which has a higher risk of progression than CIS or high risk Ta or more advanced disease will be classified as non CR and will not be eligible to continue on study and if appropriate will be advised to consider radical cystectomy so as to reduce the risk of further disease progression
For all subsequent evaluation cycles beyond week 12 e g weeks 24 36 48 and beyond the presence of any high risk tumor in the bladder will render a patient ineligible to continue on study More specifically i patients with no evidence of high risk tumor will be classified as CR remain on study and enter the next 12 week course of therapy whereas ii patients with biopsy confirmed evidence of CIS high risk Ta or high risk T1 disease or greater will be classified as non CR and will discontinue the study Patients who have continued CR at week 48 will enter a maintenance treatment for up to four 12 week cycles through week 96 Maintenance treatment will consist of 2 instillations per 12 week cycle administered at week 1 and at week 2 Patients with CR at the end of the 8 cycles week 96 can choose to continue in maintenance treatment for up to 4 more cycles through week 144 or enter a follow up period for quarterly visits every 12 weeks through week 144 or until non response
Percentage of patients with CR at 48 weeks based on cystoscopic appearance urine cytology and appropriate biopsies will be the co primary endpoint together with the nature incidence relatedness and severity of treatment emergent adverse events Secondary endpoints will include progression free survival CR rates at 12 24 36 and 96 weeks as well as CR rate by 24 weeks and the duration of response of the responding patients
On September 26 2024 we shared preliminary data from the first 21 patients who had reached their 12 week evaluation in the ongoing pivotal cohort of the LEGEND study including 17 patients who were also assessed at six months The CR rate at any time was 71 the CR rate at three months was 67 and the CR rate at six months was 47 The data cutoff date was September 13 2024
The overall tolerability profile associated with detalimogene was favorable and there have been no drug related discontinuations in the study Of the 42 patients assessed for safety inclusive of all Phase 2 cohorts 20 patients 48 experienced at least one treatment related adverse event TRAE which were mainly Grade 1 2 in severity The most common TRAEs 10 were dysuria bladder spasm pollakiuria and fatigue There were no Grade 4 or Grade 5 TRAEs reported
The pDNA component of detalimogene encodes the two linked subunits p40 and p35 of the human h IL 12 cytokine Also encoded within the same plasmid are two RNA products adenoviral VA RNA1 VA1 and eRNA11a annotated together as eRNA41H that coordinate to activate RIG I The dsRNA directly induces the intracellular protein RIG I while VA1 is an inhibitor of adenosine deaminase acting on RNA ADAR an RNA editing enzyme and the double stranded RNA dependent protein kinase PKR a protein translation inhibitor Together VA1 and eRNA11a synergistically boost RIG I activity
To evaluate the therapeutic benefit of detalimogene voraplasmid preclinically an orthotopic model of murine bladder cancer was established by implanting syngeneic MB49 urothelial carcinoma cells that stably express luciferase MB49luc into murine bladders Baseline tumor burden was confirmed by bioluminescence using in vivo imaging before two weekly IVI of mEG 70 a murine reactive surrogate for detalimogene voraplasmid with the study design captured in the top panel of the figure below mEG 70 mediated a dose dependent reduction of pre existing tumor burden as evidenced by diminished bioluminescent signal on Day 29 of the study Note in the figure below the right panel displays individual animals with the color scale indicating the intensity of the tumor signal from blue lowest to red highest and areas without color indicating a lack of tumor The graph on the left displays the geometric mean across all animals 95 confidence interval
We further examined the durability of the anti tumor response by monitoring long term survival until all mice succumbed to bladder cancer or were deemed cured which was defined as no evidence of bioluminescent signal with no clinical signs of bladder cancer including palpable bladder mass and hematuria Over 90 of mice treated with mEG 70 had durable anti tumor responses as demonstrated by long term disease free survival with no disease relapse during the 100 day monitoring period In contrast about 90 of sham treated animals had succumbed to disease during the same period We believe these data demonstrate the rapid robust and durable anti tumor effects of mEG 70 in the orthotopic model of bladder cancer
We believe that the long term survival benefit and lack of relapse in mEG 70 treated animals suggested that immunological memory may have been established To further explore this we examined protective immunity against tumor re challenge wherein mEG 70 treated mice with complete disease regression and no relapse mEG 70 cured were re challenged orthotopically with MB49luc cells to assess protection from recurring disease All mEG 70 cured mice were resistant to tumor recurrence as shown by negative bioluminescence signal up to 3 weeks after re challenge In contrast indicative of tumor burden all age matched naïve controls had positive bioluminescence signal following cell implantation figure below bottom panel displays luminescence from each individual animal reflecting tumor burden from luciferase expression with the color scale indicating the intensity of the tumor signal from blue
As shown in the figure below to determine if local treatment to the bladder results in systemic anti tumor immunity mice cured of orthotopic bladder cancer by mEG 70 were challenged with MB49luc cells subcutaneously on the flank and tumor growth was monitored Although age matched naïve controls showed rapid tumor growth all mEG 70 cured mice remained tumor free up to 50 days post rechallenge To investigate whether the abscopal anti tumor immunity was specific to MB49luc cells a separate cohort of mice was re challenged with antigenically distinct melanoma tumor cells B16 F10 Although mEG 70 cured mice were resistant to re challenge with MB49luc cells the B16 F10 tumors grew on the mouse flank suggesting that long term anti tumor effect is antigen driven and specific to the primary tumor
Our preclinical data package utilizes the MB49 cancer cell line which when instilled into the bladder of a mouse can generate tumors reflective of muscle invasive bladder cancer We believe that the preclinical data we have gathered using this murine model system especially the data suggesting mEG 70 drives a potent immune memory effect that renders the host resistant to tumor re challenge could potentially support the use of detalimogene in other forms of bladder cancer such as muscle invasive disease as well as other forms of NMIBC such as intermediate risk disease
In accordance with our clinical development plan we are planning to file a BLA for detalimogene for the treatment of NMIBC patients who are BCG unresponsive with CIS in 2026 based on the expected Phase 2 results from the pivotal cohort of the LEGEND study if the results are positive If the FDA grants us marketing approval for detalimogene in the United States we currently plan to commercialize detalimogene in the United States ourselves Our current plan is to establish a U S focused sales and marketing organization to coordinate with high prescribing community urology centers in the United States As part of our commercialization strategy our plan is to also establish a specialty urologic medical science liaison team to support scientific exchange with and education
of physicians and scientists about detalimogene To proactively support these efforts we will seek to continue expanding our relationships with key opinion leaders as well as our trial investigators while expanding physician and patient education about the potential benefits of detalimogene versus alternative therapies We have not yet determined our commercialization strategy outside of the United States
The additional cohorts in Phase 2 of the LEGEND study in which we propose to treat BCG naïve BCG exposed and papillary only NMIBC patients provide further opportunity to demonstrate the potential use of detalimogene in clinical settings with unmet need that have also been affected by critical drug shortages these cohorts thus represent another important component of our commercialization plan To the extent that detalimogene shows promise in these patient populations we will share the results of the study with key opinion leaders and urology community leaders with the aim of building credibility and support for our therapy and increasing interest in its use among urologists and healthcare providers in FDA approved indications We believe the urology community will benefit from detalimogene s relative ease of use and handling among other benefits If supported by the data we may choose to pursue further trials to support labeling some of which may be pivotal
Detalimogene voraplasmid is a nanoparticle suspension containing the plasmid deoxyribonucleic acid pDNA drug substance encapsulated in a proprietary polymer DDX and further combined with a custom manufactured methoxy poly ethylene glycol block poly L glutamic acid diblock co polymer abbreviated as PEG b PLE DDX and PEG b PLE are novel excipients The drug product is formulated as an aqueous nanoparticle dispersion filter sterilized lyophilized to a dry powder and stored at 20 C
We have leveraged our internal expertise and know how to develop and scale up the manufacturing processes for our proprietary DDX and drug product before transferring them to qualified external contract manufacturers or CMOs Additionally we are conducting studies to understand and establish controls for all critical process parameters and critical quality attributes for our drug product The PEG b PLE excipient and pDNA drug substance are custom manufactured and purchased from qualified cGMP manufacturers located in the European Union All critical excipients drug substance and drug product are currently manufactured at cGMP compliant CMOs at a scale that we believe can meet our needs for a commercial launch of detalimogene for the BCG unresponsive NIMBC indication in the United States following FDA approval
We believe that our manufacturing processes are robust cost effective and scalable These manufacturing processes are patent protected and involve significant proprietary know how We also have a global royalty bearing non exclusive license to use certain patents and know how relating to a proprietary plasmid DNA backbone for high yield production and efficient expression of transgene in target tissues Our manufacturing process is in accordance with current Good Manufacturing Practice cGMP and quality system regulations for drugs and biologics
We currently rely on our commercial relationships with independent CMOs to supply our clinical trials We have performed detailed quality audits in the past and will continue to conduct periodic quality audits of their facilities per existing quality agreements We believe that our suppliers will be capable of providing sufficient quantities of each component to meet our clinical trial supply needs as well as our commercial launch within the United States if and when approved by the FDA We have supply agreements in place with multiple CMOs to support manufacturing release testing stability analysis clinical labeling and packaging of detalimogene for the Phase 2 portion of the LEGEND study We plan to enter into long term commercial supply agreements with selected qualified CMOs to supply detalimogene in the event that we are granted marketing approval in the United States Other CMOs may be used in the future for commercial manufacturing
Our commercial success depends in part on our ability to protect obtain enforce and maintain exclusivity around our gene delivery technology and product candidates through intellectual property protection as well as our ability to operate without infringing misappropriating or otherwise violating the proprietary rights of others and to prevent others from infringing misappropriating or otherwise violating our proprietary rights
We strive to protect maintain enforce and enhance the proprietary technology inventions and improvements that are commercially material to our business including by seeking maintaining and defending our patent rights We have and are expecting to maintain granted patents and we continue to file and prosecute patent applications directed to our modified oligomeric chitosan based nanoparticle gene delivery technology independently or in combination with therapeutic genes in an effort to establish intellectual property positions relating to new compositions of matter and novel treatments of various indications
We also rely in part on trade secrets and know how to maintain exclusivity to our technology We strive to protect our proprietary information that is not covered by registered intellectual property instruments by entering into confidentiality and invention assignment agreements with employees collaborators and consultants While protecting trade secrets and know how presents challenges due to for
Our patent portfolio includes composition of matter method of treatment and manufacturing process protection for our lead product candidate detalimogene We have taken a multi tiered approach to our patent strategy and in doing so we have captured a series of sequential technical developments leading to and incorporated within detalimogene
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 date of filing of the first non provisional patent application to which priority is claimed In the United States patent term may be lengthened by patent term adjustment which compensates a patentee for administrative delays by the USPTO in granting a patent or may be shortened if a patent is terminally disclaimed over an earlier filed patent In the United States the term of a patent that covers an FDA approved drug may also be eligible for a patent term extension of up to five years beyond the expiration of the patent under the Hatch Waxman Act which is designed to compensate for the patent term lost during the FDA regulatory review process The length of the patent term extension involves a complex calculation based on the length of time it takes for regulatory review A patent term extension under the Hatch Waxman Act cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval and only one patent applicable to an approved drug may be extended Moreover a patent can only be extended once and thus if a single patent is applicable to multiple products it can only be extended based on one product Similar provisions are available in Europe and certain other foreign jurisdictions to extend the term of a patent that covers an approved drug There is no guarantee that the applicable authorities will agree with our assessment of whether any extensions should be granted and if granted the length of these extensions
Our general filing strategy regarding registrable intellectual property is to seek patent protection in major markets For example our core DDX based gene delivery technology is protected by issued patents in the United States Europe with country coverage within Europe Japan China Hong Kong India Eurasia South Korea Canada Australia New Zealand Brazil Mexico and several other jurisdictions Our filing strategy typically involves the filing of an international PCT patent application followed by national filings in specific countries The selection of countries is made on a case by case basis
Our patent portfolio currently comprises nine patent families which include approximately 133 issued patents and 49 pending patent applications including 12 issued U S patents four issued European patents with country coverage within Europe six non provisional pending U S applications five European pending applications and one pending PCT application enGene exclusively owns all nine patent families in its patent portfolio
The patent positions of companies like us are generally uncertain and involve complex legal scientific and factual questions Changes in the patent laws and rules either by legislation judicial decisions or regulatory interpretation in other countries may diminish our ability to protect our inventions and enforce our intellectual property rights and more generally could affect the value of our intellectual property In particular our ability to stop third parties from making using selling offering to sell importing or otherwise commercializing any of our patented inventions either directly or indirectly will depend in part on our success in obtaining defending and enforcing patent claims that cover our technology inventions and improvements In addition the coverage claimed in a patent application can be significantly reduced before the patent is issued and its scope can be reinterpreted after issuance Consequently we do not know whether any of our product candidates will be protectable or remain protected by enforceable patents or will be commercially useful in protecting our commercial products and methods of using and manufacturing the same We also 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 Any patents that we hold or control may be challenged circumvented or invalidated by third parties In addition our agreements and security measures protecting our trade secrets and know how may be breached and we may not have adequate remedies for any such breach Further our trade secrets may otherwise become known or independently discovered by competitors
On April 10 2020 we entered into a non exclusive license agreement the License Agreement with Nature Technology Corporation NTC pursuant to which NTC granted enGene a worldwide non exclusive royalty bearing and sublicensable license to certain patents and know how relating to the NanoplasmidTM vector backbone that is used in detalimogene voraplasmid to research develop make use import sell and offer to sell any gene and cell therapy products incorporating the NanoplasmidTM vector backbone excluding any such products in the field of dermatology The licensed intellectual property includes 10 patent families inclusive of
all related divisional continuation continuation in part substitutes counterparts and or any foreign equivalents filed in any country within such family and certain know how NTC is solely responsible for the preparation filing prosecution cost and maintenance of all patent applications and patents included in the licensed intellectual property
Unless terminated earlier the License Agreement will continue until no valid claim of any licensed patent exists in any country NTC may terminate the License Agreement if we fail to make any payments within a specified period after receiving written notice of such failure Either party may terminate the License Agreement in the event either party commits a material breach and fails to cure such breach within a certain period We can terminate the License Agreement for convenience with prior notice to NTC
Under the License Agreement we are obligated to make annual payments of 50 thousand until the first sale of a product for which a royalty is due and make a payment to NTC of 50 thousand upon assigning the License Agreement to a third party We are also required to make a one time payment of 50 thousand for the first dose of a product covered by a valid claim of a licensed patent a Milestone Product in the first patient in a Phase 1 clinical trial or if there is no Phase 1 clinical trial in a Phase 2 clinical trial as well as a one time payment of 450 thousand upon regulatory approval of a Milestone Product by the FDA The first milestone related to the first dose of a Milestone Product was achieved during the year ended October 31 2021 The second milestone regulatory approval of a Milestone Product has not been achieved as of the year ended October 31 2024 We are also required to pay NTC a royalty percentage in the low single digits of the aggregate net product sales in a calendar year by us our affiliates or sublicensees on a product by product and country by country basis as long as the composition or use of the applicable product is covered by a valid claim in the country where the net sales occurred Royalty obligations under the License Agreement will continue until the expiration of the last valid claim of a licensed patent covering such licensed product in such country In the event that we or any of our affiliates or sublicensees manufacture any GMP lot of a licensed product then we or any such affiliate or sublicensee will be obligated to pay NTC an amount per manufactured gram of GMP or its equivalent lot of product which varies based on the volume manufactured Such manufacturing payment will expire on a product by product basis upon receipt of regulatory approval to market a product in any country in the licensed territory Under the License Agreement enGene is permitted to sublicense our rights to third parties and we are not required to share any of the license revenue with NTC
The biotechnology and pharmaceutical industries are characterized by rapid innovation of new technologies fierce competition and strong defense of intellectual property While we believe that detalimogene and our knowledge experience and scientific resources provide us with competitive advantages we may face competition from pharmaceutical and biotechnology companies academic institutions governmental agencies and public and private research institutions among other things
Many of our competitors either independently or with strategic partners have substantially greater financial technical and human resources than we do Accordingly our competitors may be more successful than we are in research and development manufacturing preclinical testing conducting clinical trials obtaining regulatory approval for treatments and achieving widespread market acceptance Merger and acquisition activity in the biotechnology and biopharmaceutical industries may result in resources being concentrated among a smaller number of our competitors These companies also compete with us in recruiting and retaining qualified scientific and management personnel establishing clinical trial sites and patient registration for clinical trials and acquiring technologies complementary to or necessary for our programs Smaller or early stage companies may also prove to be significant competitors particularly through collaborative arrangements with large and established companies
Our commercial opportunity could be substantially limited if our competitors develop and commercialize products that are more effective safer less toxic more convenient or less expensive than products we may develop In geographic locations that are critical to our commercial success competitors may also obtain regulatory approvals before us resulting in our competitors building a strong market position in advance of the entry of our products In addition our ability to compete may be affected in many cases by insurers or other third party payers seeking to encourage the use of other drugs The key competitive factors affecting the success of any products we may develop are likely to be their efficacy safety convenience price and availability of reimbursement
There are four FDA approved products for the treatment of high risk NMIBC patients that are unresponsive to BCG and multiple companies have drugs in clinical development for such treatment While many of these products represent a different modality and may not be either intravesical or monotherapy they may nonetheless compete with us for patient recruitment in clinical trials as well as for commercial sales Furthermore to the extent Merck Co Merck or another manufacturer increases the supply of BCG there may be less demand for alternative treatments such as detalimogene in BCG naïve or BCG exposed patients In addition there are numerous companies that have commercialized or are developing treatments for NMIBC including Aura Biosciences Inc AstraZeneca Bristol Meyers Squibb CG Oncology Inc Hoffman La Roche AG Roche ImmunityBio Inc Johnson Johnson Inc Merck Protara Therapeutics Inc Pfizer Inc and UroGen Pharma Inc
See Risk Factors Risks Related to Our Business We face significant competition from other biotechnology and pharmaceutical companies which may result in our competitors discovering developing or commercializing products before us or more successfully than we do Our business and results of operations could be adversely affected if we fail to compete effectively for important information about risks respecting competition
The development production testing distribution and marketing of biologics like the ones we are developing are subject to strict regulations by various U S federal state and local agencies in addition to foreign regulatory authorities These regulations cover a wide range of aspects including research safety efficacy labeling packaging storage distribution and advertising as well as post approval monitoring and reporting Our Company as well as our vendors partners contract research organizations CROs and manufacturers will need to comply with these regulations To gain approval for our product candidate we need to comply with the regulatory requirements of various governing agencies including those related to preclinical and clinical trials manufacturing and commercialization This process requires a significant investment of time and financial resources In the United States our focus market the FDA regulates biologics under the Federal Food Drug and Cosmetic Act and the Public Health Service Act and other federal state and local regulations also apply Our lead product candidate detalimogene is not yet approved for marketing in the United States
To obtain approval for our product candidates for therapeutic use in the United States we must follow a series of steps regulated by the FDA This includes conducting preclinical studies in compliance with regulations meetings with the FDA submitting an investigational new drug application or IND to the FDA obtaining institutional review board or IRB or ethics committee approval at each clinical trial site conducting clinical trials in compliance with Good Clinical Practice GCP requirements preparing and submitting a BLA accompanied by fees undergoing FDA pre approval inspections of manufacturing facilities and having potential FDA audits of the clinical trial sites Finally the FDA will review and approve the BLA and provide any recommendations before the biologic drug can be sold commercially in the United States
In order to test a drug or biologic in humans it must first undergo extensive preclinical testing which includes laboratory evaluations and animal studies to determine safety and efficacy These studies must comply with federal and state regulations including Good Laboratory Practices GLP requirements for safety and toxicology studies The results of these studies as well as manufacturing and analytical data must be submitted to the FDA as part of an IND The IND is a request for authorization to administer the product to humans and must be approved before clinical trials can begin The IND submission focuses on the protocol for the initial clinical study and includes results of animal and in vitro studies as well as any available human data to support the use of the investigational product The IND becomes effective 30 days after receipt by the FDA unless the FDA raises concerns or questions about the study in which case a clinical hold is imposed until the concerns are resolved
During the clinical stage of development the product candidate is administered to patients or healthy volunteers under the supervision of qualified investigators in accordance with GCP requirements Each clinical trial must be reviewed and approved by an IRB to ensure that the risks to individuals participating in the clinical trial are minimized and reasonable in relation to the anticipated benefits The FDA IRB or sponsor may suspend or discontinue a clinical trial at any time on various grounds Some studies also include oversight by a data safety monitoring board Clinical trials must be reported to public registries within specific timeframes While international clinical trials can be conducted under an IND the FDA does not require that all foreign clinical trials be conducted under United States INDs The FDA will accept a well designed and conducted foreign clinical study not conducted under an IND if the study was conducted in accordance with GCP requirements and the FDA is able to validate the data through an onsite inspection if necessary
Phase 1 Phase 1 of clinical trials involves administering the investigational product to healthy human volunteers or patients with the target disease or condition for the first time The primary objective of these studies is to evaluate the safety dosage tolerance absorption metabolism and distribution of the investigational product in humans identify any side effects associated with increasing doses and potentially gather preliminary evidence of effectiveness
Phase 2 Phase 2 clinical trials usually involve giving the investigational product to a small group of patients with a particular disease or condition to assess its effectiveness determine the best dosage and dosing schedule and detect any potential risks or side effects To gather data before conducting more extensive and costly Phase 3 trials several Phase 2 studies may be conducted
Phase 3 Phase 3 trials usually involve testing the investigational product in a larger group of patients to confirm its efficacy and safety The trials are conducted at multiple locations and aim to establish the overall risk benefit profile of the product Typically the FDA requires two well controlled Phase 3 clinical trials to approve a BLA
After marketing approval Phase 4 clinical trials also known as post approval trials may be conducted to gain more experience with the product in its intended use and to gather additional safety data The FDA may require these trials as a condition of approval The results of clinical trials and safety reports for serious adverse events must be submitted to the FDA annually and within 15 days of the sponsor s determination Fatal or life threatening adverse reactions must be reported within seven days Along with clinical trials companies must complete additional animal studies develop information about the product s biological characteristics and establish a commercial manufacturing process that adheres to cGMP requirements The manufacturing process must consistently produce quality batches of the product and appropriate packaging and storage conditions must be identified through stability studies
Expanded access also known as compassionate use refers to the use of investigational products outside of their intended clinical development to treat patients suffering from serious or life threatening diseases or conditions when no satisfactory alternative treatment options are available FDA regulations permit access to investigational products through an IND by the treating physician or the company for treatment purposes including individual patients intermediate size patient populations and larger populations for use under a treatment protocol or treatment IND application It is important to note that companies are not obligated to provide expanded access to their investigational products
We plan to apply for either data exclusivity or market exclusivity for our product candidates If the necessary clinical testing is completed successfully we will submit the results of preclinical studies and clinical trials as well as detailed information on the product s manufacturing labeling and other aspects to the FDA in the form of a BLA This application seeks approval to market a new biologic for one or more specific indications The BLA must contain all relevant data from both positive and negative studies The BLA should incorporate all important information accessible from relevant preclinical and clinical examinations including negative or questionable outcomes as well as certain discoveries along with itemized data connecting with the item s science assembling controls and proposed naming in addition to other things Information might come from organization supported clinical preliminaries planned to test the wellbeing and viability of an item s utilization or from various elective sources including review started by examiners The data submitted must be of sufficient quality and quantity to satisfy the FDA regarding the investigational product s safety purity and potency in order to support marketing approval A BLA must be approved by the FDA before a biologic can be sold in the United States
A BLA or supplement to a BLA must also include data to assess the biological product candidate s safety and effectiveness 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 as required by the Pediatric Research Equity Act or PREA An initial Pediatric Study Plan PSP must be submitted within sixty days of an end of Phase 2 meeting or as agreed upon between the sponsor and FDA by a sponsor planning to submit a marketing application for a biological product that includes a new clinically active component new indication new dosage form new dosing regimen or new route of administration PREA does not apply to any biological product for an indication for which an orphan designation has been granted unless otherwise required by regulation
In some cases the FDA may also request additional information before deciding whether or not to accept the BLA for filing Within 60 days of receiving a BLA the FDA must decide whether or not to accept it for filing This decision may include refusing to file The FDA begins a comprehensive substantive review of the BLA as soon as the submission is accepted for filing A BLA is reviewed by the FDA to see among other things if the product is safe pure and effective and if the facility where it is manufactured processed packaged or stored satisfies standards designed to guarantee the product s continued safety quality and purity Under the objectives and policies consented to by the FDA under the Prescription Drug Users Fee Act or PDUFA once a BLA has been submitted the FDA s goal for novel biological products generally is to review the application within ten months after it accepts the application for filing or if the application is granted priority review six months after the FDA accepts the application for filing The FDA does not always meet its PDUFA goal dates and the review process may be extended For example the review process and the PDUFA goal date may be extended by three months if the FDA requests or if the applicant otherwise provides additional data analysis or information that the FDA deems a major amendment
Further under PDUFA as changed each BLA should be joined by a client charge and the patron of an endorsed BLA is likewise dependent upon a yearly program expense FDA changes the PDUFA client expenses on a yearly premise In some cases fees may be reduced or waived For example a small business may not have to pay the application fee for the first time In addition unless the product also includes a non orphan indication there are no user fees associated with BLAs for products designated as orphan drugs See Orphan drug designation and exclusivity below
The FDA might allude an application for a biologic to a warning board of trustees A panel of independent experts such as clinicians and other scientific experts is known as an advisory committee It reviews evaluates and offers a recommendation such as whether the biologic is sufficiently safe and effective in a particular indication for a particular population and under what conditions While an advisory committee s recommendations do not bind the FDA they are carefully taken into consideration when deciding whether or not to grant marketing approval
The FDA will typically conduct an inspection of the facility or facilities where the product is manufactured prior to approving a BLA The FDA will not approve an application unless it finds that the manufacturing facilities and processes are adequate to guarantee consistent product production in accordance with the required specifications Furthermore prior to approving a BLA the FDA might investigate at least one clinical preliminary destination to guarantee consistence with GCP and different necessities and the uprightness of the clinical information submitted to the FDA
Once the BLA and all related information including advisory committee recommendations and inspection reports have been evaluated the FDA may issue an approval letter or a Complete Response Letter A Complete Response Letter indicates that the application is not ready for approval and lists all deficiencies found in the BLA The FDA may recommend actions the applicant can take to improve the BLA s chances of approval Even with additional information the FDA may still reject the application
If the FDA approves a product it may impose restrictions require additional studies or limit approved indications for use The FDA can also impose distribution and use restrictions or other risk management mechanisms under a REMS which may affect the product s market and profitability Post marketing studies or surveillance programs may result in the FDA limiting or preventing further marketing of the product Changes to the approved product may also require further testing and FDA review and approval
A biologic can get Fast Track designation if it is meant to treat a serious or life threatening disease and has the potential to address unmet medical needs for that disease This applies to the product and the specific indication for which it is being studied Fast Track designation allows sponsors to interact more with the FDA during preclinical and clinical development There is also potential for rolling review where the FDA can review parts of the BLA on a rolling basis if the sponsor provides a schedule the FDA accepts the schedule and the sponsor pays required fees when submitting the first section of the BLA Our lead product candidate detalimogene has been granted Fast Track designation by the FDA There can be no assurance that detalimogene s Fast Track designation will lead to a faster development regulatory review or approval process or increase the likelihood that detalimogene will receive marketing approval
The FDA heavily regulates drugs and biologics that are manufactured or distributed with their approval This includes requirements related to recordkeeping reporting and product distribution Companies must comply with promotion and advertising restrictions and are prohibited from marketing or promoting products for unapproved off label uses Failure to comply with these requirements can result in penalties and liability under the False Claims Act the FCA Post approval requirements may include post market testing and surveillance to assess the product s safety and effectiveness Manufacturers and their subcontractors must register with the FDA and undergo periodic inspections for compliance Changes to the manufacturing process may require FDA approval Failure to comply can result in legal or regulatory action and the FDA can withdraw approval if regulatory standards are not maintained Revisions to approved labeling and other restrictions may also be imposed
The consequences of failing to comply with FDA regulations include various restrictions such as limitations on marketing or manufacturing product recalls safety alerts and mandated modifications of promotional materials and labeling Companies may also face fines warning letters untitled letters or holds on clinical trials and refusal of FDA approvals The FDA can also take more serious actions such as product seizure or detention injunctions or civil or criminal penalties In addition companies may face consent decrees corporate integrity agreements debarment or exclusion from federal healthcare programs
The Orphan Drug Act allows the FDA to give orphan drug designation ODD to drugs or biologics meant to treat rare diseases or conditions which are defined as having a patient population of fewer than 200 000 individuals in the United States or a patient population greater than 200 000 individuals in the United States when it is not reasonable to expect that the cost of developing and making the drug available in the United States will be recovered from sales in the United States To receive ODD it must be requested before submitting a BLA and the identity of the therapeutic agent and its potential orphan use are publicly disclosed after ODD is granted
If a product receives ODD and later becomes the first FDA approved drug for a particular clinically active component for the disease it was designated for it is entitled to orphan drug exclusivity meaning the FDA cannot approve any other applications including a full BLA to market the same biologic for the same indication for seven years from the approval of the BLA except under specific circumstances These circumstances include showing clinical superiority to the product with orphan drug exclusivity or if the holder of the exclusivity cannot assure the availability of sufficient quantities of the drug for patients
Orphan drug exclusivity does not prevent the FDA from approving a different drug or biologic for the same disease or condition or the same drug or biologic for a different disease or condition ODD also offers benefits like tax credits for certain research and a waiver of the BLA application user fee However a product with ODD may not receive orphan drug exclusivity if it is approved for a use that is broader than the indication for which it received ODD Moreover the exclusive marketing rights in the United States may be lost if the FDA later finds that the request for designation was materially defective or if the manufacturer can t assure sufficient quantities of the product for patients with the rare disease or condition
The Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act collectively the ACA signed into law in 2010 includes a subtitle called the Biologics Price Competition and Innovation Act BPCIA which simplified approval process for biological products that are similar to an FDA licensed reference biological product The FDA has issued several guidance documents outlining how to review and approve biosimilars Biosimilarity requires that the biological product and the reference product be the same in terms of safety purity and potency This can be proven through analytical studies animal studies and clinical studies Interchangeability requires that a product be biosimilar to the reference product and that the biologic and the reference biologic may be alternated or switched after one has been previously administered without increasing safety risks or risks of diminished efficacy
An application for a biosimilar product cannot be submitted to the FDA until four years after the reference product was licensed by the FDA Also the approval of a biosimilar product cannot be made effective until 12 years after the reference product was licensed During this period another company may still market a competing version of the reference product if the FDA approves a full BLA for the competing product that shows the safety purity and potency of its product The BPCIA also created exclusivity periods for biosimilars approved as interchangeable products It is not yet clear if products deemed interchangeable by the FDA will be readily substituted by pharmacies which are governed by state pharmacy law
In the United States a biological product may receive additional market exclusivity for six months if the manufacturer voluntarily completes a pediatric study in accordance with an FDA issued Written Request The BPCIA which created an abbreviated approval pathway for biosimilar products is complex and continues to be interpreted and implemented by the FDA Recently government
Combination products are those that are made up of different components such as biological and device components that are typically regulated by different FDA centers According to FDA regulations a combination product can be a single entity made up of two or more regulated components that are combined in some way two or more separate products packaged together or a product that requires the use of an approved drug device or biological product to achieve the intended effect The FDA assigns a lead center for review of combination products based on the product s primary mode of action The Office of Combination Products has been established to address issues related to combination products and provide guidance and regulations for their regulation Combination products with a biologic primary mode of action are generally reviewed through the biologic approval process with input from the device center to ensure the device component meets safety and performance requirements Combination products are subject to current Good Manufacturing Practice cGMP regulations for drugs biologics and devices including quality system regulations for medical devices Our manufacturing process is cGMP compliant
After a product candidate has been approved or commercialized its manufacturing sales promotion and other related activities are subject to regulation by various regulatory bodies in the United States In addition to the FDA these regulatory authorities may include the Centers for Medicare Medicaid Services the CMS other divisions of the Department of Health and Human Services the HHS the Drug Enforcement Administration the DEA the Consumer Product Safety Commission the Federal Trade Commission the FTC the Occupational Safety Health Administration the Environmental Protection Agency as well as state and local governments and agencies
In the United States and many other countries patients rely on third party payors to cover part or all of the costs of their treatment Having sufficient coverage and reimbursement from government healthcare programs and private insurers is critical for the success of new products The availability of coverage and reimbursement will impact our ability to commercialize our product candidates and the amount of reimbursement provided may not be enough for us to make a profit Government authorities and third party payors determine which medications they will pay for and at what level New products may not be covered or may have limited coverage and the reimbursement level may be lower than necessary to cover our costs The COVID 19 pandemic has also caused uncertainty regarding insurance coverage as many people have lost their employer based coverage The factors that payors consider when determining reimbursement include whether the product is covered by the plan safe effective medically necessary appropriate for the patient and cost effective Discounts and rebates required by government programs and private payors may reduce the net price for drugs and there is increasing pressure on drug companies to offer predetermined discounts We cannot be certain that reimbursement will be available for our products or what the reimbursement level will be and we may be subject to penalties if we do not report pricing metrics accurately and in a timely manner We also cannot be certain that if we obtain reimbursement arrangements with payors that such arrangements will not be subject to recoupment actions or overpayment challenges which can be time consuming and expensive to resolve
Pharmaceutical companies must comply with various healthcare regulations enforced by the federal government and state and foreign authorities where they do business These regulations limit financial arrangements and relationships involving the research sale marketing and distribution of products authorized for sale The laws include the federal Anti Kickback Statute AKS which prohibits offering or receiving remuneration for referrals or purchases that may be paid under federal and state healthcare programs The FCA and Civil Monetary Penalties Law prohibit submitting false claims for payment to the government The federal Health Insurance Portability and Accountability Act of 1996 imposes liability for executing schemes to defraud healthcare benefit programs or falsifying information related to healthcare delivery and payment The Sunshine Act requires manufacturers of reimbursable drugs devices biologics and medical supplies to report physician payments and other transfers of value The Health Insurance Portability and Accountability Act HIPAA imposes privacy and security obligations on certain healthcare providers health plans and healthcare clearinghouses Similar state laws may apply to sales and marketing arrangements involving healthcare items or services reimbursed by non governmental third party payors reporting requirements related to financial arrangements with clinicians and state privacy and security laws governing health information can be different from HIPAA Noncompliance with these laws can lead to significant penalties including administrative civil and criminal penalties damages fines disgorgement restructuring of operations oversight and reporting obligations and exclusion from participation in federal and state healthcare programs
Healthcare payors whether they are government or private entities are using more sophisticated methods to control costs but these methods are not always suitable for new technologies like genetic medicine and treatments for rare diseases Legislative and regulatory changes to the healthcare system in the United States and many other countries could affect our ability to sell our products profitably The ACA which became law in 2010 introduced a range of changes including subjecting biologic products to competition from lower cost biosimilars increasing minimum Medicaid rebates and imposing new annual fees and taxes on certain branded prescription drugs The ACA has faced legal and political challenges and the Biden administration has initiated a special enrollment period and ordered reviews of policies and rules that limit access to healthcare Other healthcare reform measures may also impact our business Since the ACA was enacted other legislative changes have been proposed and adopted in the United States including spending reductions under the Budget Control Act of 2011 and the Right to Try Act which provides a federal framework for certain patients to access investigational new drug products There has also been growing interest in specialty drug pricing practices and efforts to control pharmaceutical and biological product pricing at the federal and state levels including transparency measures and importation from other countries
We believe that our current facilities are sufficient for our current needs To meet the future needs of our business we may lease additional or alternate space We believe that suitable additional or substitute space at commercially reasonable terms will be available as needed to accommodate any future expansion of our operations
As of October 31 2024 we had 57 employees including 56 full time employees 26 of whom were primarily engaged in research and development activities Of these employees 21 are based in Canada and 36 in the United States None of our employees are represented by a labor organization or are party to a collective bargaining arrangement We consider our relationship with our employees to be excellent
From time to time we may be involved in legal proceedings that arise in the regular course of our business Our management believes that we are not currently involved in any legal proceedings that are likely to have a significant negative effect on our business However legal proceedings can negatively affect our business financial condition results of operations and future prospects regardless of the outcome due to costs associated with defense and or settlement as well as the diversion of management attention and resources among other factors
Investing in our securities involves risks Before you make a decision to buy our securities in addition to the risks and uncertainties discussed above under Special Note Regarding Forward Looking Statements you should carefully consider the specific risks set forth herein If any of these risks actually occur it may materially harm our business financial condition liquidity and results of operations As a result the market price of our securities could decline and you could lose all or part of your investment Additionally the risks and uncertainties described in this Annual Report or our other filings with the U S Securities and Exchange Commission the SEC are not the only risks and uncertainties that we face Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may become material and adversely affect our business
We depend heavily on the success of our lead product candidate detalimogene voraplasmid or detalimogene formerly known as EG 70 which is currently in a clinical trial Our clinical trial of detalimogene may not be successful If we are unable to successfully develop obtain regulatory approval for and commercialize detalimogene or experience significant delays in doing so our business will be materially harmed
We currently only have one product candidate detalimogene in clinical development We invested and continue to invest a significant portion of our efforts and financial resources in the research and development of detalimogene Our ability to generate revenues from the sale of drugs that treat bladder cancer and other diseases in humans which may not occur for several years if ever will depend heavily on the successful clinical development regulatory approval for and eventual commercialization of detalimogene This may make an investment in our Company riskier than similar companies that have multiple product candidates in active development and may be able to better sustain the delay or failure of a lead product candidate The success of detalimogene will depend on several factors including
We expect to make significant investments in our continued research and development of detalimogene and other new product candidates and genetic medicines and services we may develop which may not be successful and if they are not successful we may not be able to achieve or sustain profitability in the future As an organization we do not have experience in any such new lines of business and failure to identify other product candidates and or execute on the expansion of our business would adversely affect our business and results of operations
Biotechnology product development is expensive takes years to complete and has uncertain outcomes Failure can occur at any stage of product development In addition if we determine that any of our current or future products or services are unlikely to succeed we may abandon them without any return on our investment We expect to incur significant expenses to advance our genetic medicine development efforts which may be unsuccessful Developing new product candidates such as detalimogene is a speculative risky and highly competitive endeavor Product candidates that initially show promise may fail to achieve the desired results in development and clinical studies and may ultimately not prove to be safe and effective or meet expectations for clinical utility We may be unable to establish clinical endpoints that applicable regulatory authorities would consider clinically meaningful and a clinical trial can fail at any stage of testing We may need to alter our offerings in development and repeat clinical studies before we develop a potentially successful product If after development a product appears successful we will still need to obtain FDA and other regulatory approvals before we can market it The FDA s approval pathways are likely to involve significant time as well as additional research development and clinical study expenditures The FDA may not clear authorize or approve any product we develop Even if we develop a product that receives regulatory clearance authorization or approval we would need to commit substantial resources to commercialize sell and market it before it could be profitable and the product may never be commercially successful Additionally development of any product or service may be disrupted or made less viable by the development or announcement of competing products or services which could occur at any time Because of the numerous risks and uncertainties associated with developing product candidates we are unable to predict whether or when our therapeutics business may successfully commercialize a product candidate
We are a clinical stage biotechnology company and have incurred net losses in each reporting period since our inception have not generated any revenue from product sales to date and have financed our operations principally through third party investments in our debt and equity instruments Our net losses were 55 1 million and 99 9 million for the fiscal years ended October 31 2024 and October 31 2023 respectively As of October 31 2024 we had an accumulated deficit of 254 7 million Our lead product candidate detalimogene is in clinical trials Our other programs are in preclinical research As a result we expect that it will be several years if ever before we have a commercialized product and generate revenue from product sales Even if we succeed in receiving marketing approval for and commercializing one or more of our product candidates we expect that we will continue to incur substantial research and development and other expenses in order to discover develop and market additional potential products
We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future The net losses we incur may fluctuate significantly from quarter to quarter such that a period to period comparison of our results of operations may not be a good indication of our future performance The size of our future net losses will depend in part on the pace of our development activities and the rate of future growth of our expenses and our ability to generate revenue Our prior losses and expected future losses have had and will continue to have an adverse effect on our working capital our ability to fund the development of our product candidates and our ability to achieve and maintain profitability and the performance of our Common Shares
The estimates of market sizes and forecasts of market growth for the potential demand of our detalimogene and any other product candidates we develop as provided in this Annual Report and our other public filings and press releases are based on a number of assumptions and may prove to be inaccurate The actual market may be smaller than we believe which would adversely affect our business and results of operations
We estimate total addressable markets and forecasts of market growth for detalimogene and any other product candidates we develop Our estimates forecasts and key performance indicators are based on a number of complex assumptions internal and third party estimates in published literature and other business data including assumptions and estimates relating to our ability to manage operating expenses of invest in and develop and generate revenue from detalimogene or any other product candidates we develop in the future While we believe our assumptions and the data underlying our estimates and key performance indicators are reasonable there are inherent challenges in measuring or forecasting such information As a result these assumptions and estimates may not be correct and the conditions supporting our assumptions or estimates may change at any time thereby reducing the predictive accuracy of these underlying factors and metrics Consequently our estimates of the total addressable markets and our forecasts of market growth may prove to be incorrect For example if the annual total addressable markets or the potential market growth is smaller than we have estimated or if the key business metrics we utilize to forecast commercial opportunities are inaccurate it may have an adverse effect on our business financial condition results of operations and prospects
We identified material weaknesses in our internal control over financial reporting and our management has determined that our current internal control over financial reporting is not effective If we are unable to remedy these material weaknesses or if we fail to establish and maintain effective internal controls we may be unable to produce timely and accurate financial statements and we may continue to determine that our internal control over financial reporting is not effective which could adversely impact our investors confidence and the price of our Common Shares
Until October 31 2023 we had been a private company with limited accounting personnel and other resources with which to address internal control over financial reporting In connection with the preparation and the audit of the consolidated financial statements as of and for the years ended October 31 2023 and 2022 material weaknesses were identified as defined under the Securities Exchange Act of 1934 as amended the Exchange Act and by the Public Company Accounting Oversight Board United States in our internal control over financial reporting A material weakness is defined as a deficiency or a combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis The material weaknesses identified related to 1 lack of formal policies procedures and controls related to the design of internal controls over financial reporting including risk assessment process and control activities for certain key financial reporting processes 2 lack of sufficient accounting and financial reporting personnel to perform appropriate accounting analysis and review procedures 3 lack of personnel with requisite knowledge and experience in the application of U S generally accepted accounting principles U S GAAP 4 general information technology controls that were not designed appropriately related to access and system changes and 5 lack of appropriate segregation of duties in the preparation and review of account reconciliations and journal entries As of October 31 2024 we have fully remediated material weaknesses 2 and 3 described above however remediation efforts for material weaknesses 1 4 and 5 remain ongoing Accordingly as of October 31 2024 our management has concluded that our internal control over financial reporting is not effective If we are unable to successfully remediate material weaknesses 1 4 and 5 or if additional material weaknesses are identified our management may continue to determine that our internal control over financial reporting is not effective which could adversely impact our investor s confidence our ability to raise additional capital and the price of our Common Shares
The process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company For example to maintain and improve the effectiveness of our financial reporting we have committed significant resources implemented and strengthened existing reporting processes trained personnel and provided additional management oversight We will continue to incur additional costs to remediate these weaknesses primarily personnel costs and external consulting fees We cannot assure you that any measures we have taken or may take in the future will be sufficient to remediate identified and outstanding material weaknesses or to avoid potential future material weaknesses Our management has performed an evaluation of our internal controls over financial reporting in accordance with the provisions of the Sarbanes Oxley Act however an independent registered public accounting firm has never performed an evaluation because no such evaluation is currently required Had our independent registered public accounting firm performed an evaluation of our internal control over financial reporting in accordance with the provisions of the Sarbanes Oxley Act additional material weaknesses may have been identified If we are unable to successfully remediate our existing or any future material weaknesses in our internal control over financial reporting or if we identify any additional material weaknesses the accuracy and timing of our financial reporting may be adversely affected we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to the Nasdaq listing requirements investors may lose confidence in our financial reporting and our share price may decline as a result We also could become subject to investigations by the Nasdaq the SEC or other regulatory authorities See Item 9A Controls and Procedures Remediation Efforts to Address Material Weakness of this Annual Report for information related to material weakness remediation and mitigation
The development of biopharmaceutical product candidates including conducting preclinical studies and clinical trials is a very time consuming capital intensive and uncertain process Our operations have consumed substantial amounts of cash since our inception We expect to continue to spend substantial amounts to conduct further research and development and preclinical or nonclinical testing and studies and clinical trials of our current and future programs to seek regulatory approvals for our product candidates and to launch and commercialize any products for which we receive regulatory approval As of October 31 2024 we had 173 0 million in cash and cash equivalents and 124 9 million in marketable securities Although we have a detailed current operating plan our future capital requirements and the period for which our existing resources will support our operations may vary significantly from what we expect We will in any event require additional capital in order to complete clinical development of any of our current programs Our monthly spending levels will vary based on new and ongoing development and corporate activities Because the length of time and activities associated with development of our product candidates is highly uncertain we are unable to estimate the actual funds we will require for product development and any approved marketing and commercialization activities Our funding requirements both near and long term as well as the timing and amount of our operating expenditures will depend largely on
We do not have any committed external source of funds or other support for our development efforts and we cannot be certain that additional funding will be available on acceptable terms or at all Until we can generate sufficient revenue to finance our cash requirements which we may never do we expect to finance our future cash needs through a combination of public or private equity offerings debt financings collaborations strategic alliances licensing arrangements royalty revenues sales or monetization of future revenue streams marketing or distribution arrangements or other strategic transactions If we raise additional funds through public or private equity offerings the terms of these securities may include liquidation or other preferences that adversely affect our shareholders rights Further to the extent that we raise additional capital through the sale of our Common Shares or securities convertible or exchangeable into our Common Shares your ownership interest will be diluted We are party to the Amended Loan Agreement as defined herein with Hercules Capital Inc Hercules or the Lender as agent and lender and several financial institutions The Amended Loan Agreement subjects us to fixed payment obligations covenants limiting or restricting our ability to take specific actions such as incurring additional debt making capital expenditures or declaring dividends For additional information see Item 7 Management s Discussion and Analysis of Financial Condition and Results of Operations Hercules Loan Agreement and Notes to the Financial Statements Note 19 Subsequent Events for additional information on the Hercules Loan Agreement If we raise additional capital through debt financing we may be subject to similar or more restrictive conditions than the conditions of the Amended Loan Agreement If we raise additional capital through marketing and distribution arrangements or other collaborations strategic alliances licensing arrangements royalty revenues sales or monetization of future revenue streams or strategic transactions with third parties we may have to relinquish certain valuable rights to our product candidates technologies future revenue streams or research programs or grant licenses on terms that may not be favorable to us We also could be required to seek collaborators for one or more of our current or future product candidates at an earlier stage than otherwise would be desirable or relinquish our rights to product candidates or technologies that we otherwise would seek to develop or commercialize ourselves If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us we may have to significantly delay scale back or discontinue the development or commercialization of one or more of our products or product candidates or one or more of our other research or development initiatives Any of the above events could significantly harm our business financial condition results of operations and prospects and cause the price of our common shares to decline
We face significant competition from other entities including biotechnology and pharmaceutical companies which may result in our competitors discovering developing or commercializing products before us or more successfully than we do Our business and results of operations could be adversely affected if we fail to compete effectively
The biotechnology and pharmaceutical industries including the development of non viral genetic medicines for administration into mucosal tissues as well as the development of novel therapies for bladder cancer and non muscle invasive bladder cancer or NMIBC specifically are characterized by rapid growth a dynamic landscape of competitive product candidates and a strong reliance on intellectual property We face competition from a variety of organizations including larger pharmaceutical companies specialty biotechnology companies specialty medical device companies academic research institutions governmental agencies as well as public and private institutions There are several companies that are currently developing gene based therapeutics for use in a variety of indications from cancer including bladder cancer and NMIBC specifically to rare disease to regenerative medicine There are also companies and institutions developing non gene based therapies such as but not limited to drug device combinations that may be effective in the clinical indications we choose to pursue and oncology drugs
DDX is our proprietary carrier for genetic medicines to mucosal tissues and is the foundation for our nanoparticle formulations We developed DDX and our patented non viral genetic medicines to penetrate mucus barriers and to deliver genes to mucosal epithelial cells in a way that is re dosable scalable and designed to integrate into existing clinical practice Our genetic medicine platform s leading program detalimogene is in the area of immuno oncology We believe that a significant number of products are currently
under development and may become commercially available in the future for the treatment of indications for which we are developing detalimogene including NMIBC Competitors using genetic medicines for mucosal tissues include CG Oncology Inc and Ferring Pharmaceuticals Inc both of which are developing products that will compete directly with detalimogene if approved More generally if detalimogene or any future product candidates that we develop are approved they will compete with surgery radiation and drug therapy including chemotherapy BCG hormone therapy biologic therapy such as monoclonal and bispecific antibodies antibody drug conjugates radiopharmaceuticals immunotherapy cell based therapy and targeted therapy or a combination of any such methods either approved or under development which are intended to treat the same indications that we are targeting or may target including through approaches that may prove to be more effective have fewer side effects be less costly to manufacture be more convenient to administer or have other advantages over detalimogene and any future product candidates that we develop To the extent Merck or another manufacturer increases the supply of BCG there may be less demand for alternative treatments such as detalimogene if approved in earlier lines of treatment for NMIBC There are numerous companies that have commercialized or are developing treatments for NMIBC that detalimogene will compete with if approved including Bristol Meyers Squibb Gilead Sciences Inc Hoffman La Roche AG Roche CG Oncology Inc Ferring Pharmaceuticals Inc ImmunityBio Inc Johnson Johnson Inc Merck Protara Therapeutics Inc Pfizer Inc Aura Biosciences Inc and UroGen Pharma Inc
In addition many of our current or potential competitors either alone or with their collaboration partners have significantly greater financial resources and expertise in research and development manufacturing preclinical testing conducting clinical trials and marketing approved products than we do Mergers and acquisitions in the biotechnology and pharmaceutical industry may result in even more resources being concentrated among a smaller number of our competitors Smaller or early stage companies may also prove to be significant competitors particularly through collaborative arrangements with large and established companies These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for and participation in clinical trials as well as in acquiring technologies complementary to or necessary for our programs Our commercial opportunities could be reduced or eliminated if our competitors develop and commercialize products that are safer more effective have fewer or less severe side effects are more convenient are more shelf stable or are less expensive than any products that we may develop Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours which could result in our competitors establishing a strong market position before we are able to enter the market if we successfully enter it at all The key competitive factors affecting the success of all of our programs including detalimogene are likely to be their efficacy safety convenience and availability of reimbursement Competing products could present superior treatment alternatives including by being more effective safer more convenient less expensive or marketed and sold more effectively than any products we may develop Competitive products may make detalimogene or any future product candidates we develop obsolete or noncompetitive before we generate sufficient revenue to recover the expense of their development and commercialization If we are unable to compete effectively our opportunity to generate revenue from the sale of detalimogene or any future product candidates we may develop if approved could be adversely affected
If detalimogene or other product candidates that we may develop are approved for the indications for which we are currently conducting or planning clinical trials they may compete with other products currently under development We may not be aware of all competitive or potentially competitive products under development by other market participants and information relating to such products may not be publicly accessible Competition with other related products currently under development may include competition for clinical trial sites patient recruitment and product sales See Item 1 Business Competition for additional information
The genetic medicine field is relatively new and evolving rapidly Because of our limited technical financial and human resources we are focusing our research and development efforts on detalimogene as well as further development of our genetic medicine platform and other product candidates we may develop As a result we may forego or delay pursuit of other genetic medicine technologies or other therapeutic product candidates that provide significant advantages over our platform or product candidates which could materially harm our business and results of operations
Genetic medicine is an emerging field of product development with only a small number of genetic medicines having received FDA or EMA approval to date Our genetic medicine research programs are still at an early stage and there remain several areas of product development risk which pose particular uncertainty for our programs given the relatively limited development history of and our limited prior experience with genetic medicines Translational science manufacturing materials and processes safety concerns regulatory pathway and clinical trial design and execution all pose particular risk to our product development activities Furthermore the medical community s understanding of the 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 limited experience conducting IND enabling studies or clinical trials including later stage or pivotal clinical trials In pursuing our new technologies we have begun to establish our own genetic medicine technical capabilities but we will need to continue to expand those capabilities by either hiring internally or seeking assistance from outside service providers Genetic medicine 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 genetic medicine capabilities we may not be able to develop in the way we intend or desire any promising product candidates that emerge from our program including detalimogene 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 detalimogene or other product candidates that we may develop We may also rely on third party vendors or service providers including CROs among others who may fail to meet their commitments to us or deliver their products to us We may
Because we have limited financial and managerial resources we focus on research programs and on genetic medicine technologies and product candidates that we identify for specific indications among many potential options such as detalimogene in high risk BCG unresponsive NMBIC with CIS or other NMIBC indications As a result we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential or we may choose to focus our efforts and resources on a potential product candidate that ultimately proves to be unsuccessful For example in June 2024 we announced that as a result of our prioritization of exploring potential bladder cancer indications for detalimogene we deprioritized preclinical development of another product candidate EG i08 for cystic fibrosis Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities Our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable products If we do not accurately evaluate the commercial potential or target market for a particular product candidate we may relinquish valuable rights to that product candidate through collaboration licensing or other arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate Failure to pursue opportunities with greater commercial potential or relinquishing valuable rights to product candidates may have a material adverse effect on our business financial condition results of operations and prospects
However the technologies that comprise our platform and detalimogene are new and largely unproven These technologies have been neither extensively studied nor extensively clinically tested and the scientific and clinical evidence to support the feasibility of developing product candidates based on those technologies in pursuit of regulatory approval and potential commercial viability and success may be considered preliminary and limited Successful development of product candidates by us will require solving several issues including proving the safety and efficacy of detalimogene for BCG unresponsive NMIBC and expanding our mucosal tissue delivery system to treat patient tissues beyond the bladder such as urogenital and gastrointestinal mucosal tissues There can be no assurance we will be successful in solving any or all of these issues We have concentrated our research efforts to date on developing the components of our genetic medicine platform and our future success is highly dependent on the successful development of our proprietary carrier for genetic medicines to mucosal tissues therapeutic applications of such technology and the advancement of additional programs focused on diseases of the urogenital and gastrointestinal mucosal tissues We may decide to alter or abandon our initial programs as new data become available and we gain experience in developing our therapeutics We cannot be sure that our technologies will yield satisfactory products that are safe and effective scalable or profitable in any indication we pursue
There can be no assurance that any development problems we experience in the future related to our genetic medicine platform will not cause significant delays or unanticipated costs or that such development problems can be solved We may also experience delays in developing sustainable reproducible and scalable manufacturing processes or transferring such processes to any 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 We may also fail to build redundancy in these manufacturing processes such that we will be vulnerable to third party provider failures that may impair the supply of or manufacture of critical materials products or reagents In addition the clinical trial requirements of the FDA the EMA and other regulatory agencies and the criteria these regulators use to determine the safety and efficacy of a product candidate vary substantially according to the type complexity novelty and intended use and market of the potential products The regulatory approval process for novel product candidates can be more expensive and take longer than for other better known or extensively studied pharmaceutical or other product candidates FDA s regulatory guidance documents including those that may be applicable to our programs may change be cancelled or evolve Only a small number of genetic medicines have successfully reached the clinical trial phase of development or beyond limiting insight into the regulatory review process for this field of genetic medicine As a result it is difficult to determine how long it will take or how much it will cost to obtain regulatory approvals in either the United States or the European Union for any product candidates we may develop or how long it will take to commercialize any product candidate that receives marketing approval
Development of new therapeutics involves a lengthy and expensive process with an uncertain outcome We may incur additional costs fail to replicate the positive results from our earlier preclinical or clinical studies of our product candidates in later preclinical studies or clinical trials or experience delays in completing or ultimately be unable to complete the development and commercialization of any product candidates including but not limited to detalimogene
To obtain the requisite regulatory approvals to commercialize detalimogene or any other product candidate that we may develop we must demonstrate through extensive preclinical studies and clinical trials that our products are safe and effective Our product candidates are in preclinical development and clinical trial stages and thus their risk of failure is high Before we can commence clinical trials for a product candidate we must complete extensive preclinical studies that support our filed and planned INDs in the United
States or similar applications in other jurisdictions We cannot be certain of the timely completion or outcome of our preclinical studies and cannot predict if the FDA or other regulatory authorities will accept our proposed clinical programs or if the outcome of our preclinical studies will ultimately support the further development of our product candidates As a result we cannot be sure that we will be able to submit INDs or similar applications for our preclinical programs on the timelines we expect if at all and we cannot be sure that submission of INDs or similar applications will result in the FDA or other regulatory authorities allowing clinical trials to begin
Before obtaining marketing approval from regulatory authorities for the sale of any product candidate including detalimogene we must conduct extensive clinical trials to demonstrate the safety and efficacy of any of these product candidates in humans Clinical trials are expensive difficult to design and implement can take many years to complete and their outcome is inherently uncertain Failure can occur at any time during or even after the clinical trial process and our ongoing and future clinical results may not be successful We may be unable to establish clinical endpoints that applicable regulatory authorities would consider clinically meaningful and a clinical trial can fail at any stage of testing Similarly if regulatory authorities agree implicitly or explicitly that a certain set of clinical endpoints is clinically meaningful or adequate to demonstrate safety and efficacy they may change their determination at a later date The outcome of preclinical studies and early clinical trials may not be predictive of the success of later clinical trials and interim results of a clinical trial do not necessarily predict final results Differences in trial design between early stage clinical trials and later stage clinical trials make it difficult to extrapolate the results of earlier clinical trials to later clinical trials 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
Successful completion of clinical trials is a prerequisite to submitting a BLA to the FDA and similar marketing applications to other regulatory authorities for each product candidate and consequently the ultimate approval and commercial marketing of any product candidates We do not know whether any of our clinical trials will be completed on schedule if at all
We may experience delays in initiating or completing clinical trials and preclinical studies We also may experience numerous unforeseen events during or as a result of any ongoing and future clinical trials that we conduct that could delay or prevent our ability to receive marketing approval or commercialize our product candidates including that
We could also encounter delays if a clinical trial is suspended placed on clinical hold or terminated by us the IRBs of the institutions in which such trials are being conducted or the FDA or other regulatory authorities or recommended for suspension or termination by the Data Safety Monitoring Board for such trial A suspension or termination may be imposed due to a number of factors including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols inspection of the
clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold unforeseen safety issues or adverse side effects failure to demonstrate a benefit from using a product or treatment failure to establish or achieve clinically meaningful trial endpoints changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial Many of the factors that cause or lead to a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates Further the FDA or other regulatory authorities may disagree with our clinical trial design and our interpretation of data from clinical trials or may change the requirements for approval even after they have reviewed and commented on the design for our clinical trials Moreover preclinical and clinical data are often susceptible to varying interpretations and analyses and many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials nonetheless failed to obtain FDA approval
Our product development costs will increase if we experience delays in clinical testing or marketing approvals which will correspondingly increase our operating costs Our preclinical studies or clinical trials may not begin as planned may need to be restructured or may not be completed on schedule or at all Significant preclinical studies or clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates and may allow our competitors to bring products to market before we do potentially impairing our ability to successfully commercialize our product candidates and harming our business and results of operations Any delays in our preclinical or clinical development programs may harm our business financial condition results of operations and prospects
From time to time we may publish interim top line or preliminary results from our clinical trials For example in September 2024 we announced preliminary data from the pivotal cohort of the LEGEND study of detalimogene in high risk BCG unresponsive NMIBC patients with CIS 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 participant enrollment continues and 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 have previously published As a result interim and preliminary data should be expected to change as additional patient data become available and as such new data and or existing data is audited and verified all data should be viewed with caution until the final data is available Adverse 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 shares to fluctuate significantly
In addition others including regulatory authorities may not accept or agree with our assumptions estimates calculations conclusions or analyses or may interpret or weigh the importance of data differently which could impact the value of the particular program for example detalimogene the approvability or commercialization of the particular product candidate or product and our Company in general Moreover the information we choose to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information and you or others may not agree with what we determine is material or otherwise appropriate information to include in our disclosure and any information we determine not to disclose may ultimately be deemed significant with respect to future decisions conclusions views activities or otherwise regarding a particular drug product candidate or our business If the interim topline or preliminary data that we report differ from actual results or if others including regulatory authorities disagree with the conclusions we reached our ability to obtain approval for and commercialize detalimogene and any future product candidates we develop may be harmed which could harm our business financial condition results of operations and prospects
The timely completion of clinical trials in accordance with their protocols depends among other things on our ability to enroll a sufficient number of patients who remain in the trial until its conclusion We have from time to time experienced and may in the future experience difficulties in patient enrollment in our clinical trials for a variety of reasons including
In addition our clinical trials will compete with other clinical trials for product candidates that are in the same therapeutic areas as our product candidates and this competition will reduce the number and types of patients available to us because some patients who might have opted to enroll in our trials may instead opt to enroll in a trial being conducted by one of our competitors Because the number of qualified clinical investigators is limited we may conduct some of our clinical trials at the same clinical trial sites that some of our competitors use which would reduce the number of patients who are available for our clinical trials at such clinical trial sites
Even if we are able to enroll a sufficient number of patients in our clinical trials delays in patient enrollment may result in increased costs or may affect the timing or outcome of the planned clinical trials which could prevent completion of these trials and adversely affect our ability to advance the development of our product candidates
We will need to successfully complete later stage and pivotal clinical trials in order to obtain FDA or comparable foreign regulatory approval to market detalimogene or any future product candidates we develop Carrying out pivotal and later stage clinical trials and the submission of a successful BLA or other comparable foreign regulatory submission are complicated processes As an organization we have conducted the Phase 1 portion of the combined Phase 1 2 open label study of detalimogene referred to as the LEGEND study and are conducting the Phase 2 multi cohort portion of the LEGEND study consisting of three cohorts including the pivotal cohort evaluating detalimogene in patients with BCG unresponsive NMIBC with CIS We have not yet completed any later stage or pivotal clinical trials for detalimogene or any other product candidate We also have limited experience as a company in preparing and submitting marketing applications and have not previously submitted a BLA or other comparable foreign regulatory submission for any product candidate In addition we have had limited interactions with the FDA and cannot be certain how many additional clinical trials of detalimogene or any other product candidates we develop will be required or how such additional trials should be designed Consequently we may be unable to successfully and efficiently execute and complete necessary clinical trials in a way that leads to submission of a BLA and regulatory approval of detalimogene or any of the other product candidates we develop We may require more time and incur greater costs than our competitors and may not succeed in obtaining regulatory approvals of detalimogene or any of other product candidates we develop Failure to commence or complete or delays in our ongoing or future clinical trials could prevent us from or delay us in submitting BLAs or other comparable foreign regulatory submissions for and commercializing detalimogene or any of other product candidates we develop
Use of our novel genetic medicine platform detalimogene and other therapeutic product candidates we may develop could result in or be associated with harmful side effects adverse events or other safety risks which could cause us to delay suspend or discontinue their clinical trials and or development or abandon them delay or prevent their regulatory approval limit their commercial potential if approved or result in other significant negative consequences including voluntary corrective actions or agency enforcement actions that could severely harm our business and results of operations In addition these harmful side effects adverse events or other safety risks may not be appropriately recognized or managed by our treating staff which could result in litigation and reputational damage
Detalimogene and other product candidates we may develop may be associated with harmful side effects adverse events or other safety risks Results of clinical trials could reveal severe or recurring side effects toxicities or unexpected events including death There may also be delayed adverse events that may not be appropriately recognized or managed by our treating staff which could result in litigation and reputational damage We expect to have to train medical personnel using detalimogene or any other product candidates we may develop to understand the side effect profiles for our clinical trials and upon any commercialization of such product candidates Inadequate training in recognizing or managing the potential side effects of such product candidates could result in patient injury or death
If any such events occur clinical trials or commercial distribution of detalimogene or any other product candidates or products we develop could be suspended or terminated and our business and reputation may be substantially harmed Treatment related side effects could affect patient recruitment and the ability of enrolled patients to complete the trial or result in potential liability claims Regulatory authorities could order us to cease further development of deny approval of or require us to cease selling detalimogene or any other product candidates or products we develop for any or all targeted indications If we elect or are required to delay suspend or terminate any clinical trial or commercialization efforts the commercial prospects of such product candidates or products may be harmed and our ability to generate product revenues from them or other product candidates that we develop may be delayed or eliminated
Additionally if we successfully develop detalimogene or any other product candidate and it receives marketing approval the FDA could require us to adopt a Risk Evaluation and Mitigation Strategy REMS to ensure that the benefits of treatment with such product candidate outweigh the risks for each potential patient which may include among other things a communication plan to health care practitioners patient education extensive patient monitoring or distribution systems and processes that are highly controlled restrictive and more costly than what is typical for the industry We may also be required to adopt a REMS or engage in similar actions such as patient education certification of health care professionals or specific monitoring if we and others later identify undesirable side effects caused by any product that we develop Such identification could also have several additional significant negative consequences such as
Even if detalimogene or any other therapeutic product candidates that we develop receives regulatory approval they may fail to achieve the degree of market acceptance by physicians patients third party payors including government health administration authorities and private health insurers and others in the medical community necessary for commercial success in which case we may not generate significant revenues and become profitable which could adversely affect our ability to conduct our business and our results of operations
The commercial success of detalimogene or any other product candidates that we develop will depend upon its degree of market acceptance by physicians patients third party payors and others in the medical community Even if detalimogene or any other product candidates developed by us receives regulatory approval they may nonetheless fail to gain sufficient market acceptance by physicians patients healthcare payors and others in the medical community The degree of market acceptance of detalimogene and any other product candidates we may develop if approved for commercial sale will depend on a number of factors including
If detalimogene or any other product candidate developed by us does not achieve an adequate level of acceptance by physicians healthcare payors patients and the medical community we will not be able to generate significant revenue and may not become or remain profitable The failure of detalimogene or any other product candidates we develop to find market acceptance could harm our business financial condition results of operations and prospects
Independent of any actions taken by us negative developments in the field of genetic medicine intravesical or NMIBC therapeutic development could damage public perception of detalimogene and any other product candidates that we develop which could adversely affect our ability to conduct our business and our results of operations or to obtain and retain regulatory approvals for such product candidates
Our novel genetic medicine platform and detalimogene are comprised of new and largely unproven technologies with no gene therapeutic product candidates approved to date Gene therapeutics may not gain the acceptance of the public or the medical community and or they may not gain the acceptance of the public or medical community within our indications of interest or development areas To date several other efforts to leverage genetic medicine technologies have generally demonstrated an inability to generate predictable results or to manufacture products at suitable scale to treat more than a small number of patients
If detalimogene or any other product candidate that we develop s is unable to successfully treat the intended organ or lesion and establish proof of concept in a certain disease it may indicate that we will not be able to apply our genetic medicine platform to other diseases affecting the intended tissue area or other areas This may also indicate a decrease in the probability of our success for other targets using the same modality in the same or different cell types as well as our engineered approach and delivery approach more generally Such failures could negatively affect the public or medical community s perception of our genetic medicine platform and gene therapeutics in general
Additionally our success will depend upon physicians who specialize in the treatment of diseases targeted by detalimogene or any other product candidates that we develop if approved prescribing treatments that involve the use of those product candidates if approved in lieu of or in addition to existing treatments with which they are more familiar and for which greater clinical data may be available Adverse events in clinical trials of detalimogene or any other product candidates that we develop or in clinical trials of others developing similar products and the resulting publicity as well as any other adverse events in the field of gene therapeutics could result in a decrease in demand for detalimogene if approved or any other product that we may develop These events could also result in the suspension discontinuation or clinical hold of or modification to our clinical trials Any future negative developments in the field of genetic medicine could also result in greater governmental regulation stricter labeling requirements and potential regulatory delays in the testing or approvals of our product candidates Any increased scrutiny could delay or increase the costs of obtaining marketing approval for detalimogene or any other product candidates that we develop
We may not be successful in our efforts to utilize our novel genetic medicine platform to identify and develop additional product candidates Due to our limited technical financial and human resources and access to capital we may choose to prioritize development of certain product candidates such as our initial focus on developing detalimogene which may prove to be the wrong choice and may adversely affect our business and results of operations
An important element of our strategy is utilizing our genetic medicine platform to generate multiple product candidates Although we intend to develop numerous product candidates targeting various cell types and indications and carrying different biologically active drug molecules in addition to detalimogene we may fail to identify viable new product candidates for clinical development for a number of reasons For example while we believe our genetic therapy platform is capable of transfecting many different tissue types with varied genetic cargos such as nucleic acid therapeutics e g DNA antisense oligonucleotides siRNA miRNA mRNA genetic medicine and gene editing mechanisms we have not yet successfully advanced any proprietary enGene developed drug candidate incorporating these cargoes into clinical trials beyond detalimogene and we may not be successful in developing products to effectively employ these types of cargoes or molecules If we fail to identify additional potential product candidates our business could be materially harmed
Research programs to pursue the development of our product candidates and using our genetic medicine platform to design and identify new product candidates and disease targets require substantial technical financial and human resources whether or not they are ultimately successful Our genetic medicine platform and research programs may initially show promise in identifying potential indications and or product candidates yet fail to yield results for clinical development for a number of reasons including
If any of these events occur we may be forced to abandon our research or development efforts for a program or programs which would have a material adverse effect on our business financial condition results of operations and prospects Accordingly there can be no assurance that we will ever be able to identify additional therapeutic opportunities for our product candidates or to develop suitable potential product candidates through internal research programs which could materially adversely affect our future growth and prospects We may focus our efforts and resources on potential product candidates or other potential programs that ultimately prove to be unsuccessful which would be costly and time consuming
Our use of third parties to manufacture develop and test our therapeutic product candidates for preclinical studies and clinical trials increases the risk that we will not have sufficient quantities of our product candidates or products or necessary quantities of such materials on time or at an acceptable cost
We do not currently have nor do we plan to acquire the infrastructure or capability internally to manufacture drug supplies for our ongoing clinical trials or any future clinical trials that we may conduct and we lack the resources to internally manufacture detalimogene or any other product candidates we develop on a commercial scale We rely and expect to continue to rely on third party manufacturers to produce detalimogene or other product candidates that we may identify for clinical trials as well as for commercial manufacture if detalimogene or any other product candidates we develop receive marketing authorization and approval We rely entirely on numerous third party suppliers to provide us with various product components We may not have alternative suppliers for certain of these product components Any significant delay or discontinuity in the supply of a product candidate or the raw material components thereof for an ongoing clinical trial due to the need to replace a third party manufacturer or testing laboratory could considerably delay the clinical development and potential regulatory authorization and commercial launch of such product candidate which could harm our business financial condition results of operations and prospects We currently do not have relationships with alternate third party contract manufacturers and testing laboratories for our critical raw materials and product candidates that could sustain our operations in the event we experience a disruption of service from our existing third party contract manufacturers and testing laboratories As a result we are materially reliant on our existing contract manufacturers and testing laboratories and susceptible to material operational disruptions due to factors that may be unknown to us and unforeseeable Our providers may also materially change the terms of our commercial arrangements for any reason or no reason which could adversely affect our materials costs ability to manufacture the drug at a sustainable cost and profit margin on any sales
We may be unable to identify and appropriately qualify third party manufacturers and testing laboratories or establish agreements with third party manufacturers and testing laboratories or do so on acceptable terms Even if we are able to establish agreements with third party manufacturers and testing laboratories reliance on third party manufacturers entails additional risks including
Furthermore our contract manufacturing organizations CMOs and testing laboratories are engaged with other companies to supply and or manufacture and or test materials or products which exposes our manufacturers and testing laboratories to regulatory risks for the production and testing of such materials and products The facilities used by our CMOs to manufacture and or test detalimogene or any other product candidates we develop are subject to review by the FDA and other non U S authorities pursuant to
inspections that will be conducted after we submit a BLA or other marketing application to the FDA and other non U S authorities We do not directly conduct the manufacturing and testing of any material or products Therefore we are materially dependent on our CMO partners and contract testing laboratories to operate in compliance with the regulatory requirements known as current good manufacturing practice cGMP requirements for manufacture of drug and device products or similar requirements outside the United States If our CMOs and contract testing laboratories cannot successfully manufacture and or test material that conforms to our specifications and the strict regulatory requirements of the FDA or others we will not be able to secure or maintain regulatory authorization for detalimogene or any other product candidates we develop that are manufactured at these manufacturing facilities resulting in delay or failure in the clinical development and commercialization of our products which would have a material adverse effect on us In addition we have limited control over the ability of our CMOs to maintain adequate quality control quality assurance and qualified personnel If the FDA or another non U S regulatory agency does not approve these facilities for the manufacture and or testing of detalimogene or any other product candidates we develop if any agency withdraws its approval in the future or if we identify material gaps in quality control and compliance at our selected CMOs we may need to find alternative manufacturing facilities which would negatively impact our ability to develop and deliver our products to markets around the world could delay product supply to patients in clinical studies or to commercial customers for any approved products and may increase the overall cost of manufacturing our products
Detalimogene or any other product candidates we develop may compete with other product candidates and marketed products for access to manufacturing and or testing facilities Any performance failure on the part of our existing or future CMOs could delay clinical development marketing approval or commercialization Our current and anticipated future dependence upon others for the manufacturing of detalimogene or any other product candidates we develop may adversely affect our future profit margins and our ability to commercialize detalimogene or any other product candidates we develop that receive marketing approval on a timely and competitive basis
Detalimogene is complex to manufacture and the manufacturing process for any other product candidates we develop may be similarly complex or more complex and we may encounter difficulties in production particularly with respect to scaling our manufacturing capabilities If we or any of our third party manufacturers with whom we contract encounter these types of difficulties our ability to supply detalimogene or any other product candidates we develop for clinical trials or as products for patients if approved could be constrained delayed or stopped or we may be unable to maintain a commercially viable cost structure
The manufacturing processes used to produce detalimogene are complex and novel and have not been validated for clinical or commercial production The manufacturing processes used to produce any future product candidates that we develop may be similarly or more complex and novel As a result of these complexities the cost to manufacture our product candidates is generally higher than traditional biopharmaceutical compounds and the manufacturing processes may prove to be less reliable and may be more difficult to reproduce For example for detalimogene we must separately manufacture a novel plasmid DNA drug substance DS a novel co polymer excipient DDX and a novel block co polymer excipient PEG b PLE We then combine those ingredients in the drug product manufacturing process There are many points throughout this process and the manufacturing processes of other product candidates we develop that can lead to failure Failure in the production of any of our product components or candidates could have a material adverse effect on our business financial condition results of operations and prospects Some examples of manufacturing challenges and potential failure we may encounter follow
Our manufacturing processes are also susceptible to product loss or failure due to logistical issues associated with multiple outsourced activities across the range of manufacturing shipping of materials to analytical laboratories cold chain distribution to where products will be administered to patients interruptions in the manufacturing processes contamination equipment or reagent failure improper installation or operation of equipment vendor or operator error and variability of product characteristics Even minor deviations from normal manufacturing processes could result in reduced production yields lot failures product defects product recalls product liability claims and other supply disruptions If microbial viral or other contaminations are discovered in detalimogene or other product candidates we develop or in the manufacturing facilities in which detalimogene or those other product candidates are made the manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination which could result in our inability to timely produce or ship product Further as product candidates are developed through preclinical to later stage clinical trials toward approval and commercialization it is common that various aspects of the development program such as
manufacturing methods are altered in an effort to optimize processes and results If we make these types of changes we may not achieve our intended objectives and any of these changes could cause our product candidates to perform differently than we expect potentially affecting the results of clinical trials
Although we continue to optimize our manufacturing processes doing so is difficult and uncertain There are risks associated with scaling to the level required for advanced clinical trials or commercialization including among other things cost overruns production delays potential problems with process scale out process reproducibility stability issues lot consistency and timely availability of reagents or raw materials If we are unable to adequately validate or scale up our manufacturing processes with our current manufacturing partners we will need to transfer such processes to another manufacturing partner and complete the manufacturing validation process which can be a lengthy process We ultimately may not be successful completing the transfer of our manufacturing processes to one or more of the manufacturers on whom we rely The manufacturers who become responsible for our processes may not have the necessary capabilities to complete the implementation and development processes to our specifications or standards If we are able to adequately validate and scale up a particular manufacturing process for detalimogene and other product candidates we develop with a contract manufacturer we will still need to negotiate an agreement for commercial supply with that contract manufacturer and it is not certain we will be able to come to agreement on commercially reasonable terms or at all As a result we may ultimately be unable to manage the cost of goods for detalimogene or other product candidates we develop to levels that will allow for an attractive return on investment if and when detalimogene or those other product candidates are approved and commercialized
The manufacturing processes and facilities used for any products that we may develop are subject to the FDA and non U S regulatory authority approval processes and we will need to contract with manufacturers who we believe can meet applicable FDA and non U S regulatory authority requirements on an ongoing basis If we or our CMOs are unable to reliably produce products to specifications acceptable to the FDA or other regulatory authorities or if the facilities used to manufacture our products are found to be non compliant for any reason we may not obtain or maintain the approvals we need to commercialize our products Even if we obtain regulatory approval for any of our product candidates there is no assurance that either we or our CMOs will be able to manufacture the approved product to specifications and under required good manufacturing practices acceptable to the FDA or other regulatory authorities to produce it in sufficient quantities to meet the requirements for the potential launch of the product or to meet potential future demand Any of these challenges could delay completion of clinical trials require bridging clinical trials or the repetition of one or more clinical trials increase clinical trial costs delay approval of our product candidates impair commercialization efforts increase our cost of goods and have an adverse effect on our business financial condition results of operations and prospects
Our future success depends on our ability to manufacture our products on a timely basis with acceptable manufacturing costs while at the same time maintaining good quality control and complying with applicable regulatory requirements and an inability to do so could have a material adverse effect on our business financial condition results of operations and prospects In addition we could incur higher manufacturing costs if manufacturing processes or standards change and we could need to replace modify design or build and install equipment all of which would require additional capital expenditures Specifically because our product candidates may have a higher cost of goods than conventional therapies and may require long term follow up evaluations the risk that coverage and reimbursement rates may be inadequate for us to achieve profitability may be greater
In addition the FDA the EMA and other non U S regulatory authorities may require us to submit samples of any lot of any approved product together with the protocols showing the results of applicable tests at any time Under some circumstances the FDA the EMA or other non U S regulatory authorities may require that we not distribute a lot until the relevant agency authorizes its release Slight deviations in our manufacturing processes including those affecting quality attributes and stability may result in unacceptable changes in the product that could result in lot failures or product recalls Lot failures or product recalls could cause us to delay product launches or clinical trials which could be costly to us and otherwise harm our business financial condition results of operations and prospects Problems in our manufacturing processes could restrict our ability to meet market demand for our products
Any problems in our manufacturing processes or facilities at our CMOs or the perception of the possibility of problems in such processes or facilities could make us a less attractive collaborator for potential partners including larger pharmaceutical companies and academic research institutions which could limit our access to additional attractive development programs
We expect to evaluate the possibility of establishing our own capabilities and infrastructure including a manufacturing facility If we choose to build our own manufacturing facility we will need significant funding and will need to select an adequate location We expect that development of our own manufacturing facility would provide us with enhanced control of material supply for both clinical trials and the commercial market enable the more rapid implementation of process changes and allow for better long term margins However we have no experience in developing a manufacturing facility and may never be successful in developing our own manufacturing facility or capability If we determine to establish our own manufacturing capabilities and infrastructure we will also need to hire additional personnel to manage our operations and facilities and develop the necessary infrastructure to continue the research and development and eventual commercialization if approved of our product candidates If we fail to select the correct location
complete the construction in an efficient manner recruit the required personnel and generally manage our growth effectively the development and production of our product candidates could be curtailed or delayed We may establish multiple manufacturing facilities as we expand our commercial footprint to multiple geographies which may lead to regulatory delays or could prove costly Even if we are successful any manufacturing capabilities we develop could be affected by cost overruns unexpected delays equipment failures labor shortages natural disasters power failures and numerous other factors that could prevent us from realizing the intended benefits of our manufacturing strategy and have a material adverse effect on our business financial condition results of operations and prospects
As product candidates are developed through preclinical studies to later stage clinical trials toward approval and commercialization it is common that various aspects of the development program such as manufacturing methods or formulation are altered along the way in an effort to optimize processes and results Any of these changes could cause detalimogene or any other product candidates that we develop to perform differently and affect the results of ongoing or planned clinical trials or other future clinical trials conducted with the altered materials In addition such changes and any other similar changes in the future may also require additional testing or notification to or approval by the FDA or other regulatory authorities This could delay completion of clinical trials require the conduct of bridging clinical trials or studies require the repetition of one or more clinical trials increase clinical trial costs delay approval of detalimogene or any other product candidates that we develop and or jeopardize our ability to commence product sales and generate revenue
Detalimogene is and any other product candidates we develop may be complex to analyze and we may encounter difficulties in product release testing particularly with respect to bioassay potency testing If we or any of our contract testing laboratories encounter difficulties our ability to provide supply of detalimogene or any other product candidates that we develop for clinical trials or our products for patients if approved could be delayed or stopped or we may be unable to maintain a commercially viable cost structure
The analytical methods used to test detalimogene are complex and many are novel and have not been validated for clinical or commercial production The manufacturing processes used to produce any future product candidates that we develop may be similarly complex and novel For example in addition to several complex physio chemical tests for detalimogene drug substance DS and novel excipients we also test detalimogene and the DS for biological potency using multiple unique cell based assays We rely on third party laboratories to develop and conduct these assays These assays may be subject to inherent variability and limitations such as but not limited to variations in assay conditions reagents equipment or interpretation of results that could lead to inconsistent or inaccurate measurements of potency Inaccurate potency assessments may affect our ability to demonstrate adequate control of the efficacy and safety of our drug product to regulatory authorities potentially resulting in regulatory delays additional testing requirements or even rejection of our product Furthermore changes in regulatory guidelines or evolving scientific understanding may necessitate modifications to the biological potency assays requiring additional validation studies and potential delays in the development or commercialization of detalimogene or any other product candidates we develop It is important to note that despite our efforts to ensure the accuracy and reliability of these assays there may be factors beyond our control that could impact their effectiveness thereby affecting the overall success of our product candidates
Although we continue to optimize our testing methods doing so is a difficult and uncertain task and there are risks associated with developing these methods to the level required for advanced clinical trials and commercialization including among other things cost overruns potential problems with reproducibility stability issues consistency and timely availability of reagents or raw materials needed to execute the testing If we are unable to adequately validate testing methods with our current testing laboratories we will need to transfer to another laboratory and repeat the analytical validation process which can be a lengthy process We ultimately may not be successful in transferring the analytical methods to contract testing laboratories and the selected contract laboratories may not have the necessary capabilities to complete the implementation and validation process for the assays If we are able to adequately transfer and validate testing methods for detalimogene or any other product candidates we develop with a contract laboratory we will still need to negotiate a service agreement with that contract laboratory and it is not certain we will be able to come to agreement on terms acceptable to us As a result we may ultimately be unable to manage the cost of goods for detalimogene or any other product candidates we develop to levels that will allow for an attractive return on investment if and when those product candidates are approved and commercialized
The analytical testing methods for any products that we may develop are subject to the FDA and non U S regulatory authority approval processes and we will need to contract with laboratories we believe can meet applicable FDA and non U S regulatory authority requirements on an ongoing basis If we or our CMOs are unable to reliably test products in a manner acceptable to the FDA or other regulatory authorities we may not obtain or maintain the approvals we need to commercialize our products Even if we obtain regulatory approval for detalimogene or any other product candidates we develop there is no assurance that either we or our CMOs will be able to test the approved product in a manner required by good manufacturing practices acceptable to the FDA or other regulatory authorities to test products with sufficient throughput to meet the requirements for the potential launch of the product or to meet potential future demand Any of these challenges could delay completion of clinical trials require bridging clinical trials or the repetition of one or more clinical trials increase clinical trial costs delay approval of detalimogene or any other product candidates we develop impair
Our future success depends on our ability to test our products on a timely basis with acceptable costs while at the same time maintaining good quality control and complying with applicable regulatory requirements and an inability to do so could have a material adverse effect on our business financial condition results of operations and prospects In addition we could incur higher testing costs if testing methods or standards change and we could need to replace modify design or build and install equipment all of which would require additional capital expenditure Specifically because detalimogene or any other product candidates we develop may have a higher testing requirement than conventional therapies the risk that coverage and reimbursement rates may be inadequate for us to achieve profitability may be greater
Cancer and other disease therapies are sometimes characterized as first line second line or third line and the FDA often approves new therapies initially only for third line use When cancers are detected they are treated with first line of therapy with the intention of curing the cancer This treatment generally consists of chemotherapy radiation antibody drugs tumor targeted small molecules or a combination of these If the patient s cancer relapses then the patient is given a second line or third line therapy which can consist of more chemotherapy radiation antibody drugs tumor targeted small molecules or a combination of these Generally the later the line of therapy the lower the chance of a cure With third or higher line the goal of the therapy is to control the growth of the tumor and extend the life of the patient as a cure is unlikely to happen Patients are generally referred to clinical trials in these situations Initial approvals for new cancer and other disease therapies are often restricted to later lines of therapy for patients with advanced or metastatic disease limiting the number of patients who may be eligible for such new therapies which may include our product candidates
Our lead product candidate detalimogene is being developed to treat patients with BCG unresponsive NMIBC Our projections of both the number of people who have the disease we are targeting as well as the subset of people with these diseases in a position to receive our therapies if approved are based on our beliefs research and estimates These estimates have been derived from a variety of sources including scientific literature input from key opinion leaders patient foundations or secondary market research databases and may prove to be incorrect Further new studies may change the estimated incidence or prevalence of these diseases The number of patients may turn out to be lower than expected Additionally the potentially addressable patient population for detalimogene or any other product candidates we develop may be limited or may not be amenable to treatment with such product candidates Even if we obtain significant market share for detalimogene or any other product candidates we develop because certain of the potential target populations may be small we may never achieve profitability without obtaining regulatory approval for additional indications If the market opportunities for detalimogene or any other product candidates we may develop are smaller than what we believe they are our potential revenues may be lower than projected and our business may be harmed
We depend on our executive team and key personnel and if we do not successfully manage the previously announced transitions of our Chief Executive Officer and other executive officers or if we lose one or more of our executive officers or key employees or are unable to attract and retain highly skilled employees such events could harm our business
Our success depends largely upon the continued service of our executive officers These executive officers are at will employees and therefore they may terminate employment with us at any time with no advance notice In February 2024 we announced the planned transition of our former Chief Executive Officer Jason Hanson In July 2024 we appointed Ronald Cooper as our new Chief Executive Officer and Mr Hanson transitioned to a consulting role as Senior Strategic Advisor and we promoted Dr Raj Pruthi to replace Dr Richard Bryce as our Chief Medical Officer In October 2024 we appointed Joan Connolly as Chief Technology Officer and our former Chief Technology Officer Dr Anthony Cheung transitioned to the role of Chief Scientific Officer succeeding Dr James Sullivan Leadership transitions can be difficult to manage and inherently cause some loss of institutional knowledge which can negatively affect strategy execution and our operation An inadequate transition has the potential to negatively impact our operations and relationships with employees investors and other third parties due to increased or unanticipated expenses operational inefficiencies uncertainty regarding changes in strategy decreased employee morale and productivity increased turnover and increased difficulty attracting and retaining key executives and employees If we are unable to effectively manage such transitions or if we have any future transition or loss of the services of any of our executives or highly skilled technical and managerial personnel it could have a disruptive impact on our ability to implement our business strategy and to meet our financial and operational goals and as a result our strategic plans and financial performance may be adversely impacted
Our success also depends on the skills experience and performance of members of our senior management team and key personnel The individual and collective efforts of our senior management team and key personnel are important as we continue to develop product candidates establish strategic partnerships build out our operations and prepare for potential regulatory approval and commercialization of detalimogene if approved The loss or incapacity of existing members of our executive management team and key personnel could adversely affect our operations if we experience difficulties in hiring qualified successors If we are not successful in attracting and retaining highly qualified personnel our business financial condition results of operations and prospects may be harmed
Our research and development initiatives manufacturing processes and business depend on our ability to attract and retain highly skilled scientists and other specialized individuals We may not be able to attract or retain such qualified scientists and other specialized individuals in the future due to the competition for qualified personnel among life science and technology businesses
Our research and development initiatives laboratory operations and manufacturing processes depend on our ability to attract and retain highly skilled and experienced scientists clinical personnel technicians engineers quality control and manufacturing personnel We may not be able to attract or retain qualified scientists clinical personnel technicians or engineers in the future due to the competition for qualified personnel among life science and technology businesses We also face competition from universities and public and private research institutions in recruiting and retaining highly qualified scientific personnel Additionally we may be unable to identify hire and retain the experienced scientific quality control and manufacturing personnel needed to transfer our manufacturing processes and test methods to CMOs and external testing laboratories Further if we endeavor to conduct manufacturing processes internally we may be unable to identify hire or retain the personnel needed to conduct our manufacturing processes which could result in delays in production or difficulties in maintaining compliance with applicable regulatory requirements We may have difficulties locating recruiting or retaining qualified personnel across functions that we deem critical to our success Recruiting training and retention difficulties can limit our ability to support our research and development and commercialization efforts All of our employees are at will which means that either we or the employee may terminate their employment at any time
In addition we rely on consultants and advisors including scientific and clinical advisors to assist us in formulating our research and development regulatory and commercialization strategy Our consultants and advisors may provide services to other organizations and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us The loss of the services of one or more of our current consultants or advisors might impede the achievement of our research development regulatory and commercialization objectives
Public health crises could have an adverse effect our business Quarantines travel restrictions and other public health and safety measures implemented in response to a pandemic could adversely impact our operations and the ultimate impact is highly uncertain and cannot be predicted with confidence Effects of a pandemic that may delay or otherwise adversely affect our ongoing and planned preclinical activities our planned clinical trials as well as our business generally include
Any of these effects and other effects of a pandemic could have a material adverse effect on our business financial condition results of operations and prospects Further uncertainty around these and related issues could lead to adverse effects on the economy of the United States Canada and other economies which could impact our ability to raise the necessary capital needed to develop and commercialize our programs and product candidates
We or the third parties upon whom we depend may be adversely affected by risks beyond our control such as natural disasters political crises acts of terrorism epidemics and other outbreaks of communicable diseases war or other catastrophic events and our business continuity and disaster recovery plans may not adequately protect us from the adverse effects of such events
If a natural disaster power outage or other event occurred that prevented us from using all or a significant portion of our headquarters or other facilities that damaged critical infrastructure such as our enterprise financial systems or manufacturing resource planning and enterprise quality systems or that otherwise disrupted operations it may be difficult or in certain cases impossible for us to continue our business for a substantial period of time
For example since February 2022 Russian military forces have continued their significant military invasion of Ukraine Since October 2023 with the launch of the Israel Hamas war there has been increased hostilities in the Middle East The impact to these countries and regions as well as actions taken by other countries including new and stricter sanctions by the United States Canada the United Kingdom the European Union and other countries and organizations against certain officials individuals regions and industries in the affected areas and each country s potential response to such sanctions tensions and military actions could continue to have a material adverse effect on the global economy and political situation
As of the date of this Annual Report we i are not conducting clinical or nonclinical studies in Ukraine Belarus Russia or the Middle East ii are not relying upon service providers or vendors from any of these regions to advance our product development programs iii do not source biomanufacturing critical raw materials equipment or other supplies directly from these regions and iv are not aware nor have we received notification from our supply vendors that the sourcing of any general laboratory or manufacturing materials may be negatively impacted due to such conflict and related sanctions
The disaster recovery and business continuity plans we have in place currently are limited and are unlikely to prove adequate in the event of a serious disaster or similar event We may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans which particularly when taken together with our lack of earthquake insurance could have a material adverse effect on our business
Furthermore integral parties in our supply chain are similarly vulnerable to natural disasters or other sudden unforeseen and severe adverse events If such an event were to affect our supply chain it could have a material adverse effect on our business financial condition results of operations and prospects
Nearly all aspects of our activity and our products and services are subject to extensive regulation by various U S federal and state agencies and regulatory bodies in non U S jurisdictions and compliance with existing or future regulations could result in unanticipated expenses or limit our ability to offer our products and services Once developed detalimogene and any future product candidates developed using our genetic medicine platform will require regulatory approval which is a lengthy expensive and inherently unpredictable process with uncertain outcomes and cost and is subject to the potential for substantial delays We cannot give any assurance whether or when detalimogene or any other product candidates we develop will receive regulatory approval which is necessary before they can be commercialized
Regulatory requirements governing gene and cell therapy products and in particular any novel genetic medicine products we may develop have changed frequently and may continue to change in the future We are aware of a limited number of genetic medicine products that have received marketing authorization from the FDA and EMA Even with respect to more established products in the genetic medicine field the regulatory landscape is still developing In 2016 the FDA established the Office of Tissues and Advanced Therapies OTAT within its Center for Biologics Evaluation and Research to consolidate the review of genetic medicine and related products and has established the Cellular Tissue and Gene Therapies Advisory Committee among others to advise this review In September 2022 the FDA announced retitling of OTAT to the Office of Therapeutic Products OTP and elevation of OTP to a Super Office to meet its growing cell and genetic medicine workload Genetic medicine clinical trials conducted at institutions that receive funding for recombinant DNA research from the U S National Institutes of Health NIH also are potentially subject to review by the Office of Biotechnology Activities Recombinant DNA Advisory Committee RAC however the NIH announced that the RAC will only publicly review clinical trials if the trials cannot be evaluated by standard oversight bodies and pose unusual risks
The same applies in the European Union The EMA s Committee for Advanced Therapies CAT is responsible for assessing the quality safety and efficacy of advanced therapy medicinal products The role of CAT is to prepare a draft opinion on an application for marketing authorization for a genetic medicine medicinal candidate that is submitted to the Committee for Medicinal Products for Human Use CHMP before CHMP adopts its final opinion In the European Union the development and evaluation of a genetic medicine 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 genetic medicine medicinal products and require that we comply with these new guidelines As a result the procedures and standards applied to genetic medicine products and cell therapy products may be applied to any product candidates we may develop but that remains uncertain at this point
interpretations delay or prevent approval and commercialization of detalimogene and any other product candidates we may develop or lead to significant post approval limitations or restrictions As we advance detalimogene and any other product candidates we may develop we will be required to consult with these regulatory and advisory groups and comply with applicable guidelines If we fail to do so we may be required to delay or discontinue development of these product candidates Delay or failure to obtain or unexpected costs in obtaining the regulatory approval necessary to bring a potential product to market could decrease our ability to generate sufficient product revenue to maintain our business
Although the FDA decides whether individual genetic medicine protocols may proceed the RAC public review process if undertaken can delay the initiation of a clinical trial even if the FDA has reviewed the trial design and details and approved its initiation Conversely the FDA can put an IND on a clinical hold even if the RAC has provided a favorable review or an exemption from in depth public review If we were to engage an NIH funded institution to conduct a clinical trial now or in the future that institution s institutional biosafety committee as well as its IRB would need to review the proposed clinical trial to assess the safety of the trial In addition adverse developments in clinical trials of genetic medicine products conducted by others may cause the FDA or other oversight bodies to change the requirements for approval of detalimogene or any other product candidates we may develop Similarly the EMA may issue new guidelines concerning the development and marketing authorization for genetic medicine products and require that we comply with these new guidelines
As we are initially seeking to identify and develop product candidates to treat diseases using novel technologies there is heightened risk that the FDA the EMA or other regulatory authority may not consider the clinical trial endpoints that we propose to provide clinically meaningful results Even if the endpoints are deemed clinically meaningful we may not achieve these endpoints to a degree of statistical significance particularly because many of the diseases we are targeting with our platform have small patient populations making development of large and rigorous clinical trials more difficult
Adverse developments in post marketing experience or in clinical trials conducted by others of genetic medicine products or products developed or marketed for indications of interest to us such as NMIBC may cause the FDA the EMA and other regulatory bodies to revise the requirements for development or approval of detalimogene or any other product candidates we may develop or limit the use of products utilizing non viral genetic medicine technologies either of which could materially harm our business In addition the clinical trial requirements of the FDA the EMA and other regulatory authorities and the criteria these regulators use to determine the safety and efficacy of a product candidate vary substantially according to the type complexity novelty and intended use and market of the potential products The regulatory approval process for novel product candidates such as detalimogene or other product candidates we may develop can be more expensive and take longer than for other better known or more extensively studied pharmaceutical or other product candidates Regulatory agencies administering existing or future regulations or legislation may not allow production and marketing of products utilizing non viral genetic medicine technology 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
In addition ethical social and legal concerns about genetic medicine genetic testing and genetic research could result in additional regulations or prohibiting the processes we may use Federal and state agencies congressional committees and non U S governments have expressed their intentions to further regulate biotechnology More restrictive regulations or claims that detalimogene and any other product candidates we may develop are unsafe or pose a hazard could prevent us from commercializing any products New government requirements may be established that could delay or prevent regulatory approval of detalimogene and any other product candidates we may develop It is impossible to predict whether legislative changes will be enacted regulations policies or guidance changed or interpretations by agencies or courts changed or what the impact of such changes if any may be
As we advance detalimogene and any other product candidates we may develop through clinical development we will be required to consult with these regulatory and advisory groups and comply with applicable guidelines These regulatory review committees and advisory groups and any new guidelines they promulgate may lengthen the regulatory review process require us to perform additional studies increase our development costs lead to changes in regulatory positions and interpretations delay or prevent approval and commercialization of detalimogene and any other product candidates we may develop or lead to significant post approval limitations or restrictions Delay or failure to obtain or unexpected costs in obtaining the regulatory approval necessary to bring a potential product to market could decrease our ability to generate sufficient product revenue
We have designed and are currently conducting the clinical trials for detalimogene in accordance with the Guidance Document This document which was updated in draft form in August 2024 sets forth guidance for patient selection and describes a potentially abbreviated regulatory path for approval provided certain recruitment efficacy and safety data are met The FDA may review revoke or otherwise modify these guidelines at any time for any reason which would have a material adverse effect on our approval timelines or process In addition the Guidance Document is in draft form subsequent to FDA s 2024 revisions and it is possible that some or all of its key provisions may be modified prior to the document s finalization Furthermore approval of other competitive products treating the same indication may reduce the agency s propensity to support abbreviated approval pathways which could cause our programs to be delayed in achieving regulatory approval or contribute to our failure to achieve approval at all
We cannot commercialize a product candidate until the appropriate regulatory authorities have reviewed and approved the product candidate and our application to commercialize it Even if detalimogene or any other product candidates we may develop meet their safety and efficacy endpoints in clinical trials regulatory authorities may not complete their review processes in a timely manner or we may not be able to obtain regulatory approval Additional delays may result if an FDA panel of experts Advisory Committee or other regulatory authority recommends non approval or restrictions on approval In addition we may experience delays or rejections based upon additional government regulation from future legislation or administrative action or changes in regulatory authority policy during the period of product development clinical trials and the review process
Regulatory authorities also may approve a product candidate for more limited indications than requested or they may impose significant limitations in the form of narrow indications warnings or a REMS These regulatory authorities may require labeling that includes precautions boxed warnings or contra indications with respect to conditions of use or they may grant approval subject to the performance of costly post marketing clinical trials
In addition regulatory authorities may not approve the labeling claims that are necessary or desirable for the successful commercialization of detalimogene or any other product candidates we may develop Any of the foregoing scenarios could materially harm the commercial prospects for detalimogene or any other product candidates we may develop and materially adversely affect our business financial condition results of operations and prospects
If we are not able to obtain or if there are delays in obtaining required regulatory approvals for detalimogene or any other product candidates that we may develop we will not be able to commercialize or will be delayed in commercializing detalimogene or any other product candidates that we may develop and our ability to generate revenue will be adversely affected Even if we eventually gain approval for detalimogene or any of other product candidates we may be unable to commercialize them
Our product candidates and the activities associated with their development and commercialization including their design testing manufacture safety efficacy recordkeeping labeling storage approval advertising promotion sale distribution import and export are subject to comprehensive regulation by the FDA and other regulatory agencies in the United States and by comparable authorities in other countries Before we can commercialize detalimogene or any other product candidates that we may develops we must obtain marketing approval Detalimogene or any other product candidates that we may develop in the future require research and development preclinical studies nonclinical testing and clinical trials prior to seeking regulatory approval and commencing commercial sales We have not received approval to market any of our product candidates from regulatory authorities in any jurisdiction and it is possible that neither detalimogene nor any other product candidates we may seek to develop in the future will ever obtain regulatory approval In certain instances we may need to rely on third party CROs and or regulatory consultants to assist us in this process and we may have limited control over those third parties and their conduct with respect to our development programs and product candidates To date we have focused substantially all of our efforts and financial resources on identifying and developing our product candidates including conducting lead optimization nonclinical studies preclinical studies and clinical trials and providing general and administrative support for these operations Securing regulatory approval requires the submission of extensive preclinical and clinical data and supporting information to the various regulatory authorities for each therapeutic indication to establish the biologic product candidate s safety purity efficacy and potency Securing regulatory approval also requires the submission of information about the manufacturing processes for the biologic product candidate to and inspection of manufacturing facilities by the relevant regulatory authority Manufacturing facilities must comply with cGMP regulations which include requirements relating to organization of personnel buildings and facilities equipment control of components and drug product containers and closures production and process controls packaging and labeling controls holding and distribution laboratory controls records and reports In addition given the novelty of our therapeutics approach and technologies detalimogene and any other product candidates that we may develop may not be effective may be only moderately effective or may prove to have undesirable or unintended side effects toxicities or other characteristics that may preclude our obtaining marketing approval or prevent or limit commercial use of such products if approved
The process of obtaining regulatory approvals both in the United States and abroad is expensive may take many years if additional clinical trials are required if approval is obtained at all and can vary substantially based upon a variety of factors including the type complexity and novelty of the product candidates involved FDA and other regulatory bodies may continually change the requirements for Chemistry Manufacturing and Controls CMC and other aspects of product manufacturing such that the approval to continue a clinical trial and or commercially sell a product may never occur Changes in marketing approval policies during the development period changes in or the enactment of additional statutes or regulations or changes in regulatory review for each submitted IND BLA or equivalent application types may cause delays in the approval or rejection of an application The FDA and comparable authorities in other countries have substantial discretion in the approval process and may refuse to accept any application or may decide that our data are insufficient for approval and require additional preclinical clinical or other studies Detalimogene and any other product candidates that we may develop could be delayed in receiving or fail to receive regulatory approval for many reasons including the following
Of the large number of drugs and biologics in development only a small percentage successfully complete the FDA or non U S regulatory approval processes and are commercialized The lengthy approval process as well as the unpredictability of clinical trial results may result in our failing to obtain regulatory approval to market detalimogene or any other product candidates that we may develop which would significantly harm our business financial condition results of operations and prospects
For example the general approach for FDA approval of a new biologic or drug is for sponsors to seek licensure or approval based on dispositive data from well controlled Phase 3 clinical trials of the relevant product candidate in the relevant patient population Phase 3 clinical trials typically involve hundreds of patients have significant costs and take years to complete We believe that we may be able to utilize the requirements defined in the FDA s guidance for industry on developing detalimogene or other product candidates for BCG unresponsive high risk NMIBC given the limited alternatives for treatments for cancer and other serious diseases but the FDA may not agree with our plans or permit us to proceed under such alternative guidance
The FDA may also require an Advisory Committee to deliberate on the adequacy of the safety and efficacy data to support BLA approval The opinion of the Advisory Committee although not binding may have a significant impact on our ability to obtain approval of detalimogene or any other product candidates that we develop based on the completed clinical trials
Moreover approval of genetic or biomarker diagnostic tests may be necessary in order to advance some of our product candidates to clinical trials or potential commercialization In the future regulatory agencies may require the development and approval of such tests Accordingly the regulatory approval pathway for such product candidates may be uncertain complex expensive and lengthy and approval may not be obtained
In addition even if we were to obtain approval regulatory authorities may approve detalimogene or any other product candidates that we may develop for fewer or more limited indications than we request may not approve the price we intend to charge for our products where such regulatory approvals are required may grant approval contingent on the performance of costly post marketing clinical trials or may approve that product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate Any of the foregoing scenarios could materially harm the commercial prospects for detalimogene or any other product candidates that we may develop
We may not obtain or maintain regulatory approval in all jurisdictions in which such approval may be required or otherwise desirable or beneficial from a business perspective Obtaining and maintaining regulatory approval of detalimogene or any other product candidates we develop in one jurisdiction does not mean that we will obtain and or maintain regulatory approval of such product candidates in other jurisdictions while a failure or delay in obtaining or maintaining regulatory approval of such product candidates in one jurisdiction may have a material adverse effect on the regulatory approval or maintenance process in other jurisdictions
Obtaining and maintaining regulatory approval of detalimogene or any other product candidates that we may develops in one jurisdiction does not guarantee that we will be able to obtain or maintain regulatory approval in any other jurisdiction while a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval process in others For example even if the FDA grants marketing approval of a product candidate comparable regulatory authorities in non U S jurisdictions must also approve the manufacturing marketing and promotion of the product candidate in those countries Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from and greater than those in the United States including additional preclinical studies or clinical trials as clinical trials conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions In many non U S jurisdictions a product candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction In some cases the price that we intend to charge for our products is also subject to approval
We may also submit marketing applications in other countries Regulatory authorities in jurisdictions outside of the United States have requirements for approval of product candidates with which we must comply prior to marketing in those jurisdictions and such regulatory requirements can vary widely from country to country Obtaining other regulatory approvals and compliance with other regulatory requirements could result in significant delays difficulties and costs for us and could require additional preclinical studies or clinical trials which could be costly and time consuming and could delay or prevent the introduction of our products in certain countries The non U S regulatory approval process involves all of the risks associated with FDA approval and may not offer certain potentially expedited development and approval pathways that exist in the United States We do not have any product candidates approved for sale in any jurisdiction including international markets and we do not have experience in obtaining regulatory approval in international markets If we fail to comply with the regulatory requirements in international markets and or obtain and maintain applicable marketing approvals our target market will be reduced and our ability to realize the full market potential of detalimogene or any other product candidates that we may develop will be harmed
The FDA has granted a Fast Track designation for detalimogene for the treatment of BCG unresponsive high risk NMIBC patients with CIS and we may seek Fast Track designations for other indications or future product candidates The Fast Track program is intended to expedite or facilitate the process for reviewing product candidates that meet certain criteria Specifically biologics are eligible for Fast Track designation if they are intended alone or in combination with one or more drugs or biologics to treat a serious or life threatening disease or condition and demonstrate the potential to address unmet medical needs for the disease or condition Fast Track designation applies to the combination of the product candidate and the specific indication for which it is being studied The sponsor of a Fast Track product candidate has opportunities for more frequent interactions with the applicable FDA review team during product development and once a BLA is submitted the application may be eligible for priority review A BLA submitted for a Fast Track product candidate may also be eligible for rolling review where the FDA may consider for review sections of the BLA on a rolling basis before the complete application is submitted if the sponsor provides a schedule for the submission of the sections of the BLA the FDA agrees to accept sections of the BLA and determines that the schedule is acceptable and the sponsor pays any required user fees upon submission of the first section of the BLA
The FDA has broad discretion whether or not to grant this designation Even if we believe a particular product candidate or development program is eligible for this designation we cannot assure you that the FDA would decide to grant it Although we have received Fast Track designation for detalimogene for the treatment of BCG unresponsive high risk NMIBC patients with CIS and even if we receive additional Fast Track designations for other indications or any future product candidates such product candidates may not experience a faster development process review or approval compared to conventional FDA procedures The FDA may also withdraw Fast Track designation if it believes that the designation is no longer supported by data from our clinical development program Furthermore such a designation does not increase the likelihood that detalimogene or any future product candidate that may be granted Fast Track designation will receive marketing approval in the United States Many product candidates that have received Fast Track designation have ultimately failed to obtain approval
If the FDA determines that a product candidate offers a treatment for a serious condition and if approved the product would provide a significant improvement in safety or effectiveness of the treatment the FDA may designate the marketing application for that product candidate for priority review A priority review designation is intended to direct overall attention and resources to the evaluation
of such applications and to shorten the goal for the FDA to review an application to six months rather than the standard review period of ten months We may request priority review for one or more original BLAs for detalimogene or any other product candidates that we may develop s in the future The FDA has broad discretion with respect to whether or not to grant priority review status to a marketing application so even if we believe an application for a particular product candidate is eligible for such designation or status the FDA may decide not to grant it Moreover a priority review designation does not necessarily result in expedited regulatory review or approval process or necessarily confer any advantage with respect to approval compared to conventional FDA procedures Receiving priority review from the FDA does not guarantee approval within the six month review cycle or at all Many product candidates that have received priority review designation have ultimately failed to obtain approval
Even if we receive regulatory approval of detalimogene or any other product candidates or therapies that we may develop we will be subject to ongoing regulatory obligations reporting requirements and continued regulatory review which may result in significant additional expenses If we fail to comply with regulatory requirements or experience unanticipated problems with our products or product candidates we may be subject to substantial penalties fines delays suspensions refusals and withdrawals of approvals
If detalimogene or any other product candidates that we may develop are approved they will be subject to ongoing regulatory requirements and reporting requirements for manufacturing labeling packaging storage advertising promotion sampling recordkeeping conduct of post marketing studies and submission of safety efficacy and other post market information including both federal and state requirements in the United States and requirements of comparable non U S regulatory authorities In addition we will be subject to continued compliance with cGMP and GCP requirements for any clinical trials that we conduct post approval
Facilities of CMOs and testing laboratories are required to comply with extensive FDA and non U S regulatory authority requirements including ensuring that quality control and manufacturing procedures conform to cGMP and in certain cases current Good Tissue Practices cGTP regulations As a result we and our contract manufacturers will be subject to continual review and inspections to assess compliance with cGMP and adherence to commitments made in any BLA other marketing application and previous responses to inspection observations Accordingly we and others with whom we work with must continue to expend time money and effort in all areas of regulatory compliance including manufacturing production and quality control
Any regulatory approvals that we receive for detalimogene or any other product candidates that we may develop may be subject to limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval or contain requirements for potentially costly post marketing testing including Phase 4 clinical trials and surveillance to monitor the safety and efficacy of the product candidate The FDA may also require that we implement a REMS program as a condition of approval of our product candidates which could entail requirements for long term patient follow up a medication guide physician communication plans or additional elements to ensure safe use such as restricted distribution methods patient registries and other risk minimization tools In addition if the FDA or a comparable non U S regulatory authority approves detalimogene or any other product candidates that we may develop we will have to comply with requirements including submissions of safety and other post marketing information and reports and establishment registration
The FDA may seek consent decrees or withdraw approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market Later discovery of previously unknown problems with our product candidates including adverse events of unanticipated severity or frequency or with our third party manufacturers manufacturing processes or testing laboratories 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 restrictions 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 The policies of the FDA and of other regulatory authorities may change and additional government regulations maybe enacted that could prevent limit or delay regulatory approval of our product candidates We cannot predict the likelihood nature or extent of government regulation that may arise from future legislation or administrative action either in the United States or abroad If we are slow or unable to adapt to changes in existing requirements or the
Changes in regulatory requirements could result in delays or discontinuation of development of detalimogene or other product candidates or therapies that we may develop or unexpected costs in obtaining or maintaining regulatory approval and thereby adversely affect our business and results of operations
Government authorities in the United States at the federal state and local level and in other countries regulate among other things the research development testing manufacture quality control approval labeling packaging storage recordkeeping promotion advertising distribution post approval monitoring and reporting marketing and export and import of drug and biological products Generally before a new drug or biologic can be marketed considerable data demonstrating its quality safety and efficacy and durability of effect must be obtained organized into a format specific for each regulatory authority submitted for review and approved by the regulatory authority
Because we are developing novel genetic medicine product candidates the regulatory requirements that we will be subject to are continually evolving and may not be clear Even with respect to more established products that fit into the category of genetic medicines the regulatory landscape is still developing For example regulatory requirements governing genetic medicine products have changed frequently and may continue to change in the future Moreover there is substantial and sometimes uncoordinated overlap in those responsible for regulation of existing cell therapy products
Complex regulatory environments exist in other jurisdictions in which we might consider seeking regulatory approvals for our product candidates further complicating the regulatory landscape For example in the European Union a special committee called the CAT was established within the EMA in accordance with Regulation EC No 1394 2007 on advanced therapy medicinal products ATMPs to assess the quality safety and efficacy of ATMPs and to follow scientific developments in the field ATMPs include genetic medicine products These various regulatory review committees and advisory groups and new or revised guidelines that they promulgate from time to time may lengthen the regulatory review process require us to perform additional studies increase our development costs lead to changes in regulatory positions and interpretations delay or prevent approval and commercialization of our product candidates or lead to significant post approval limitations or restrictions Because the regulatory landscape for our genetic medicines and product candidates is new we may face even more cumbersome and complex regulations than those emerging for cell therapy products
Contract manufacturers and their facilities are required to comply with extensive regulatory requirements including ensuring that quality control and manufacturing procedures conform to cGMP requirements These regulations cover all aspects of manufacturing relating to our product candidates and components used in clinical studies and commercial production These regulations govern manufacturing processes and procedures including record keeping and the implementation and operation of quality systems to control and assure the quality of investigational product candidates and products approved for sale Poor control of production processes can lead to the introduction of contaminants or to inadvertent changes in the properties or stability of our product candidates that may not be detectable in final product testing We and our contract manufacturers must supply all necessary documentation in support of a BLA or Market Authorization Application MAA on a timely basis and must adhere to Good Laboratory Practices GLP and cGMP regulations enforced by the FDA and other regulatory authorities through their facilities inspection program The facilities and quality systems of our third party contractors must pass a pre approval inspection for compliance with the applicable regulations as a condition of regulatory approval of our product candidates or any of our other potential product candidates
In addition the regulatory authorities may at any time audit or inspect a manufacturing facility involved with the preparation of our product candidates or our other potential product candidates or the associated quality systems for compliance with the regulations applicable to the activities being conducted We do not control the manufacturing process of and are completely dependent on our contract manufacturing partners for compliance with the regulatory requirements If these facilities do not pass a pre approval plant inspection regulatory approval of the product candidates may not be granted or may be substantially delayed until any violations are corrected to the satisfaction of the regulatory authority if ever Moreover if our contract manufacturers fail to achieve and maintain high manufacturing standards in accordance with applicable regulatory requirements or there are substantial manufacturing errors this
The United States and many non U S jurisdictions have enacted or proposed legislative and regulatory changes affecting the healthcare system including implementing cost containment programs to limit the growth of government paid healthcare costs including price controls restrictions on reimbursement and requirements for substitution of generic products for branded prescription products In recent years Congress has considered reductions in Medicare reimbursement levels for products administered by physicians The CMS the agency that administers the Medicare and Medicaid programs also has authority to revise reimbursement rates and to implement coverage restrictions for some products Cost reduction initiatives and changes in coverage implemented through legislation or regulation could decrease utilization of and reimbursement for any approved products While Medicare regulations apply only to drug benefits for Medicare beneficiaries private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates Therefore any reduction in reimbursement that results from federal legislation or regulation may result in a similar reduction in payments from private payors
The ACA substantially changed the way healthcare is financed by both governmental and private insurers and significantly impacts the pharmaceutical industry The ACA is intended to broaden access to health insurance reduce or constrain the growth of healthcare spending enhance remedies against healthcare fraud and abuse add new transparency requirements for healthcare and health insurance industries impose new taxes and fees on pharmaceutical and medical device manufacturers and impose additional health policy reforms Among other things the ACA expanded manufacturers rebate liability under the Medicaid Drug Rebate Program by increasing the minimum Medicaid rebate for both branded and generic products expanded the 340B program and revised the definition of average manufacturer price which could increase the amount of Medicaid rebates manufacturers are required to pay to states The legislation also extended Medicaid rebates previously due only on fee for service Medicaid utilization to include the utilization of Medicaid managed care organizations as well and created an alternative rebate formula for certain new formulations of certain existing products that is intended to increase the amount of rebates due on those products On February 1 2016 CMS issued final regulations to implement the changes to the Medicaid Drug Rebate Program under the ACA These regulations became effective on April 1 2016 Since that time there have been significant ongoing efforts to modify or eliminate the ACA The Tax Cuts and Jobs Act enacted on December 22 2017 repealed the shared responsibility payment for individuals who fail to maintain minimum essential coverage under section 5000A of the United States Internal Revenue Code of 1986 as amended the Code or the individual mandate
Other legislative changes have been proposed and adopted since the passage of the ACA The Budget Control Act of 2011 among other things created the Joint Select Committee on Deficit Reduction the Joint Select Committee to provide recommendations and legislative language that would significantly improve the short term and long term fiscal imbalance of the U S federal government The Joint Select Committee did not achieve its targeted deficit reduction of an amount greater than 1 2 trillion for the fiscal years 2012 through 2021 triggering the legislation s automatic reductions to several government programs These reductions included aggregate reductions to Medicare payments to healthcare providers of up to 2 per fiscal year which went into effect in April 2013 and will remain in effect through 2031 with the exception of a temporary suspension implemented under various COVID 19 relief legislation from May 1 2020 through March 31 2022 Under the Consolidated Appropriations Act 2023 the 2 Medicare sequester is extended for the first six months of fiscal year 2032 and revises the sequester percentage up to 2 for fiscal years 2030 and 2031 These across the board spending cuts could adversely affect our future revenues earnings and cash flows
In August 2022 President Biden signed the Inflation Reduction Act of 2022 the IRA The IRA contains substantial drug pricing reforms including the establishment of a drug price negotiation program within the U S Department of Health and Human Services that would require manufacturers to charge a negotiated maximum fair price for certain selected drugs or pay an excise tax for noncompliance the establishment of rebate payment requirements on manufacturers of certain drugs payable under Medicare Parts B and D to penalize price increases that outpace inflation and requires manufacturers to provide discounts on Part D drugs Substantial penalties can be assessed for noncompliance with the drug pricing provisions in the IRA The IRA could have the effect of reducing the prices we can charge and reimbursement we receive for our products if approved thereby reducing our profitability and could have a material adverse effect on our financial condition results of operations and growth prospects The implementation of the IRA is currently subject to ongoing litigation challenging the constitutionality of the IRA s Medicare drug price negotiation program The effect of the IRA on our business and the pharmaceutical industry in general is not yet known
The ACA has also been subject to challenges in the courts On December 14 2018 a Texas U S District Court Judge ruled that the ACA is unconstitutional in its entirety because the individual mandate was repealed by Congress On December 18 2019 the Fifth Circuit U S Court of Appeals held that the individual mandate is unconstitutional and remanded the case to the Texas District Court to reconsider its earlier invalidation of the entire ACA An appeal was taken to the U S Supreme Court On June 17 2021 the Supreme Court ruled that the plaintiffs lacked standing to challenge the law as they had not alleged personal injury traceable to the allegedly unlawful conduct As a result the Supreme Court did not rule on the constitutionality of the ACA or any of its provisions
Further changes to and under the ACA remain possible but it is unknown what form any such changes or any law proposed to replace or revise the ACA would take and how or whether it may affect our business in the future We expect that changes to the ACA the Medicare and Medicaid programs and changes stemming from other healthcare reform measures especially with regard to healthcare access financing or other legislation in individual states could have a material adverse effect on the healthcare industry
At the state level legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical product pricing including price or patient reimbursement constraints discounts restrictions on certain product access and marketing cost disclosure and transparency measures and in some cases designed to encourage importation from other countries and bulk purchasing
We expect that additional federal state and non U S 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 limited coverage and reimbursement and reduced demand for our products including detalimogene if approved or additional pricing pressures
Patients rely on insurance coverage by third party payors third party payors include Medicare and Medicaid government payors and commercial insurance companies such as Blue Cross Blue Shield Humana Cigna etc to pay for products The availability and extent of coverage and adequate reimbursement by third party payors including government health administration authorities private health coverage insurers managed care organizations and other third party payors is essential for most patients to be able to afford expensive treatments Sales of any of our product candidates that receive marketing approval will depend substantially both in the United States and internationally on the extent to which the costs of such product candidates will be covered and reimbursed by third party payors
Private insurance companies commercial payors and various other healthcare intermediaries such as pharmacy benefit managers may take steps to thwart physician and or patient access to our products including not covering the product blocking access to our products or adding step edits or prior approval requirements before reimbursing patients or health care providers for using our products This could result in reduced or failure to achieve revenues and or margins In addition third party organizations that purport to study and issue reports regarding the pricing of certain therapeutic medicines may issue reports regarding our products that negatively affect pricing and our product use and uptake by physicians and patients Additionally private insurance companies are increasingly imposing utilization management tools such as requiring prior authorization for a proprietary product if a generic product or less expensive product is available or requiring the patient to first fail on one or more generic or less expensive products before permitting access to a proprietary medicine
There is significant uncertainty related to third party payor coverage and reimbursement of newly approved products Factors payors consider in determining reimbursement are based on whether the product is i a covered benefit under its health plan ii safe effective and medically necessary iii appropriate for the specific patient iv cost effective and v neither experimental nor investigational This process will require us to provide scientific and clinical support for the use of our products to each third party payor separately with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance
No uniform policy exists for coverage and reimbursement in the United States If reimbursement is not available or is available only to limited levels we may not be able to successfully commercialize our product candidates Even if coverage is provided the approved reimbursement amount may not be high enough to allow us to establish or maintain pricing sufficient to realize an adequate return on our investment Coverage and reimbursement may impact the demand for or the price of any product candidate for which we obtain marketing approval If coverage and reimbursement are not available or reimbursement is available only to limited levels we may not successfully commercialize any product candidate for which we obtain marketing approval
As U S federal and state governments implement additional health care cost containment measures including measures to lower prescription drug pricing we cannot be sure that our products if approved will be covered by private or public payors and if covered whether the reimbursement will be adequate or competitive with other marketed products Such other actions by federal and state governments and health plans may put additional downward pressure on pharmaceutical pricing and health care costs which could negatively impact coverage and reimbursement for our products if approved our revenue and our ability to compete with other marketed products and to recoup the costs of our research and development Outside the United States the commercialization of therapeutics is generally subject to extensive governmental price controls and other market regulations and we believe the increasing emphasis on cost containment initiatives in the European Union the United Kingdom Japan and other countries has and will continue to put pressure on the pricing and usage of therapeutics such as our product candidates
If we are unable to establish or sustain coverage and adequate reimbursement for any product candidates including detalimogene from third party payors the adoption of those products and sales revenue will be adversely affected which in turn could adversely affect the ability to market or sell those product candidates if approved Coverage policies and third party payor reimbursement rates may change at any time Even if favorable coverage and reimbursement status is attained for one or more products for which we receive
We intend to seek approval to market our product candidates including detalimogene if approved in both the United States and in selected non U S jurisdictions If we obtain approval in one or more non U S jurisdictions for our product candidates we will be subject to rules and regulations in those jurisdictions In some countries outside of the United States particularly those in the European Union the pricing of pharmaceutical products is subject to governmental control and other market regulations which could put pressure on the pricing and usage of our product candidates In these countries pricing negotiations with governmental authorities can take considerable time after obtaining marketing approval of a product candidate To obtain reimbursement or pricing approval in some countries we may be required to conduct a clinical trial that compares the cost effectiveness of our product candidate to other available therapies If required to execute such a trial we cannot be sure of a favorable outcome In general product prices under such systems are substantially lower than in the United States Price controls in non U S jurisdictions or changes in pricing regulations in such jurisdictions could reduce the amount we are able to charge for our product candidates In addition market acceptance and sales of our product candidates will depend significantly on the availability of adequate coverage and reimbursement from third party payors for our product candidates and may be affected by existing and future healthcare reform measures
Much like the federal AKS prohibition in the United States the provision of benefits or advantages to physicians to induce or encourage the prescription recommendation endorsement purchase supply order or use of medicinal products are also prohibited in the European Union The provision of benefits or advantages to physicians is governed by the national anti bribery laws of EU member states such as the UK Bribery Act 2010 Infringement of these laws could result in substantial fines and imprisonment
Payments made to physicians in certain EU member states must be publicly disclosed Moreover agreements with physicians often must be the subject of prior notification and approval by the physician s employer their competent professional organization and or the regulatory authorities of the individual EU member states These requirements are provided in the national laws industry codes or professional codes of conduct applicable in the EU member states Failure to comply with these requirements could result in reputational risk public reprimands administrative penalties fines or imprisonment
In addition in most countries outside of the United States including the European Economic Area EEA the proposed pricing for a drug must be approved before it may be lawfully marketed The requirements governing drug pricing and reimbursement vary widely from country to country For example the European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use Reference pricing used by various EU member states and parallel distribution or arbitrage between low priced and high priced member states can further reduce prices A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market In some countries we may be required to conduct a clinical trial or other studies that compare the cost effectiveness of any of our product candidates to other available therapies in order to obtain or maintain reimbursement or pricing approval There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our products Historically products launched in the European Union do not follow price structures of the United States and generally prices tend to be significantly lower Publication of discounts by third party payors or authorities may lead to further pressure on the prices or reimbursement levels within the country of publication and other countries If pricing is set at unsatisfactory levels or if reimbursement of our products is unavailable or limited in scope or amount our revenues from sales by us and the potential profitability of any of our product candidates in those countries would be negatively affected
Government authorities promulgate regulations and guidelines that may be directly applicable to us and any approved products However professional societies practice management groups insurance carriers physicians groups private health and science foundations and organizations involved in various diseases also publish guidelines and recommendations to healthcare providers administrators and payors as well as patient communities
Recommendations by government authorities or other groups and organizations may relate to such matters as usage dosage route of administration and use of related therapies and a growing number of organizations are providing assessments of the value and pricing of pharmaceutical products These assessments may come from private organizations such as the Institute for Clinical and Economic Review ICER which publish their findings and offer recommendations relating to the products reimbursement by government and private payors On December 17 2020 ICER published its final report assessing the effectiveness and value of nadofaragene firadenovec and oportuzumab monatox for BCG unresponsive NMIBC both of which are potential competitors to detalimogene The guidance was updated on January 15 2021 Nadofargene firadenovec sold under the brand name Adstiladrin is a FDA approved genetic medicine approved in 2022 for the treatment of adult patients with high risk BCG unresponsive NMIBC with CIS with or without papillary
tumors oportuzumab monatox also known as Vicineum is an experimental therapy that has been studied in a highly similar patient group The findings of this or any future ICER report or similar recommendations or guidelines from ICER or similar third parties may affect our reputation as well as the perception of our value and any recommendations or guidelines that result in decreased use or reimbursement of detalimogene if approved or adopted into commercial or clinical practice could have a material adverse effect on our business financial condition results of operations and prospects In addition the occurrence of any of the foregoing or the perception by the investment community or shareholders that such recommendations or guidelines will result in decreased use or reimbursement of detalimogene if approved could adversely affect the market price of our securities The effect if any of any ICER report recommendations or guidelines on our any of our products relating to usage dosage administration pricing reimbursement or other matters is not foreseeable and we make no assurance regarding the effect of any current or future ICER report recommendations or guidelines on our business
We are subject to data privacy and protection laws rules and regulations as well as contractual obligations that apply to the collection transmission storage use and other processing of personally identifying information which among other things impose certain requirements relating to the privacy security and transmission of personal information including comprehensive regulatory systems in the United States European Union and United Kingdom The legislative and regulatory landscape for privacy and data protection continues to evolve in jurisdictions worldwide and there has been an increasing focus on privacy and data protection issues with the potential to affect our business Failure to comply with any of these laws and regulations could result in enforcement action against us including fines imprisonment of company officials and public censure claims for damages by affected individuals damage to our reputation and loss of goodwill any of which could have a material adverse effect on our business financial condition results of operations and prospects
There are numerous U S federal and state laws rules and regulations governing the collection sharing use retention disclosure security transfer storage and other processing of personal information including federal and state data privacy and security laws data breach notification laws and data disposal laws In particular at the federal level regulations promulgated pursuant to the HIPAA establish privacy and security standards that limit the use and disclosure of individually identifiable health information or protected health information and require the implementation of administrative physical and technological safeguards to protect the privacy of protected health information and ensure the confidentiality integrity and availability of electronic protected health information Determining whether protected health information has been handled in compliance with applicable privacy standards and our contractual obligations can be complex and may be subject to changing interpretation These obligations may be applicable to some or all of our business activities now or in the future At the federal level we are also subject to among other laws and regulations the rules and regulations promulgated under the authority of the FTC which has the authority to regulate and enforce against unfair or deceptive acts or practices in or affecting commerce including acts and practices with respect to data privacy and security as well as the Electronic Communication Privacy Act The United States Congress also has considered is currently considering and may in the future consider various proposals for comprehensive federal data privacy and security legislation to which we may become subject if passed If we are unable to properly protect the privacy and security of protected health information we could be found to have breached certain contracts or obligations Further if we fail to comply with applicable privacy laws including applicable HIPAA privacy and security standards we could face civil and criminal penalties HHS enforcement activity can result in financial liability and reputational harm and responses to such enforcement activity can consume significant internal resources In addition state attorneys general are authorized to bring civil actions seeking either injunctions or damages in response to violations that threaten the privacy of state residents We cannot be sure how these regulations will be interpreted enforced or applied to our operations In addition to the risks associated with enforcement activities and potential contractual liabilities our ongoing efforts to comply with evolving laws and regulations at the federal and state level may be costly and require ongoing modifications to our policies procedures and systems
At the state level we are subject to similar and sometimes more onerous data protection and privacy laws and regulations such as the California Consumer Privacy Act of 2018 as amended by the California Privacy Rights Act the CPRA collectively the CCPA The CCPA imposes many requirements on certain businesses that process the personal information of California residents including requirements similar to those found in the General Data Protection Regulation GDPR For example the CCPA requires covered businesses to provide notice to California residents regarding the information collected about them and how such information is used and shared provides California residents the right to request access to such personal information and in certain cases request the erasure of such personal information The CCPA also affords California residents the right to opt out of certain sales of their personal information The CCPA provides for significant civil penalties and statutory damages for companies that violate its requirements and also provides for a private right of action for certain data breaches that result in the loss of unencrypted personal information This private right of action is expected to increase the likelihood of and risks associated with data breach litigation The CPRA significantly expands 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 These provisions may apply to some of our business activities In addition other states including Virginia and Colorado already have passed comprehensive state level data privacy and security laws rules and regulations that share similarities with the CCPA Other states are in the process of enacting or will be considering these laws in the future Moreover
laws in all 50 U S states require businesses to provide notice under certain circumstances to consumers whose personal information has been disclosed as a result of a data breach These laws and other similar laws that may be enacted in the future may impact our business activities including our identification of research subjects and ultimately the marketing and distribution of our products
Similar to the laws in the United States there are significant privacy and data security laws that apply in Europe and other countries The collection use disclosure transfer or other processing of personal data including personal health data regarding individuals who are located in the EEA and the processing of personal data that takes place in the EEA is regulated by the GDPR which went into effect in May 2018 and imposes obligations on companies that operate in our industry with respect to the processing of personal data and the cross border transfer of such data The GDPR imposes onerous accountability obligations including requiring data controllers and processors to maintain a record of their data processing and policies Following the withdrawal of the United Kingdom from the European Union the United Kingdom s Data Protection Act 2018 the U K GDPR which implements and complements the GDPR and achieved formal approval by United Kingdom s monarchy on May 23 2018 applies to the processing of personal data that takes place in the United Kingdom and includes parallel obligations to those set forth by GDPR While the GDPR and U K GDPR remain substantially similar for the time being the U K government has announced that it would seek to chart its own path on data protection and reform its relevant laws including in ways that may differ from the GDPR While these developments increase uncertainty with regard to data protection regulation in the United Kingdom even in their current substantially similar form the GDPR and U K GDPR can expose businesses to divergent parallel regimes that may be subject to potentially different interpretations and enforcement actions for certain violations and related uncertainty If our or our service providers privacy or data security measures fail to comply with the GDPR and U K GDPR requirements we may be subject to litigation regulatory investigations enforcement notices requiring us to change the way we use personal data and or fines of up to 20 million Euros or GBP17 5 million under the U K GDPR or up to 4 of the total worldwide annual turnover of the preceding financial year whichever is higher as well as compensation claims by affected individuals negative publicity reputational harm and a potential loss of business and goodwill
The GDPR places restrictions on the cross border transfer of personal data from the EEA to countries that have not been found by the European Commission to offer adequate data protection legislation such as the United States There are ongoing concerns about the ability of companies to transfer personal data from the EEA to other countries Similar complexities and uncertainties also apply to transfers from the U K to third countries In July 2020 the Court of Justice of the European Union CJEU invalidated the EU U S Privacy Shield one of the mechanisms used to legitimize the transfer of personal data from the EEA to the United States The CJEU s decision also drew into question the long term viability of an alternative means of data transfer the standard contractual clauses SCCs for transfers of personal data from the EEA to the United States While we were not self certified under the EU U S Privacy Shield this CJEU decision may lead to increased scrutiny on data transfers from the EEA to the United States generally and increase our costs of compliance with data privacy legislation as well as our costs of negotiating appropriate privacy and security agreements with our vendors While we may take steps to mitigate the impact on us such as implementing SCCs the efficacy and longevity of these mechanisms remains uncertain Moreover in 2021 the European Commission adopted new SCCs which impose on companies additional obligations relating to personal data transfers out of the EEA including the obligation to update internal privacy practices conduct transfer impact assessments and as required implement additional security measures The new SCCs may increase the legal risks and liabilities under European Union laws associated with cross border data transfers and result in material increased compliance and operational costs While the European Commission announced in March 2022 that an agreement in principle had been reached between European Union and U S authorities regarding a new transatlantic data privacy framework no formal agreement has been finalized and any such agreement if formalized is likely to face challenge at the CJEU Moreover while the U K GDPR 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 the GDPR The United Kingdom has already determined that it considers all European Union and EEA member states to be adequate for the purposes of data protection ensuring that data flows from the United Kingdom to the European Union and EEA remain unaffected In addition a decision from the European Commission appears to deem the United Kingdom as being essentially adequate for purposes of data transfer from the EEA to the United Kingdom such that SCCs are not required for the transfer of personal data from the EEA to the United Kingdom although such decision will sunset in June 2025 unless extended and it may be revoked in the future by the European Commission if the United Kingdom data protection regime is reformed in ways that deviate substantially from the GDPR Adding further complexity for international data flows in March 2022 the United Kingdom adopted its own International Data Transfer Agreement for transfers of personal data out of the United Kingdom to so called third countries as well as an international data transfer addendum that can be used with the SCCs for the same purpose The European Union has also proposed legislation that would regulate non personal data and establish new cybersecurity standards and other countries including the United Kingdom may similarly do so in the future If we are otherwise unable to transfer data including personal data between and among countries and regions in which we operate it could affect the manner in which we provide our services the geographical location or segregation of our relevant systems and operations and could adversely affect our financial results
Beyond the GDPR and U K GDPR there are privacy and data security laws in a growing number of countries around the world While many loosely follow the GDPR as a model other laws contain different or conflicting provisions These laws will impact our ability to conduct our business activities including both our clinical trials and any eventual sale and distribution of commercial products through increased compliance costs costs associated with contracting and potential enforcement actions
While we continue to address the implications of the recent changes to data privacy regulations data privacy remains an evolving landscape at both the domestic and international level with new regulations coming into effect and continued legal challenges and our efforts to comply with the evolving data protection rules may be unsuccessful It is possible that these laws may be interpreted and
applied in a manner that is inconsistent with our practices We must devote significant resources to understanding and complying with this changing landscape Any failure actual or perceived to comply with laws regarding data protection would expose us to risk of enforcement actions taken by data protection authorities in the EEA and elsewhere and carries with it the potential for significant penalties if we are found to be non compliant Similarly any failure actual or perceived to comply with federal and state laws in the United States regarding privacy and security of personal information could expose us to penalties under such laws Any such failure to comply with data protection and privacy laws could result in government imposed fines or orders requiring that we change our practices claims for damages or other liabilities regulatory investigations and enforcement action litigation and significant costs for remediation any of which could adversely affect our business Even if we are not determined to have violated these laws government investigations into these issues typically require the expenditure of significant resources and generate negative publicity which could harm our reputation and our business financial condition results of operations and prospects
We our programs our CROs third party logistics providers distributors and other contractors and consultants utilize information technology IT systems and networks to process transmit and store electronic information including but not limited to intellectual property proprietary business information and personal information in connection with our business activities Our internal IT systems and those of current and future third parties on which we rely may fail and are vulnerable to breakdown breach interruption or damage from cyber incidents employee error or malfeasance theft or misuse sophisticated nation state and nation state supported actors unauthorized access natural disasters terrorism war telecommunication and electrical failures or other compromises As use of digital technologies has increased cyber incidents including third parties gaining access to employee accounts using stolen or inferred credentials computer malware e g ransomware viruses spamming phishing attacks denial of service attacks or other means and deliberate attacks and attempts to gain unauthorized access to computer systems and networks have increased in frequency intensity and sophistication These threats pose a risk to the security of our our programs our CROs third party logistics providers distributors and other contractors and consultants systems and networks and the confidentiality availability and integrity of our intellectual property confidential information preclinical and clinical trial data proprietary business information personal data and health related information There can be no assurance that we or any of our third party partners will be successful in preventing cyberattacks or successfully mitigating their effects
Advances in computer and software capabilities encryption technology and other discoveries increase the complexity of our technological environment including how each interacts with our various software platforms Such advances could delay or hinder our ability to conduct business or could compromise the integrity of our data resulting in a material adverse impact on our financial condition and results of operations The risk of system disruption is increased when significant system changes are undertaken If we fail to timely integrate and update our information technology systems and processes we may fail to realize the cost savings or operational benefits anticipated to be derived from these initiatives We also may experience occasional system interruptions and delays that make our information technology systems unavailable or slow to respond including the interaction of our information technology systems with those of third parties A lack of sophistication or reliability of our information technology systems could adversely impact our operations and consumer service and could require major repairs replacements or remodelings resulting in significant costs
The risk of a security breach or disruption particularly through cyberattacks or cyber intrusion including by computer hackers non U S governments and cyber terrorists has generally increased as the number intensity and sophistication of attempted attacks and intrusions from around the world have increased In addition varying parts of our workforce are currently working remotely on a part or full time basis This could increase our cyber security risk create data accessibility concerns and make us more susceptible to communication disruptions We may not be able to anticipate all types of security threats and we may not be able to implement preventive measures effective against all such security threats The techniques used by cyber criminals change frequently may not be recognized until launched and can originate from a wide variety of sources including outside groups such as external service providers organized crime affiliates terrorist organizations or hostile non U S governments or agencies We may also experience security incidents that may remain undetected for an extended period Even if identified we may be unable to adequately investigate or remediate incidents or breaches due to attackers increasingly using tools and techniques that are designed to circumvent controls to avoid detection and to remove or obfuscate forensic evidence Similarly there can be no assurance that our CROs third party logistics providers distributors and other contractors consultants and third parties will be successful in protecting our clinical and other data that is stored on their systems Any loss of clinical trial data from our completed or ongoing clinical trials for any of our product candidates could result in delays in our development and regulatory approval efforts and significantly increase our costs to recover or reproduce the data We and certain of our service providers are from time to time subject to cyberattacks and security incidents We have experienced and expect to continue to experience actual and attempted cyberattacks of our IT networks such as through phishing scams and ransomware Although we do not believe that we have experienced any significant system failure accident or security incidents to date we cannot guarantee that we will not experience such incidents in the future
Any cyberattack that leads to unauthorized access use or disclosure of personal information including personal information regarding clinical trial participants or employees data breach or destruction or loss of data could result in a violation of applicable U S and international privacy data protection and other laws and regulations require us to notify affected individuals or supervisory authorities subject us to litigation and governmental investigations proceedings and regulatory actions by federal state and local
regulatory entities in the United States and by international regulatory entities cause our exposure to material civil and or criminal liability and cause us to breach our contractual obligations which could result in significant legal and financial exposure and reputational damages Further we could be forced to expend significant financial and operational resources in response to a security breach including repairing system damage increasing security protection costs by deploying additional personnel and modifying or enhancing our protection technologies investigating and remediating any information security vulnerabilities and defending against and resolving legal and regulatory claims all of which could divert resources and the attention of our management and key personnel away from our business operations and adversely affect our business financial condition and results of operations As cyber threats continue to evolve we may be required to incur significant additional expenses in order to implement further data protection measures or to remediate any information security vulnerability Further we do not maintain separate cyber liability insurance and our general liability insurance and corporate risk program may not cover all potential claims to which we are exposed and may not be adequate to indemnify us for all liability
There can be no assurance that the limitations of liability in our contracts would be enforceable or adequate or would otherwise protect us from liabilities or damages as a result of the events referenced above We also cannot be certain that our existing insurance coverage will continue to be available on acceptable terms or in amounts sufficient to cover the potentially significant losses that may result from a security incident or breach or that the insurer will not deny coverage of any future claim Accordingly if our cybersecurity measures and those of our service providers fail to protect against unauthorized access attacks and the mishandling of data by our employees and third party service providers then our business financial condition results of operations and prospects could be adversely affected
Inadequate funding for or changes in leadership at or disruptions at the FDA the SEC and other government agencies could hinder their ability to hire and retain key personnel prevent new products and services from being developed approved or commercialized in a timely manner or otherwise prevent those agencies from performing normal functions on which the operation of our business may rely which could negatively impact our business
The ability of the FDA to review and approve new products or take action with respect to other regulatory matters can be affected by a variety of factors including government budget and funding levels passage of federal FDA user fee legislation every five years ability to hire and retain key personnel and accept the payment of user fees public health emergencies and statutory regulatory and policy changes Average review times at the FDA have fluctuated in recent years as a result In addition government funding of the SEC and other government agencies on which our operations may rely including those that fund research and development activities is subject to the political process which is inherently fluid and unpredictable
Disruptions at the FDA and other agencies may also slow the time necessary for new drugs to be reviewed and or approved by necessary government agencies or for the FDA to take action with respect to other regulatory matters which could adversely affect our business For example over the last several years the U S government has shut down several times and certain regulatory agencies such as the FDA and the SEC have had to furlough critical employees and stop critical activities If a prolonged government shutdown or other disruption occurs it could significantly impact the ability of the FDA to timely review and process our regulatory submissions which could have a material adverse effect on our business Similarly a prolonged government shutdown or other disruption could prevent the timely review of patent applications by the United States Patent and Trademark Office or USPTO which could delay the issuance of any U S patents to which we might otherwise be entitled Further in our operations as a public company future government shutdowns could impact our ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations
We are exposed to the risk of fraud or other illegal activity by our employees independent contractors consultants commercial partners and vendors Misconduct by these parties could include intentional reckless and or negligent conduct that fails to comply with the laws enforced by the FDA and other regulatory bodies in non U S jurisdictions provide true complete and accurate information to the FDA and other similar regulatory bodies in non U S jurisdictions comply with manufacturing standards we have established comply with healthcare fraud and abuse laws in the United States and similar non U S laws or report financial information or data accurately or to disclose unauthorized activities to us If we obtain FDA approval of any of our product candidates and begin commercializing those products in the United States our potential exposure under these laws will increase significantly and our costs associated with compliance with these laws are also likely to increase These laws may impact among other things our current activities with principal investigators and research patients as well as proposed and future sales marketing and education programs
Our relationships with healthcare providers and physicians and third party payors are subject to applicable anti kickback fraud and abuse and other healthcare laws and regulations which could expose us to criminal sanctions civil penalties contractual damages reputational harm and result in diminished profits and future earnings and thereby adversely affect our business and results of operations
We are subject to applicable fraud and abuse and other healthcare laws and regulations including without limitation the AKS and the FCA which may constrain our business or financial arrangements and relationships through which we sell market and distribute our products In particular the promotion sales and marketing of healthcare items and services as well as certain business arrangements in the healthcare industry e g healthcare providers physicians and third party payors are subject to extensive laws designed to prevent fraud kickbacks self dealing and other abusive practices These laws and regulations may restrict or prohibit a wide range of pricing discounting marketing and promotion structuring and commission s certain customer incentive programs and other business arrangements generally We also may be subject to patient information and privacy and security regulation by both the federal government and the states and non U S jurisdictions in which we conduct our business The applicable federal state and non U S healthcare laws and regulations that may affect our ability to operate include but are not limited to
The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform especially in light of the lack of applicable precedent and regulatory guidance Federal and state enforcement bodies have recently increased their scrutiny of interactions between healthcare companies healthcare providers and other third parties including charitable foundations which has led to a number of investigations prosecutions convictions and settlements in the healthcare industry Responding to investigations can be time and resource consuming and can divert management s attention from our business Any such investigation or settlement could increase our costs or otherwise have an adverse effect on our business
If our marketing or other arrangements were determined to violate anti kickback or related laws including the FCA or an all payor law then we could be subject to penalties including administrative civil and criminal penalties damages fines disgorgement the exclusion from participation in federal and state healthcare programs individual imprisonment reputational harm and the curtailment or restructuring of our operations as well as additional reporting obligations and oversight if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non compliance with these laws Any action for violation of these laws even if successfully defended could cause us to incur significant legal expenses and divert management s attention from the operation of our business Prohibitions or restrictions on sales or withdrawal of future marketed products could materially affect our business in an adverse way Efforts to ensure that our business arrangements will comply with applicable healthcare laws may involve substantial costs
State and federal authorities have aggressively targeted pharmaceutical companies for alleged violations of these anti fraud statutes based on improper research or consulting contracts with doctors certain marketing arrangements with pharmacies and other healthcare providers that rely on volume based pricing off label marketing schemes and other improper promotional practices Companies targeted in such prosecutions have paid substantial fines have been ordered to implement extensive corrective action plans and have in many cases become subject to consent decrees severely restricting the manner in which they conduct their business among other consequences Additionally federal and state regulators have brought criminal actions against individual employees responsible for alleged violations If we become the target of such an investigation or prosecution based on our contractual relationships with providers or institutions or our marketing and promotional practices we could face similar sanctions which would materially harm our business
Also the U S Foreign Corrupt Practices Act FCPA and similar worldwide anti bribery laws including the Canadian Corruption of Foreign Public Officials Act generally prohibit companies and their intermediaries from making improper payments to non U S officials for the purpose of obtaining or retaining business Our internal control policies and procedures may not protect us from reckless or negligent acts committed by our employees future distributors partners or agents Violations of these laws or allegations of such violations could result in fines penalties or prosecution and have a negative impact on our business results of operations and reputation For additional information regarding the compliance of our operations with the FCPA and non U S laws and regulations see the Risk Factor entitled Additional laws and regulations governing international operations may preclude or delay us from developing manufacturing or selling certain products and product candidates outside the United States which could limit our growth potential and increase our development costs
Among other matters U S and non U S anti corruption anti money laundering export control sanctions and other trade laws and regulations collectively the Trade Laws prohibit companies and their employees agents clinical research organizations legal counsel accountants consultants contractors and other partners from authorizing promising offering providing soliciting or receiving directly or indirectly corrupt or improper payments or anything else of value to or from recipients in the public or private sector Violations of the Trade Laws can result in substantial criminal fines and civil penalties imprisonment the loss of trade privileges debarment tax reassessments breach of contract and fraud litigation reputational harm and other consequences We have direct or indirect interactions with officials and employees of government agencies or government affiliated hospitals universities and other organizations We also expect our non U S activities to increase in time including when and if we conduct clinical trials outside the United States We plan to engage third parties for clinical trials and or to obtain necessary permits licenses patent registrations and other regulatory approvals and we can be held liable for the corrupt or other illegal activities of our personnel agents even if we do not explicitly authorize or have prior knowledge of such activities
We are an international organization and we plan to expand operations internationally where we have limited operating experience and where we may be subject to increased regulatory risks and local competition If we are unsuccessful in any efforts to expand internationally our business and results of operations may be adversely affected
We are already an international organization and we plan to further expand our operations internationally We currently source drug product excipients and other product components that are critical to our manufacturing processes from CMOs located in the European Union In the future we expect to opportunistically engage with CMOs located in other non U S jurisdictions to facilitate the manufacture of our products on a basis that is cost effective and responsive to customer demand As part of our business strategy we plan to commercialize detalimogene and other products we may develop for sale in the United States and non U S jurisdictions Our business strategy incorporates potential international operational expansion independently and through third parties as we seek to obtain regulatory approval for and commercialize our product candidates in patient populations outside the United States If approved we may hire sales representatives and conduct physician and patient association outreach activities outside of the United States Doing business internationally involves a number of risks including but not limited to
Global economic uncertainty changes in geopolitical conditions and weakening product demand caused by political instability changes in trade agreements and disputes such as the armed conflicts between Russia and Ukraine and in the Middle East and other macroeconomic factors could adversely affect our business and results of operations
Our operations and performance depend on global regional and U S economic and geopolitical conditions General worldwide economic conditions have experienced significant instability in recent years including due to recent global economic uncertainty and turbulent financial market conditions The armed conflict in the Middle East has created volatility in the global capital markets and is expected to have further global economic consequences Russia s ongoing military invasion of Ukraine has triggered significant sanctions from U S and European leaders and disruptions to financial markets around the world Resulting changes in U S trade policy could trigger retaliatory actions by Russia its allies and other affected countries including China resulting in a trade war In addition changes in political conditions in China and changes in the state of China U S relations including any tensions relating to potential military conflict between China and Taiwan are difficult to predict and could adversely affect our business Furthermore if other
The uncertain financial markets disruptions in supply chains mobility restraints and changing priorities as well as volatile asset values could impact our business in the future For example increasing inflation has raised operating costs for us and many businesses and in the future could impact demand pricing or the cost we incur to manufacture our product candidates foreign exchange rates including in particular U S dollar and Canadian dollar exchange rates or employee wages Among other potential effects continued increased inflation or interest rates may result in reduced liquidity and limits on our ability to access credit or otherwise raise capital The Federal Reserve has previously raised and may again raise interest rates in response to concerns about inflation which coupled with reduced government spending and volatility in financial markets may have the effect of further increasing economic uncertainty and heightening these risks and creating new unforeseen risks to our operations
Actual events involving reduced or limited liquidity defaults non performance or other adverse developments that affect financial institutions or other companies in the financial services industry or the financial services industry generally or concerns or rumors about any events of these kinds have in the past and may in the future lead to market wide liquidity problems
These conditions make it extremely difficult for us to accurately forecast and plan future business activities The above factors including a number of other known and unknown economic and geopolitical factors in the United States and abroad could ultimately have material adverse effects on our business financial condition results of operations and prospects
We expect certain of our research and development and manufacturing activities may take place in non U S jurisdictions such as China through third party CROs collaborators or manufacturers A significant disruption in the operation of those CROs collaborators or manufacturers could materially adversely affect our business and results of operations
We may contract many of our research manufacturing and preclinical activities to third parties outside the United States including without limitation in China Any disruption in the operations of such third parties or in their ability to meet our needs whether as a result of a natural disaster war or other causes could impair our ability to operate our business on a day to day basis and to continue development of our programs Furthermore since many of these third parties are located outside the United States we are exposed to the possibility of disruption and increased costs in the event of changes in the policies of the United States or non U S governments war political unrest or unstable economic conditions in any of the countries where we conduct such activities For example a war or trade war could lead to tariffs embargoes sanctions or other limitations on trade including without limitation those placed on Russia as a result of its ongoing military invasion of Ukraine that may affect our ability to source from affected third parties the reagents and raw materials used in our product candidates Additionally a natural disaster war civil or political unrest or similar circumstances could hinder our ability to maintain or initiate clinical studies at our preferred sites causing trial initiation or implementation delays Any of these matters could materially and adversely affect our product development timelines business financial condition results of operations and prospects
As an international company with operations outside of the United States we must dedicate additional resources to comply with numerous laws and regulations in each jurisdiction in which we operate The FCPA prohibits any U S individual or business from paying offering authorizing payment or offering of anything of value directly or indirectly to any non U S official political party or candidate for the purpose of influencing any act or decision of the non U S entity in order to assist the individual or business in obtaining or retaining business The FCPA also obligates companies whose securities are listed in the United States to comply with certain accounting provisions requiring the company to maintain books and records that accurately and fairly reflect all transactions of the corporation including international subsidiaries and to devise and maintain an adequate system of internal accounting controls for international operations
Compliance with the FCPA is expensive and difficult particularly in countries in which corruption is a recognized problem In addition the FCPA presents particular challenges in the pharmaceutical industry because in many countries hospitals are operated by the government and doctors and other hospital employees are considered non U S officials Certain payments to hospitals in connection with clinical trials and other work have been deemed to be improper payments to government officials and have led to FCPA enforcement actions
Various laws regulations and executive orders also restrict the use and dissemination outside of the United States or the sharing with certain non U S nationals of information classified for national security purposes as well as certain products and technical data relating to those products As we continue to expand our presence outside of the United States we will need to dedicate additional resources to complying with these laws and these laws may preclude us from developing manufacturing or selling certain products and product candidates outside of the United States which could limit our growth potential and increase our development costs
The failure to comply with laws governing international business practices may result in substantial civil and criminal penalties and suspension or debarment from government contracting The SEC also may suspend or bar issuers from trading securities on U S securities exchanges for violations of the FCPA s accounting provisions
If we are unable to obtain and maintain enforce and defend patent protection for any product candidates we develop or for our novel genetic medicine platform or if the scope of the patent protection obtained is not sufficiently broad our competitors or other third parties could develop and commercialize products or technology similar or identical to ours and our ability to successfully commercialize any product candidates we may develop and our technology may be adversely affected
Our success depends in large part on our and our licensors ability to seek obtain and maintain patent and other intellectual property protection in the United States Canada and other jurisdictions with respect to any product candidates we may develop and our technology including our genetic medicine platform manufacturing processes and their respective components formulations combination therapies methods of treatment processes and development that are important to our business as well as successfully defending these patents and other intellectual property against third party challenges The risks associated with patent rights generally apply to patent rights that we in license now or in the future as well as patent rights that we may own now or in the future We have sought and will seek to protect our proprietary position by filing patent applications in the United States and abroad related to certain technologies and our genetic medicine platform that are important to our business However elements of our patent portfolio are at an early stage and there can be no assurance as to whether or when such patent applications will issue as granted patents Our ability to stop third parties from making using selling marketing offering to sell importing and commercializing any product candidates we may develop and our technology is dependent upon the extent to which we and our licensors have rights under valid and enforceable patents and other intellectual property that cover our genetic medicine platform and proprietary technology If we are or our licensors are unable to secure maintain defend and enforce patents and other intellectual property with respect to any product candidates or technology that we may develop it would have a material adverse effect on our business financial condition results of operations and prospects
We own certain granted patents and pending patent applications which cover our genetic medicine platform use and or function product candidates and their use and manufacturing processes as applicable Our pending Patent Cooperation Treaty PCT patent application and any PCT application we may file in the future is not eligible to become issued patents until among other things we file one or more national stage patent applications within 30 to 32 months depending on the jurisdiction from such application s priority date in the jurisdictions in which we are seeking patent protection Similarly should we in the future file a pending provisional patent application such application would not be eligible to become an issued patent until among other things we file a non provisional patent application within 12 months of such provisional patent application s filing date If we do not timely file such national stage patent applications or non provisional patent applications we may lose our priority date with respect to such PCT or provisional patent applications respectively and any patent protection on the inventions disclosed in such PCT or provisional patent applications respectively While we and our licensors intend to timely file national stage and non provisional patent applications relating to our PCT and provisional patent applications respectively we cannot predict whether any such patent applications will result in the issuance of patents If we or our licensors do not successfully obtain issued patents or if the scope of any patent protection we or our licensors obtain is not sufficiently broad we will be unable to prevent others from using any product candidates we may develop or our technology or from developing or commercializing technology and products similar or identical to ours or other competing products and technologies Any failure to obtain or maintain patent protection with respect to genetic medicine platform manufacturing processes or our product candidates and technology would have a material adverse effect on our business financial condition results of operations and prospects
The patent prosecution process is expensive time consuming and complex and we and our licensors may not be able to file prosecute maintain defend enforce or license all necessary or desirable patent applications at a reasonable cost or in a timely manner We and our licensors may not be able to obtain maintain or defend patents and patent applications due to the subject matter claimed in such patents and patent applications being in the public domain For example in some cases the work of certain academic researchers in the genetic medicine field has entered or will enter the public domain which may compromise our and our licensors ability to obtain patent protection for certain inventions related to or building upon such prior work It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection Although we enter into non disclosure and confidentiality agreements with parties who have access to confidential or patentable aspects of our research and development output such as our employees corporate collaborators outside scientific collaborators contract manufacturers consultants advisors and other third parties any of these parties may breach these agreements and disclose such output before a patent application is filed thereby jeopardizing our ability to seek patent protection Consequently we would not be able to prevent any third party from using any of our technology that is in the public domain to compete with our product candidates and technology
The patent position of biotechnology and pharmaceutical companies generally is highly uncertain involves complex legal and factual questions and has in recent years been the subject of much litigation As a result the issuance scope validity enforceability and commercial value of patent rights are highly uncertain Our pending and future owned and licensed patent applications may not result in patents being issued which protect our technology or product candidates effectively prevent others from commercializing competitive technologies and products or otherwise provide any competitive advantage In fact patent applications may not issue as
patents at all and even if such patent applications do issue as patents they may not issue in a form or with a scope of claims that will provide us with any meaningful protection prevent others from competing with us or otherwise provide us with any competitive advantage In addition the scope of claims in a patent application can be significantly reduced before the patent is issued and such scope of an issued patent can be reinterpreted after issuance and changes in either the patent laws or interpretation of the patent laws in the United States and other jurisdictions may diminish the value of our patent rights or narrow the scope of our patent protection Furthermore our competitors or other third parties may be able to circumvent our patents by developing similar or alternative technologies or products in a non infringing manner
Third parties have developed technologies that may be related or competitive to our own technologies and product candidates and may have filed or may file patent applications or may have obtained or may obtain issued patents claiming inventions that may overlap or conflict with those claimed in our owned or licensed patent applications or issued patents We may not be aware of all third party intellectual property rights potentially relating to our current and future product candidates and technology Publications of discoveries in the scientific literature often lag behind the actual discoveries and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing or in some cases not at all Therefore we cannot know for certain whether the inventors of our owned or licensed patents and patent applications were the first to make the inventions claimed in any owned or licensed patents or pending patent applications or that we were the first to file for patent protection of such inventions If a third party can establish that we or our licensors were not the first to make or the first to file for patent protection of such inventions our owned or licensed patent applications may not issue as patents and even if issued may be challenged and invalidated or ruled unenforceable
We may in the future be subject to claims that former employees collaborators or other third parties have an interest in our patents or other intellectual property as an inventor or co inventor For example inventorship disputes may arise from conflicting obligations of consultants or others who are involved in developing our product candidates Litigation may be necessary to defend against these and other claims challenging inventorship If we fail in defending any such claims in addition to paying monetary damages we may lose valuable intellectual property rights such as exclusive ownership of or right to use valuable intellectual property Such an outcome could have a material adverse effect on our business financial condition results of operations and prospects Even if we are successful in defending against such claims litigation could result in substantial costs and be a distraction to management and other employees
The issuance of a patent is not conclusive as to its inventorship scope validity or enforceability and our owned and licensed patents may be challenged in the courts or patent offices in the United States and other jurisdictions For example we may be subject to a third party submission of prior art to the U S Patent and Trademark Office USPTO challenging the validity of one or more claims of our owned or licensed patents Such submissions may also be made prior to a patent s issuance precluding the granting of a patent based on one of our owned or licensed pending patent applications We may become involved in opposition derivation re examination inter partes review post grant review or interference proceedings and similar proceedings in non U S jurisdictions for example opposition proceedings challenging the validity priority or other features of patentability of our owned or licensed patent rights In addition a third party may claim that our owned or licensed patent rights are invalid or unenforceable in a litigation The outcome following legal assertions of invalidity and unenforceability is unpredictable An adverse result in any litigation or patent office proceeding could put one or more of our owned or licensed patents at risk of being invalidated ruled unenforceable or interpreted narrowly and could allow third parties to commercialize products identical or similar to any product candidates we may develop and compete directly with us without payment to us or result in our inability to manufacture or commercialize products without infringing third party patent rights Moreover we or one of our licensors may have to participate in interference proceedings declared by the USPTO to determine priority of invention or in post grant challenge proceedings such as oppositions in a non U S patent office that challenge priority of invention or other features of patentability Such challenges and proceedings may result in loss of patent rights exclusivity freedom to operate or in patent claims being narrowed invalidated or held unenforceable in whole or in part which could limit our ability to stop others from using or commercializing similar or identical technology and products or limit the scope and duration of the patent protection of our technology and any product candidates we may develop Such challenges and proceedings may also result in substantial cost and require significant time from our scientists and management even if the eventual outcome is favorable to us Moreover there could be public announcements of the results of hearings motions or other interim proceedings or developments related to such challenges and proceedings and if securities analysts or investors perceive these results to be negative it could have a substantial adverse effect on the price of our common shares
We may in the future co own intellectual property rights relating to our genetic medicine platform and our future product candidates with third parties In addition our licensors may co own the patent rights we in license with other third parties with whom we do not have a direct relationship If we or our licensors do not have exclusive control of the grant of licenses under any such third party co owners interest in such patent rights or we or our licensors are otherwise unable to secure such exclusive rights such co owners may be able to license their rights to other third parties including our competitors and our competitors could market competing products and technology In addition we may need the cooperation of any such co owners of our patent rights in order to enforce such patent rights against third parties and such cooperation may not be provided to us Further any such co owner may be able to license a co owned patent to a third party we believe infringes such patent preventing us from obtaining compensation or other remedies from such third party through litigation or settlement arrangements We may also become engaged in disputes with our co owners related to patent prosecution strategy or the apportionment of costs associated with the prosecution maintenance or enforcement of co owned patents or patent applications Any of the foregoing could have a material adverse effect on our competitive position business financial conditions results of operations and prospects
If we initiated legal proceedings against a third party to enforce a patent covering our genetic medicine platform product candidates or other technologies the defendant could counterclaim that such patent is invalid or unenforceable In patent litigation in the United States defendant counterclaims alleging invalidity or unenforceability are commonplace Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements including lack of novelty obviousness written description non enablement or failure to claim patent eligible subject matter Grounds for an unenforceability assertion could include an allegation that someone connected with prosecution of the patent withheld information material to patentability from the USPTO or made a misleading statement during prosecution Third parties may raise claims challenging the validity or enforceability of our owned or in licensed patents before administrative bodies in the United States or abroad even outside the context of litigation Such mechanisms include re examination post grant review inter partes review interference proceedings derivation proceedings and equivalent proceedings in non U S jurisdictions e g opposition proceedings Such proceedings could result in the revocation of cancellation of or amendment to our patents in such a way that they no longer cover our product candidates or other technologies or prevent third parties from competing with us The outcome following legal assertions of invalidity and unenforceability is unpredictable With respect to the validity question for example we cannot be certain that there is no invalidating prior art of which we and the patent examiner were unaware during prosecution If a third party were to prevail on a legal assertion of invalidity or unenforceability we would lose at least part and perhaps all of the patent protection on the genetic medicine platform our product candidates or other technologies Such a loss of patent protection would have a material adverse effect on our business financial condition results of operations and prospects
Periodic maintenance fees renewal fees annuity fees and various other government fees on patents and patent applications will be due to be paid to the USPTO and various non U S government patent agencies over the lifetime of our owned or licensed patents and patent applications In certain circumstances we may rely on our licensing partners to pay these fees due to the USPTO and non U S patent agencies The USPTO and non U S patent agencies require compliance with several procedural documentary fee payment and other similar provisions during the patent application process We may also be dependent on our licensors to take the necessary action to comply with these requirements with respect to our licensed intellectual property In some cases an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules There are situations however in which non compliance can result in abandonment or lapse of the patent or patent application resulting in a partial or complete loss of patent rights in the relevant jurisdiction In such an event potential competitors might be able to enter the market with similar or identical products or technologies which could have a material adverse effect on our business financial condition results of operations and prospects
Changes in either the patent laws or interpretation of the patent laws in the United States could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents Prior to March 2013 in the United States the first to invent an invention was entitled to a patent claiming the invention while outside the United States the first to file a patent application was entitled to the patent assuming that other requirements for patentability were met After March 2013 under the Leahy Smith America Invents Act the America Invents Act enacted in September 2011 the United States transitioned to a first inventor to file system in which assuming that other requirements for patentability are met the first inventor to file a patent application is entitled to the patent on an invention regardless of whether a third party was the first to invent the claimed invention A third party that files a patent application in the USPTO after the date of invention but before the filing date of our owned or in licensed patent application could therefore be awarded a patent covering an invention of ours even if we had made the invention before it was made by the third party This will require us and our licensors to be aware going forward of the time from invention to filing of a patent application Furthermore our ability to obtain and maintain valid and enforceable patents depends on whether the differences between our technologies and the prior art allow our technologies to be patentable over the prior art Since patent applications in the United States and most other countries are confidential for a period of time after filing we cannot be certain that we were the first to either 1 file any patent application related to our technologies or product candidates or 2 invent any of the inventions claimed in our patents or patent applications The America Invents Act also includes a number of significant changes that affect the way patent applications are prosecuted and may also affect patent litigation These include allowing third party submissions of prior art to the USPTO during patent prosecution and additional procedures to attack the validity of a patent by USPTO administered post grant proceedings including post grant review inter partes review and derivation proceedings Because the evidentiary standard in USPTO proceedings is lower than the evidentiary standard in U S federal court necessary to invalidate a patent claim a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action Accordingly a third party may attempt to use USPTO proceedings to invalidate our owned or in licensed patent claims that would not have been invalidated if first challenged by the third party as a defendant in a district court action Accordingly the America Invents Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our owned and in licensed patent applications and the enforcement or defense of our owned and in licensed issued patents all of which could have a material adverse effect on our business financial condition results of operations and prospects
In addition the patent positions of companies in the development and commercialization of pharmaceuticals are particularly uncertain Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations This combination of events has created uncertainty with respect to the validity and enforceability of patents We cannot predict how decisions by the courts the U S Congress or the USPTO may impact the value of our owned or in licensed patents Any similar adverse changes in the patent laws of other jurisdictions could also have a material adverse effect on our business financial condition results of operations and prospects Depending on future actions by the U S Congress the federal courts and the USPTO the laws and regulations governing patents could change in unpredictable ways that could have a material adverse effect on our existing patent portfolio and our ability to protect and enforce our intellectual property in the future
Patent terms may be inadequate to protect our competitive position product candidates or genetic medicine platform for an adequate amount of time and we may need to obtain patent term extension and equivalent extensions outside of the United States for our product candidates or genetic medicine platform
Patents have a limited lifespan In the United States if all maintenance fees are timely paid the natural expiration of a patent is generally 20 years from its earliest filing date of the first U S non provisional patent application to which the patent claims priority Various adjustments and extensions may be available but the life of a patent and the protection it affords is limited Even if patents covering our product candidates are obtained once the patent life has expired we may be open to competition from competitive products including biosimilars Given the amount of time required for the development testing and regulatory review of new product candidates patents protecting our product candidates might expire before or shortly after we commercialize those candidates As a result our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours
Depending upon the timing duration and specifics of any FDA marketing approval of our product candidates or genetic medicine platform one or more U S patents that we own or license may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984 the Hatch Waxman Amendments The Hatch Waxman Amendments permit a patent extension term of up to five years as compensation for patent term lost during the FDA regulatory review process based on the first regulatory approval for a particular drug or biologic A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval only one patent may be extended and only those claims covering the approved drug a method for using it or a method for manufacturing it may be extended In Europe supplementary protection certificates are available to extend a patent term up to five years to compensate for patent term lost during regulatory review and can be extended for an additional six months if data from clinical trials is obtained in accordance with an agreed upon pediatric investigation plan Although all countries in Europe must provide supplementary protection certificates there is no unified legislation among European countries and so supplementary protection certificates must be applied for and granted on a country by country basis This can lead to a substantial cost to apply for and receive these certificates which may vary among countries or not be provided at all
We may not be granted any extensions for which we apply in the United States or any other jurisdiction because of for example failing to exercise due diligence during the testing phase or regulatory review process failing to apply within applicable deadlines failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements Moreover the applicable time period or the scope of patent protection afforded could be less than we request In addition to the extent we wish to pursue patent term extension based on a patent that we in license from a third party we would need the cooperation of that third party If we are unable to obtain patent term extension or the foreign equivalent or if the term of any such extension is less than we request our competitors may be able to enter the market sooner and our revenue could be reduced Any of the foregoing could have a material adverse effect on our business financial condition results of operations and prospects
Further recent judicial decisions in the U S raised questions regarding the award of patent term adjustment PTA for patents in families where related patents have issued without PTA Thus it cannot be said with certainty how PTA will be viewed in the future and whether patent expiration dates may be impacted
We are reliant upon licenses to certain intellectual property and proprietary technologies from third parties that are important or necessary to the development of our technologies and product candidates We have entered into license agreements with third parties and may need to obtain additional licenses from others to advance our research or allow commercialization of product candidates we may develop It is possible that we may be unable to obtain or maintain additional licenses at a reasonable cost or on reasonable terms if at all In that event we may be required to expend significant time and resources to redesign our technologies product candidates or the methods for manufacturing them or to develop or license replacement technologies all of which may not be feasible on a technical or commercial basis If we are unable to do so we may be unable to develop or commercialize the affected product candidates or may be significantly delayed in doing so which could significantly harm our competitive position business financial condition results of operations and prospects We cannot provide any assurances that third party patents do not exist which might be enforced against our technologies and product candidates resulting in either an injunction prohibiting our manufacture or sales or with respect to our sales an obligation on our part to pay royalties and or other forms of compensation to third parties which could be significant
Our current and future licenses may not provide exclusive rights to use such intellectual property and proprietary technologies in all relevant fields of use and in all territories in which we may wish to develop or commercialize our technologies and products in the future As a result we may not be able to prevent competitors from developing and commercializing competitive products in territories included in all of our licenses
In addition subject to the terms of any such license agreements we may not have the right to control the preparation filing prosecution maintenance enforcement and defense of patents and patent applications covering the technologies that we license from third parties In such an event we cannot be certain that these patents and patent applications will be prepared filed prosecuted maintained enforced and defended in a manner consistent with the best interests of our business or in compliance with applicable laws and regulations or will result in valid and enforceable patents and other intellectual property rights It is possible that our licensors infringement proceedings or defense activities may be less vigorous than had we conducted them ourselves or may not be conducted in accordance with our best interests If our licensors fail to prosecute maintain enforce and defend such patents or lose rights to those patents or patent applications the rights we have licensed may be reduced or eliminated and our right to develop and commercialize any of our products that are subject of such licensed rights could be adversely affected
Our licensors may have relied on third party consultants or collaborators or on funds from third parties such that our licensors are not the sole and exclusive owners of the patents we in licensed If other third parties have ownership rights to our in licensed patents they may be able to license such patents to our competitors and our competitors could market competing products and technologies This could have a material adverse effect on our competitive position business financial condition results of operations and prospects
In spite of our best efforts our licensors might conclude that we have materially breached our license agreements and might therefore terminate our license agreements thereby removing our ability to develop and commercialize products and technologies covered by these license agreements If these license agreements are terminated for this reason or any other reason or if the underlying patents fail to provide the intended exclusivity competitors would have the freedom to seek regulatory approval of and to market products identical to ours This could have a material adverse effect on our competitive position business financial condition results of operations and prospects
We may be unable to acquire or in license intellectual property rights from third parties relating to or necessary for the development of our product candidates on commercially reasonable terms or at all In that event we may be unable to develop or commercialize such product candidates Because our programs may involve additional product candidates that may require the use of proprietary rights held by third parties the growth of our business will likely depend in part on our ability to acquire in license or use these proprietary rights
Our product candidates may also require specific formulations to work effectively and efficiently and these rights may be held by others We may develop products containing our compounds and pre existing pharmaceutical compounds We may be required by the FDA or comparable non U S regulatory authorities to provide a companion diagnostic test or tests with our product candidates which test or tests may be covered by intellectual property rights held by others We may be unable to acquire or in license any compositions methods of use processes or other third party intellectual property rights from third parties that we identify as necessary or important to our business operations In addition we may fail to obtain any of these licenses at a reasonable cost or on reasonable terms if at all which would harm our business Were that to happen we may need to cease use of the compositions or methods covered by those third party intellectual property rights and seek to develop alternative approaches that do not infringe on those intellectual property rights which may entail additional costs and development delays even if we were able to develop such alternatives which may not be feasible Even if we are able to obtain a license it may be non exclusive which means that our competitors may also receive access to the same technologies licensed to us In that event we may be required to expend significant time and resources to develop or license replacement technology
The licensing and acquisition of third party intellectual property rights is a competitive area and companies that may be more established or have greater resources than we do may also be pursuing strategies to license or acquire third party intellectual property rights that we may consider necessary or attractive in order to commercialize our product candidates More established companies may have a competitive advantage over us due to their size cash resources and greater clinical development and commercialization capabilities Furthermore companies that perceive us to be a competitor may be unwilling to assign or license rights to us In addition we expect that competition for the in licensing or acquisition of third party intellectual property rights for product candidates that are attractive to us may increase in the future which may mean fewer suitable opportunities for us as well as higher acquisition or licensing costs We may be unable to in license or acquire the third party intellectual property rights for product candidates on terms that would allow us to make an appropriate return on our investment If we are unable to successfully obtain rights to suitable product candidates our business financial condition results of operations and prospects for growth may be harmed
If we fail to comply with our obligations under the agreements pursuant to which we license intellectual property rights from third parties or otherwise experience disruptions to our business relationships with our licensors we could lose the rights to intellectual property that are important to our business
We have a non exclusive license under certain patents and or know how to develop and commercialize certain elements or components of our potential product candidates which may not be available elsewhere Our existing license agreements impose and we expect that any future license agreements will impose on us various obligations If we fail to comply with our obligations under these agreements the licensor may have the right to terminate the license If any of our licenses are terminated and we are not able to negotiate other agreements for use of the intellectual property protections underlying these product candidates we would not be able to manufacture and market these potential products which would have a material adverse effect on our business financial condition results of operations and prospects
In addition certain provisions in our license agreements may be susceptible to multiple interpretations The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology or increase what we believe to be our financial or other obligations under the agreement either of which could have a material adverse effect on our business financial condition results of operations and prospects Moreover if disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on commercially acceptable terms we may be unable to successfully develop and commercialize the affected product candidates which could have a material adverse effect on our competitive position business financial condition results of operations and prospects In addition certain of these license agreements may not be assignable by us without the consent of the respective licensor which may have an adverse effect on our ability to engage in certain transactions Moreover we may seek to obtain additional licenses from our licensors and in connection with obtaining such licenses we may agree to amend our existing licenses in a manner that may be more favorable to the licensors
Filing prosecuting and defending patents on our product candidates and other technologies in all countries throughout the world would be prohibitively expensive and our intellectual property rights in some countries outside of the United States and Canada are less extensive than those in the United States and Canada In addition the laws of countries outside the United States and Canada may not protect our or our licensors rights to the same extent as the laws of the United States and Canada even in jurisdictions where we or our licensors do pursue patent protection Consequently we may not be able to prevent third parties from practicing our or our licensors inventions in all countries outside the United States and Canada even in jurisdictions where we or our licensors do pursue patent protection or from selling or importing products made using our inventions in and into the United States Canada or other jurisdictions Competitors may use our technologies in jurisdictions where we and our licensors have not obtained patent protection to develop their own products and further may export otherwise infringing products to territories where we have patent protection but enforcement is not as strong as that in the United States and Canada These products may compete with our products and our or our licensors patents or other intellectual property rights may not be effective or sufficient to prevent them from competing
Many companies have encountered significant problems in protecting and defending intellectual property rights in non U S jurisdictions The legal systems of certain countries particularly certain developing countries do not favor the enforcement of patents trade secrets and other intellectual property protection particularly those relating to biotechnology products which could make it difficult for us to stop the infringement of our patents if pursued and obtained or marketing of competing products in violation of our intellectual property and proprietary rights generally Proceedings to enforce our or our licensors intellectual property and proprietary rights in non U S jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business could put our or our licensors patents at risk of being invalidated or interpreted narrowly could put our or our licensors patent applications at risk of not issuing and could provoke third parties to assert claims against us We or our licensors may not prevail in any lawsuits that we or our licensors initiate and the damages or other remedies awarded if any may not be commercially meaningful Accordingly our efforts to enforce our intellectual property and proprietary rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license
Many countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties In addition many countries limit the enforceability of patents against government agencies or government contractors In these countries the patent owner may have limited remedies which could materially diminish the value of such patent If we or any of our licensors is forced to grant a license to third parties with respect to any patents relevant to our business our competitive position may be harmed and our business financial condition results of operations and prospects may be adversely affected Patent protection must ultimately be sought on a country by country basis which is an expensive and time consuming process with uncertain outcomes Accordingly we may choose not to seek patent protection in certain countries and we will not have the benefit of patent protection in such countries which could have an adverse effect on our operations or commercial prospects within those countries or ability to pursue action against potential competitors
Further in Europe a new unitary patent system came into effect on June 1 2023 Under the unitary patent system European patent applications and patents may be subjected to the jurisdiction of the Unified Patent Court UPC European applications will have the option upon grant of a patent of becoming a Unitary Patent which will be subject to the jurisdiction of the UPC As the UPC is a new court system there is no precedent for the court increasing the uncertainty of any litigation Patents that remain under the jurisdiction of the UPC will be potentially vulnerable to a single UPC based revocation challenge that if successful could invalidate the patent in all countries who are signatories to the UPC We cannot predict with certainty the long term effects of any potential changes
Competitors may infringe our patents or the patents of our licensors To counter infringement or unauthorized use we may be required to file infringement claims which can be expensive and time consuming and we may not have the financial resources to do so In addition in an infringement proceeding a court may decide that one or more of our patents is not valid or is unenforceable or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated held unenforceable or interpreted narrowly and could put our patent applications at risk of not issuing Defense of these types of claims regardless of their merit would involve substantial litigation expense and would be a substantial diversion of employee resources from our business
We may choose to challenge the patentability of claims in a third party s U S patent by requesting that the USPTO review the patent claims in an ex parte re examination inter partes review or post grant review proceedings These proceedings are expensive and may consume our time or other resources We may choose to challenge a third party s patent in patent opposition proceedings in the European Patent Office EPO or another non U S patent office The costs of these opposition proceedings could be substantial and may consume our time or other resources If we fail to obtain a favorable result at the USPTO EPO or other patent office then we may be exposed to litigation by a third party alleging that the patent may be infringed by our product candidates or proprietary technologies
In addition because some patent applications in the United States may be maintained in secrecy until the patents are issued patent applications are typically not published in the United States until 18 months after their respective filing dates Further publications in the scientific literature often lag behind actual discoveries Consequently we cannot be certain that others have not filed patent applications for technology covered by our owned and in licensed issued patents or our pending applications or that we or if applicable a licensor were the first to invent the technology It is possible that our competitors may have filed and may in the future file patent applications covering our products or technology similar to ours and that those patent applications may have priority over our owned and in licensed patent applications or patents which could require us to obtain rights to issued patents covering such technologies If another party has filed a U S patent application on inventions similar to those owned by or in licensed to us we or in the case of in licensed technology the licensor may have to participate in an interference proceeding declared by the USPTO to determine priority of invention in the United States If we or one of our licensors is a party to an interference proceeding involving a U S patent application on inventions owned by or in licensed to us we may incur substantial costs divert management s time and expend other resources even if we are successful
Interference proceedings provoked by third parties or brought by the USPTO may be necessary to determine the priority of inventions with respect to our patents or patent applications or those of our licensors An unfavorable outcome in an interference proceeding could result in a loss of our current patent rights and could require us to cease using the related technology or to attempt to license rights to it from the prevailing party Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms or at all Litigation or interference proceedings may result in a decision adverse to our interests and even if we are successful may result in substantial costs and distract our management and other employees
Furthermore because of the substantial amount of discovery required in connection with intellectual property litigation there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation In addition there could be public announcements of the results of hearings motions or other interim proceedings or developments If securities analysts or investors perceive these results to be negative that perception could have a substantial adverse effect on the price of our common shares
We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings Some of our competitors or other third parties may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources and more mature and developed intellectual property portfolios Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our business financial condition results of operations and prospects
In addition to the protection afforded by patents we rely on trade secret protection confidentiality agreements and license and other agreements to protect proprietary know how that is not patentable or that we elect not to patent processes for which patents are difficult to enforce and any other elements of our product discovery and development processes that involve proprietary know how information or technology that is not covered by patents We cannot be certain that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques Furthermore the laws of some countries outside of the United States do not protect proprietary rights to the same extent or in the same manner as the laws of the United States As a result we may encounter significant problems in protecting and defending our intellectual property both in the United States and abroad If we are unable to prevent unauthorized material disclosure of our intellectual property to third parties we will not be able to establish or maintain a competitive advantage in our market which could materially adversely affect our business operating results and financial condition Some courts both within and outside the United States and Canada are sometimes less willing or unwilling to protect trade secrets If we choose to go to court to stop a third party from using any of our trade secrets we may incur substantial costs These lawsuits may consume our time and other resources even if we are successful For example significant elements of our genetic medicine platform and product candidates including aspects of sample preparation methods of manufacturing cell culturing conditions computational biological algorithms and related processes are based on unpatented trade secrets that are not publicly disclosed Although we take steps to protect our proprietary information and trade secrets including through contractual means with our employees and consultants third parties may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets or disclose our technology
Thus we may not be able to meaningfully protect our trade secrets It is our policy to require our employees consultants outside scientific collaborators sponsored researchers and other advisors to execute confidentiality agreements upon the commencement of employment or consulting relationships with us These agreements provide that certain information and data concerning our business made known to the individual or entity during the course of the party s relationship with us is to be kept confidential and not disclosed to third parties except in specific circumstances However we may not be able to prevent the unauthorized disclosure or use of our technical know how or other trade secrets by the parties to these agreements Monitoring unauthorized uses and disclosures is difficult and we do not know whether the steps we have taken to protect our proprietary technologies will be effective Moreover we cannot guarantee that we have entered into such agreements with each party that may have or has had access to our trade secrets or proprietary technology and processes In addition we take other appropriate precautions such as physical and technological security measures to guard against misappropriation of our proprietary technology by third parties We have also adopted policies and conduct training that provides guidance on our expectations and our advice for best practices in protecting our trade secrets However we cannot provide assurance that these agreements and policies will not be breached by our employees consultants outside scientific collaborators sponsored researchers and other advisors and that our trade secrets and other proprietary and confidential information will not be disclosed to publicly or to competitors If any of the employees consultants outside scientific collaborators sponsored researchers and other advisors who are parties to these agreements breach or violate the terms of any of these agreements we may not have adequate remedies for any such breach or violation
In addition our trade secrets may otherwise become known or be independently discovered by competitors or other third parties Competitors or third parties could attempt to replicate some or all of the competitive advantages we derive from our development efforts willfully infringe our intellectual property rights design around our protected technology or develop their own competitive technologies that fall outside the scope of our intellectual property rights We will have limited recourse if this occurs Furthermore if any of our trade secrets were to be lawfully obtained or independently developed by a competitor or other third party we would have no right to prevent them or those to whom they communicate such trade secrets from using that technology or information to compete with us If our trade secrets are not adequately protected so as to protect our market against competitors products our business financial condition results of operations and prospects could be materially and adversely affected
The field of biotherapeutics including the development of genetic medicines is competitive and dynamic Due to the focused research and development that is taking place by several companies including us and our competitors in this field the intellectual property landscape is in flux and it may remain uncertain in the future As such there may be significant intellectual property related litigation and proceedings relating to our owned and in licensed and other third party intellectual property and proprietary rights in the future
Our commercial success depends in part on our and our licensors ability to avoid infringing misappropriating and otherwise violating the patents and other intellectual property rights of third parties However our research development and commercialization activities may be subject to claims that we infringe misappropriate or otherwise violate patents or other intellectual property rights owned or controlled by third parties There is a substantial amount of complex litigation involving patents and other intellectual property rights in the biotechnology and pharmaceutical industries as well as administrative proceedings for challenging patents including interference derivation and reexamination proceedings before the USPTO or oppositions and other comparable proceedings in jurisdictions outside of the United States As discussed above recently due to changes in U S law referred to as patent reform new procedures including inter partes review and post grant review have been implemented As stated above this reform adds uncertainty to the possibility of challenge to our patents in the future
Numerous U S Canadian and other foreign issued patents and pending patent applications owned by third parties exist relating to genetic medicine technologies and products and in the fields in which we are developing our product candidates As the biotechnology and pharmaceutical industries expand and more patents are issued the risk increases that our genetic medicine platform product candidates and other technologies may give rise to claims of infringement of the patent rights of others We cannot be sure that our genetic medicine platform product candidates and other technologies that we have developed are developing or may develop in the future do not infringe existing patents or will not infringe future patents owned by third parties Many companies and institutions have filed and continue to file patent applications related to genetic medicine and related manufacturing methods Some of these patent applications have already been allowed or issued and others may issue in the future It is difficult for industry participants including us to identify all third party patent rights that may be relevant to our genetic medicine platform product candidates and other technologies because patent searching is imperfect due to differences in terminology among patents incomplete databases and the difficulty in assessing the meaning of patent claims We may not be aware of patents that have already been issued and that a third party for example a competitor in the fields in which we are developing our genetic medicine platform product candidates and other technologies might assert are infringed by our current or future product candidates genetic medicine platform or other technologies including claims to compositions formulations methods of manufacture or methods of use or treatment that cover our genetic medicine platform product candidates and other technologies It is also possible that patents owned by third parties of which we are aware but which we do not believe are relevant to our genetic medicine platform product candidates and other technologies could be found to be infringed by our genetic medicine platform product candidates and other technologies In addition because patent applications can take many years to issue may be confidential for 18 months or more after filing and can be revised before issuance there may be currently pending patent applications that may later result in issued patents that our genetic medicine platform product candidates and other technologies may infringe Furthermore applications filed before November 29 2000 and certain applications filed after that date that will not be filed outside the United States may remain confidential until a patent issues Additionally pending patent applications that have been published can subject to certain limitations be later amended in a manner that could cover our product candidates or technologies We cannot provide any assurances that third party patents do not exist which might be enforced against our current technology including our genetic medicine platform manufacturing methods product candidates or future methods or products resulting in either an injunction prohibiting our manufacture or future sales or with respect to our future sales an obligation on our part to pay royalties and or other forms of compensation to third parties which could be significant
Third parties have patents and may obtain patents in the future and may claim that the manufacture use or sale of our genetic medicine platform product candidates or other technologies infringes upon these patents Patent and other types of intellectual property litigation can involve complex factual and legal questions and their outcome is uncertain In the event that any third party claims that we infringe their patents or that we are otherwise employing their proprietary technology without authorization and initiates litigation against us even if we believe such claims are without merit a court of competent jurisdiction could hold that such patents are valid enforceable and infringed by our genetic medicine platform product candidates or other technologies In order to successfully challenge the validity of any such U S patent in federal court we would need to overcome a presumption of validity As this burden is a high one requiring us to present clear and convincing evidence as to the invalidity of any such U S patent claim there is no assurance that a court of competent jurisdiction would invalidate the claims of any such U S patent or find that our product candidates or technology did not infringe any such claims Further even if we were successful in defending against any such claims such claims could require us to divert substantial financial and management resources that we would otherwise be able to devote to our business If we are found to infringe misappropriate or otherwise violate a third party s valid and enforceable patent rights the holders of such patents may be able to block our ability to commercialize the applicable product candidate or technology unless we obtain a license under the applicable patents or until such patents expire or are finally determined to be held invalid or unenforceable Such a license may not be available on commercially reasonable terms or at all Even if we are able to obtain a license the license would likely obligate us to pay substantial license fees or royalties or both and the rights granted to us might be non exclusive which could result in our competitors and other
third parties gaining access to the same intellectual property If we are unable to obtain a necessary license to a third party patent on commercially reasonable terms we may be unable to commercialize our genetic medicine platform product candidates or other technologies or such commercialization efforts may be significantly delayed which could in turn significantly harm our business
Defense of infringement claims regardless of their merit would involve substantial litigation expense and would be a substantial diversion of management and other employee resources from our business and may impact our reputation In the event of a successful claim of infringement against us we may be enjoined from further developing manufacturing or commercializing our infringing genetic medicine platform product candidates or other technologies In addition we may have to pay substantial damages including treble damages and attorneys fees for willful infringement obtain one or more licenses from third parties pay royalties and or redesign our infringing product candidates or technologies which may be impossible or require substantial time and monetary expenditure In that event we would be unable to further develop and commercialize the genetic medicine platform our product candidates or other technologies which could harm our business significantly Moreover we may face patent infringement claims from nonpracticing entities that have no relevant product revenue and against whom our owned or licensed patent portfolio may therefore have no deterrent effect
Engaging in litigation to defend against third parties alleging that we have infringed misappropriated or otherwise violated their patents or other intellectual property rights is very expensive particularly for a company of our size and time consuming Some of our competitors may be able to sustain the costs of litigation or administrative proceedings more effectively than we can because of greater financial resources Patent litigation and other proceedings may also absorb significant management time Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings against us could have an adverse effect on our ability to raise additional funds and attract collaborators and could impair our ability to compete in the marketplace Furthermore because of the substantial amount of discovery required in connection with intellectual property litigation or administrative proceedings there is a risk that some of our confidential information could be compromised by disclosure The occurrence of any of the foregoing could have a material adverse effect on our business financial condition results of operations and prospects
Many of our employees consultants or advisors are currently or were previously employed at universities or other biotechnology or pharmaceutical companies including our competitors or potential competitors Although we try to ensure that our employees consultants and advisors do not use the proprietary information or know how of others in their work for us we may be subject to claims that these individuals or we have used or disclosed intellectual property including trade secrets or other proprietary information of any such individual s current or former employer In many cases we rely on our employees and contractors representations and warranties that they will not engage in practices that could subject us to such claims Litigation may be necessary to defend against these claims If we fail in defending any such claims in addition to paying monetary damages we may lose valuable intellectual property rights or be required to obtain licenses to such intellectual property rights which may not be available on commercially reasonable terms or at all An inability to incorporate such intellectual property rights would harm our business and may prevent us from successfully commercializing any product candidates we may develop or at all In addition we may lose personnel as a result of such claims and any such litigation or the threat thereof may adversely affect our ability to hire employees or contract with independent contractors A loss of key personnel or their work product could hamper or prevent our ability to commercialize any product candidates we may develop and our technology which would have a material adverse effect on our business results of operations financial condition and prospects Even if we are successful in defending against such claims litigation could result in substantial costs and be a distraction to our scientific and management personnel
In addition while it is our policy to require our employees and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to us we may be unsuccessful in executing such an agreement with each party who in fact conceives or develops intellectual property that we regard as our own Moreover even when we obtain agreements assigning intellectual property to us the assignment of intellectual property rights may not be self executing or the assignment agreements may be breached and we may be forced to bring claims against third parties or defend claims that they may bring against us to determine the ownership of what we regard as our intellectual property Furthermore individuals executing agreements with us may have pre existing or competing obligations to a third party such as an academic institution and thus an agreement with us may be ineffective in perfecting ownership of inventions developed by that individual Disputes about the ownership of intellectual property that we own may have a material adverse effect on our business financial condition results of operations and prospects
In addition we or our licensors may in the future be subject to claims by former employees consultants or other third parties asserting an ownership right in our owned or licensed patent rights An adverse determination in any such submission or proceeding may result in loss of exclusivity or freedom to operate or in patent claims being narrowed invalidated or held unenforceable in whole or in part which could limit our ability to stop others from using or commercializing similar technology and therapeutics without payment to us or could limit the duration of the patent protection covering our technology and any product candidates we may develop Such challenges may also result in our inability to develop manufacture or commercialize our technology and product candidates without infringing third party patent rights In addition if the breadth or strength of protection provided by our owned or licensed patent
Our current and future trademark applications in the United States and in foreign jurisdictions may not be allowed or may subsequently be opposed Once filed and registered our registered trademarks or trade names may be challenged infringed circumvented or declared generic or determined to be infringing on other marks We may not be able to protect our rights to these trademarks and trade names which we need to build name recognition among potential partners or customers in our markets of interest At times competitors may adopt trade names or trademarks similar to ours thereby impeding our ability to build brand identity and possibly leading to market confusion As a means to enforce our trademark rights and prevent infringement we may be required to file trademark claims against third parties or initiate trademark opposition proceedings This can be expensive and time consuming particularly for a company of our size In addition there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of our registered or unregistered trademarks or trade names Over the long term if we are unable to establish name recognition based on our trademarks and trade names then we may not be able to compete effectively and our business may be adversely affected Our efforts to enforce or protect our proprietary rights related to trademarks trade secrets domain names copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of resources and could adversely affect our competitive position business financial condition results of operations and prospects
As of October 31 2024 we had 57 employees As our development and commercialization plans and strategies develop we may experience significant growth in the number of our employees and the scope of our operations particularly in the areas of technology research product development and manufacturing regulatory affairs and if any product candidates are submitted for or receive
Our future financial performance and our ability to commercialize our product candidates may depend in part on our ability to effectively manage any future growth and our management may also have to divert a disproportionate amount of its attention away from day to day activities in order to devote a substantial amount of time to managing these growth activities
We currently rely and for the foreseeable future will continue to rely in substantial part on certain independent organizations advisors contractors and consultants to provide certain services including substantially all aspects of regulatory approval clinical management and manufacturing There can be no assurance that the services of independent organizations advisors contractors and consultants will continue to be available to us on a timely basis when needed or that we will be able to find qualified replacements In addition if we are unable to effectively manage our outsourced activities or if the quality or accuracy of the services provided by independent organizations advisors contractors or consultants is compromised for any reason our clinical trials may be extended delayed or terminated and we may not be able to obtain regulatory approval of our product candidates or otherwise advance our business There can be no assurance that we will be able to manage our existing independent organizations advisors contractors or consultants or find other competent resources on economically reasonable terms or at all
If we are not able to effectively expand our organization by hiring new employees and expanding the roster of independent organizations advisors and consultants on whom we rely on an outsourced basis we may not be able to successfully implement the tasks necessary to further develop and commercialize our product candidates and accordingly may not achieve our research development and commercialization goals
We may from time to time evaluate collaborations and strategic partnerships or potential acquisitions including licensing or acquiring molecules biologics or gene therapies etc for use in our genetic medicine platform intellectual property rights technologies or businesses For example we may seek collaboration arrangements for the commercialization or potentially for the development of certain of our product candidates depending on the merits of retaining commercialization rights for ourselves as compared to entering into collaboration arrangements Collaboration strategic partnerships or acquisitions entail numerous risks including
In addition if we undertake acquisitions we may issue dilutive securities assume or incur debt obligations incur large one time expenses and acquire intangible assets that could result in significant future amortization expense Moreover we may not be able to locate suitable acquisition opportunities and this inability could impair our ability to grow or obtain access to technology or products
We are organized and exist under the laws of British Columbia Canada and accordingly are governed by the BCBCA and other relevant laws which may affect the rights of shareholders differently than those of a company governed by the laws of a U S jurisdiction We are subject to special considerations or risks associated with companies operating in Canada that may at any time differ from the considerations and risks of companies operating in the United States including any of the following
In particular we are subject to the risk of changes in economic conditions social conditions and political conditions inherent in Canada including changes in laws and policies that govern international investment as well as changes in U S laws and regulations relating to international trade and investment including the new trilateral trade agreement among the United States Mexico and Canada called the United States Mexico Canada Agreement the USMCA which has been ratified by all three countries The USMCA entered into force on July 1 2020 and superseded the North American Free Trade Agreement Although we believe that there have been no immediate effects on our operations with respect to the USMCA we cannot predict future developments in the political climate involving the United States Mexico and Canada and such developments may have a material adverse effect on our business financial condition and results of operations
Certain provisions of our Articles and certain provisions under the BCBCA together or separately could discourage delay or prevent a merger acquisition or other change in control of us that shareholders may consider favorable including transactions in which they might otherwise receive a premium for their common shares These provisions include the establishment of a staggered board of directors which divides the board into three groups with directors in each group serving a three year term The existence of a staggered board can make it more difficult for shareholders to replace or remove incumbent members of our Board of Directors As such these provisions could also limit the price that investors might be willing to pay in the future for our common shares thereby depressing the market price of our common shares In addition because our Board of Directors is responsible for appointing the members of our management team these provisions may frustrate or prevent any attempts by our shareholders to replace or remove our current management by making it more difficult for shareholders to replace members of our Board of Directors Among other things these provisions include the following
A non Canadian must file an application for review with the Minister responsible for the Investment Canada Act and obtain approval of the Minister prior to acquiring control of a Canadian business within the meaning of the Investment Canada Act where prescribed financial thresholds are exceeded A reviewable acquisition may not proceed unless the Minister is satisfied that the investment is likely to be of net benefit to Canada If the applicable financial thresholds were exceeded such that a net benefit to Canada review would be required this could prevent or delay a change of control and may eliminate or limit strategic opportunities for shareholders to sell their common shares Furthermore limitations on the ability to acquire and hold our common shares may be imposed under the Competition Act Canada This legislation has a pre merger notification regime and mandatory waiting period that applies to certain types of transactions that meet specified financial thresholds and permits the Commissioner of Competition to review any acquisition directly or indirectly including through the acquisition of shares of control over or of a significant interest in us
Pursuant to the Articles unless we consent in writing to the selection of an alternative forum the courts of the Province of British Columbia and the appellate courts therefrom shall to the fullest extent permitted by law be the sole and exclusive forum for a any derivative action or proceeding brought on our behalf b any action or proceeding asserting a claim of breach of fiduciary duty owed by any of our directors officers or other employees to us c any action or proceeding asserting a claim arising out of any provision of the BCBCA or the Articles as either may be amended from time to time or d any action or proceeding asserting a claim or otherwise related to our affairs the Canadian Forum Provision In addition the Articles further provide that unless we consent in writing to the selection of an alternative forum the United States District Court for the District of Delaware shall be the sole and exclusive forum for resolving any complaint filed in the United States asserting a cause of action arising under the Securities Act of 1933 as amended the Securities Act or the Exchange Act the U S Forum Provision In addition the Articles provide that any person or entity purchasing or otherwise acquiring any interest in our common shares is deemed to have notice of and consented to the Canadian Forum Provision and the U S Forum Provision provided however that shareholders cannot and will not be deemed to have waived our compliance with the U S federal securities laws and the rules and regulations thereunder
The Canadian Forum Provision and the U S Forum Provision in the Articles may impose additional litigation costs on shareholders in pursuing any such claims Additionally the forum selection clauses in the Articles may limit our shareholders ability to bring a claim in a judicial forum that they find favorable for disputes with our directors officers or employees which may discourage the filing of lawsuits against us and our directors officers and employees even though an action if successful might benefit our shareholders In addition while the Delaware Supreme Court ruled in March 2020 that federal forum selection provisions purporting to require claims under the Securities Act be brought in federal court are facially valid under Delaware law there is uncertainty as to whether other courts including courts in Canada and other courts within the United States will enforce our U S Forum Provision If the U S Forum Provision is found to be unenforceable we may incur additional costs associated with resolving such matters The U S Forum Provision may also impose additional litigation costs on shareholders who assert that the provision is not enforceable or invalid The courts of the Province of British Columbia and the United States District Court for the District of Delaware may also reach different judgments or results than would other courts including courts where a shareholder considering an action may be located or would otherwise choose to bring the action and such judgments may be more or less favorable to us than our shareholders
We are incorporated and maintain operations in Canada In addition certain of our directors reside in the United States while others reside outside of the United States Accordingly service of process upon us may be difficult to obtain within the United States Furthermore because substantially all of our assets are located outside the United States any judgment obtained in the United States against us including one predicated on the civil liability provisions of the U S federal securities laws may not be collectible within the United States Therefore it may not be possible to enforce those actions against us
In addition it may be difficult to assert U S securities law claims in original actions instituted in Canada Canadian courts may refuse to hear a claim based on an alleged violation of U S securities laws against us or these persons on the grounds that Canada is not the most appropriate forum in which to bring such a claim Even if a Canadian court agrees to hear a claim it may determine that Canadian law and not U S law is applicable to the claim If U S law is found to be applicable the content of applicable U S law must be proved as a fact which can be a time consuming and costly process Certain matters of procedure will also be governed by Canadian law Furthermore it may not be possible to subject foreign persons or entities to the jurisdiction of the courts in Canada Similarly to the extent that our assets are located in Canada investors may have difficulty collecting from us any judgments obtained in the U S courts and predicated on the civil liability provisions of U S securities provisions
In general terms where control of a corporation is acquired or deemed to be acquired which for our Company as a result of the Reverse Recapitalization the corporation is subject to a loss restriction event and the corporation s non capital loss carryforwards other losses and certain other tax attributes are subject to limitation and possibly expiry after the loss restriction event Similar rules apply for Canadian provincial purposes Consequently we may not be able to utilize a material portion of our non capital loss carryforwards and certain other tax attributes in certain circumstances
For U S tax purposes net operating loss carryforwards allow companies to use past year net operating losses to offset against future years profits if any to reduce future tax liabilities Sections 382 and 383 of the Code limit a corporation s ability to utilize its net operating loss carryforwards and certain other tax attributes including research credits to offset any future taxable income or tax if the corporation experiences a cumulative ownership change of more than 50 over any rolling three year period State net operating loss carryforwards and certain other tax attributes may be similarly limited An ownership change can therefore result in significantly greater tax liabilities than a corporation would incur in the absence of such a change and any increased liabilities could adversely affect the corporation s business results of operations financial condition and cash flow Even if another ownership change has not occurred and does not occur as a result of this offering additional ownership changes may occur in the future as a result of additional equity offerings or events over we will have little or no control including purchases and sales of its equity by its five percent security holders the emergence of new five percent security holders redemptions of its securities or certain changes in the ownership of any of its five percent security holders
In general and as relevant here a non U S corporation is a PFIC for U S federal income tax purposes for any taxable year in which i 50 or more of the value of its assets generally determined on the basis of a quarterly average consists of assets including its pro rata share of the assets of any corporation in which it is considered to own at least 25 of the shares by value that produce or are held for the production of passive income or ii 75 or more of its gross income including its pro rata share of the gross income of any corporation in which it is considered to own at least 25 of the shares by value consists of passive income Passive income generally includes dividends interest rents and royalties other than rents or royalties derived from the active conduct of a trade or business and gains from the disposition of passive assets Cash and cash equivalents are generally passive assets The value of goodwill will generally be treated as an active or passive asset based on the nature of the income produced in the activity to which the goodwill is attributable
Prior to the commercialization of our drug candidates our income may be primarily passive Accordingly we believe we may have met the definition of PFIC for U S federal income tax purposes for the tax year ended October 31 2023 and the tax year ended October 31 2024 and there is a significant risk that we will be a PFIC for our current or any future taxable year If we are a PFIC for any taxable year during which a U S Holder as defined below owns Common Shares the U S Holder generally will be subject to adverse U S federal income tax consequences including increased tax liability on disposition gains and certain excess distributions and additional reporting requirements unless the U S Holder makes a a qualified electing fund QEF election or a mark to market election for the first taxable year for which we are or were a PFIC and in which such U S Holder held or was deemed to hold such Common Shares and maintain such election or b a QEF election along with an applicable purging election collectively the PFIC Elections Under proposed Treasury regulations relating to PFICs which have a retroactive effective date the PFIC rules may apply to rights to acquire shares of a PFIC as if they were shares and thus could apply to dispositions other than exercises of Warrants PFIC Elections may not be made with respect to Warrants U S Holders of Common Shares or Warrants should consult their tax advisors regarding the application of the PFIC rules to us and the risks of owning equity securities including warrants in a company that may be a PFIC
As a result of making and maintaining a timely and valid QEF election if eligible to do so a U S Holder of Common Shares must include in income such U S Holder s pro rata share of our net capital gains as long term capital gain and other earnings and profits as ordinary income on a current basis whether or not distributed A U S Holder generally may make a separate election to defer the payment of taxes on undistributed income inclusions under the QEF rules but if deferred any such taxes will be subject to an interest charge A subsequent distribution of such earnings and profits that were previously included in income should generally not be taxable as a dividend to such U S Holder The tax basis of a U S Holder s shares in a PFIC with respect to which a QEF election has been made will be increased by amounts that are included in income and decreased by amounts distributed but not taxed as dividends under the above rules
The QEF election is made on a shareholder by shareholder basis and once made can be revoked only with the consent of the IRS A U S Holder generally makes a QEF election by attaching a completed IRS Form 8621 Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund including the information provided in a PFIC Annual Information Statement from us to a timely filed U S federal income tax return for the tax year to which the election relates In the event that we determine that we are a PFIC for U S federal income tax purposes for any taxable year we will upon request of a holder of Common Shares provide a PFIC Annual Information Statement to such holder Retroactive QEF elections generally may be made only by filing a protective statement with such federal income tax return and if certain other conditions are met or with the consent of the IRS U S Holders are urged to consult their tax advisors regarding the availability and tax consequences of a retroactive QEF election under their particular circumstances
As an alternative to a QEF election if a U S Holder owns shares in a company that is a PFIC and the shares are regularly traded on a qualified exchange such U S Holder could make a mark to market election that would result in tax treatment different from that under the interest charge rules described above The Common Shares will be treated as regularly traded for any calendar year in which more than a de minimis quantity of the Common Shares are traded on a qualified exchange on at least 15 days during each calendar quarter Nasdaq where the Common Shares are listed is a qualified exchange for this purpose
Such electing U S Holder generally will include for each of its taxable years as ordinary income the excess if any of the fair market value of its Common Shares at the end of such year over its adjusted basis in its Common Shares The U S Holder also will recognize an ordinary loss in respect of the excess if any of its adjusted basis of its Common Shares over the fair market value of its Common Shares at the end of its taxable year but only to the extent of the net amount of previously included in income as a result of the mark to market election The U S Holder s basis in its Common Shares will be adjusted to reflect any such income or loss amounts Any gain recognized on a sale or other taxable disposition of its Common Shares will be treated as ordinary income and any loss will be treated as an ordinary loss but only to the extent of the net amount previously included in income as a result of the mark to market election with any excess treated as a capital loss
For purposes of this Risk Factor a U S Holder is a beneficial holder of securities who or that for U S federal income tax purposes is i an individual who is a United States citizen or resident of the United States ii a corporation or other entity treated as a corporation for United States federal income tax purposes created in or organized under the law of the United States or any state or political subdivision thereof iii an estate the income of which is includible in gross income for United States federal income tax purposes regardless of its source or iv a trust A the administration of which is subject to the primary supervision of a United States court and which has one or more United States persons within the meaning of the Code who have the authority to control all substantial decisions of the trust or B that has in effect a valid election under applicable Treasury regulations to be treated as a United States person
Certain provisions in our articles together with the articles of incorporation and notice of articles the Articles may have the effect of deterring coercive takeover practices and inadequate takeover bids by making such practices or bids unacceptably expensive to the bidder and by encouraging prospective acquirers to negotiate with our Board of Directors rather than to attempt a hostile takeover These provisions include among others
While these provisions are not intended to make us immune from takeovers they will apply even if the offer may be considered beneficial by some shareholders and may delay or prevent an acquisition that our Board of Directors determines is not in the best interests of us and our shareholders These provisions may also prevent or discourage attempts to remove and replace incumbent directors
On May 16 2023 we entered into a letter agreement with Investissement Quebec IQ and FEAC the IQ Letter Agreement in connection with IQ s investment in the 2023 Convertible Notes Among the terms of the IQ Letter Agreement we agreed to comply with certain covenants that may restrict its ability to expand its operations or engage and pursue certain business opportunities
From the time that IQ first holds our Common Shares until the earlier of 1 the date IQ ceases to hold at least 2 of our outstanding shares on a fully diluted basis and 2 the date that is five years after the date of the IQ Letter Agreement unless we receive prior written consent from IQ i we must maintain our head office in the Province of Québec and ii we shall cause ours company to A maintain operations in the Province of Québec B maintain a research and development center in the Province of Québec and C engage at least 20 employees who are residents and work in the Province of Québec the Employment Threshold provided that if in good faith our Board of Directors determines that maintaining the Employment Threshold puts us at risk of bankruptcy insolvency or determines that it is in the best interests of our Company to effect a general reduction in workforce IQ shall not unreasonably withhold consent to reduce the Employment Threshold Additionally IQ will for so long as IQ holds shares representing in the aggregate ownership of greater than 2 of our shares on a fully diluted basis be permitted to have an observer attend any meeting of our Board of Directors subject to the terms and conditions of a board observer agreement to be negotiated in good faith between us and IQ
Our compliance with these provisions may affect its ability to react to changes in industry conditions take advantage of business opportunities it believes to be desirable hire and retain critical personnel execute or product development and commercialization initiatives among other potential effects
On November 13 2024 we filed i a registration statement on Form S 3 File No 333 283202 the resale registration statement with the SEC to register the issuance of up to an aggregate of 8 511 968 Common Shares upon the exercise of a like number of Warrants as well as the resale from time to time by the selling securityholders named in the resale registration statement the Selling Holders of a up to 46 977 183 of our Common Shares which includes 6 289 198 Common Shares that may be issued upon exercise of the Warrants and b up to 6 289 198 of our Warrants and ii a universal shelf registration statement on Form S 3 File No 333 283201 the shelf registration statement with the SEC to register the issuance by us of up to 300 million of securities The resale registration statement and the shelf registration statement each became effective November 21 2024 The sale of Common Shares in the public market or otherwise including sales pursuant to the resale registration statement or the shelf registration statement or the perception that such sales could occur could harm the prevailing market price of our Common Shares These sales or the possibility that these sales may occur also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate Resales of Common Shares may cause the market price of our securities to drop significantly even if our business is doing well
We have agreed at our expense to prepare and file the resale registration statement with the SEC The Common Shares and Warrants being offered for resale in the prospectus which forms a part of the resale registration statement represent approximately 92 2 of our total outstanding Common Shares and approximately 73 9 of our outstanding Warrants respectively as of the date of such prospectus
The resale or expected or potential resale of a substantial number of our Common Shares in the public market could adversely affect the market price for our Common Shares and make it more difficult for you to sell your Common Shares at times and prices that you feel are appropriate Furthermore we expect that because there will be a large number of shares registered pursuant to the resale registration statement Selling Holders will continue to offer the securities covered by the resale registration statement for a significant period of time the precise duration of which cannot be predicted Accordingly the adverse market and price pressures resulting from an offering pursuant to a resale registration statement may continue for an extended period of time
Certain existing securityholders acquired their securities in our Company at prices that may be below the current trading price of such securities and may experience a positive rate of return based on such current trading price Future investors in our Company may not experience a similar rate of return
trading price On December 16 2024 the closing price of our Common Shares was 6 30 per share and the closing price for our Warrants was 0 90 per warrant Selling Holders in some instances may earn a significant positive rate of return on their investment depending on the market price of our Common Shares and Warrants at the time that such Selling Holders choose to sell their securities The Selling Holders acquired the securities offered for resale in exchange for non cash consideration or at effective purchase prices that may range from significantly below to above current trading prices Investors who purchase our Common Shares and Warrants on the Nasdaq may not experience a similar rate of return on the securities they purchased due to differences in the purchase prices and the current trading price
The Warrants cashless exercise period ended when the Company s registration statement on Form S 1 File No 333 275700 was declared effective on March 5 2024 We will receive proceeds from Warrants only in the event that such Warrants are exercised for cash We believe the likelihood that holders will exercise their Warrants will depend on the trading price of our Common Shares If the market price for our Common Shares is less than the exercise price of Warrants we believe the holders of Warrants will be unlikely to exercise them If the market price for our Common Shares exceeds the exercise price of the Warrants it is more likely that holders of the Warrants will exercise them
The individuals who constitute our management team have not previously managed our business or in some cases any business as a publicly traded company Compliance with public company requirements places significant additional demands on management and will require them to enhance investor relations legal financial reporting and corporate communications functions Our management is required to devote substantial time to maintaining and improving its internal controls over financial reporting and the requirements of being a public company These additional efforts may strain resources and divert management s attention from other business concerns and affect its ability to accurately report its financial results and prevent fraud which could adversely affect our business and profitability
Our Common Shares and Warrants commenced trading on Nasdaq under the tickers ENGN and ENGNW respectively on November 1 2023 We are required to meet Nasdaq s continued listing requirements and may be unable to meet those requirements Although our securities are listed on the Nasdaq as of the date of this Annual Report we may be unable to maintain the listing of our securities in the future
As a publicly traded company we will continue to incur significant legal accounting and other expenses In addition new and changing laws regulations and standards relating to corporate governance and public disclosure for public companies including the Dodd Frank Act the Sarbanes Oxley Act regulations related thereto and the rules and regulations of the SEC and Nasdaq have
The price of our securities may fluctuate significantly due to the market s reaction to general market and economic conditions An active trading market for our securities may never develop or if it develops it may not be sustained which could have a material adverse effect on the liquidity and price of our securities
The price of our Common Shares is likely to be volatile The stock market in general and the market for stock of biopharmaceutical companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies As a result of this volatility investors may not be able to sell their Common Shares at or above the price at which they paid The market price for our Common Shares may be influenced by those factors discussed in this Risk Factors section and many others including
Our share price may be volatile and in the past companies that have experienced volatility in the market price of their shares have from time to time been subject to securities class action litigation We may be the target of this type of litigation in the future Litigation of this type could result in substantial costs and diversion of management s attention and resources which could have a
The trading market for our Common Shares will depend in part on the research and reports that securities or industry analysts publish about us or our business If no or few securities or industry analysts cover us then the market price for our Common Shares and Warrants could be adversely affected If one or more of the analysts who cover us downgrade a recommendation with regard to our Common Shares publish inaccurate or unfavorable research about us or our business cease to cover us or fail to publish reports on it regularly the market price and or the trading volume of our Common Shares and Warrants could decline
We have implemented cybersecurity risk management procedures in accordance with our risk profile and business size that are designed to identify assess and mitigate risks from current and emerging cybersecurity threats Our cybersecurity procedures which are informed by the National Institute of Standards and Technology cybersecurity framework are supported by a third party managed services provider that assists us in managing our IT systems We maintain cyber insurance coverage however such insurance may not be sufficient in type or amount to cover us against claims related to security breaches cyber attacks and other related breaches
Our cybersecurity procedures are comprised of a variety of tools designed to protect our data and information technology systems including but not limited to endpoint protection and network security measures that are supported by our third party service providers We also have a process to require our employees to undergo cybersecurity awareness training Further we plan to implement a process to review risks to our Company in connection with certain third party providers and vendors which we expect will involve assessments through vendor questionnaires as appropriate
To date we have not identified any cybersecurity incidents or threats that have materially affected us or are reasonably likely to materially affect us including our business strategy results of operations or financial condition however like other companies in our industry we and our third party IT service providers and vendors have from time to time experienced threats that could affect our information or systems For more information see Risk Factors in this Annual Report
One of the key functions of our Board of Directors is informed oversight of our risk management process Our Board of Directors does not have a standing risk management committee and administers this oversight function both directly as a whole and through various standing committees that address risks inherent in their respective areas of oversight Our Audit Committee is responsible for overseeing the Company s enterprise risk management processes as well as our policies with respect to risk assessment and risk management which includes cybersecurity risk A cybersecurity update is provided at least annually or more frequently as needed to the Audit Committee by members of management responsible for managing cybersecurity risks
We believe our current facilities are sufficient for our current needs To meet future needs of our business we may lease additional or alternate space We believe that suitable additional or substitute space at commercially reasonable terms will be available as needed to accommodate any future expansion of our operations
From time to time we may be involved in legal proceedings that arise in the regular course of our business Our management believes that we are not currently involved in any legal proceedings that are likely to have a significant negative effect on our business However legal proceedings can negatively affect our business financial condition results and future prospects regardless of the outcome due to costs associated with defense and settlement as well as the diversion of management resources among other factors
As of December 16 2024 there were approximately 50 976 676 Common Shares issued and outstanding held of record by 64 holders and approximately 8 511 968 Warrants held of record by 17 holders each exercisable for one Common Share at a price of 11 50 per share Additionally we agreed to issue to the Lenders as defined herein Warrants to acquire up to 138 696 Common Shares of which 62 413 have been issued The actual number of holders of our Common Shares is greater than this number of record holders and includes shareholders who are beneficial owners but whose shares are held in street name by brokers or held by other nominees This number of holders of record also does not include shareholders whose shares may be held in trust by other entities
We have not paid any cash dividends on our Common Shares to date The payment of cash dividends in the future will be dependent upon our revenues and earnings if any capital requirements and general financial condition The payment of any cash dividends will be within the discretion of the Board of Directors at such time
1 On October 31 2023 upon completion of the Business Combination the enGene Holdings Inc 2023 Incentive Equity Plan became effective which authorized enGene to issue 2 607 943 Common Shares under the plan plus 2 706 941 Common Shares that are subject to outstanding grants under the enGene Inc employee share option and equity incentive plans On May 15 2024 the Company s shareholders approved the adoption of the Amended and Restated enGene Holdings Inc 2023 Incentive Equity Plan which authorizes enGene to issue 4 554 169 Common Shares under the plan plus 2 706 941 Common Shares that are subject to outstanding grants under the enGene Inc employee share option and equity incentive plans
2 As part of the Business Combination the 2 706 941 Common Shares subject to outstanding grants under the enGene Inc employee share option and equity incentive plans were modified to have the exercises price converted from the Canadian Dollar to the United States Dollar at the exchange rate in effect on the date immediately prior to the close of the Business Combination
3 Consists of Common Shares issuable upon exercise of outstanding stock options granted pursuant to the Nasdaq inducement grant exception as a component of employment compensation for employees The inducement grants were approved by our compensation committee and were made as an inducement material to employees entering into employment with us in accordance with Nasdaq Listing Rule 5635 c 4
On February 13 2024 the Company entered into subscription agreements in connection with the February 2024 PIPE Financing as defined herein pursuant to which we issued and sold in a private placement 20 000 000 Common Shares at a price of 10 00 per share The aggregate gross proceeds from the February 2024 PIPE Financing were 200 million before deducting offering expenses of 12 4 million The February 2024 PIPE Financing closed on February 20 2024
On October 24 2024 the Company entered into subscription agreements in connection with the October 2024 PIPE Financing as defined herein pursuant to which we issued and sold in a private placement 6 758 311 Common Shares at a price of 8 90 per share The aggregate gross proceeds from the October 2024 PIPE Financing were 60 1 million before deducting offering expenses of 3 8 million The October 2024 PIPE Financing closed on October 29 2024
The sales of the securities described above were exempt from the registration requirements of the Securities Act in reliance on the exemptions afforded by Section 4 a 2 of the Securities Act with respect to the February 2024 PIPE Financing and October 2024 PIPE Financing and Section 3 a 9 of the Securities Act with respect to the Cashless Warrant Exercises No sales involved underwriters underwriting discounts or commissions or public offerings of securities of the Registrant
Throughout this section unless otherwise noted we our us enGene and the Company refer to enGene Holdings Inc and all of its subsidiaries following the consummation of the Reverse Recapitalization as defined below enGene Holdings Inc is the publicly traded parent company resulting from the Reverse Recapitalization in which shareholders of enGene Inc and Forbion European Acquisition Company exchanged their shares for shares in enGene Holdings Inc
The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements as of October 31 2024 and 2023 and for the fiscal years ended October 31 2024 and 2023 and the related notes and other financial information included elsewhere in this Annual Report Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report including information with respect to our plans and strategy for our business and related financing includes forward looking statements that involve risks and uncertainties See the sections titled Special Note Regarding Forward Looking Statements and Risk Factors in this Annual Report for a discussion of forward looking statements and important factors that could cause actual results to differ materially from the results described in or implied by these forward looking statements
We are a clinical stage biotechnology company focused on developing genetic medicines to improve the lives of patients suffering from bladder cancer We are developing non viral genetic medicines based on our novel and proprietary dually derived chitosan or DDX gene delivery platform which allows localized delivery of complex genetic cargos directly to mucosal tissues and other organs Our lead product candidate detalimogene voraplasmid or detalimogene formerly known as EG 70 is a therapy designed to generate a local immune reaction in proximity to tumors We believe this enables the immune system to durably clear the tumor and develop memory to resist recurrence Because this treatment is designed to work by delivering genetic cargo to the broader tumor tissue environment rather than tumor cells specifically we believe it has the potential to be widely utilized across tumor types Currently we are developing detalimogene as a monotherapy to treat non muscle invasive bladder cancer NMIBC with carcinoma in situ CIS in patients that have been unresponsive to treatment with Bacillus Calmette Guérin or BCG or what is referred to as BCG unresponsive NMIBC with CIS We are also exploring the clinical application of detalimogene to other forms of NMIBC namely papillary only BCG unresponsive NMIBC i e NMIBC without CIS as well as BCG naïve NMIBC patients with CIS and BCG exposed NMIBC patients with CIS i e patients who have been treated with some BCG but who do not qualify as BCG unresponsive in accordance with FDA and urology practice guidelines
Our detalimogene program is currently enrolling patients in a combined Phase 1 2 open label study with a pivotal cohort referred to as LEGEND The Phase 2 portion of LEGEND is enrolling three cohorts cohort 1 is a pivotal cohort enrolling BCG unresponsive NMIBC patients with CIS cohort 2 is enrolling patients with BCG naïve NMIBC patients with CIS cohort 2a and BCG exposed NMIBC patients with CIS cohort 2b and cohort 3 is enrolling patients with BCG unresponsive NMIBC who have papillary disease only i e no CIS In addition our preclinical research is focused on expanding the cancer indications that can be treated with detalimogene as well as discovering new opportunities to apply our DDX technology platform to treat other indications with high unmet medical needs
Since our inception we have devoted substantially all of our efforts to organizing and staffing our Company business planning raising capital establishing our intellectual property portfolio acquiring or discovering product candidates research and development activities for our primary program detalimogene voraplasmid or detalimogene We do not have any products approved for sale and have not generated any revenue from product sales We operate as a single operating segment focused on research discovery and clinical development of detalimogene Since our merger with Forbion European Acquisition Company FEAC the Reverse Recapitalization we have financed the Company through a series of Private Investment in Public Entity PIPE financings and debt facility with Hercules
We have never been profitable and have incurred net losses since inception Our net losses were 55 1 million and 99 9 million for the years ended October 31 2024 and 2023 respectively As of October 31 2024 and 2023 we had an accumulated deficit of 254 7 million and 199 6 million respectively and cash and cash equivalents of 173 0 million and 81 5 million respectively We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future as we advance the ongoing LEGEND study of detalimogene including the pivotal cohort of patients with BCG unresponsive NMIBC to completion execute on our plan to file a Biologics License Application with the FDA in mid 2026 and pursue potential pipeline expansion via additional detalimogene development opportunities and other compounds In addition we expect to incur significant expenses as we establish medical affairs sales marketing and distribution infrastructure and capabilities to support the potential commercial launch of detalimogene and significant additional commercialization related expenses if and when detalimogene is approved As a result we expect to need substantial additional funding to support our continuing operations and pursue our growth strategy Until such time as we can generate
significant revenue from product sales if ever we expect to finance our operations through a combination of public or private equity offerings and debt financings or other capital sources which could include potential collaboration agreements strategic alliances or licensing arrangements We may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all Our failure to raise capital or enter into other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop our product candidates
As of October 31 2024 we had 173 0 million in cash and cash equivalents and 124 9 million in marketable securities mainly US Treasury Bonds We believe that our existing cash and cash equivalents and marketable securities as of October 31 2024 will be sufficient to fund our operating expenses debt obligations and capital expenditure requirements for at least the next 12 months from the issuance date of the consolidated financial statements included within this Annual Report While we have historically been successful in securing financing raising additional funds is dependent on a number of factors outside of our control and as such there is no assurance that we will be able to do so in the future See Liquidity and Capital Resources below
The transaction was accounted for as a reverse recapitalization in accordance with U S GAAP Under this method of accounting FEAC was treated as the acquired company for financial reporting purposes This determination is and was primarily based on the fact that subsequent to the Reverse Recapitalization senior management of Old enGene continues as senior management of the combined company Old enGene identifies a majority of the members of the board of directors of the combined company the name of the combined company is enGene Holdings Inc and it utilizes Old enGene s current headquarters and Old enGene s operations comprise the ongoing operations of the combined company Accordingly for accounting purposes the Company is considered to be a continuation of Old enGene with the net identifiable assets of FEAC deemed to have been acquired by Old enGene in exchange for Old enGene common shares accompanied by a recapitalization with no goodwill or intangible assets recorded The number of number of common shares net loss per common share the number of warrants to purchase common shares and the number of stock options and the related exercise prices of the stock options issued and outstanding prior to the Reverse Recapitalization have been retrospectively restated to reflect an exchange ratio of approximately 0 18048 the Exchange Ratio established in the Merger Agreement Operations prior to the Reverse Recapitalization are those of Old enGene
As a result of the Reverse Recapitalization the Company became a publicly traded company and listed its Common Shares and Warrants on the Nasdaq Global Market under the symbols ENGN and ENGNW respectively commencing trading on November 1 2023 with Old enGene a subsidiary of the Company continuing the existing business operations Immediately after giving effect to the Reverse Recapitalization and the PIPE financing conducted by the Company as part of the Reverse Recapitalization the PIPE Financing the Company had 23 197 976 Common Shares and 10 411 641 Warrants outstanding
As part of the Reverse Recapitalization the Company received net proceeds of 7 4 million from the FEAC trust account net of the redemption payment to FEAC s public shareholders and FEAC expenses As a part of the Reverse Recapitalization the Company raised an aggregate amount of 56 9 million through a series of convertible debt investments made to Old enGene which were exchanged for equity interests in the Company pursuant to the Reverse Recapitalization
We do not have any product candidates approved for sale have not generated any revenue since our inception and do not expect to generate any revenue from the sale of products or from other sources in the near future if at all We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for a product candidate if ever If our development efforts for our current lead product candidate detalimogene or additional product candidates that we may develop in the future are successful and result in marketing approval or if we enter into collaboration or license agreements with third parties we may generate revenue in the future from a combination of product sales and payments from such collaboration or license agreements
Research and development expenses account for a significant portion of our operating expenses and consist primarily of costs incurred for our research activities including our drug discovery efforts and the development of our product candidates We expense research and development costs as incurred which include
We expense research and development costs as incurred We recognize direct development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors or our estimate of the level of service that has been performed at each reporting date Payments for these development activities are based on the terms of the individual agreements which may differ from the pattern of costs incurred and are reflected in our financial statements as prepaid expenses or accrued expenses
A significant portion of our research and development costs to date have been third party costs which we track on an individual product candidate basis after a clinical product candidate has been identified Currently our main clinical product candidate is detalimogene Our indirect research and development costs are primarily personnel related costs facilities and other costs Employees and infrastructure are not directly tied to any one program and are deployed across our programs As such we do not track these costs on a specific program basis We utilize third party contractors for our research and development activities and CDMOs for our manufacturing activities and we do not have our own laboratory or manufacturing facilities
Research and development activities are central to our business model Currently the Company s sole research and development facility is located in Montreal Quebec Canada We expect that our research and development expenses will continue to increase for the foreseeable future as we progress our ongoing Phase 1 2 clinical trial for detalimogene continue to discover and develop additional product candidates expand our headcount and maintain expand and enforce our intellectual property portfolio If detalimogene or any future product candidates enter into later stages of clinical development they will generally have higher development costs than those in earlier stages of clinical development primarily due to the increased size and duration of later stage clinical trials There are numerous factors associated with the successful development and commercialization of any product candidates we may develop in the future including future trial design and various regulatory requirements many of which cannot be determined with accuracy at this time based on our stage of development Additionally future commercial and regulatory factors beyond our control will impact our clinical development program and plans
Any changes in the outcome of any of these variables with respect to the development of detalimogene or any future product candidates in nonclinical and clinical development could mean a significant change in the costs and timing associated with the development of these product candidates For example if the FDA or another regulatory authority were to delay our planned start of clinical trials or require us to conduct clinical trials or other testing beyond those that we currently expect or if we experience significant delays in enrollment in any clinical trials following the applicable regulatory authority s acceptance and clearance we could be required to expend significant additional financial resources and time to complete clinical development than we currently expect We may never obtain regulatory approval for any product candidates that we develop
The successful development of detalimogene or any product candidates we may develop in the future is highly uncertain Therefore we cannot reasonably estimate or know the nature timing and estimated costs of the efforts that will be necessary to complete the development and commercialization of detalimogene and any other product candidates we may develop We are also unable to predict when if ever material net cash inflows will commence from the sale of detalimogene or any future product candidate if approved This is due to the numerous risks and uncertainties associated with product development
General and administrative expenses consist primarily of personnel related expenses including salaries benefits and share based compensation expenses for personnel in executive and other administrative functions Other significant general and administrative expenses include professional services including legal accounting and audit services and other consulting fees as well as facility costs not otherwise included in research and development expenses insurance and other operating costs
We expect that our general and administrative expenses will continue to increase in the foreseeable future as our business expands to support our continued research and development activities including our clinical trials These increases will likely include increased costs related to the hiring of additional personnel and fees for outside consultants among other expenses In addition if we obtain regulatory approval for our current product candidate or any product candidates we may develop in the future and do not enter into a third party commercialization collaboration we expect to incur significant expenses related to building a sales and marketing team to support product sales marketing and distribution activities
Old enGene s convertible debentures consisted of a debt instrument a minimum interest obligation and a share conversion feature Old enGene identified embedded derivatives related to share conversion features within the convertible notes that required bifurcation as a single compound derivative instrument and were classified as liabilities on our consolidated balance sheets The convertible debenture embedded derivative liabilities were initially recorded at fair value upon the date of issuance using a probability weighted expected return model and were subsequently remeasured to fair value at each reporting date The estimated probability and timing of underlying events triggering the conversion features contained within the convertible debentures are inputs used to determine the estimated fair value of the embedded derivative Changes in the fair value of the convertible debenture embedded derivative liabilities were recognized in change in fair value of convertible embedded derivative liabilities as a component of other expense in our consolidated statements of operations and comprehensive loss Upon the close of the Reverse Recapitalization Old enGene s convertible debentures were exchanged for Common Shares of the Company or settled through repayment resulting in an extinguishment of the convertible debentures and related embedded derivative liabilities
Old enGene issued warrants to purchase redeemable convertible preferred shares as part of the issuance of certain redeemable convertible preferred shares and convertible debentures Old enGene accounted for the redeemable convertible preferred shares warrants issued based upon the characteristics and provisions of the instrument and determined that the warrants were liability classified The redeemable convertible preferred share warrants were recognized at their fair value on the date of issuance and remeasured to fair value at each reporting period with the changes in fair value recognized in the change in fair value of warrant liabilities as a component of other expense in our consolidated statements of operations and comprehensive loss Upon the close of the Reverse Recapitalization the preferred share warrants were surrendered for no consideration and the fair value was determined to be zero
The warrants issued by Old enGene as part of the 2023 Financing as defined herein the 2023 Warrants were concluded to be freestanding liability classified instruments upon issuance which were subsequently reclassified to equity upon the consummation of the Reverse Recapitalization The fair value of the 2023 Warrants was estimated based on the underlying quoted market price of the FEAC public warrants prior to the close of the Reverse Recapitalization The 2023 Warrants were classified as a Level 2 measurement given they were substantially similar to FEAC public warrants The 2023 Warrants were initially measured at fair value and were
subsequently remeasured at fair value with any changes in fair value recorded as a component of other expense in our consolidated statements of operations and comprehensive loss so long as they remain liability classified Upon the execution of the PIPE Financing and consummation of the Reverse Recapitalization the 2023 Warrants were reclassified to equity as the number of warrants became fixed and it was determined that the warrants met the fixed for fixed criteria that is required for a contract to be considered indexed to the Company s own stock as prescribed by Accounting Standards Codification ASC 815 Derivatives and Hedging
Old enGene issued convertible debentures and warrants in 2023 for which the fair value option of accounting was elected for the convertible debentures The convertible debentures were initially recorded at fair value upon the date of issuance using a probability weighted expected return model and were subsequently remeasured to fair value at each reporting date The estimated probability and timing of underlying events triggering the conversion contained within the convertible debentures are inputs used to determine the estimated fair value of the notes during the year ended October 31 2023 Changes in the fair value of the convertible debentures were recognized in change in fair value of convertible debentures as a component of other expense in our consolidated statements of operations and comprehensive loss Upon the close of the Reverse Recapitalization convertible debentures were exchanged for Common Shares of the Company resulting in an extinguishment of the convertible debentures
Loss on extinguishment of convertible debentures consists of the differences between the carrying value of Old enGene s convertible debentures and the fair value of the settlement amounts upon repayment of the convertible debentures and exchange of the convertible debentures into shares of the Company
Since our inception we have not recorded any income tax benefits for the net losses we have incurred in each period or for deductible temporary differences as we believe based upon the weight of available evidence that it is more likely than not that all of our net operating loss carryforwards and tax credits will not be realized As of October 31 2024 and 2023 we have recorded a full valuation allowance against our deferred tax assets
Other income expenses decreased by approximately 81 0 million from expense of 73 8 million for the year ended October 31 2023 to income of 7 1 million for the year ended October 31 2024 This increase is attributable to a 9 3 million increase in interest income earned in the current period from larger cash balances arising from the February 2024 PIPE Financing and the October 2024 PIPE Financing collectively the 2024 PIPE Financings a 2 2 million decrease in interest expense as expense associated with the conversion and repayments of our convertible debentures were no longer applicable to the current period only interest expense that was incurred related to the debt facility with Hercules Capital in the current period a 66 8 million net expense from the change in fair value of warrant and convertible debt liabilities during the year ended October 31 2023 that were no longer applicable to the current period as the associated instruments were settled upon the close of the Reverse Recapitalization and a 3 1 million loss on extinguishment of debt during the year ended October 31 2023 as compared to 0 4 million gain on extinguishment of debt that was incurred during the current year
Since our inception we have incurred significant losses in each period and on an aggregate basis We have not yet commercialized any product candidates and we do not expect to generate revenue from sales of any product candidates or from other sources for several years if at all As of October 31 2024 we had 173 0 million in cash and cash equivalents and 124 9 million in marketable securities and we had an accumulated deficit of 254 7 million Since the Reverse Recapitalization we have financed our operations primarily through proceeds received through PIPE financings and debt facility with Hercules Our recent sources of liquidity include the 200 0 million from the February 2024 PIPE Financing net of issuance costs of 12 4 million and the 60 1 million from the October 2024 PIPE Financing net of issuance costs of 3 8 million
Based on our current operating plans we expect our cash and cash equivalents as of October 31 2024 will be sufficient to fund the Company s operating expenses and debt obligations requirements for at least the next 12 months from the issuance date of the consolidated financial statements included within this Annual Report without giving effect to any potential milestone debt tranches we may be eligible to drawdown further under our debt facility with Hercules Our current operating plan is based on various assumptions If we use our capital resources sooner than expected we will evaluate reductions in expense or obtaining additional financing This may include pursuing a combination of public or private equity offerings debt financings collaborations strategic alliances or licensing arrangements with third parties There can be no assurance that such financing will be available in sufficient amounts or on acceptable terms if at all and some could be dilutive to existing stockholders If we are unable to obtain additional funding on a timely basis we may be forced to significantly curtail delay or discontinue one or more of our planned research or development programs or be unable to expand our operations
Net cash used in operating activities for the fiscal year ended October 31 2024 was 48 3 million and was primarily due to our net loss of 55 1 million partially offset by adjustments for non cash charges totaling 6 8 million Further changes were driven by the receipt of a 2 0 million refundable investment tax credit and a 1 9 million increase in other net working capital adjustments
Net cash used in operating activities for the fiscal year ended October 31 2023 was 24 7 million and was primarily due to our net loss of 99 9 million partially offset by adjustments for non cash charges totaling 75 7 million Further changes were driven by a 1 0 million increase in investment tax credit receivables and a 0 5 million decrease in other net working capital adjustments
Net cash provided by financing activities for the fiscal year ended October 31 2024 was 265 7 million primarily resulting from 260 1 million received from the 2024 PIPE Financings which were partially offset by issuance costs of 12 4 million 22 5 million received from the Term Loan as defined herein which was offset by 9 4 million in principal repayments of the Prior Term Loan 6 1 million from exercise of common share warrants and stock options offset by 0 6 million in debt issuance costs paid as part of the Term Loan and 0 6 million of SPAC transaction costs paid to FEAC in connection with the Reverse Recapitalization
Net cash provided by financing activities for the fiscal year ended October 31 2023 was 86 1 million resulting from proceeds of 38 0 million received from the issuance of convertible debentures and 64 3 million gross proceeds received from the PIPE Financing and Reverse Recapitalization partially offset by the repayment of scheduled principal payments of the Hercules term loan of 1 6 million full repayment of the BDC convertible debentures of 3 2 million payment of debt issuance costs of 0 9 million and payment of transaction costs in connection with the Reverse Recapitalization and PIPE Financing of 10 5 million
On December 30 2021 we entered into a Loan and Security Agreement the Prior Loan Agreement with Hercules for the issuance of a term loan facility of an aggregate principal amount of up to 20 0 million the Prior Term Loan The Prior Loan Agreement has remained in place after the consummation of the Reverse Recapitalization until its amendment and restatement in December 2023 as discussed below The Prior Loan Agreement provided for i an initial term loan advance of 7 0 million which closed on December 30 2021 ii subject to the achievement of certain Clinical Milestones the Clinical Milestone a right of the Company to request that the Lender make additional term loan advances to us in an aggregate principal amount of up to 4 0 million from the achievement of the Clinical Milestone through June 15 2022 which was drawn in June 2022 and iii subject to the achievement of certain financial milestones the Financial Milestone a right of the Company to request that the Lender make additional term loan advances to the Company in an aggregate principal amount of up to 9 0 million from achievement of the Financial Milestone through December 15 2022 which was not achieved We were required to pay an end of term fee the Prior Term Loan End of Term Charge equal to 6 35 of the aggregate principal amount of the Prior Term Loans advances upon repayment The financing agreement contained negative covenants that among other things and subject to certain exceptions could have restricted our ability to incur additional liens incur additional indebtedness make investments including acquisitions engage in fundamental changes sell or dispose of assets that constitute collateral including certain intellectual property pay dividends or make any distribution or payment on or redeem retire or purchase any equity interests amend modify or waive certain material agreements or organizational documents and make payments of certain subordinated indebtedness
Under the Prior Loan Agreement Old enGene agreed to issue to Hercules warrants the Old Hercules Warrants to purchase a number of shares of Old enGene s redeemable convertible preferred shares at the exercise price equal to 2 5 of the aggregate amount of the Prior Term Loans that are funded as such amounts are funded Old enGene issued a total of 133 692 warrants to purchase Class C redeemable convertible preferred shares Upon the close of the Reverse Recapitalization the Old Hercules Warrants along with all other warrants to purchase shares of Old enGene s redeemable convertible preferred shares were surrendered for no consideration
On December 22 2023 the Hercules Closing Date we entered into an amended and restated loan and security agreement the Amended Loan Agreement with Hercules as agent and lender and the several banks and other financial institutions or entities from time to time parties thereto with Hercules the Lenders The Amended Loan Agreement amends and restates in its entirety the Prior Loan Agreement with Hercules dated December 30 2021
As of October 31 2024 the Amended Loan Agreement provides for a term loan facility of up to 50 0 million available in multiple tranches the Term Loan as follows i an initial term loan advance the Tranche 1 Advance that was made on the Hercules Closing Date of 22 5 million approximately 8 6 million of which was applied to refinance in full the term loans outstanding under the Prior Loan Agreement ii subject to the achievement of the specified interim milestone the Interim Milestone and satisfaction of certain other conditions precedent our right to request that the Lenders make additional term loan advances to us in an aggregate principal amount of up to 7 5 million from the achievement of the Interim Milestone through the earlier of x 60 days following the Interim Milestone and y March 31 2025 and iii an uncommitted tranche subject to the Lenders investment committee approval and satisfaction of certain other conditions precedent including payment of a 0 75 facility charge on the amount borrowed pursuant to which we may request from time to time up to and including the Amortization Date as defined below that the Lenders make additional term loan advances to us in an aggregate principal amount of up to 20 0 million We are required to pay upon the earlier of January 1 2028 the Maturity Date or payment in full of the Term Loans an end of term fee equal to 5 50 of the aggregate principal amount of the Term Loans the End of Term Charge We are also required to pay on July 1 2025 or if earlier the date we prepay the Term Loans approximately 0 7 million representing the Prior Term Loan End of Term Charge the Prior Term Loan End of Term Charge and End of Term Charge collectively the End of Term Charges
The Term Loan bears cash interest payable monthly at an annual rate equal to the greater of a the prime rate of interest as reported in the Wall Street Journal plus 0 75 capped at 9 75 and b 9 25 The Term Loan also bears additional payment in kind interest at an annual rate of 1 15 which is added to the outstanding principal balance of the Term Loan on each monthly interest payment date Borrowings under the Amended Loan Agreement are repayable in monthly interest only payments through the Amortization Date which is either x July 1 2025 or y if the Interim Milestone is achieved and there has been no default January 1 2026 or z if the Interim Milestone and certain clinical milestones are achieved and there has been no default under the Amended Loan Agreement July 1 2026 After the Amortization Date the outstanding Term Loans and interest shall be repayable in equal monthly payments of principal and accrued interest until the Maturity Date
At our option we may elect to prepay all but not less than all of the outstanding Term Loan by paying the entire principal balance and all accrued and unpaid interest thereon plus a prepayment charge equal to the following percentage of the principal amount being prepaid i 3 0 of the principal amount outstanding if the prepayment occurs in any of the first twelve months following the Hercules Closing Date ii 2 0 of the principal amount outstanding if the prepayment occurs after the first twelve months following the Hercules Closing Date but on or prior to twenty four months following the Hercules Closing Date and iii 1 0 of the principal amount outstanding if prepayment occurs at any time thereafter but prior to the Maturity Date
In connection with the Amended Loan Agreement we granted Hercules a security interest senior to any current and future debts and to any security interest in all of our right title and interest in to and under all of our property and other assets subject to limited exceptions including our intellectual property
The Amended Loan Agreement contains negative covenants that among other things and subject to certain exceptions could restrict our ability to incur additional liens incur additional indebtedness make investments including acquisitions engage in fundamental changes sell or dispose of assets that constitute collateral including certain intellectual property pay dividends or make any distribution or payment on or redeem retire or purchase any equity interests amend modify or waive certain material agreements or organizational documents and make payments of certain subordinated indebtedness The Amended Loan Agreement also contains certain events of default and representations warranties and non financial covenants of ours We have been in compliance with the financial covenants and non financial covenants since inception of the Term Loan
In connection with the Amended Loan Agreement we also agreed to issue to the Lenders in connection with each advance of Term Loans warrants to purchase that number of our Common Shares as shall be equal to 2 of the aggregate principal amount of such Term Loan advance divided by the Warrant per share exercise price of 7 21 which exercise price equals the ten day volume weighted average price for the ten 10 trading days immediately preceding the Hercules Closing Date and is subject to customary adjustments under the terms of the Warrants the Hercules Common Share Warrants The Hercules Common Share Warrants are exercisable for a period of seven years from issuance On the Hercules Closing Date we issued to the Lenders 62 413 Hercules Common Share Warrants in connection with the Tranche 1 Advance of the Term Loan Under the terms of the Amended Loan Agreement the maximum number of Hercules Common Share Warrants and underlying Common Shares of the Company that could be issued is 138 696
As of October 31 2023 the Company classified 0 6 million of the note payable as current which represents the principal payments due and amortization of the debt discount between October 31 2023 and the date the Term Loan was amended in December 2023 see below Subsequent to the amendment to the Term Loan we are not required to make any principal payments until at least July 1 2025
Our primary uses of capital are and we expect will continue to be research and development activities compensation and related expenses and general overhead costs We expect to continue to incur significant expenses and operating losses for the foreseeable future We anticipate that our expenses will increase significantly in connection with our ongoing activities As a result we will need substantial additional funding to support our continuing operations and pursue our growth strategy
Because of the numerous risks and uncertainties associated with research development and commercialization of product candidates we are unable to estimate the exact amount of our working capital requirements Our future funding requirements will depend on and could increase significantly as a result of many factors including
A change in the outcome of any of these or other variables with respect to the development of our lead candidates or any product or development candidate we may develop in the future could significantly change the costs and timing associated with our development plans Further our operating plans may change in the future and we may need additional funds to meet operational needs and capital requirements associated with such operating plans
Old enGene was eligible to claim Canadian federal and provincial tax credits as a Canadian controlled private corporation CCPC on eligible scientific research and experimental development SR ED expenditures through September 2023 at which time the Company lost its status as a CCPC in connection with the Reverse Recapitalization As such the Company is no longer eligible for cash refunds on federal tax credits earned with respect to federally eligible SR ED expenditures Following the loss of CCPC status the Company s federal SR ED tax credits are earned at a lower rate and may only be used to offset future federal taxes payable Provincial tax credits earned in Québec in relation to SR ED expenditures are anticipated to continue to result in a cash refund to the Company albeit at a reduced rate
Until such time if ever as we can generate substantial product revenues we expect to finance our cash needs through a combination of equity offerings debt financings or other capital sources which could include collaborations strategic alliances or licensing arrangements Adequate additional financing if available may not be available to us on acceptable terms or at all To the extent that we raise additional capital through the sale of equity or convertible debt securities the ownership interests of our existing shareholders may be diluted and the terms of these securities may include liquidation or other preferences that could adversely affect the rights of such shareholders Debt financing if available may involve agreements that include restrictive covenants that limit our ability to take specific actions such as incurring additional debt making capital expenditures or declaring dividends that could adversely
impact our ability to conduct our business If we raise additional funds through collaborations strategic alliances or licensing arrangements with third parties we may have to relinquish valuable rights to our technologies future revenue streams research program or product candidates or grant licenses on terms that may not be favorable to us If we are unable to raise additional funds through equity or debt financings when needed we may be required to delay limit reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and disruptions to and volatility in the credit and financial markets in the United States and worldwide Because of the numerous risks and uncertainties associated with product development there is no assurance that we will ever be profitable or generate positive cash flow from operating activities
On April 10 2020 we entered into the License Agreement with NTC pursuant to which NTC granted us a worldwide non exclusive royalty bearing and sublicensable license to certain patents and know how relating to the Nanoplasmid vector backbone that is used in detalimogene voraplasmid to research develop make use import sell and offer and sell any gene and cell therapy products incorporating the Nanoplasmid vector backbone excluding any such products in the field of dermatology Unless terminated earlier the License Agreement will continue until no valid claim of any licensed patent exists in any country We can voluntarily terminate the License Agreement with prior notice to NTC
We paid NTC an initial upfront fee of 50 thousand which was recorded as research and development expense upon entering into the License Agreement Beginning on the first anniversary of the effective date of the License Agreement and on each subsequent anniversary we are required to pay NTC a 50 thousand annual maintenance fee until the first sale of a product for which a royalty is due We are also required to make a payment to NTC of 50 thousand upon assigning the License Agreement to a third party The License Agreement provides for a one time payment of 50 thousand for the first dose of a product covered by a valid claim of a licensed patent a Milestone Product in the first patient in a Phase 1 clinical trial or if there is no Phase 1 clinical trial in a Phase 2 clinical trial as well as a one time payment of 450 thousand upon regulatory approval of a Milestone Product by the U S Food and Drug Administration The first milestone related to the first dose of a Milestone Product was achieved during the year ended October 31 2021 The second milestone regulatory approval of a Milestone Product has not yet been achieved as of the year ended October 31 2024 We are also required to pay NTC a royalty percentage in the low single digits of the aggregate net product sales in a calendar year by us our affiliates or sublicensees on a product by product and country by country basis as long as the composition or use of the applicable product is covered by a valid claim in the country where the net sales occurred Royalty obligations under the License Agreement will continue until the expiration of the last valid claim of a licensed patent covering such licensed product in such country In the event that we or any of our affiliates or sublicensees manufactures any GMP lot of a licensed product then we or any such affiliate or sublicensee will be obligated to pay NTC an amount per manufactured gram of GMP or its equivalent lot of product which varies based on the volume manufactured Such manufacturing payment will expire on a product by product basis upon receipt of regulatory approval to market a product in any country in the licensed territory
Our leases are comprised of all operating leases for office and lab space We have a month to month office and lab space lease located in Montreal Quebec Canada which commenced in November 2021 and had an initial term of 12 months that expired on October 31 2022 The lease includes options to renew for consecutive twelve month periods upon landlord consent at new lease rates In October 2022 we entered into a lease amendment to extend the lease for an additional term of six months through April 2023 with an option to extend the lease through September 2023 In April 2023 the Company extended the lease through September 2023 In September 2023 the Company extended the lease term through November 5 2023 The amendment resulted in 0 2 million of additional lease commitments to be paid during the extended term inclusive of the extension through November 5 2023
On December 29 2022 we signed a new lease for approximately 10 620 square feet of new laboratory and office space at 4868 Rue Levy Montreal QC The term of the lease is for 10 years beginning on the commencement date and requires an annual initial base rent of 36 50 Canadian Dollar CAD per square foot which is subject to annual increases of 2 The lease commenced in November 2023
On January 1 2024 we entered into a lease agreement in which we are sub leasing approximately 6 450 square feet of office space located at 200 Fifth Avenue Waltham Massachusetts 02451 We will make an aggregate amount of base rental payments of 0 5 million under the initial term of the lease which is set to expire on December 30 2026 and does not have an option to renew
We enter into contracts in the normal course of business with CROs CDMOs and other third party vendors for nonclinical research studies and testing clinical trials and testing and manufacturing services Most contracts do not contain minimum purchase commitments and are cancellable by us upon written notice Payments due upon cancellation consist of payments for services provided or expenses incurred including those incurred by subcontractors of our suppliers
This management s discussion and analysis is based on our consolidated financial statements which have been prepared in accordance with U S GAAP The preparation of our consolidated financial statements and related disclosures requires us to make judgments and estimates that affect the reported amounts of assets liabilities and expenses as well as related disclosures during the reported periods We base our estimates on historical experience known trends and events and various other factors that we believe are reasonable under the circumstances Actual results may differ from these estimates under different assumptions or conditions On an ongoing basis we evaluate our judgments and estimates in light of changes in circumstances facts and experience The effects of material revisions in estimates if any will be reflected in the financial statements prospectively from the date of change in estimates
While our accounting policies are described in more detail in the notes to our consolidated financial statements included elsewhere in this Annual Report we believe the following accounting policies used in the preparation of our financial statements require the most significant judgments and estimates
As part of the process of preparing our financial statements we are required to estimate our accrued and prepaid third party research and development expenses as of each balance sheet date This process involves reviewing open contracts and purchase orders communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met We make estimates of our accrued and prepaid expenses as of each balance sheet date based on facts and circumstances known to us at that time We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary The significant estimates in our accrued and prepaid research and development expenses include the costs incurred for services performed by our vendors in connection with research and development activities for which we have not yet been invoiced
We base our expenses related to research and development activities on our estimates of the services received and efforts expended pursuant to quotes and contracts with vendors that conduct research and development activities on our behalf The financial terms of these agreements are subject to negotiation vary from contract to contract and may result in uneven payment flows There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the research and development expense In accruing service fees we estimate the time period over which services will be performed and the level of effort to be expended in each period If the actual timing of the performance of services or the level of effort varies from our estimate we adjust the accrual or prepaid balance accordingly Non refundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made
Although we do not expect our estimates to be materially different from amounts incurred if our estimates of the status and timing of services performed differ from the actual status and timing of services performed it could result in us reporting amounts that are too high or too low in any particular period
We measure all share based awards granted to employees officers directors and non employees based on the fair value on the date of the grant and recognize compensation expense for those awards over the requisite service period which is generally the vesting period of the respective award Our share based payments related only to stock options issued to date We account for forfeitures of our share based awards as they occur We have historically issued share based awards with only service based vesting conditions In July 2023 we issued 1 046 764 stock options which have performance conditions tied to the closing of the Reverse Recapitalization and the filing of an effective registration statement For share based awards with service based vesting conditions we record the expense using the straight line method including when such awards have graded vesting For performance based awards we record the expense when achievement of the performance condition is deemed probable using an accelerated attribution method as if each vesting tranche was treated as an individual award
based on certain subjective assumptions including the fair value of our Common Shares prior to the Reverse Recapitalization expected share price volatility the expected term of the award the risk free interest rate for a period that approximates the expected term of the option and our expected dividend yield We determine the volatility for awards granted based on an analysis of reported data for a group of guideline companies that have issued options with substantially similar terms The expected volatility has been determined using a weighted average of the historical volatility measures of this group of guideline companies The expected option term for share based awards with only service based vesting was calculated based on the simplified method which uses the midpoint between the vesting date and the contractual term as we do not have sufficient historical data to develop an estimate based on participant behavior The expected option term for performance based awards has been determined considering the characteristics of the award contractual life the timing of the expected achievement of the performance conditions the remaining time based vesting period and comparison to expected terms used by peers The risk free interest rate is determined by reference to the U S Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award We have not paid and do not anticipate paying cash dividends on our Common Shares therefore the expected dividend yield is assumed to be zero
Prior to the Reverse Recapitalization because there was no public market for Old enGene s common shares its Board of Directors approved the fair value of its common share based on third party valuations of its common shares Initially the enterprise equity value of Old enGene was determined using a market approach and or cost approach by considering the weighting of scenarios estimated using a back solve method based on recent financing transactions of the Company This value was then allocated towards the Company s various securities of its capital structure using an option pricing method or OPM and a waterfall approach based on the order of the superiority of the rights and preferences of the various securities relative to one another Significant assumptions used in the OPM to determine the fair value of common shares include volatility discount for lack of marketability and the expected timing of a future liquidity event such as an initial public offering or sale of our Company in light of prevailing market conditions This valuation process creates a range of equity values both between and within scenarios In addition various objective and subjective factors were considered to determine the fair value of our Common Shares as of each grant date of stock options including among other factors
The assumptions underlying these valuations represented management s best estimate which involved inherent uncertainties and the application of management s judgment and these valuations are sensitive to changes in the unobservable inputs As a result if we had used different assumptions or estimates or if there are changes to the unobservable inputs the fair value of its Common Shares and share based compensation expense could have been materially different
Subsequent to the consummation of the Reverse Recapitalization the fair value of the Common Shares used in the Black Scholes option pricing model to determine the fair value of the stock option will be determined based on the quoted price of our Common Shares Further there were no performance conditions outstanding subsequent to the consummation of the Reverse Recapitalization
Our share based compensation expense is recorded in general and administrative and research and development expenses in the Company s consolidated statements of operations and comprehensive loss We recorded share based compensation expense of 5 3 million and 3 5 million for the fiscal years ended October 31 2024 and 2023 respectively
Old enGene s Board of Directors granted 1 046 764 options to employees on July 7 2023 for non voting common shares of Old enGene at an exercise price of 5 87 CAD 4 24 USD The exercise price of 5 87 CAD 4 24 USD was approved by Old enGene s Board of Directors and determined to be equal to the fair value of its common shares on the grant date based on a valuation performed by an independent third party valuation specialist and considering i the lapse of time between the date of the valuation as of May 31 2023 and the grant of the award was limited and ii events between the valuation date and grant date that would affect the valuation of common shares Significant assumptions used in the valuation to determine the fair value of common shares included expected value of common shares discount rate DLOM and the expected timing of a future liquidity event such as an initial public offering SPAC transaction or sale of Old enGene in light of prevailing market conditions These options were not exercisable unless and until the
completion of the Merger Agreement and there was an effective registration statement for the shares underlying such granted options and the options would have terminated automatically in the event of the termination of the Merger Agreement We valued these awards at the grant date using Black Scholes pricing model in which the fair value of the stock on the grant date was equal to the exercise price of the award Upon meeting the exercisability conditions 794 643 of the issued options were fully vested and exercisable and the remaining 252 121 options vest over varying terms up to four years We recognize compensation expense when achievement of the performance condition is deemed probable using an accelerated attribution method as if each vesting tranche was treated as an individual award
On February 13 2024 the Company through its subsidiary enGene USA Inc entered into a Transition and Modification Agreement the Transition Agreement with the Company s former Chief Executive Officer Jason Hanson which amended and modified the Employment Agreement dated November 8 2023 between Mr Hanson and enGene USA the Hanson Employment Agreement On July 23 2024 the Company through its subsidiary enGene USA Inc and Mr Hanson entered into the Amendment to Transition and Modification Agreement the TMA Amendment which further amended the Transition Agreement Under the terms of the Hanson Employment Agreement as amended by the Transition Agreement and TMA Amendment the Amended Employment Agreement Mr Hanson is entitled to
iv extension of the period to exercise his vested equity awards to three years following the later of date of termination of his employment or the date of termination of the Consulting Period as defined below but in no event shall the post termination exercise period of Mr Hanson s vested equity awards extend beyond the respective applicable term thereof
The Transition Agreement further provided that in the event Mr Hanson were to resign upon the appointment by the Company of a new chief executive officer Mr Hanson would be immediately engaged in a consulting role to provide transition services as a Senior Strategic Advisor to the Company for a period of at least six months following the effective date of resignation the Consulting Period in exchange for a monthly fee of 25 000 for the initial six month Consulting Period and 500 per hour thereafter provided that Mr Hanson need not devote more than fifteen 15 hours per week to providing such transition services
Under the Transition Agreement the 1 216 266 stock option awards issued to Mr Hanson were modified to allow for an extended exercise period as described above The modification resulted in an incremental share based compensation expense of 1 0 million which was recorded upon the effective date of the Transition Agreement
Additionally in 2024 the Company entered into a Severance Agreement with each of three former employees including the former Chief Medical Officer and the former Chief Scientific Officer Under the terms of Severance Agreement the employees are entitled to twelve months of continued pay and health insurance benefits a payment of a 2024 target annual bonus prorated through the last day of employment acceleration and vesting of any then unvested time based equity awards that would have vested in the twelve month period following such termination and an extended expiry period which resulted in a stock based compensation modification Under the terms of the severance agreements 231 684 stock option awards were modified to allow for an extended exercise period as described above As of October 31 2024 the Company recognized incremental stock based compensation expense of 0 5 million related to the severance agreements
Old enGene issued warrants to purchase shares of redeemable convertible preferred shares as part of the issuance of certain of its redeemable convertible preferred shares convertible debentures and term loan the Preferred Share Warrants The fair value of the Preferred Share Warrant liabilities was estimated using a Modified Black Scholes option pricing model which includes assumptions that are based on the individual characteristics of the Preferred Share Warrants on the valuation date and assumptions related to the fair value of the underlying redeemable convertible preferred shares expected volatility expected life dividends risk free interest rate and discount for lack of marketability DLOM Due to the nature of these inputs the Preferred Share Warrants are considered a Level 3 liability The weighted average expected life was estimated based on the weighting of scenarios considering the probability of different terms up to the contractual term of 10 years in light of the expected timing of a future exit event which includes a SPAC transaction
The expected volatility was determined based on an analysis of reported data for a group of guideline companies that have issued instruments with substantially similar terms The expected volatility has been determined using a weighted average of the historical volatility measures of this group of guideline companies The risk free interest rate is determined by reference to the Canadian Treasury yield curve in effect at the time of measurement of the warrant liabilities for time periods approximately equal to the weighted average expected life of the warrant Old enGene did not pay any cash dividends on its redeemable convertible preferred shares therefore the expected dividend yield was assumed to be zero
Because there was no public market for the underlying redeemable convertible preferred shares of Old enGene its Board of Directors determined their fair value based on third party valuations Initially the enterprise equity value of Old enGene was determined using a market approach and or cost approach by considering the weighting of scenarios estimated using a back solve method based on recent financing transactions of Old enGene This value was then allocated towards Old enGene s various securities of its capital structure using an option pricing method or OPM and a waterfall approach based on the order of the superiority of the rights and preferences of the various securities relative to one another Significant assumptions used in the OPM to determine the fair value of preferred shares include volatility DLOM and the expected timing of a future liquidity event such as an initial public offering SPAC transaction or sale of Old enGene in light of prevailing market conditions This valuation process creates a range of equity values both between and within scenarios
In addition to considering the results of these valuations Old enGene s Board of Directors considered various objective and subjective factors to determine the fair value of our preferred shares as of each valuation date including the prices at which Old enGene sold redeemable convertible preferred in the most recent transactions external market conditions the progress its research and development programs our financial position including cash on hand and our historical and forecasted performance and operating results and the lack of an active public market for its redeemable convertible preferred shares among other factors As part of entering into the Merger Agreement with FEAC the holders have agreed to surrender the preferred share warrants for no consideration immediately prior to the completion of the Reverse Recapitalization Upon the close of the Reverse Recapitalization the Preferred Share Warrants were surrendered for no consideration and the fair value was determined to be zero
The warrants issued by Old enGene as part of the 2023 Financing the 2023 Warrants were concluded to be freestanding liability classified instruments upon issuance as they failed the fixed for fixed criteria that is required for a contract to be considered indexed to the Company s own stock as prescribed by ASC 815 The terms of the warrants initially required Old enGene to issue a variable number of shares until the PIPE Financing was executed at which time the number of warrants became fixed and it was determined that the warrants met the fixed for fixed criteria that is required for a contract to be considered indexed to the Company s own stock as prescribed by ASC 815 The 2023 Warrants were initially and subsequently measured at fair value with any changes in fair value recorded as a component of other income and expense within the change in fair value of warrant liabilities
Old enGene estimated the fair value of the 2023 Warrants based on the underlying quoted market price of the FEAC public warrants prior to the close of the Reverse Recapitalization The 2023 Warrants were classified as a Level 2 measurement given they are substantially similar to FEAC public warrants The price used to value the 2023 Warrants as of the issuance date and immediately prior to the consummation of the Reverse Recapitalization was 0 53 and 0 74 per warrant respectively which represented the quoted market price of the FEAC public warrants on each date
Old enGene s convertible debentures contain equity conversion options and certain repayment features that have been identified as a single compound embedded derivative requiring bifurcation from the host contract for the convertible debentures for which the fair value has not been elected The convertible debenture embedded derivative liabilities is initially measured at fair value on issuance and is subject to remeasurement at each reporting period with changes in fair value recognized in the change in fair value of derivative liabilities net in the consolidated statements of operations and comprehensive loss Upon the close of the Reverse Recapitalization the 2022 Notes were exchanged for Common Shares of the Company resulting in an extinguishment of the 2022 Notes and related embedded derivative liability and the BDC Note was repaid in full
Old enGene estimated the fair value of the convertible debenture embedded derivative liabilities on issuance and at each reporting period using a probability weighted scenario expected return model The estimated probability and timing of underlying events triggering the conversion and liquidity repayment features and probability of exercise of the extension features within the convertible debentures as well as discount rates volatility and share prices are inputs used to determine the estimated fair value of the embedded derivative Immediately prior to the conversion and exchange of the 2022 Notes for Common Shares of the Company upon the Reverse Recapitalization the Company remeasured the convertible debenture embedded derivative liability using a 100 probability of conversion upon the Reverse Recapitalization and the quoted market price for FEAC s common share on October 31 2023 which was 21 70 per share as the fair value of the common shares
Old enGene elected the fair value option of accounting of ASC 825 for the April 2023 Notes and the May 2023 Notes from their issuance date in order to not have to bifurcate any embedded derivatives in accordance with ASC 815 The notes for which the fair value option of accounting is elected are recorded at fair value upon the date of issuance and subsequently remeasured to fair value at each reporting period Changes in the fair value of the April 2023 Notes and May 2023 Notes which include accrued interest if any are recorded as a component of other expense income net in the consolidated statement of operations and comprehensive loss We have not elected to present interest expense separately from changes in fair value and therefore will not present interest expense associated with the notes Any changes in fair value caused by instrument specific credit risk are presented separately in other comprehensive income During the year ended October 31 2023 we did not record any changes in fair value related to instrument specific credit risk
Old enGene initially estimated the fair value of the May 2023 Notes using a probability weighted scenario expected return model The estimated probability and timing of underlying events within the convertible debentures as well as discount rates volatility and share prices are inputs used to determine the estimated fair value of the May 2023 Notes Due to the nature of these inputs the May 2023 Notes initially represented a Level 3 measurement within the fair value hierarchy
Immediately prior to the conversion and exchange of the May 2023 for Common Shares of the Company upon the Reverse Recapitalization the Company remeasured the fair value of the convertible debentures using the quoted market price for FEAC s common share on October 31 2023 which was 21 70 per share as the fair value of the common shares for which the May 2023 Notes were exchanged for
The assumptions underlying these valuations represented management s best estimate which involved inherent uncertainties and the application of management s judgment and these valuations are sensitive to changes in the unobservable inputs As a result if we had used different assumptions or estimates or if there are changes to the unobservable inputs the fair value of the April 2023 and May 2023 Notes could have been materially different
In September 2023 we lost our status as a Canadian controlled private corporation CCPC and as a result the rates at which we can claim Canadian federal and provincial tax credits on eligible SR ED expenditures are reduced The Canadian federal government offers a tax incentive to companies performing research and development activities in Canada and this tax incentive can be refunded or used to reduce federal income taxes in Canada otherwise payable Such credits if not refunded or used in the year earned can be carried forward for a period of twenty years Upon the loss of our CCPC status the federal tax credit is no longer refundable The Quebec provincial government offers a similar refundable incentive The investment tax credits recorded are based on management s estimates of amounts expected to be recovered and are subject to audit by the taxation authorities the resulting adjustments of which could be significant Following the loss of CCPC status and as we continue to grow and expand our research and development activities outside of Canada we anticipate our SR ED tax credits to decrease over time
During the fiscal years ended October 31 2024 and 2023 we recorded 0 4 million and 1 1 million respectively as a reduction of research and development expense associated with SR ED investment tax credits We have outstanding investment tax credits receivable of 0 3 million and 2 3 million as of October 31 2024 and 2023 respectively
We are an emerging growth company as defined by the JOBS Act Section 102 b 1 of the Jumpstart Our Business Startups Act of 2012 the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply that is those that have not had a registration statement under the Securities Act declared effective or do not have a class of securities registered under the Exchange Act are required to comply with the new or revised financial accounting standards The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non emerging growth companies but any such election to opt out is irrevocable We have elected to opt out of such extended transition period In addition for so long as we are an emerging growth company we are permitted and intend to take advantage of exemption from compliance with the auditor attestation requirement in the assessment of our internal control over financial reporting
We will remain an emerging growth company until the earlier of 1 the last day of the fiscal year a following the fifth anniversary of the closing of FEAC s IPO which occurred on December 14 2021 b in which we have total annual revenue of at least 1 23 billion or c in which we are deemed to be a large accelerated filer which means the market value of our common equity that is held by non affiliates exceeds 700 million as of the end of the prior fiscal year s second fiscal quarter and 2 the date on which we
Additionally we are a smaller reporting company as defined in Item 10 f 1 of Regulation S K We will remain a smaller reporting company until the last day of the fiscal year in which 1 the market value of our common shares held by non affiliates exceeds 250 million as of the prior April 30 or 2 our annual revenues exceed 100 million during such completed fiscal year and the market value of our common shares held by non affiliates exceeds 700 million as of the prior April 30 To the extent we take advantage of such reduced disclosure obligations it may also make comparison of our financial reporting with that of other public companies difficult or impossible If we are a smaller reporting company at the time we cease to be an emerging growth company we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies Specifically as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10 K and similar to emerging growth companies smaller reporting companies have reduced disclosure obligations including regarding executive compensation
We have reviewed all recently issued accounting pronouncements and have determined that other than as disclosed in Note 2 to our annual consolidated financial statements included elsewhere in this Annual Report and disclosed above such standards will not have a material impact on our financial statements or do not otherwise apply to our operations
As of the end of the period covered by this Annual Report management under the supervision of and with the participation of our Chief Executive Officer principal executive officer and Chief Financial Officer principal financial officer and principal accounting officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a 15 e and 15d 15 e under the Securities Exchange Act of 1934 as amended the Exchange Act to determine whether such disclosure controls and procedures provide reasonable assurance that information to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded processed summarized and reported within the time periods specified in the rules and forms of the SEC and such information is accumulated and communicated to management including our principal executive and principal financial officers or persons performing similar functions as appropriate to allow timely decisions regarding disclosure Our disclosure controls and procedures were developed through a process in which our management applied its judgment in assessing the costs and benefits of such controls and procedures which by their nature can provide only reasonable assurance regarding the control objectives You should note that the design of any system of disclosure controls and procedures is based in part upon various assumptions about the likelihood of future events and we cannot assure you that any design will succeed in achieving its stated goals under all potential future conditions regardless of how remote
As previously reported in connection with our preparation and the audit of our consolidated financial statements as of and for the years ended October 31 2023 and 2022 material weaknesses were identified as defined under the Exchange Act in our internal control over financial reporting of which some continue to exist at October 31 2024
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a 15 f under the Exchange Act Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with U S GAAP Our management under the supervision of and with the participation of our Chief Executive Officer and Chief Financial Officer conducted an evaluation of our internal control over financial reporting based on the framework in Internal Control Integrated Framework issued in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission Based on this assessment management concluded that as of October 31 2024 our internal control over financial reporting was not effective due to the unremediated material weaknesses 1 4 and 5 described below
A material weakness is a deficiency or a combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our consolidated financial statements will not be prevented or detected on a timely basis The material weaknesses identified at October 31 2023 and 2022 related to
Notwithstanding these material weaknesses management has concluded that the Company s audited consolidated financial statements as at October 31 2024 and 2023 present fairly in all material respects the financial position of the Company and the results of its operations and its cash flows for the years then ended in conformity with U S GAAP These material weaknesses did not result in adjustments to the Company s previously released consolidated financial results However because the material weaknesses create a reasonable possibility that a material misstatement to our financial statements would not be prevented or detected on a timely basis we concluded that as of October 31 2024 the internal control over financial reporting was not effective
While significant progress has been made to enhance our internal control over financial reporting further testing is necessary before we can conclude full remediation to material weaknesses 1 and 5 We also require additional time to design appropriate GITCs material weakness 4 Additional time is required to complete the remediation over ineffective policies procedures and controls related to financial reporting GITCs and segregation of duties to demonstrate the sustainability of these remediation actions
Our management including our Principal Executive Officer and Principal Financial Officer concluded that as of October 31 2024 our disclosure controls and procedures and internal control over financial reporting were not effective at a reasonable assurance level due to the material weaknesses described above However our management does not expect that effective disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud A control system no matter how well conceived and operated can provide only reasonable not absolute assurance that the objectives of the control system are met Furthermore the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs Because of the inherent limitations in all control systems no evaluation of controls can provide absolute assurance that all control issues and instances of fraud if any have been detected These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of a simple error or mistake Additionally controls can be circumvented by the individual acts of some persons by collusion of two or more people or by management override of the controls The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions over time controls may become inadequate because of changes in conditions or the degree of compliance with policies or procedures may deteriorate
Changes in our internal control over financial reporting during the year ended October 31 2024 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting are described above Other than the items discussed above there were no other changes in our internal control over financial reporting during the fourth quarter ended October 31 2024 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting
Certain information required by Part III is omitted from this Annual Report and will be incorporated by reference from our definitive proxy statement relating to our 2025 annual meeting of shareholders pursuant to Regulation 14A of the Exchange Act which we refer to as our 2025 Proxy Statement We expect to file our 2025 Proxy Statement with the SEC within 120 days of October 31 2024
Sponsor and Insiders Letter Agreement dated May 16 2023 by and among FEAC the Sponsor Forbion Growth Opportunities Fund I Cooperatief U A enGene Inc enGene and the other parties named therein incorporated by reference to Exhibit 10 1 to enGene s Form S 4 A Registration Statement Registration No 333 273851 filed with the SEC on September 26 2023
Amended and Restated Loan and Security Agreement dated December 22 2023 by and among enGene Holdings Inc enGene Inc and enGene USA Inc as borrower Hercules Capital Inc as agent and the lenders from time to time party thereto incorporated by reference to Exhibit 10 1 to enGene s Current Report on Form 8 K filed with the SEC on December 28 2023
We have audited the accompanying consolidated balance sheets of enGene Holdings Inc the Company as of October 31 2024 and 2023 the related consolidated statements of operations and comprehensive loss redeemable convertible preferred shares and shareholders equity deficit and cash flows for the years then ended and the related notes collectively the consolidated financial statements In our opinion the consolidated financial statements present fairly in all material respects the financial position of the Company as of October 31 2024 and 2023 and the results of its operations and its cash flows for the years then ended in conformity with U S generally accepted accounting principles
These consolidated financial statements are the responsibility of the Company s management Our responsibility is to express an opinion on these consolidated financial statements based on our audits We are a public accounting firm registered with the Public Company Accounting Oversight Board United States PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audits in accordance with the standards of the PCAOB Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement whether due to error or fraud The Company is not required to have nor were we engaged to perform an audit of its internal control over financial reporting As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company s internal control over financial reporting Accordingly we express no such opinion
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements whether due to error or fraud and performing procedures that respond to those risks Such procedures included examining on a test basis evidence regarding the amounts and disclosures in the consolidated financial statements Our audits also included evaluating the accounting principles used and significant estimates made by management as well as evaluating the overall presentation of the consolidated financial statements We believe that our audits provide a reasonable basis for our opinion
enGene Holdings Inc together with its consolidated subsidiaries enGene or the Company formed in connection with the Merger Agreement as defined below was incorporated as 14963148 Canada Inc under the federal laws of Canada on April 24 2023 and changed its name to enGene Holdings Inc on May 9 2023 On October 31 2023 enGene Holdings Inc continued from being a corporation incorporated under and governed by the Canada Business Corporations Act to a company continued to and governed by the Business Corporations Act British Columbia
The Company is a clinical stage biotechnology company focused on developing genetic medicines to improve the lives of patients and its head office is located in Montreal Quebec Canada The Company is developing non viral genetic medicines based on its novel and proprietary dually derived chitosan or DDX gene delivery platform which allows localized delivery of multiple gene cargos directly to mucosal tissues and other organs
Forbion European Acquisition Corporation FEAC was a special purpose acquisition company SPAC incorporated as a Cayman Island exempted company on August 9 2021 and formed for the purpose of effecting a merger capital stock exchange asset acquisition share purchase reorganization or similar business combination with one or more business or entities On October 31 2023 the Closing Date the Company FEAC and enGene Inc consummated the merger the Reverse Recapitalization pursuant to a business combination agreement dated as of May 16 2023 the Merger Agreement
The transaction was accounted for as a reverse recapitalization in accordance with accounting principles generally accepted in the United States U S GAAP Under this method of accounting FEAC was treated as the acquired company for financial reporting purposes This determination is primarily based on the fact that subsequent to the Reverse Recapitalization senior management of Old enGene continued as senior management of the combined company Old enGene identified a majority of the members of the board of directors of the combined company the name of the combined company is enGene Holdings Inc and it utilized Old enGene s current headquarters and Old enGene s operations comprise the ongoing operations of the combined company Accordingly for accounting purposes the Company is considered to be a continuation of Old enGene with the net identifiable assets of FEAC deemed to have been acquired by Old enGene in exchange for Old enGene common shares accompanied by a recapitalization with no goodwill or intangible assets recorded The number of redeemable convertible preferred shares number of common shares net loss per common share the number of warrants to purchase common shares and the number of stock options and the related exercise prices of the stock options issued and outstanding prior to the Reverse Recapitalization have been retrospectively restated to reflect an exchange ratio of approximately 0 18048 the Exchange Ratio established in the Merger Agreement Operations prior to the Reverse Recapitalization are those of Old enGene
As a result of the Reverse Recapitalization the Company became a publicly traded company and listed its Common Shares and warrants on the Nasdaq Global Market under the symbols ENGN and ENGNW respectively commencing trading on November 1 2023 with Old enGene a subsidiary of the Company continuing the existing business operations
In accordance with Accounting Standards Codification ASC 205 40 Going Concern the Company has evaluated whether there are any conditions and events considered in the aggregate that raise substantial doubt about the Company s ability to continue as a going concern within one year after the date these consolidated financial statements are issued
The Company s consolidated financial statements have been prepared assuming the Company will continue as a going concern which presumes the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the ordinary course of business
As an emerging growth entity the Company has devoted substantially all of its resources since inception to organizing and staffing the Company raising capital establishing its intellectual property portfolio acquiring or discovering product candidates research and development activities for developing non viral genetic medicines and other compounds establishing arrangements with third parties for the manufacture of its product candidates and component materials and providing general and administrative support for these operations As a result the Company has incurred significant operating losses and negative cash flows from operations since its inception and anticipates such losses and negative cash flows will continue for the foreseeable future The Company has not yet commercialized any product candidates and does not expect to generate revenue from sales of any product candidates or from other sources for several
The Company has incurred a net loss of 55 1 million and negative cash flows from operating activities of 48 3 million for year ended October 31 2024 and as of that date has an accumulated deficit of 254 7 million To date the Company has not generated any revenues and has financed its liquidity needs primarily through the 2024 PIPE Financings the Reverse Recapitalization and the PIPE financing conducted by the Company as part of the Reverse Recapitalization the PIPE Financing debt and convertible debentures and issuance of redeemable convertible preferred shares and warrants
The Company s ability to continue as a going concern depends on its ability to successfully develop and commercialize its products achieve and maintain profitable operations as well as the adherence to conditions of outstanding loans As of the issuance date of these consolidated financial statements the Company expects that its existing cash and cash equivalents as of October 31 2024 will be sufficient to fund its operating expenses and debt obligations requirements for at least the next 12 months from the issuance date of these consolidated financial statements Effective from the Company s first quarter interim condensed consolidated financial statements the Company has ceased its disclosure of the existence of a material uncertainty that raised substantial doubt about the Company s ability to continue as a going concern due to the February 2024 PIPE Financing
The accompanying consolidated financial statements are prepared in accordance with U S GAAP and include the accounts of the Company and its wholly owned subsidiaries All intercompany accounts and transactions have been eliminated in consolidation Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification ASC and as amended by Accounting Standards Updates ASU s of the Financial Accounting Standards Board FASB
As the merger with FEAC has been accounted for as a reverse recapitalization the historical operations of the Company represent that of Old enGene which is the accounting predecessor The number of common shares net loss per common share the number of warrants to purchase common shares and the number of stock options and the related exercise prices of the stock options issued and outstanding prior to the Reverse Recapitalization have been retrospectively restated to reflect the Exchange Ratio of approximately 0 18048 established in the Merger Agreement Please see Note 3 Reverse Recapitalization for additional information
The preparation of the Company s consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting periods Significant estimates and assumptions reflected in these consolidated financial statements include but are not limited to the accrual of research and development expenses share based payments and the recoverability of investment tax credits receivable and in addition for fiscal 2023 the valuations of common shares redeemable convertible preferred shares warrants to purchase redeemable convertible preferred shares convertible debentures and embedded derivatives on convertible debt The Company bases its estimates on historical experience known trends and other market specific or other relevant factors that it believes to be reasonable under the circumstances The Company evaluates its estimates and assumptions on an ongoing basis Actual results could differ from those estimates and such differences may be material to the consolidated financial statements
Operating segments are defined as components of an entity about which separate discrete information is available for evaluation by the chief operating decision maker or decision making group in deciding how to allocate resources and in assessing performance The Company operates as a single business segment focused on research discovery and clinical development of human genetic medicine products The majority of the Company s tangible assets are held in Canada
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash cash equivalents and marketable securities The Company regularly maintains deposits in accredited financial institutions in excess of federally insured limits Management believes that the Company is not currently exposed to significant credit risk as the Company s deposits were held in custody at third party financial institutions
The Company s investment policy limits investments to certain types of securities issued by the U S Government and its agencies as well as institutions with investment grade credit ratings and places restrictions on maturities and concentration by type and issuer The Company is exposed to credit risk in the event of default by the financial institutions holding its cash cash equivalents and marketable securities and issuers of marketable securities to the extent recorded on the Consolidated Balance Sheets As of October 31 2024 and 2023 the Company had no off balance sheet concentrations of credit risk
The Company is dependent on third party CDMOs and CRO with whom it does business In particular the Company relies and expects to continue to rely on a small number of manufacturers to supply it with its requirements of active pharmaceutical ingredients and formulated drugs in order to perform research and development activities in its programs The Company also relies on a limited number of third party CROs to perform research and development activities on its behalf These programs could be adversely affected by significant interruption from these providers
The Company considers all short term highly liquid investments purchased with an original maturity of three months or less at the date of purchase to be cash equivalents The Company s cash and cash equivalents include bank balances demand deposits and other short term highly liquid investments The fair value of cash and cash equivalents approximate the amortized cost The Company had 173 0 million of cash and cash equivalents as of October 31 2024 and 81 5 million of cash as of October 31 2023
The Company s marketable securities are maintained by investment managers and consist of money market funds U S government agency securities and treasuries If the remaining contractual maturity is within one year from the balance sheet date the marketable securities are classified as current and otherwise they are classified as non current assets
Investment in marketable securities is classified as available for sale and is reported at fair value using quoted prices in active markets for similar securities Unrealized gains and losses on available for sale securities are reported as a separate component of stockholders equity in other comprehensive loss Premium or discounts from par value are amortized to investment income over the life of the underlying investment
The Company periodically evaluates the need for an allowance for credit losses The evaluation includes consideration of several qualitative and quantitative factors including whether it has plans to sell the security whether it is more likely than not it will be required to sell any marketable securities before recovery of its amortized cost basis and if the entity has the ability and intent to hold the security to maturity and the portion of any unrealized loss that is the result of a credit loss Factors considered in making these evaluations include quoted market prices recent financial results and operating trends implied values from any recent transactions or offers of investee securities credit quality of debt instrument issuers expected cash flows from securities other publicly available information that may affect the value of the marketable security duration and severity of the decline in value and the Company s strategy and intentions for holding the marketable security
When the fair value is below the amortized cost of the asset an estimate of expected credit losses is made The Company records credit losses in the consolidated statements of operations and comprehensive loss as a credit loss expense within other income net which is limited to the difference between the fair value and the amortized cost of the security To date the Company has not recorded any credit losses on its available for sale securities
Accrued interest receivable related to the Company s available for sale securities is presented within prepaids and other current assets on the Company s consolidated balance sheets The Company has elected the practical expedient available to exclude accrued interest receivable from both the fair value and the amortized cost basis of available for sale debt securities for the purposes of identifying and measuring any impairment The Company writes off accrued interest receivable once it has determined that the asset is not realizable Any write offs of accrued interest receivable are recorded by reversing interest income recognizing credit loss expense or a combination of both To date the Company has not written off any accrued interest receivable associated with its marketable securities
Property and equipment are comprised mainly of research and development equipment computer hardware and software office furniture and equipment and leasehold improvements Property and equipment are stated at cost less accumulated depreciation and accumulated impairment losses if applicable Depreciation expense is recognized using the straight line method over the estimated useful life of each asset as follows
Estimated useful lives are periodically assessed to determine if changes are appropriate Maintenance and repairs are charged to expense as incurred When assets are retired or otherwise disposed of the cost of these assets and related accumulated depreciation or amortization are eliminated from the consolidated balance sheet and any resulting gains or losses are included in the consolidated statements of operations and comprehensive loss in the period of disposal
The Company reviews long lived assets such as property and equipment for impairment when events or changes in circumstances indicate the carrying value of the assets may not be recoverable If indicators of impairment are present the assets are tested for recoverability by comparing the carrying amount of the assets to the related estimated future undiscounted cash flows that the assets are expected to generate If the expected undiscounted cash flows are less than the carrying value of the assets then the assets are considered to be impaired and its carrying value is written down to fair value based on the related estimated discounted future cash flows To date no such impairment losses have been recorded
The Company adopted FASB ASC 842 with an effective date of November 1 2019 using the modified retrospective transition approach which uses the effective date as the date of initial application In accordance with ASC 842 the Company determines whether an arrangement is or contains a lease at inception A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration The Company classifies leases at the lease commencement date when control of the underlying asset is transferred from the lessor to the lessee as operating or finance leases and records a right of use ROU asset and a lease liability on the consolidated balance sheet for all leases with an initial lease term of greater than 12 months The Company has elected to not recognize leases with a lease term of 12 months or less on the balance sheet
The Company enters into contracts that contain both lease and non lease components Non lease components may include maintenance utilities and other operating costs For leases of real estate the Company combines the lease and associated non lease components in its lease arrangements as a single lease component Variable costs such as utilities or maintenance costs are not included in the measurement of right of use assets and lease liabilities but rather are expensed when the event determining the amount of variable consideration to be paid occurs
Lease assets and liabilities are recognized at the lease commencement date based on the present value of the lease payments over the lease term using the discount rate implicit in the lease if readily determinable If the rate implicit is not readily determinable the Company utilizes an estimate of its incremental borrowing rate based upon the available information at the lease commencement date ROU assets are further adjusted for initial direct costs prepaid rent or incentives received Operating lease payments are expensed using the straight line method as an operating expense over the lease term The Company s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option
Certain assets and liabilities of the Company are carried at fair value under U S GAAP Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability an exit price in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy of which the first two are considered observable and the last is considered unobservable
To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market the determination of fair value requires more judgment Accordingly the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3 A financial instrument s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement
At October 31 2024 financial instruments measured at fair value on a recurring basis include marketable securities see Note 5 Marketable Securities and Note 4 Fair Value Measurements The carrying amounts of accounts payable and accrued expenses approximate their fair values due to their short term nature
The Company elected the fair value option of accounting of ASC 825 for all convertible debentures issued in fiscal 2023 from their issuance date in order to not have to bifurcate any embedded derivatives in accordance with ASC 815 The notes for which the fair value option of accounting is elected are recorded at fair value upon the date of issuance and subsequently remeasured to fair value at each reporting period Changes in the fair value of the notes accounted for at fair value which include accrued interest if any are recorded as a component of other expense income net in the consolidated statement of operations and comprehensive loss The Company has not elected to present interest expense separately from changes in fair value and therefore will not present interest expense associated with the notes Any changes in fair value caused by instrument specific credit risk are presented separately in other comprehensive income During the year ended October 31 2023 the Company did not record any changes in fair value related to instrument specific credit risk All costs associated with the issuance of the convertible debentures accounted for using the fair value option were expensed upon issuance
The Company capitalizes certain legal accounting and other third party fees that are directly associated with the issuance of debt not accounted for using the fair value option as debt issuance costs Debt issuance costs are recorded as a direct reduction of the carrying amount of the associated debt on the Company s consolidated balance sheets and amortized as interest expense on the Company s consolidated statements of operations and comprehensive loss using the effective interest method
The Company s convertible debentures contained certain features that meet the definition of embedded derivatives requiring bifurcation from the convertible debenture instrument for which the fair value option was not elected as a separate compound derivative The convertible debenture embedded derivative liabilities are initially measured at fair value on issuance and is subject to remeasurement at each reporting period with changes in fair value recognized in the change in fair value of derivative liabilities net in the consolidated statements of operations and comprehensive loss
The Company accounts for its common share warrants and redeemable convertible preferred shares warrants issued in connection with its various financing transactions based upon the characteristics and provisions of the instrument Warrants that have been determined to be classified as liabilities are recorded on the consolidated balance sheets at their fair value on the date of issuance and remeasured to fair value at each reporting period with the changes in fair value recognized in the change in fair value of warrant liabilities net in the consolidated statements of operations and comprehensive loss The Company adjusted the liability for changes in the fair value of these warrants until the earlier of the exercise of the warrants the expiration of the warrants or until such time as the warrants were no longer considered liability
The Company s 2022 Notes as defined in Note 9 Notes Payable are convertible debentures that consist of a debt instrument a minimum interest obligation and a share conversion feature Certain of the convertible debentures issued by the Company also included warrants to purchase redeemable convertible preferred shares which were classified as liabilities The Company identified embedded derivatives related to certain share conversion and repayment features within the convertible notes that required bifurcation as a single compound derivative instrument At inception the Company utilized the residual method to determine the value of the debt instrument based on the difference between gross proceeds and the estimated fair value of the embedded derivative and any warrants that were issued The debt instrument is accounted for using the amortized cost method The discounts on debt resulting from any issuance costs embedded derivatives and warrants are amortized over the life of the debt using the effective interest method The issuance costs allocated to the embedded derivatives and warrants are expensed at inception
Research and development expenses are comprised primarily of costs incurred for our drug discovery efforts and development of our product candidates These expenses include salaries employee benefits and share based compensation expense for our research and development personnel materials supplies depreciation on and maintenance of research equipment the cost of services provided by outside CROs and consultants to conduct research and development activities including costs of clinical trials and manufacturing and the allocable portions of facility costs such as rent utilities and general support services All costs associated with research and development are expensed as incurred
Management estimates the Company s accrued research and development expenses as of each balance sheet date in the Company s financial statements based on facts and circumstances known to the Company at that time If the actual timing of the performance of services or the level of effort varies from the estimate the Company will adjust the accrual accordingly Nonrefundable advance payments for goods and services are deferred and recognized as expense in the period that the related goods are consumed or services are performed
All patent related costs incurred in connection with filing and prosecuting patent applications such as direct application fees and legal and consulting expenses are expensed as incurred due to the uncertainty about the recovery of the expenditure Patent related costs are classified as general and administrative expenses within the Company s consolidated statements of operations
The Company has an incentive equity plan the 2023 Incentive Equity Plan or the 2023 Plan whereby employees render services as consideration for equity instruments The 2023 Plan was adopted on October 31 2023 upon the completion of the Reverse Recapitalization and superseded Old enGene s employee stock option plan the ESOP and equity incentive plan the EIP collectively the Old Plans The Company measures all share based awards granted to employees officers directors and non employees based on their fair value on the date of the grant and recognizes compensation expense for those awards over the requisite service period which is generally the vesting period of the respective award The Company accounts for forfeitures of its share based awards as they occur The Company issues share based awards with service based vesting conditions and awards with both performance and service based vesting conditions For share based awards with service based vesting conditions the Company records the expense using the straight line method including when such awards have graded vesting For share based awards with both performance and service based vesting conditions the Company records the expense using an accelerated attribution method once the performance conditions are considered probable of being achieved using management s best estimate
The fair value of each stock option is estimated on the date of grant using the Black Scholes option pricing model which requires inputs based on certain subjective assumptions including the fair value of the Company s common shares expected share price volatility the expected term of the award the risk free interest rate for a period that approximates the expected term of the option and the Company s expected dividend yield The Company determines the volatility for awards granted based on an analysis of reported data for a group of guideline companies with similar characteristics including market capitalization stage of development therapeutic focus and certain financial measures The expected volatility has been determined using an average of the historical volatility measures of this group of guideline companies The expected option term was calculated based on the simplified method for awards with only service based vesting conditions which uses the midpoint between the vesting date and the contractual term as the Company does not have sufficient historical data to develop an estimate based on participant behavior For awards with both performance and service based vesting conditions the expected term has been determined using management s best estimate considering the characteristics of the award contractual life the timing of the expected achievement of the performance conditions the remaining time based vesting period if any and comparison to expected terms used by peers The risk free interest rate is determined by reference to the U S Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award The Company has not paid and does not anticipate paying cash dividends on its common shares therefore the expected dividend yield is assumed to be zero
Prior to the consummation of the Reverse Recapitalization because there was no public market for the Company s common shares the Board of Directors has determined the fair value of the Company s common shares based on third party valuations of the Company s common shares Initially the estimated enterprise equity value of the Company was determined using a market approach and or cost approach by considering the weighting of scenarios estimated using a back solve method based on recent financing transactions of the Company This value was then allocated towards the Company s various securities of its capital structure using an option pricing method or OPM and a waterfall approach based on the order of the superiority of the rights and preferences of the various securities relative to one another
Significant assumptions used in the OPM to determine the fair value of common shares include volatility discount for lack of marketability and the expected timing of a future liquidity event such as an initial public offering IPO or sale of the Company in light of prevailing market conditions This valuation process creates a range of equity values both between and within scenarios In addition the Company s Board of Directors considered various objective and subjective factors to determine the fair value of the Company s common shares as of each grant date including the prices at which Old enGene sold shares of redeemable convertible preferred shares and the superior rights and preferences of the redeemable convertible preferred shares relative to its common shares at the time of each grant external market conditions the progress of the Company s research and development programs the Company s financial position including cash on hand and its historical and forecasted performance and operating results and the lack of an active public market for the Company s common shares and redeemable convertible preferred shares among other factors
The assumptions underlying these valuations represented management s best estimate which involved inherent uncertainties and the application of management s judgment and these valuations are sensitive to changes in the unobservable inputs As a result if the Company had used different assumptions or estimates or if there are changes to the unobservable inputs the fair value of its common shares and share based compensation expense could have been materially different
The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company s consolidated financial statements Under this method deferred tax assets and liabilities are determined based on differences between the consolidated financial statement carrying amounts and the tax basis of the assets and liabilities using the enacted tax rates in effect in the years in which the differences are expected to reverse A valuation allowance against deferred tax assets is recorded if based on the weight of the available evidence it is more likely than not that some or all of the deferred tax assets will not be realized
The Company accounts for uncertainty in income taxes recognized in the financial statements by applying a two step process to determine the amount of tax benefit to be recognized First the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities If the tax position is deemed more likely than not to be sustained the tax position is then assessed to determine the amount of benefit to recognize in the financial statements The amount of benefit that may be recognized is the largest amount that has a greater than 50 likelihood of being realized upon ultimate settlement The provision for income taxes includes the effects of any resulting tax reserves or unrecognized tax benefits that are considered appropriate as well as the related net interest and penalties
Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the period Diluted net loss per share is computed using the weighted average number of common shares outstanding during the period and if dilutive the weighted average number of potential shares of common shares Net loss per share attributable to common shareholders is calculated using the two class method which is an earnings allocation formula that determines net loss per share for the holders of the Company s common shares and participating securities Net loss attributable to common shareholders is allocated first based on dividend rights and then to common and preferred shareholders based on ownership interests on an as converted basis as if all the earnings for the period had been distributed
When considering the impact of the convertible equity instruments diluted net loss per share is computed using the more dilutive of a the two class method or b the if converted method The Company allocates earnings first to preferred shareholders and warrant holders based on dividend rights and then to common and preferred shareholders and warrant holders based on ownership interests As preferred shares have converted to common shares at the completion of Reverse Recapitalization the abovementioned policy is only applicable for the year ended October 31 2023 The weighted average number of common shares included in the computation of diluted net loss gives effect to all potentially dilutive common equivalent shares including outstanding stock options warrants and the potential issuance of common shares upon the conversion of the convertible notes Common stock equivalent shares are excluded from the computation of diluted net loss per share if their effect is antidilutive In periods in which the Company reports a net loss attributable to common shareholders diluted net loss per share attributable to common shareholders is generally the same as basic net loss per share attributable to common shareholders because dilutive common shares are not assumed to have been issued if their effect is anti dilutive See Note 15 Net Loss per Share for further detail
The Company capitalized certain legal professional accounting and other third party fees that were directly associated with the Reverse Recapitalization and PIPE Financing as deferred transaction costs until such transaction was consummated After the consummation of such transaction these costs were recorded within equity as a reduction of the common share and warrants value within additional paid in capital for both instruments issued and assumed to shareholders of FEAC and to PIPE financing investors were allocated to each on a relative fair value basis The Company incurred a total of 11 3 million of transaction costs as part of the Reverse Recapitalization and PIPE Financing In addition transaction costs of 0 8 million related to the issuance of the April 2023 Notes and the May 2023 Notes for which the fair value option of accounting was elected and those allocated to the liability classified
The Company was eligible to claim Canadian federal and provincial tax credits as a Canadian controlled private corporation CCPC on eligible scientific research and experimental development SR ED expenditures through September 2023 at which time the Company lost its status as a CCPC In addition effective for fiscal 2023 the Company s maximum refundable tax credits were reduced due to the Company s taxable capital as defined in the Income Tax Act Canada which reduction in credits has been recorded in the fourth quarter The Canadian federal government offers a tax incentive to companies performing research and development activities in Canada and this tax incentive can be refunded or used to reduce federal income taxes in Canada otherwise payable Such credits if not refunded or used in the year earned can be carried forward for a period of twenty years The Quebec provincial government offers a similar refundable incentive The investment tax credits recorded are based on management s estimates of amounts expected to be recovered and are subject to audit by the taxation authorities the resulting adjustments of which could be significant Following the loss of CCPC status the Company s SR ED tax credits will be earned at a lower rate and some will no longer be refundable
Amounts received or receivable resulting from government assistance programs including investment tax credits for SR ED are recognized when there is reasonable assurance that the amount will be received and all attached conditions will be complied with Reimbursements of eligible SR ED expenditures pursuant to government assistance programs are received in cash The amounts receivable are recorded as reductions of research and development costs when the related costs have been incurred and there is reasonable assurance regarding collection of the claim During the years ended October 31 2024 and 2023 the Company recorded 0 4 million and 1 1 million respectively as a reduction of research and development expense associated with SR ED investment tax credits
In June 2016 the FASB issued ASU No 2016 13 Financial Instruments Credit Losses Topic 326 Measurement of Credit Losses on Financial Instruments ASU 2016 13 This new standard changes the impairment model for most financial assets and certain other instruments Entities will be required to use a model that will result in the earlier recognition of allowances for losses for trade and other receivables held to maturity debt securities loans and other instruments For available for sale debt securities with unrealized losses the losses will be recognized as allowances rather than reductions in the amortized cost of the securities In November 2019 the FASB issued ASU 2019 10 Financial Instruments Credit Losses Topic 326 Derivatives and Hedging Topic 815 and Leases Topic 842 ASC 2019 10 which defers the effective date of ASU 2016 13 to fiscal years beginning after December 15 2022 including interim periods within those fiscal years for entities meeting the definition of a smaller reporting company The Company adopted ASU 2016 13 effective November 1 2023 and the adoption did not have a material impact on the consolidated financial statements
In June 2022 the FASB issued ASU No 2022 03 Fair Value Measurement Topic 820 Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions which amends guidance in ASC 820 to clarify that a contractual sales restriction is not considered in measuring an equity security at fair value and introduces new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value This ASU is effective for public entities for fiscal years beginning after December 15 2023 and interim periods within those fiscal years The Company does not expect that the adoption of this standard will have a material impact on its financial statements and related disclosures
In November 2023 the FASB issued ASU No 2023 07 Segment Reporting Topic 280 Improvements to Reportable Segment Disclosures which requires incremental disclosure of segment information on an interim and annual basis This ASU is effective for public entities for fiscal years beginning after December 15 2023 and interim periods within fiscal years beginning after December 15 2024 Retrospective application to all prior periods presented in the financial statements is required for public entities The Company is currently evaluating the impact of the guidance on the financial statements disclosures
In November 2024 the FASB issued ASU 2024 03 Income Statement Reporting Comprehensive Income Expense Disaggregation Disclosures Subtopic 220 40 Disaggregation of Income Statement Expenses which requires entities to disclose additional information about specific expense categories in the notes to the financial statements The ASU is effective for annual periods beginning after December 15 2026 and for interim periods within fiscal years beginning after December 15 2027 Early adoption is
On October 31 2023 the Closing Date FEAC Old enGene and the Company consummated the merger pursuant to the Merger Agreement dated as of May 16 2023 As a result of the Reverse Recapitalization the Company became a publicly traded company with old enGene a subsidiary of the Company continuing the existing business operations
Upon the close of the Reverse Recapitalization 13 091 608 common shares of the Company were issued to the Old enGene s equity and convertible note holders 2 679 432 common share warrants of the Company were issued to Old enGene s warrant holders and 2 706 941 common share options of the Company were issued to Old enGene s share option holders
In connection with the Merger Agreement FEAC the Company and PIPE Investors entered into Subscription Agreements pursuant to which the PIPE Investors have agreed to purchase the Company s shares and warrants for an aggregate commitment amount of 56 9 million As part of the PIPE Financing the Company issued 6 435 441 shares of the Company s common shares and 2 702 791 warrants to purchase the Company s common shares for an aggregate purchase price equal to 56 9 million on October 31 2023 The common shares and warrants issued as part of the PIPE Financing were determined to be equity classified The proceeds were allocated between the common shares and warrants on a relative fair value basis taking into consideration the quoted market price of the FEAC common shares and warrants on the close of the market on October 31 2023 resulting in 56 1 million being allocated to the common shares and 0 8 million being allocated to the warrants In connection with the Merger Agreement FEAC the FEAC Sponsor Forbion Growth Opportunities Fund I Cooperatief U A and the other holders of FEAC Class B Shares Old enGene the Company and the other parties named therein entered into the Side Letter Agreements pursuant to which the FEAC Sponsor agreed to surrender and in effect issue to PIPE Investors FEAC Class B shares and FEAC private placement warrants immediately prior to the closing of the Reverse Recapitalization Immediately following the Reverse Recapitalization and the PIPE Financing the Company had 23 197 976 common shares and 10 411 641 warrants outstanding
On October 31 2023 as part of the close of Reverse Recapitalization the Company received proceeds of 7 4 million from the FEAC trust account net of the redemption payment to FEAC s public shareholders and cash paid from the trust for FEAC expenses Additionally the Company received proceeds of approximately 56 9 million from the PIPE Financing Upon the closing of the Reverse Recapitalization and PIPE Financing the Company incurred 6 0 million in transaction costs which was withheld from the proceeds received The Company incurred a total of 11 1 million of transaction costs associated with the Reverse Recapitalization and PIPE Financing of which 5 1 million was previously deferred by the Company and netted against the proceeds upon close The transaction costs were allocated to the common shares and warrants on a relative fair value basis and netted against the proceeds upon close
The total transaction costs of 11 1 million were related to third party legal accounting services and other professional services to consummate the Reverse Recapitalization and the PIPE Financing incurred by Old enGene These transaction costs are allocated between common shares and additional paid in capital based on the relative fair value of the common shares and warrants issued upon the close of the Reverse Recapitalization on the Company s consolidated balance sheet as the Company s common shares have no par value
As of October 31 2024 the Company classified its government agency marketable securities as Level 2 within the valuation hierarchy The Company estimates the fair value of these marketable securities by taking into consideration valuations obtained from third party pricing sources These pricing sources utilize industry standard valuation models including both income and market based approaches for which all significant inputs are observable either directly or indirectly to estimate fair value These inputs include market pricing based on real time trade data for the same or similar securities issuer credit spreads benchmark yields and other observable inputs
During the years ended October 31 2024 and 2023 there were no transfers or reclassifications between fair value measure levels of assets or liabilities The carrying values of all other financial current assets accounts payable and accrued expenses approximate their fair values due to the short term nature of these assets and liabilities
Prior to the Reverse Recapitalization the Company s convertible debentures contained equity conversion options and certain repayment features that have been identified as a single compound embedded derivative requiring bifurcation from the host contract for the convertible debentures for which the fair value has not been elected The Company estimated the fair value of the convertible debenture embedded derivative liabilities on issuance using a probability weighted scenario expected return model The estimated probability and timing of underlying events triggering the conversion and liquidity repayment features and probability of exercise of the extension features within the convertible debentures as well as discount rates volatility and share prices are inputs used to determine the estimated fair value of the embedded derivative
The liquidity price at the conversion of a listing event represents the conversion price of the 2022 Notes upon the merger with FEAC and the fair value per common share at conversion of a listing event represents the quoted market price of the FEAC common shares on the close of the market on October 31 2023 immediately prior to the settlement upon the completion of the Reverse Recapitalization
Upon the close of the Reverse Recapitalization the 2022 Notes were converted and exchanged for common shares of the Company resulting in an extinguishment of the 2022 Notes and related embedded derivative liability Further the BDC Note as defined below was repaid in full See Note 3 Reverse Recapitalization and Note 10 Convertible Debentures for additional detail Immediately prior to the conversion and exchange of the 2022 Notes as part of the Reverse Recapitalization the embedded derivative was measured to a fair value of 24 8 million Further immediately prior to the repayment of the BDC Note the embedded derivative liability was measured to a fair value of 0 4 million
The Company elected the fair value option of accounting for the April 2023 Notes The Company recorded the April 2023 Notes at fair value upon the date of issuance which was determined to be the total cash proceeds received of 8 0 million and was considered a Level 3 measurement within the fair value hierarchy The April 2023 Notes were repaid through the issuance of 8 0 million in aggregate amount of convertible notes and warrants issued as part of the 2023 Financing No change in fair value was recorded on the April 2023 Notes during the year ended October 31 2023 given the close proximity between the issuance date of the notes and the repayment date As of October 31 2024 and 2023 the April 2023 Notes are no longer outstanding
The Company elected the fair value option of accounting for the May 2023 Notes At issuance and for periods prior to the settlement of the May 2023 Notes the Company estimated the fair value of the May 2023 Notes using a probability weighted scenario expected return model and was considered a Level 3 measurement per the fair value hierarchy As part of the issuance of the May 2023 Notes the Company also issued warrants which were determined to be freestanding liability classified and measured at fair value Refer below The Company recorded both the May 2023 Notes and warrants issued as part of the 2023 Financing at fair value upon issuance which totaled the amount of proceeds received on an aggregate basis and subsequently remeasured the financial instruments to fair value at each reporting date
The liquidity price at the conversion of a listing event represents the conversion price of the 2023 Notes upon the merger with FEAC and the fair value per common share at conversion of a listing event represents the price per share of the Newco upon the merger with FEAC as set forth in the Merger Agreement
Immediately prior to the conversion and exchange of the May 2023 Notes as part of the Reverse Recapitalization the notes were remeasured to a fair value of 93 3 million The fair value immediately prior to the settlement was determined using the quoted market price of 21 70 per share for the FEAC common shares on the close of business on October 31 2023 which was determined to be fair value of the common share on settlement and considering the 4 298 463 shares of the Company issued to the holders of the May 2023 Notes upon the consummation of the Reverse Recapitalization
The following table provides a summary of the change in the estimated fair value of the Company s 2023 Notes for the year ended October 31 2023 Upon the close of the Reverse Recapitalization the 2023 Notes were exchanged for common shares of the Company resulting in an extinguishment of the 2023 Notes See Note 3 Reverse Recapitalization and Note 10 Convertible Debentures
Prior to the consummation of the Reverse Recapitalization Old enGene issued warrants to purchase redeemable convertible preferred shares as part of the issuance of certain redeemable convertible preferred shares convertible debentures and the term loan the Preferred Share Warrants Upon the close of the Reverse Recapitalization the Preferred Share Warrants were surrendered for no consideration and the fair value was determined to be zero The Company estimated the fair value of its Preferred Share Warrant liabilities using a Modified Black Scholes option pricing model which included assumptions that are based on the individual characteristics of the Preferred Share Warrants on the valuation date and assumptions related to the fair value of the underlying redeemable convertible preferred shares expected volatility expected life dividends risk free interest rate and discount for lack of marketability DLOM Due to the nature of these inputs the Preferred Share Warrants are considered a Level 3 liability
The weighted average expected life of the Preferred Share Warrants was estimated based on the weighting of scenarios considering the probability of different terms up to the contractual term of 10 years in light of the expected timing of a future exit event which includes a SPAC transaction The Company determines the expected volatility based on an analysis of reported data for a group of guideline companies that have issued instruments with substantially similar terms The expected volatility has been determined using a weighted average of the historical volatility measures of this group of guideline companies The risk free interest rate is determined by reference to the Canadian treasury yield curve in effect at the time of measurement of the warrant liabilities for time periods approximately equal to the weighted average expected life of the warrants The Company has not paid and did not anticipate paying cash dividends on its redeemable convertible preferred shares therefore the expected dividend yield is assumed to be zero
Because there was no public market for the underlying redeemable convertible preferred shares the Company determined their fair value based on third party valuations Initially the estimated enterprise equity value of the Company was determined using a market approach and or cost approach by considering the weighting of scenarios estimated using a back solve method based on recent financing transactions of the Company This value was then allocated towards the Company s various securities of its capital structure using an option pricing method or OPM and a waterfall approach based on the order of the superiority of the rights and preferences of the various securities relative to one another Significant assumptions used in the OPM to determine the fair value of redeemable convertible preferred shares include volatility DLOM and the expected timing of a future liquidity event such as an IPO SPAC transaction or sale of the Company in light of prevailing market conditions This valuation process creates a range of equity values both between and within scenarios
In addition to considering the results of these valuations the Company considered various objective and subjective factors to determine the fair value of the Company s preferred shares as of each valuation date including the prices at which the Company sold redeemable convertible preferred in the most recent transactions external market conditions the progress of the Company s research and development programs the Company s financial position including cash on hand and its historical and forecasted performance and operating results and the lack of an active public market for the Company s redeemable convertible preferred shares among other factors
The warrants issued by Old enGene as part of the 2023 Financing the 2023 Warrants were concluded to be freestanding liability classified instruments upon issuance which were subsequently reclassified to equity upon the consummation of the Reverse Recapitalization See Note 10 The Company estimated the fair value of the 2023 Warrants based on the underlying quoted market price of the FEAC public warrants prior to the close of the Reverse Recapitalization The 2023 Warrants were classified as a Level 2 measurement given they are substantially similar to FEAC public warrants The price used to value the 2023 Warrants as of the issuance date and immediately prior to the consummation of the Reverse Recapitalization was 0 53 and 0 74 per warrant respectively which represented the quoted market price of the FEAC public warrants on each date
As of October 31 2024 the Company held 31 securities 21 of which were in unrealized loss position All investments in an unrealized loss position were in this position for less than 12 months The Company does not intend to sell its investments before recovery of the amortized cost basis of its debt securities at maturity and no allowance for credit losses was recorded as of October 31 2024 because the decline in fair value below amortized cost is not related to credit losses Securities are evaluated at the end of each reporting period The unrealized losses on U S Treasury and Government agency securities range from 0 1 of their amortized cost
Accrued interest receivable on the Company s available for sale debt securities totaled 0 7 million and zero as of October 31 2024 and 2023 respectively and was presented within prepaids and other current assets on the Company s consolidated balance sheets No accrued interest receivable was written off during the twelve months ended October 31 2024 or 2023
On April 10 2020 the Company entered into a Non Exclusive License Agreement the License Agreement with Nature Technology Corporation NTC whereby the Company licenses certain rights to NanoplasmidTM technology from NTC for commercialization Under the terms of the License Agreement NTC granted to the Company and its affiliates a non exclusive royalty bearing sublicensable license to research have researched develop have developed make have made use have used import have imported sell offer to sell and have sold or offered for sale any product in the defined license field Unless terminated earlier the NTC license agreement will continue until no valid claim of any licensed patent exists in any country The Company can voluntarily terminate the license agreement with prior notice to NTC
The Company paid NTC an initial upfront fee of 50 thousand which was recorded as research and development expense upon entering into the License Agreement Beginning on the first anniversary of the effective date of the License Agreement and on each subsequent anniversary the Company is required to pay NTC a 50 thousand annual maintenance fee The Company is also required to make a payment to NTC of 50 thousand upon assigning the License Agreement to a third party
The License Agreement provides for a one time payment of 50 thousand for the first dose of a milestone product as defined in the License Agreement in the first patient in a Phase 1 clinical trial or if there is no Phase 1 clinical trial in a Phase 2 clinical trial as well as a one time payment of 450 thousand upon regulatory approval of a milestone product by the U S Food and Drug Administration The first milestone related to the first dose of a milestone product was achieved during the year ended October 31 2021 The second milestone regulatory approval of a milestone product has not yet been achieved as of the year ended October 31 2024 The Company is also required to pay NTC a royalty percentage in the low single digits of the aggregate net product sales in a calendar year by the Company its affiliates or sublicensees on a product by product and country by country basis as long as the composition or use of the applicable product is covered by a valid claim in the country where the net sales occurred Royalty obligations under the license agreement will continue until the expiration of the last valid claim of a licensed patent covering such licensed product in such country
In the event that the Company or any of its affiliates or sublicensees manufactures any Good Manufacturing Practice GMP lot of a product then the Company or any such affiliate or sublicensee will be obligated to pay NTC an amount per manufactured gram of GMP or its equivalent lot of product which varies based on the volume manufactured The payment will expire on a product by product basis upon receipt of regulatory approval to market a product in any country in the licensed territory
On December 30 2021 the Company entered into a Loan and Security Agreement the Prior Loan Agreement with Hercules Capital Inc Hercules or the Lender for the issuance of a term loan facility with an aggregate principal amount of up to 20 0 million the Prior Term Loan The Prior Loan Agreement provided for i an initial term loan advance of 7 0 million which closed on December 30 2021 ii subject to the achievement of certain clinical milestones Clinical Milestone a right of the Company to request that the Lender make additional term loan advances to the Company in an aggregate principal amount of up to 4 0 million from
the achievement of the Clinical Milestone through June 15 2022 which was drawn in June 2022 and iii subject to the achievement of certain financial milestones Financial Milestone a right of the Company to request that the Lender make additional term loan advances to the Company in an aggregate principal amount of up to 9 0 million from achievement of the Financial Milestone through December 15 2022 which was not achieved The Company is required to pay an end of term fee Prior Term Loan End of Term Charge equal to 6 35 of the aggregate principal amount of the Prior Term Loan advances upon repayment
The Prior Term Loan accrued interest at an annual rate equal to the greater of i 8 25 plus the prime rate of interest as reported in the Wall Street Journal minus 3 25 and ii 8 25 provided that from and after the date the Company achieves the financial milestone as defined within the agreement the reference to 8 25 in clauses i and ii is reduced to 8 15 Borrowings under the Prior Term Loan are repayable in monthly interest only payments through June 2023 After the interest only payment period borrowings under the Prior Term Loan are repayable in equal monthly payments of principal and accrued interest until the Maturity Date At the Company s option the Company may elect to prepay all but not less than all of the outstanding term loan by paying the entire principal balance and all accrued and unpaid interest thereon plus a prepayment charge equal to the following percentage of the principal amount being prepaid i 3 0 of the principal amount outstanding if the prepayment occurs in any of the first twelve months following the closing date of the last draw down ii 2 0 of the principal amount outstanding if the prepayment occurs after the first twelve months following the closing date of the last draw down but on or prior to twenty four months following the closing date of the last draw down and 1 0 of the principal amount outstanding at any time thereafter but prior to the Maturity Date
In connection with the Prior Term Loan the Company granted Hercules a security interest senior to any current and future debts and to any security interest in all of the Company s right title and interest in to and under all of the Company s property and other assets and certain equity interests and accounts of Old enGene subject to limited exceptions including the Company s intellectual property The Prior Loan Agreement also contains certain events of default representations warranties and non financial covenants of the Company
The debt discount and issuance costs under the Prior Term Loan were accreted to the principal amount of debt and being amortized from the date of issuance through the Maturity Date to interest expense using the effective interest rate method The effective interest rate of the outstanding debt under the Prior Loan Agreement was approximately 18 3 as of October 31 2023
Under the Prior Loan Agreement the Company agreed to issue to Hercules warrants the Old Hercules Warrants to purchase a number of shares of Old enGene s redeemable convertible preferred shares at the exercise price equal to 2 5 of the aggregate amount of the Prior Term Loans that are funded as such amounts are funded On the first tranche closing Old enGene issued a warrant to purchase 84 714 Class C Preferred Shares which were determined to have a fair value of 34 thousand upon issuance On the second tranche closing in June 2022 Old enGene issued an additional warrant to purchase 48 978 Class C Preferred Shares which were determined to have a fair value of 23 thousand upon issuance The fair value of the Old Hercules Warrant values were initially recorded as a discount to the Prior Term Loan principal balance and are being amortized to interest expense using the effective interest method over the life of the Prior Term Loan
The Old Hercules Warrants were initially exercisable for a period of ten years from the date of the issuance of each warrant at a per share exercise price equal to 2 632 Canadian dollars subject to certain adjustments as specified in the warrants In addition the Company has granted to the holders of the Old Hercules Warrants certain registration rights on a pari passu basis with the holders of outstanding preferred shares and warrants to purchase preferred shares
The Company accounted for the warrants as a liability prior to the consummation of the Reverse Recapitalization since they were indexed to Old enGene s redeemable convertible preferred shares that were classified as temporary equity The Company remeasured the fair value of the warrants at each reporting date with changes being recorded as a change in the fair value of the warrant liabilities
On December 22 2023 the Hercules Closing Date the Company entered into an amended and restated loan and security Agreement the Amended Loan Agreement with Hercules as agent and lender and the several banks and other financial institutions or entities from time to time parties thereto with Hercules the Lenders The Amended Loan Agreement amends and restates in its entirety the Prior Loan Agreement with Hercules dated December 30 2021
As of October 31 2024 the Amended Loan Agreement provides for a term loan facility of up to 50 0 million available in multiple tranches the Term Loan as follows i an initial term loan advance the Tranche 1 Advance that was made on the Tranche 1 Advance closing of 22 5 million approximately 8 6 million of which was applied to refinance in full the term loans outstanding under the Prior Loan Agreement ii subject to the achievement of the specified Interim Milestone the Interim Milestone which includes no default or event of default delivery of written notice to the Lenders that the Company has conducted an analysis of interim efficacy of data from the clinical evaluation of detalimogene in the Phase 2 clinical study and satisfaction of certain other conditions precedent a right of the Company to request that the Lenders make additional term loan advances to us in an aggregate principal amount of up to 7 5 million from the date of achievement of the Interim Milestone through the earlier of x 60 days following the achievement of the Interim Milestone and y March 31 2025 and iii an uncommitted tranche subject to the Lenders investment committee approval and satisfaction of certain other conditions precedent including payment of a 0 75 facility charge on the amount borrowed pursuant to which the Company may request from time to time up to and including the Amortization Date defined below that the Lenders make additional term loan advances to the Company in an aggregate principal amount of up to 20 0 million The Company is required to pay upon the earlier of January 1 2028 the Maturity Date or payment in full of the Term Loans an end of term fee equal to 5 50 of the aggregate principal amount of the Term Loans the End of Term Charge The Company is also required to pay on July 1 2025 or if earlier the date the Company prepays the Term Loans 0 7 million representing the Prior Term Loan End of Term Charge the Prior Term Loan End of Term Charge and End of Term Charge collectively the End of Term Charges
The Term Loan bears cash interest payable monthly at an annual rate equal to the greater of a the prime rate of interest as reported in the Wall Street Journal plus 0 75 capped at 9 75 and b 9 25 The Term Loan also bears additional payment in kind interest at an annual rate of 1 15 which is added to the outstanding principal balance of the Term Loan on each monthly interest payment date Borrowings under the Amended Loan Agreement are repayable in monthly interest only payments through the Amortization Date which is either x July 1 2025 or y if the Interim Milestone is achieved and there has been no default January 1 2026 or z if the Interim Milestone and certain clinical milestones are achieved and there has been no default July 1 2026 After the Amortization Date the outstanding Term Loans and interest shall be repayable in equal monthly payments of principal and accrued interest until the Maturity Date The effective interest rate of the Term Loan was 11 63 as of October 31 2024
At the Company s option the Company may elect to prepay all but not less than all of the outstanding Term Loan by paying the entire principal balance and all accrued and unpaid interest thereon plus a prepayment charge equal to the following percentage of the principal amount being prepaid i 3 0 of the principal amount outstanding if the prepayment occurs in any of the first twelve months following the Closing Date ii 2 0 of the principal amount outstanding if the prepayment occurs after the first twelve months following the Closing Date but on or prior to twenty four months following the Closing Date and iii 1 0 of the principal amount outstanding if prepayment occurs at any time thereafter but prior to the Maturity Date
In connection with the Amended Loan Agreement the Company granted Hercules a security interest senior to any current and future debts and to any security interest in all of the Company s right title and interest in to and under all of the Company s property and other assets subject to limited exceptions including the Company s intellectual property
The Amended Loan Agreement contains negative covenants that among other things and subject to certain exceptions could restrict the Company s ability to incur additional liens incur additional indebtedness make investments including acquisitions engage in fundamental changes sell or dispose of assets that constitute collateral including certain intellectual property pay dividends or make any distribution or payment on or redeem retire or purchase any equity interests amend modify or waive certain material agreements or organizational documents and make payments of certain subordinated indebtedness The Amended Loan Agreement also contains certain events of default and representations warranties and non financial covenants of the Company The Company is in compliance with the financial covenants at October 31 2024
The Company accounted for the Amended Loan Agreement as an extinguishment of the Prior Term Loan As a result of the extinguishment the Company recorded a loss of 0 4 million as a component within other income and expense in the Company s consolidated statement of operations during the year ended October 31 2024 which represented the difference between the reacquisition
In connection with the Amended Loan Agreement the Company also agreed to issue to the Lenders in connection with each advance of Term Loans warrants to purchase that number of the Company s common shares as shall be equal to 2 of the aggregate principal amount of such Term Loan advance divided by the Warrants per share exercise price of 7 21 which exercise price equals the ten day volume weighted average price for the ten 10 trading days preceding the Hercules Closing Date and is subject to customary adjustments under the terms of the Warrants the Hercules Common Share Warrants The Hercules Common Share Warrants are exercisable for a period of seven years from issuance
Under the terms of the Amended Loan Agreement the maximum number of Hercules Common Share Warrants and underlying Common Shares of the Company that could be issued is 138 696 On the Hercules Closing Date the Company issued to the Lenders 62 413 Hercules Common Share Warrants in connection with the Tranche 1 Advance of the Term Loans the Closing Date Warrants The Closing Date Warrants have been determined to be equity classified as they do not meet the definition of a liability under ASC 480 and are considered indexed to the Company s Common Shares as prescribed by ASC 815 Upon entering into the Amended Loan Agreement 0 3 million of the total 22 5 million Tranche 1 Advance was allocated to the warrants on a relative fair value basis and recorded within additional paid in capital
Subsequently issued Hercules Common Share Warrants shall be substantially in the form of the Closing Date Warrants Under the terms of the Amended Loan Agreement the maximum number of Hercules Common Share Warrants and resultant underlying common shares of the Company that could be issued is 138 696 i e 2 of the 50 0 million total commitment amount divided by the exercise price of 7 21 price specified in the Closing Date Warrant assuming no adjustments are made under the terms of the Hercules Common Share Warrants and further assuming the full amount of Term Loans are drawn
As of October 31 2024 the Company classified 0 7 million of the note payable as current which represents the back end fee associated with the refinancing of the Prior Term Loan As of October 31 2023 the Company classified 0 6 million of the note payable as current which represents the principal payments due and amortization of the debt discount between October 31 2023 and the date the Term Loan was amended in December 2023 as the debt was refinanced on a long term basis in the subsequent event period During the years ended October 31 2024 and 2023 the Company recognized 2 2 million and 1 8 million of interest expense related to the Amended Loan Agreement respectively of which 0 6 million and 0 4 million was related to the amortization of the debt discount respectively
On April 4 2023 Old enGene entered into a note purchase agreement the April 2023 Notes for a principal amount of 8 0 million with Merck Lumira Biosciences Fund L P Merck Lumira Biosciences Fund Quebec L P Lumira Ventures III L P Lumira Ventures III International L P Lumira Ventures IV L P Lumira Ventures IV International L P Fond de solidarité des travailleurs du Québec F T Q and Forbion Capital Fund III Cooperatief U A collectively the April 2023 Investors The April 2023 Notes had an interest free period of 45 days from the date of issuance and commencing on the 46th day began to accrue interest at a rate of 15 per annum The April 2023 Notes were classified as current as they matured on the earlier of i July 31 2023 or ii the date the Company completes a qualified financing as defined within the April 2023 Notes as a financing pursuant to which the Company sells convertible promissory notes warrants preferred shares common shares or a combination thereof of the Company for an aggregate amount of at least 20 0 million Upon the completion of the 2023 Financing as defined below in May 2023 Old enGene issued convertible debentures and warrants of Old enGene to the April 2023 Note investors on the same terms and conditions of the convertible debentures and warrants that were issued to the investors of the 2023 Financing as repayment of the April 2023 Notes
The Company elected the fair value option of accounting for the April 2023 Notes The Company recorded the April 2023 Notes at fair value upon the date of issuance which was determined to be 8 0 million Given the short period of time that the April 2023 Notes were outstanding no change in fair value was recorded during the three months ended April 30 2023 The April 2023 Notes were extinguished in May 2023 as part of the issuance of the May 2023 Notes See Note 10 Convertible Debentures
Old enGene had issued convertible debentures to various investors There was no outstanding principal accrued interest and unamortized deferred financing costs of the convertible debentures recorded on the balance sheet as of October 31 2024 and October 31 2023 as the convertible debentures were converted and exchanged for common shares of the Company or repaid upon the closing of the Reverse Recapitalization See Note 3 Reverse Recapitalization
In September 2020 Old enGene issued a convertible debenture to the Business Development Bank of Canada BDC in the amount of 2 2 million the BDC Notes The debt bears interest at rate of 8 per annum and had an initial maturity date of September 28 2023 In December 2021 Old enGene amended the agreement which resulted in the maturity date extending to September 29 2025 The BDC Notes were convertible at the option of the holder into Old enGene s Class B redeemable convertible preferred shares at a price of 80 of the price paid per share in qualified financing as defined within the BDC convertible debenture agreement The issuance of the Prior Term Loan in 2021 met the definition of a qualified financing per the BDC convertible debenture agreement As the conversion option was not exercised upon the issuance of the Prior Term Loan the conversion rights upon a qualified financing were waived There were optional conversion options that existed if Old enGene is in default or in the event of certain liquidation events as defined within the BDC Notes which allow for conversion of the BDC Note into the most senior share outstanding at the time of the event If a liquidation event as defined within the BDC Note agreement and which included a SPAC transaction is consummated after a qualified financing and optional conversion is not elected the Company is required to pay the investor in cash the outstanding principal and the accrued but unpaid interest and in addition an amount equal to 20 of the principal
fair value of the embedded derivative liabilities upon issuance at 0 2 million The Company remeasured the fair value of the embedded derivatives in effect at each reporting period with the subsequent changes in the fair value of the derivative being recognized in changes in fair value of derivatives within the Company s consolidated statements of operations and comprehensive loss During the year ended October 31 2023 the Company recorded a change in fair value of the convertible debentures embedded derivative liability associated with the BDC Note of 0 3 million Total interest expense including the amortization of debt discounts of 0 3 million was recorded for the year ended October 31 2023 Upon the close of the Reverse Recapitalization the Company repaid the BDC Note including the liquidity event repayment amount resulting in full settlement of the note and extinguishment of the embedded derivative liability The estimated fair value of the embedded derivative liabilities at October 31 2022 was 0 3 million resulting in 0 3 million of expense recorded as change in fair value of convertible debentures embedded derivative liabilities in the consolidated statement of operations and comprehensive loss for the year ended October 31 2022 Total interest expense including the amortization of debt discounts was 0 4 million for the year ended October 31 2022 As part of the issuance of the BDC Notes the Company incurred an aggregate of 36 of debt issuance costs of which a portion were recorded as a reduction of the carrying value of the BDC Notes and a portion was allocated to the embedded derivative liabilities which were expensed as incurred
Upon the close of the Reverse Recapitalization the Company repaid the BDC Note in full resulting in a loss on extinguishment of 9 thousand due to the difference between the repayment amount and the carrying amount of the debenture and fair value of the embedded derivative lability at the time of repayment
During the year ended October 31 2022 Old enGene issued convertible debentures for an aggregate amount of 18 4 million on October 20 2022 the 2022 Notes The 2022 Notes had an initial maturity that is the later of i three years from the date of issuance or ii the maturity date of the Prior Term Loan See Note 8 License Agreement and Clinical Research Organization The 2022 Notes bear interest at 10 per annum commencing on the date of issuance The 2022 Notes are automatically convertible into common shares or redeemable convertible preferred shares of Old enGene upon certain events Upon the close of the Reverse Recapitalization the 2022 Notes were converted into 2 081 359 Common Shares of the Company
Upon issuance of the 2022 Notes the Company identified embedded derivatives related to the equity conversion features which required bifurcation as a single compound derivative instrument The Company estimated the fair value of the embedded derivative liabilities upon issuance at 3 5 million Given the close proximity between the issuance date of the notes and the Company s year ended October 31 2022 no change in fair value was recorded related to the embedded derivative liabilities identified as part of the issuance of the 2022 Notes During the year ended October 31 2023 the Company recorded a change in fair value associated with the 2022 Notes embedded derivative liability of 21 2 million in the consolidated statement of operations and comprehensive loss for the year ended October 31 2023 As of October 31 2023 no embedded derivative liability is recorded for the 2022 Notes as they converted to shares of the Company upon the consummation of the Reverse Recapitalization Total interest expense including the amortization of debt discounts was 2 8 million for the year ended October 31 2023 respectively As part of the issuance of the 2022 Notes the Company incurred an aggregate of 44 thousand of debt issuance costs of which a portion were recorded as a reduction of the carrying value of the 2022 Notes and a portion was allocated to the embedded derivative liabilities which were expensed as incurred
On May 16 2023 the Company agreed to certain modifications of the 2022 Notes having an aggregate principal amount of 18 4 million the Amended 2022 Financing which included a change in the definition of the maturity date by allowing an extension of the maturity date upon election of a noteholder majority increasing the percentage required for a noteholder majority and modifying terms of certain conversion options The amendments to the 2022 Notes did not result in the addition or termination of any substantive conversion terms and the amendment to the 2022 Notes was determined to be non substantial and was accounted for as a modification In addition as part of the May 2023 Financing the holders of the 2022 Notes which participated in the 2023 Financing received warrants to purchase common shares of the Company The fair value of the warrants at the time of issuance to the holders of the 2022 Notes was determined to be 0 5 million and was recorded as reduction of the carrying value of the 2022 Notes as part of the modification which is being amortized to interest expense through the maturity date of the 2022 Notes
On May 16 2023 concurrently with the execution and delivery of the Merger Agreement Old enGene entered into agreements pursuant to which it agreed to issue new convertible notes and warrants i for cash in an aggregate principal amount of 30 0 million and ii in repayment of the April 2023 Notes in an aggregate amount of 8 0 million collectively the May 2023 Notes and together with the warrants purchased concurrently the 2023 Financing the 2023 Financing together with the Amended 2022 Financing the Convertible Bridge Financing
The 2023 Financing occurred in two separate issuances with 28 0 million issued in May 2023 for 20 0 million in cash and 8 0 million in repayment of the April 2023 Notes and an additional 10 0 million issued in June 2023 for 10 0 million in cash of which Forbion Growth Sponsor FEAC I B V funded an aggregate amount of 20 0 million of the total 38 0 million The May 2023 Notes issued as part of the 2023 Financing if not converted have an initial maturity date of October 20 2025 and are to accrue interest at 10 per annum which is payable upon maturity
The warrants issued as part of the 2023 Financing were for the purchase of common shares of Old enGene The 2023 Warrants were only to become exercisable upon the completion of the merger Upon the close of the Reverse Recapitalization the 2023 Warrants were exchanged for 2 679 432 warrants of the Company and have the same terms as the public warrants issued upon the FEAC initial public offering with an exercise price of 11 50 and which will expire five years after the completion of the merger
The warrants issued as part of the 2023 Financing were concluded to be liability classified upon issuance as they failed the fixed for fixed criteria that is required for a contract to be considered indexed to the Company s own stock as prescribed by ASC 815 The terms of the warrants initially required the Company to issue a variable number of shares until the PIPE Financing was executed at which time the number of warrants became fixed The 2023 Warrants were initially and subsequently measured at fair value with any changes in fair value recorded as a component of other income and expense within the change in fair value of warrant liabilities See Note 3 Reverse Recapitalization Upon the execution of the PIPE Financing and consummation of the Reverse Recapitalization the warrants were reclassified to equity as the number of warrants became fixed and it was determined that the warrants met the fixed for fixed criteria that is required for a contract to be considered indexed to the Company s own stock as prescribed by ASC 815
The Company elected the fair value option of accounting for the May 2023 Notes The Company recorded May 2023 Notes at fair value upon the date of issuance At inception the fair value of the May 2023 Notes was determined to be 37 0 million and the fair value of the related warrants was determined to be 1 4 million of which 0 5 million related to the fair value of the warrants issued to the holders of the 2022 Notes as described above During the year ended October 31 2023 the Company recorded a change in fair value of the May 2023 Notes of 56 2 million The Company incurred 0 8 million of debt issuance costs associated with the May 2023 Notes which have been expensed and are included within general and administrative expenses See Note 3 Reverse Recapitalization
On October 31 2023 upon the close of the Reverse Recapitalization the 2023 Notes were converted into 4 298 463 common shares of the Company The Company accounted for the conversion as an extinguishment with no gain or loss recorded on extinguishment as the fair value of the common shares issued was determined to equal the fair value of the 2023 Notes at the time of conversion
On July 26 2013 the Company entered into a subscription agreement the Class A Agreement with multiple investors whereby the Company agreed to sell to the investors an initial aggregate amount of 610 333 Class A redeemable convertible preferred shares at a price of 1 5929 1 63845 CAD per share for total aggregate proceeds of 1 0 million the Class A Initial Closing Included within the Class A Agreement were three additional future tranche obligations the Class A Second Tranche Class A Third Tranche and Class A Fourth Tranche for the Company to issue and sell shares of Class A redeemable convertible preferred shares upon the achievement of certain milestone events Only the Class A Second Tranche closed under the Class A Agreement The Class A Second Tranche obligated the Company to sell and the Class A Investors to purchase 1 830 999 shares of Class A redeemable convertible preferred shares at a price of 1 56967 1 63845 CAD per share for total proceeds of 2 9 million upon the establishment of the
Company s headquarters in Montreal Quebec and completion of experiments required to bolster a patent application for dually derivatized chitosan the Second Closing Milestone Event which occurred in 2013 Additionally upon completing the Class A redeemable convertible preferred share financing convertible notes of the Company held by multiple investors converted into Class A redeemable convertible preferred shares
On January 6 2015 the Company entered into a subscription agreement the Class B Agreement with multiple investors where the Company agreed to sell to the investors an initial aggregate amount of 2 758 221 Class B redeemable convertible preferred shares at a price of 1 85032 2 17532 CAD per share for total proceeds of 5 1 million the Class B Initial Closing Included within the Class B Agreement were two additional closings the Class B Second Tranche and the Class B Third Tranche respectively which obligated the Company to sell and Class B investors to purchase additional Class B redeemable convertible preferred shares upon certain events The Class B Second Tranche obligated the Company to sell and the Class B Investors to purchase 1 838 815 Class B Shares at a price of 1 63419 2 17532 CAD per share for total proceeds of 3 0 million and the Class B Third Tranche obligated the Company the sell and the Class B Investors to purchase 1 608 963 Class B Shares at a price of 1 63419 2 17532 CAD per share for total proceeds of 2 6 million The Class B Second Tranche and Class B Third Tranche closed on March 1 2017
On September 10 2015 the Company entered into a Subscription Agreement the Class B 1 Agreement in which the Company was to issue 1 523 809 Class B 1 redeemable convertible preferred shares for a purchase price of 1 64367 2 17532 CAD per share resulting in aggregate proceeds of 2 5 million During the year ended October 31 2020 the Class B 1 redeemable convertible preferred shares converted to common shares on a 1 1 basis Therefore as of each of the years ended October 31 2023 October 31 2022 and October 31 2021 no shares of the Class B 1 redeemable convertible preferred shares remained outstanding The Company presented these shares within temporary equity as they contained the same redemption features as the Class B redeemable convertible preferred shares further described above Upon conversion to common shares the carrying value of the Class B 1 redeemable convertible preferred shares was reclassified to additional paid in capital within shareholders deficit
The Class C redeemable convertible preferred shares are issuable in series of which an unlimited number are designated as Series 1 Class C redeemable convertible preferred shares with an issue price per share of 1 5929 1 63845 CAD an unlimited number are designated as Series 2 Class C redeemable convertible preferred shares with an issue price per share of 1 85032 2 175315 CAD an unlimited number are designated as Series 3 Class C redeemable convertible preferred shares with an issue price per share of 2 12376 2 6320 CAD and an unlimited number are designated as Series 4 Class C redeemable convertible preferred shares that is reserved for the potential conversion of the BDC Notes and will each have an issue price per share of 1 69901 2 10559 CAD
On June 30 2021 the Company entered into a subscription agreement the Class C Agreement with multiple investors where the Company agreed to sell to the Investors an initial aggregate amount of 3 662 813 Series 3 Class C redeemable convertible preferred shares the Series 3 Class C Shares at a price of 2 12376 2 6320 CAD per share for total proceeds of 7 8 million the Class C Initial Closing Included within the Class C Agreement was one additional closing the Class C Second Tranche which obligated the Company to sell and Class C investors to purchase additional Class C redeemable convertible preferred shares upon the achievement of certain milestone events The Class C Second Tranche obligated the Company to sell and the Class C investors to purchase 3 662 810 Series 3 Class C Shares at a price of 2 13192 2 6320 CAD per share for total proceeds of 7 8 million The Class C Second Tranche closed on October 29 2021
As part of each of the Class C Initial Closing and Class C Second Tranche each Class C investor received 3 662 813 and 3 662 810 warrants respectively to purchase Class C redeemable convertible preferred shares the Class C Warrants resulting in an aggregate issued amount of 7 325 623 Class C Warrants The Class C Warrants have an exercise price of 2 12376 2 6320 CAD per share and a term of 10 years The Class C Warrants were determined to be liabilities The Company estimated the fair value of the warrant liabilities upon issuance and remeasured the fair value of the warrant liabilities at each reporting period with the subsequent changes in the fair value of the warrant liabilities being recognized in changes in fair value of warrant liabilities within the Company s consolidated statements of operations and comprehensive loss Upon the completion of the merger with FEAC all existing Class C Warrants of the Company will be extinguished
Under the terms of the Class C Agreement certain convertible notes held by various Class C investors and other investors were exchanged for an aggregate amount of 16 464 646 Class B redeemable convertible preferred shares Additionally upon entering into the Class C Agreement the Company also entered into a share exchange agreement the Share Exchange Agreement with the Class A investors and the Class B investors As part of the Share Exchange Agreement certain of the Class A redeemable convertible preferred shares issued to Class A investors were exchanged for Series 1 Class C redeemable convertible preferred shares and certain of the Class B redeemable convertible preferred shares issued to the Class B investors were exchanged for Series 2 Class C redeemable convertible preferred shares This exchange resulted in the derecognition of Class A and B redeemable convertible preferred shares and the recognition of Class C redeemable convertible preferred shares at the fair value of the Class C redeemable convertible preferred shares The difference between the carrying value of the Class A and Class B redeemable convertible preferred shares and the fair value of the Class C redeemable convertible preferred shares for which they converted into was recorded within additional paid in capital and no gain or loss on extinguishment was recorded within the consolidated statements of operations and comprehensive loss Further the February 2020 Warrants June 2020 Warrants and 2021 Warrants which consisted of warrants to purchase the Company s Class B redeemable convertible preferred shares and were issued as part of the convertible debentures were cancelled and replaced by the terms of the Class C Warrants The aggregate amount of outstanding warrants of 10 242 130 from the February 2020 Warrants the June 2020 Warrants and the 2021 Warrants converted into 10 242 130 Class C Warrants which have an exercise price of 2 12376 2 6320 CAD per share and a term expiring on February 14 2030 Immediately prior to conversion the warrants were marked to fair value with the change in the fair value of the warrant liabilities being recognized in changes in fair value of warrant liabilities within the Company s consolidated statements of operations and comprehensive loss
Pursuant to the terms of the Merger Agreement upon the consummation of the Reverse Recapitalization each share of Old enGene s redeemable convertible preferred stock issued and outstanding immediately prior to the close was exchanged for common shares of the Company using the Company Exchange Ratio of approximately 0 18048 A retrospective adjustment has been applied to all periods presented to reflect the Reverse Recapitalization See Note 3 Reverse Recapitalization for additional discussion
The holders of the Common Shares are entitled to one vote for each Common Share held on all matters submitted to a vote of shareholders Common shareholders are entitled to receive dividends as may be declared by the Board of Directors if any subject to the preferential dividend rights of preferred stock Through October 31 2024 no cash dividends had been declared or paid
On February 13 2024 the Company entered into subscription agreements collectively the February 2024 Subscription Agreements with the investors named therein for the private placement the February 2024 PIPE Financing of 20 000 000 common shares of the Company at a price of 10 00 per share The aggregate gross proceeds from the February 2024 PIPE Financing was 200 million before deducting offering expenses of 12 4 million The February 2024 PIPE Financing closed on February 20 2024
On October 24 2024 the Company entered into subscription agreements collectively the October 2024 Subscription Agreements with the investors named therein for the private placement the October 2024 PIPE Financing of 6 758 311 common shares of the Company at a price of 8 90 per share The aggregate gross proceeds from the October 2024 PIPE Financing was 60 1 million before deducting offering expenses of 3 8 million The October 2024 PIPE Financing closed on October 29 2024
Of the warrants to purchase Common Shares outstanding as of October 31 2024 8 449 555 have the same terms as the FEAC public warrants issued in connection with FEAC s IPO and have an exercise price of 11 50 and are exercisable beginning 30 days after the completion of the Reverse Recapitalization and which will expire on October 31 2028 or five years after the completion of the Reverse Recapitalization Through October 31 2024 383 355 common shares have been issued as a result of the exercise of 1 379 391 warrants on a cashless basis and 520 282 common shares have been issued through cash exercises of warrants for proceeds totaling 6 0 million
The number of Common Shares to be issued upon the cashless exercise is equal to the quotient obtained by dividing x the product of the number of shares underlying the warrants multiplied by the excess of the Fair Market Value over the warrant exercise price of 11 50 by y the Fair Market Value The Fair Market Value is the volume weighted average price of the shares for the ten 10 trading day period ending on the trading day prior to the date that notice of exercise is received by the Company s Warrant Agent from the holder or its broker or intermediary The warrants had a cashless exercise period until such time as the registration statement under the Securities Act with respect to the enGene Common Shares underlying the enGene Warrants was declared effective which occurred on March 5 2024 The Company may elect to call in the warrants for redemption if the share price of the Company equals or exceeds 18 00 for any twenty 20 trading days within the thirty 30 trading day period ending on the third 3rd trading day prior to the date on which notice of the redemption is given subject to adjustments as provided in the terms of the warrant agreement
As described in Note 9 Notes Payable the additional 62 413 of the warrants to purchase Common Shares outstanding as of October 31 2024 were issued as part of the Amended Term Loan on December 22 2023 have an exercise price of 7 21 and are exercisable at any time beginning on December 22 2023 expiring on December 22 2030 or seven years from the issuance date The common share warrants have been determined to be equity classified as they do not meet the definition of a liability under ASC 480 and are considered indexed to the Company s common shares as prescribed by ASC 815
Pursuant to the terms of the Reverse Recapitalization upon the Closing Date each outstanding option to purchase Old enGene s common stock issued under the Old Plan s was exchanged for an option to purchase common shares of the Company and the number of shares and exercise price of each granted option was adjusted using the exchange ratio of approximately 0 18048 Further the currency of all exercise prices of the options issued under the Old Plans were converted from CAD to USD using the exchange rate in effect on the day immediately prior to the Closing Date A retrospective adjustment has been applied to the number of options and exercise price of stock options for all periods presented to reflect the Reverse Recapitalization as discussed further in Note 3
Under the Old Plans options to purchase non voting common shares of Old enGene s shares may be granted to directors officers employees consultants and members of the scientific advisory board The Old Plans provide for the issuance of common stock options up to a maximum of 15 of the aggregate issued and outstanding common shares and non voting common shares of Old enGene calculated on an as converted and fully diluted basis The Old Plans were administered by Old enGene s Board of Directors Old enGene s Board of Directors determined the number of options to be granted the vesting period and the exercise price of new options It was Old enGene s policy to establish the exercise price at an amount that approximates the fair value of the underlying shares on the date of grant as determined by Old enGene s Board of Directors The options vest in accordance with the vesting terms determined for each grant by Old enGene s Board of Directors The vesting terms of Old enGene s granted stock options with service only conditions are typically 100 vesting immediately upon grant date or over a three or four year service period Upon the consummation of the Reverse Recapitalization the Company recognized share based compensation expense of 0 4 million associated with the acceleration of the vesting for the outstanding awards with service only vesting conditions under the Old Plan As of October 31 2024 and 2023 no unrecognized compensation cost remains for the outstanding awards granted under the Old Plan with service only vesting conditions
On July 7 2023 the Board of Directors approved the reservation of an additional 1 046 764 non voting common shares for issuance under the Company s employee equity incentive plan revising the number of shares reserved from 1 775 729 to 2 822 493 Also on July 7 2023 the Company granted 1 046 764 options to employees at an exercise price of 5 87 CAD 4 24 USD These options are not exercisable unless and until the completion of the Reverse Recapitalization and there is an effective registration statement for the shares underlying such granted options and will terminate automatically in the event of the termination of the Merger Agreement The Company has valued these awards at the grant date using Black Scholes pricing model in which the fair value of the stock on the grant date was equal to the exercise price of the award The expected term has been determined using management s best estimate considering the characteristics of the award contractual life the timing of the expected achievement of the performance conditions the remaining time based vesting period if any and comparison to expected terms used by peers Upon the grant date 794 643 of the issued options were fully vested and the remaining 252 121 options will vest over varying terms up to four years on a pro rata basis The Company recognizes compensation expense when achievement of the performance condition is deemed probable using an accelerated attribution method as if each vesting tranche was treated as an individual award During the year ended October 31 2023 2 6 million of stock based compensation expense was recorded associated with the 1 046 764 stock options granted in July 2023 because the Reverse Recapitalization was completed and the Company determined that the filing of the registration statement was probable to occur
Upon the consummation of the Reverse Recapitalization on October 31 2023 all options outstanding under the Old Plans were exchanged for 2 706 941 shares options to purchase common shares of the Company based on the Exchange Ratio determined in accordance with the terms of the Merger Agreement Further all exercise prices were adjusted by the Exchange Ratio and the currency of the exercise prices was changed from CAD to USD based on the exchange rate in effect on October 30 2023 the day immediately before the consummation of the Reverse Recapitalization No incremental compensation cost was recorded as a result of the change in underlying common shares from Old enGene to the Company or as a result of the change of the exercise prices to reflect the adjustment for the Exchange Ratio and the change in currency from CAD to USD as it was concluded that the fair value of the awards immediately before and immediately after the modifications did not change No options remain available for grant under the Old Plans as of October 31 2023
On October 31 2023 upon the completion of the Reverse Recapitalization the shareholders approved and the Company adopted the enGene Holdings Inc 2023 Incentive Equity Plan the 2023 Plan which superseded the Old Plans The 2023 Plan authorizes the award of incentive stock options or ISOs non qualified stock options or NQSOs Stock Units Stock Appreciation Rights or SARs and other share based awards including performance awards and share bonus awards
The number of shares initially reserved for issuance under the 2023 Plan is 2 607 943 Common Shares plus 2 706 941 common shares subject to the outstanding grants under the Old Plans and shall automatically increase on January 1 of each calendar year beginning in 2024 by a number of shares equal to the lesser of 1 946 226 Common Shares and such lesser number as may be determined by the Board The Common Shares authorized under the 2023 Plan increased by 1 946 226 on January 2 2024 As of October 31 2024 the total number of Common Shares reserved for issuance under the 2023 Plan is 7 261 110 and there are 2 752 889 shares remaining for issuance
The 2023 Plan is administered by the Board or at the discretion of the Board by a committee of the Board The exercise prices vesting and other restrictions are determined at the discretion of the Board or its committee if so delegated except that the exercise price per share of stock options may not be less than 100 of the fair market value of the Common Shares on the date of grant and the
On May 15 2024 the shareholders of the Company approved changes to the 2023 Plan The original 2023 Plan contained an evergreen provision the Evergreen Provision pursuant to which commencing with the first business day of each calendar year beginning in 2024 the aggregate number of the Company s Common Shares that could be issued or transferred thereunder the Plan Share Reserve and the number of Common Shares available for options intended to qualify as incentive stock options the ISO Sublimit each increased by a number of Common Shares equal to the lesser of x 1 946 226 Common Shares and y such lesser number of Common Shares as may be determined by the Compensation Committee Pursuant to the Amended and Restated enGene Holdings Inc 2023 Incentive Equity Plan on May 15 2024 the Evergreen Provision was amended to provide for annual increases on the first business day of each calendar year of i the Plan Share Reserve by such number of Common Shares as equals 5 of the aggregate number of Common Shares outstanding on the final day of the immediately preceding calendar year or such smaller number of shares as is determined by the compensation committee and ii the ISO Sublimit by the lesser of 2 500 000 Common Shares and the increase in the Plan Share Reserve or such smaller number of shares may be determined by the compensation committee of the Company s board of directors
Pursuant to the Nasdaq inducement grant exception during the year ended October 31 2024 the Company issued options to purchase an aggregate of 1 643 000 Common Shares to certain new hire employees at a weighted average exercise price of 8 69 per share These options were granted outside of the Company s 2023 Plan The options awarded have an exercise price equal to the closing stock price of the Company on the date of the grant and vest over four years with 25 of the underlying shares vesting on the one year anniversary of the grant date and the remainder vesting in equal amounts monthly for three years thereafter subject continued service as an employee The options have a term of 10 years from the date of the grant
On February 13 2024 the Company entered into a Transition and Modified Employment Agreement the Transition Agreement with the Company s former Chief Executive Officer Jason Hanson which amends and modifies the CEO s Employment Agreement dated November 8 2023 the Amended Employment Agreement Under the terms of the Amended Employment Agreement Mr Hanson will be entitled to
The Transition Agreement further provided that in the e2 vent Mr Hanson were to resign upon the appointment by the Company of a new chief executive officer Mr Hanson would be immediately engaged in a consulting role to provide transition services as a Senior Strategic Advisor to the Company for a period of at least six months following the effective date of resignation the Consulting Period in exchange for a monthly fee of 25 000 for the initial six month Consulting Period and 500 per hour thereafter provided that Mr Hanson need not devote more than fifteen 15 hours per week to providing such transition services
Under the Transition Agreement the 1 216 266 stock option awards issued to Mr Hanson were modified to allow for an extended exercise period as described above The modification resulted in an incremental share based compensation expense of 1 0 million which was recorded upon the effective date of the Transition Agreement
Additionally in 2024 the Company entered into a Severance Agreement with each of three former employees including the former Chief Medical Officer and the former Chief Scientific Officer Under the terms of Severance Agreement the employees are entitled to twelve months of continued pay and health insurance benefits a payment of a 2024 target annual bonus prorated through the last day of employment acceleration and vesting of any then unvested time based equity awards that would have vested in the twelve month period following such termination and an extended expiry period which resulted in a stock based compensation modification Under the terms of the agreements 231 684 stock option awards were modified to allow for an extended exercise period as described
The calculation of the Company s tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations for both federal taxes and the provinces and states in which the Company operates or does business in ASC 740 states that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination including resolutions of any related appeals or litigation processes on the basis of the technical merits
The Company records uncertain tax positions as liabilities in accordance with ASC 740 and adjusts these liabilities when the Company s judgment changes as a result of the evaluation of new information not previously available Because of the complexity of some of these uncertainties the ultimate resolution may result in a payment that is materially different from the current estimate of the unrecognized tax benefit liabilities These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available As of October 31 2024 and 2023 no uncertain tax positions have been recorded in the consolidated financial statements
The Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of operations and comprehensive loss As of October 31 2024 and 2023 no accrued interest or penalties are included on the related tax liability line in the consolidated balance sheet
As of October 31 2024 the Company has Canadian Federal NOL carryforwards of 119 1 million that expire between 2026 and 2044 and Canadian provincial NOL carryforwards of 113 1 million that expire between 2029 and 2044 These losses are available to offset future taxable income in Canada and Quebec As of October 31 2024 the Company has a U S Federal NOL carryforward of 1 9 million that may be carried forward indefinitely and a U S state NOL carryforward of 1 4 million which are available to offset against future taxable income in the U S and Massachusetts The U S State tax loss carryforward will expire between 2041 and 2043 The Company has not recognized the tax benefit of these losses
As of October 31 2024 the Company also has non refundable Canadian investment tax credits of 2 6 million that expire between 2025 and 2044 These credits may be utilized to reduce Canadian federal income taxes payable The Company has not recognized the tax benefits related to these non refundable investment tax credits
As of October 31 2023 the Company had SR ED expenditures of approximately 29 6 million for Canadian federal purposes and 32 5 million for Québec provincial purposes which have not been deducted These expenditures are available to reduce future taxable income and have an unlimited carryforward period SR ED expenditures are subject to verification by the tax authorities and accordingly the amounts may vary
In November 2021 the Company entered into an office and lab space lease approximating 9 360 of rentable square feet for designated office and lab spaces located at 7171 Frederick Banting City of Montreal judicial district of Montreal Province of Quebec The lease commenced in November 2021 and had an initial term of 12 months that would have expired on October 31 2022 and includes options to renew for consecutive twelve month periods upon landlord consent at new lease rates As the Company has elected to not recognize leases with a lease term of 12 months or less on the balance sheet this was considered short term leases and no operating lease right of use assets and liabilities were recognized In October 2022 the Company entered into a lease amendment to extend the lease for an additional term of six months through April 2023 with an option to extend the lease through September 2023 In April 2023 the Company extended the lease through September 2023 The lease was further extended through November 5 2023 The amendment resulted in 0 2 million of additional lease commitments to be paid during the extended term inclusive of the extension through November 5 2023
On December 29 2022 the Company signed a new lease for approximately 10 620 square feet of new laboratory and office space at 4868 Rue Levy Montreal QC The term of the lease is for 10 years beginning on the commencement date and requires an annual initial base rent of 36 50 CAD per square foot which is subject to annual increases of 2 The lease did not commence as of October 31 2023 as the Company did not have access to the space as of that date The lease commenced in November 2023
On January 1 2024 the Company entered into a lease agreement in which the Company is leasing approximately 6 450 square feet of office space located at 200 Fifth Avenue Waltham Massachusetts 02451 The Company will make an aggregate amount of base rental payments of 0 5 million under the initial term of the lease which is set to expire on December 30 2026 and does not have an option to renew Upon commencement the Company recognized an initial lease liability and corresponding right of use asset of 0 4 million
From time to time in the ordinary course of business the Company is subject to litigation and regulatory examinations as well as information gathering requests inquiries and investigations As of October 31 2024 and 2023 there were no matters which would have a material impact on the Company s financial results
The Company enters into contracts in the normal course of business with CROs CDMOs and other third party vendors for nonclinical research studies and testing clinical trials and testing and manufacturing services Most contracts do not contain minimum purchase commitments and are cancellable by us upon written notice Payments due upon cancellation consist of payments for services provided or expenses incurred including those incurred by subcontractors of our suppliers
On February 20 2024 the Company completed the February 2024 PIPE Financing which provided for the private placement of 20 000 000 Common Shares at a price of 10 00 per share and included both new and existing investors One of the Company s directors Mr Gerald Brunk is a managing director of Lumira Ventures Lumira and certain entities affiliated with Lumira were party to the 2024 Subscription Agreements purchasing an aggregate of 800 000 Common Shares for a total price of 8 0 million in the February 2024 PIPE Financing
On October 29 2024 the Company completed the October 2024 PIPE Financing which provided for the private placement of 6 758 311 Common Shares at a price of 8 90 per share and included both new and existing investors Two of the Company s directors Messrs Jasper Bos and Wouter Joustra are general partners of FEAC and an entity affiliated with FEAC was party to one of the October 2024 Subscription Agreements purchasing an aggregate of 561 797 Common Shares for a total price of approximately 5 0 million in the October 2024 PIPE Financing
On April 4 2023 the Company entered into the April 2023 Notes for a principal amount of 8 0 million with the April 2023 investors as described in Note 8 The April 2023 Notes had an interest free period of 45 days from the date of issuance and commencing on the 46th day is to accrue interest at a rate of 15 per annum The April 2023 Notes had a maturity date which was the earlier of i July 31 2023 or ii the date the Company completes a qualified financing as defined within the April 2023 Notes as a financing pursuant to which the Company sells convertible promissory notes warrants preferred shares common shares or a combination thereof of the Company for an aggregate amount of at least 20 0 million Upon the completion of the 2023 Financing which met the definition of a qualified financing as defined within the April 2023 Notes the Company issued and aggregate amount of 8 0 million of convertible debentures and warrants of the Company to the April 2023 Note investors on the same terms and conditions of the convertible debentures and warrants that were issued to the investors of the 2023 Financing for the extinguishment and settlement of the April 2023 Notes
On May 16 2023 concurrently with the execution and delivery of the Merger Agreement the Company entered into agreements pursuant to which it issued new convertible indebtedness and warrants i for cash in an aggregate principal amount of 30 0 million and ii in settlement and extinguishment of the April 2023 Notes for an aggregate amount of 8 0 million as described in Note 9 Notes Payable The 2023 Financing occurred in two separate issuances with 28 0 million issued in May 2023 for 20 0 million in cash and 8 0 million in repayment of the April 2023 Notes and an additional 10 0 million issued in June 2023 for 10 0 million in cash The 2023 Notes issued as part of the 2023 Financing have an initial maturity date of three years from the closing date and are to accrue interest at 10 per annum which is payable upon maturity The 2023 Notes have the same conversion terms as the 2022 Notes as described in Note 9 Notes Payable Of the 38 0 million of convertible debentures and warrants issued 8 0 million was issued to existing shareholders of the Company 20 0 million was issued to Forbion Growth Sponsor FEAC I B V and 10 million which was issued to Investissement Québec
On October 31 2023 upon the consummation of the Reverse Recapitalization all of the Old enGene s redeemable convertible preferred shares outstanding immediately prior to the close were exchanged for shares of the Company s common shares with no dividends or distributions being declared or paid on Old enGene s redeemable convertible preferred shares Further certain of Old enGene s existing convertible notes were converted into common shares of Old enGene at the conversion ratio in place at the time of conversion and all of Old enGene s common shares were exchanged for common shares of Company at the Exchange Ratio of approximately 0 18048 A total of 13 091 608 common shares of the Company were issued to the Old enGene s equity and convertible note holders upon the close of the Reverse Recapitalization of which 2 262 351 were issued to Forbion Growth Sponsor FEAC I B V as a result of its participation in the 2023 Financing Each of Old enGene s outstanding warrants to purchase common shares were exchanged for 2 679 432 common share warrants upon the close of the Reverse Recapitalization of which 950 153 were issued to Forbion Growth Sponsor FEAC I B V as a result of its participation in the 2023 Financing All of Old enGene s existing outstanding Class C Warrants outstanding at the time of the Reverse Recapitalization were terminated Additionally there were 3 670 927 common shares of the Company issued to FEAC and its shareholders as part of the Reverse Recapitalization along with 5 029 444 warrants to purchase common shares
On December 18 2024 the Company entered into the First Amendment to Amended and Restated Loan and Security Agreement with Hercules the First Amendment which amended the Amended Loan Agreement dated December 22 2023 Pursuant to the First Amendment the 7 5 million advance originally available upon achievement of the Interim Milestone defined above was added to the uncommitted tranche subject to the Lenders investment committee approval and satisfaction of certain other conditions precedent including payment of a 0 75 facility charge on the amount borrowed pursuant to which the Company may request from time to time that the Lenders make additional term loan advances to the Company in an aggregate principal amount of up to 27 5 million The Amended Term Loan Agreement did not change the total term loan facility available to the Company of up to 50 0 million

Company Name	enGene Holdings Inc. Vist SEC web-site
Category	BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES)
Trading Symbol	ENGN