UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark One)

For the fiscal year ended December 31, 2020

OR

Commission File Number 001-39067

 

VIELA BIO, INC.

(Exact name of Registrant as specified in its Charter)

 

 

Registrant’s telephone number, including area code: (240) 558-0038

 

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

 

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☒ NO ☐

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.  YES ☐ NO ☒

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YES ☒ NO ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).  YES ☒ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES ☐ NO ☒

The aggregate market value of the common stock held by non-affiliates of the registrant (without admitting that any person whose shares are not included in such calculation is an affiliate) computed by reference to the price at which the common stock was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter was approximately $1.07 billion.

The number of shares of Registrant’s Common Stock outstanding as of March 1, 2021 was 54,950,149. Portions of the registrant’s definitive Proxy Statement for its Annual Meeting of Stockholders to be held in 2021 are incorporated by reference into Part III of this Annual Report on Form 10-K to the extent stated herein.

 

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DOCUMENTS INCORPORATED BY REFERENCE

The following documents (or parts thereof) are incorporated by reference into the following parts of this Form 10-K: Certain information required in Part III of this Annual Report on Form 10-K is incorporated from the registrant’s definitive proxy statement for the 2021 annual meeting of stockholders to be filed pursuant to Regulation 14A with the Securities and Exchange Commission within 120 days of the registrant’s fiscal year ended December 31, 2020.

 

 

 

 

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Table of Contents

 

 

 

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties. All statements other than statements of historical facts contained in this Annual Report on Form 10-K are forward-looking statements. In some cases, you can identify forward-looking statements by words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or the negative of these words or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in the “Risk Factors” section and elsewhere in this Annual Report on Form 10-K. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Annual Report on Form 10-K may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable as of the date of this Form 10-K, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Annual Report on Form 10-K to conform these statements to new information, actual results or to changes in our expectations, except as required by law.

You should read this Annual Report on Form 10-K and the documents that we reference in this Annual Report on Form 10-K and have filed with the Securities and Exchange Commission, or SEC, as exhibits to this Annual Report on Form 10-K with the understanding that our actual future results, levels of activity, performance, and events and circumstances may be materially different from what we expect.

This Annual Report on Form 10-K includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. Such data involves a number

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of assumptions and limitations and contains projections and estimates of the future performance of the markets in which we operate and intend to operate that are subject to a high degree of uncertainty. We caution you not to give undue weight to such projections, assumptions and estimates.

This Annual Report on Form 10-K contains references to our trademarks and to trademarks belonging to other entities. Solely for convenience, trademarks and trade names referred to in this Annual Report, including logos, artwork and other visual displays, may appear without the ^® or TM symbols, but such references are not intended to indicate, in any way, that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

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PART I

Item 1. Business.

Overview

We are a biotechnology company pioneering treatments for autoimmune and severe inflammatory diseases, which we collectively refer to as autoimmune diseases. Our approach seeks to redefine the treatment of autoimmune diseases by focusing on critical biological pathways shared across multiple indications. We believe that this approach, which targets the underlying molecular pathogenesis of the disease, allows us to develop more precise therapies, identify patients more likely to respond to treatment and pursue multiple indications for each of our product candidates. Our lead molecule inebilizumab, is a humanized monoclonal antibody, or mAb, designed to target CD19, a molecule expressed on the surface of a broad range of immune system B cells. In January 2019, we reported positive pivotal clinical trial data for inebilizumab in patients with neuromyelitis optica spectrum disorder, or NMOSD. NMOSD is a rare, devastating condition that attacks the optic nerve, spinal cord and brain stem, and often leads to irreversible blindness and paralysis. We received Breakthrough Therapy Designation for the treatment of this disease from the U.S. Food and Drug Administration, or the FDA, in April 2019 and in August 2019, the FDA accepted for review our Biologics License Application, or BLA for inebilizumab. On June 11, 2020, the FDA approved Uplizna^® (inebilizumab-cdon) for the treatment of adult patients with NMOSD who are anti-AQP4 antibody positive as a twice-a-year maintenance regimen following initial doses. We commercially launched Uplizna^® following FDA approval in June 2020.

Regulatory applications have also been filed in several other countries for inebilizumab in patients with NMOSD, based on results from the N-MOmentum trial.  In October 2020, a BLA was accepted by the National Medical Products Administration in China.  In June and September 2020, respectively, a marketing authorization application, or MAA, was filed in Japan and South Korea, and an MAA with the European Medicines Agency, or EMA, was filed in December 2020.  If approved, Mitsubishi Tanabe Pharma Corporation (“MTPC”) and Hansoh Pharma, our partners in Asia, will be responsible for commercializing inebilizumab in their respective territories, and we will be eligible for payments based on certain commercial milestones, as well as royalties on sales revenue.

Furthermore, we recently initiated a Phase 3 trial of inebilizumab for myasthenia gravis, a neuromuscular disorder caused by autoantibodies against acetylcholine receptors or muscle specific kinase and a Phase 3 trial of inebilizumab for IgG4-related disease, a group of disorders marked by tumor-like swelling and fibrosis of affected organs, which may be caused by infiltration of CD19-expressing plasmablasts and plasma cells that generate IgG4 antibodies. We are continuing to enroll patients in both of these trials.

In addition, we have a broad pipeline of two additional clinical-stage and two pre-clinical product candidates focused on a number of other autoimmune diseases with high unmet medical needs, including Sjögren’s syndrome and lupus, as well as other conditions such as kidney transplant rejection. A Phase 2b trial in Sjögren’s syndrome, which is designed as Phase 3-enabling, is ongoing and in 2019, we initiated a separate Phase 2 trial in kidney transplant rejection. We are currently advancing two candidates through pre-clinical studies. For the first candidate, VIB1116, we completed pre-clinical toxicology studies and have submitted an IND in Q4 2020.

In December 2019 an outbreak of a novel strain of coronavirus was identified in Wuhan, China. This virus continues to spread globally, has been declared a pandemic by the World Health Organization and has spread to over 200 countries, including the United States. The impact of this pandemic has been and will likely continue to be extensive in many aspects of society, which has resulted in and will likely continue to result in significant disruptions to businesses and capital markets around the world. The extent to which the coronavirus impacts us will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others. At present, we are not experiencing significant impact or delays from COVID-19 on our business and operations. However, in order to prioritize patient health and that of the investigators at clinical trial sites, we had paused enrollment of new patients in certain of our clinical trials, including our Phase 2b trial of VIB4920 in Sjögren’s syndrome, our Phase 2 trial of VIB4920 in rheumatoid arthritis and our Phase 2 trial of inebilizumab in kidney transplant desensitization. We resumed all of our trials except the Phase 2 trial of inebilzumab in kidney transplant desensitization. Our ability to re-open enrollment, and continue enrollment, in our paused clinical trial will be dependent on many factors, including the progression of the pandemic and its impact on patients and the investigators at our clinical trial sites. Furthermore, our ability to re-open enrollment, and continue enrollment, in our paused clinical trial will require collaboration with, and permission from, each of the clinical trial sites. Over the coming weeks and months, we will continue to monitor carefully the situation with respect to each of our clinical trials and follow guidance from local and federal health authorities. Additionally, we believe that the pandemic has impacted the frequency of patient visits to physicians and has impacted physician office operations. These changes may impact prescribing rates of Uplizna^® or other products, if approved.

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Our pipeline is currently focused on the following shared critical biological pathways of autoimmune diseases:

In addition to the three pathways listed above, we are continuing to explore other critical shared biological pathways that we believe are implicated in autoimmune disease pathogenesis.

2021 Merger Agreement

On January 31, 2021, we entered into a definitive Agreement and Plan of Merger (the “Merger Agreement”), with Horizon Therapeutics USA, Inc., a Delaware corporation (“Parent”), Teiripic Merger Sub, Inc., a Delaware corporation and a direct wholly owned subsidiary of Parent (“Purchaser”), and solely for purposes of Sections 6.7 and 9.12 of the Merger Agreement, Horizon Therapeutics plc, a public limited company organized under the laws of Ireland (“Ultimate Parent”), pursuant to which Parent, through Purchaser, will commence a tender offer (the “Offer”) to acquire all of the outstanding shares of our common stock, par value $0.001 per share (the “Shares”), at a price of $53.00 per share in cash, which represents a fully diluted equity value of approximately $3.05 billion, without interest, subject to any applicable withholding taxes. Parent and Purchaser commenced the Offer on February 12, 2021 and are obligated to keep the Offer open for twenty business days following the commencement of the Offer, subject to possible extension under the terms of the Merger Agreement. If successful, upon the terms and conditions set forth in the Merger Agreement, the Offer will be followed by a merger of Purchaser with and into the Company, with the Company continuing as the surviving corporation and as a direct wholly owned subsidiary of Parent (the “Merger”).

Completion of the Offer is subject to the satisfaction or waiver of customary conditions, including (i) there shall have been validly tendered (not including any Shares tendered pursuant to guaranteed delivery procedures that have not yet been “received,” as such term is defined in Section 251(h) of the General Corporation Law of the State of Delaware (the “DGCL”), by the depositary for the Offer pursuant to such procedures) and not validly withdrawn Shares that, considered together with all other Shares (if any) beneficially owned by Parent and its subsidiaries, represent one more Share than 50% of the total number of (A)  Shares outstanding at the time of the expiration of the Offer plus (B) the aggregate number of Shares issuable to holders of options to purchase Shares (the “Company Options”) from which we have received notices of exercise prior to the expiration of the Offer (and as to which Shares have not yet been issued to such exercising holders of Company Options); (ii) subject to certain materiality exceptions, the truth and accuracy of certain representations and warranties made by us contained in the Merger Agreement; (iii) compliance with, or performance of, in all material respects the covenants and agreements with or of which we are required to comply or perform; (iv) the termination or expiration of any applicable waiting period (and extensions thereof) relating to the Offer under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended; (v) the absence of a material adverse

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effect on us; and (vi) certain other customary conditions set forth in the Merger Agreement. The Offer and the Merger are not subject to any financing condition.

We expect the Merger to close by the end of first quarter of 2021, subject to the regulatory approvals and other customary closing conditions described above and in the Merger Agreement.

 

Additional information about the Merger and related transactions is set forth in our filings with the Securities and Exchange Commission, or the SEC.

 

Our Pipeline

We are leveraging our critical biological pathway approach to develop a broad pipeline of product candidates across multiple diseases, which we refer to as indications. The following table summarizes our pipeline:

 

Inebilizumab. We have initially developed inebilizumab as a potential first-line monotherapy for NMOSD. In January 2019, we announced positive topline data from our N-MOmentum pivotal trial in a broad patient population that included AQP4 antibody positive, or AQP4+, and AQP4 antibody negative, or AQP4-, patients with various degrees of disease severity based on the number of previous attacks. AQP4+ patients, characterized by the presence of autoantibodies to a water channel protein called aquaporin-4, or AQP4, are thought to represent approximately 80% of the NMOSD patient population. Inebilizumab is designed to be dosed with two initial doses on days 1 and 15, followed by dosing every six months thereafter, which is a significantly less frequent dosing regimen compared to other therapies that have been approved or are in clinical development. The trial met its primary and a majority of secondary endpoints, and in May 2019, we presented detailed trial data at the plenary session of the Annual Meeting of the American Academy of Neurology. Based on the results of the N-MOmentum trial, we submitted a BLA to the FDA in June 2019, which the FDA accepted for review in August 2019. The FDA granted Orphan Drug Designation for inebilizumab for the treatment of patients with NMOSD in February 2016 and Breakthrough Therapy Designation in April 2019 and in August 2019, the FDA accepted for review our Biologics License Application, or BLA for inebilizumab. The FDA set a Prescription Drug User Fee Act, or PDUFA date of June 11, 2020. The European Medicines Agency, or EMA, granted orphan designation to inebilizumab for the treatment of NMOSD in March 2017.

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Regulatory applications have also been filed in several other countries for inebilizumab in patients with NMOSD, based on results from the N-MOmentum trial.  In October 2020, a BLA was accepted by the National Medical Products Administration in China.  In June and September 2020, respectively, a marketing authorization application, or MAA, was filed in Japan and South Korea, and an MAA was filed with the European Medicines Agency, or EMA, in December 2020.  If approved, Mitsubishi Tanabe Pharma Corporation (“MTPC”) and Hansoh Pharma, our partners in Asia, will be responsible for commercializing inebilizumab in their respective territories, and we will be eligible for payments based on certain commercial milestones, as well as royalties on sales revenue.

VIB4920. VIB4920 is a fusion protein designed to bind to CD40L on activated T cells, blocking their interaction with CD40-expressing B cells and potentially other binding partners. This is intended to prevent B cells from differentiating into plasma cells and memory B cells. Blocking CD40 and CD40L interaction can also inhibit stimulation of dendritic cells and monocytes by T cells, which reduces production of pro-inflammatory mediators. We believe that these combined effects have the potential to produce powerful immunomodulation for the targeting of both T and B cell-driven diseases.

Two Phase 1 clinical trials of VIB4920 have been completed to date: a Phase 1a single-ascending dose trial in healthy volunteers and a Phase 1b multiple-ascending dose trial in patients with rheumatoid arthritis. In both trials, VIB4920 was generally well-tolerated, with no evidence of platelet aggregation that resulted in thromboembolic side effects with an earlier generation CD40L mAb. In the Phase 1b trial, VIB4920 decreased disease activity in patients with active rheumatoid arthritis, and the majority of patients achieved low-level disease activity or remission at the two highest dose levels. We believe that the dose-dependent reduction in autoantibody levels coupled with the clinical activity observed in rheumatoid arthritis suggest that VIB4920 may effectively block the CD40/CD40L interaction. We have selected two diseases associated with immune overactivation through CD40L as the initial diseases to further evaluate in VIB4920 trials. A Phase 2b trial in Sjögren’s syndrome, which is designed as Phase 3-enabling, is now ongoing and in 2019, we initiated a separate Phase 2 trial in kidney transplant rejection. Furthermore, a Phase 2 trial of VIB4920 in rheumatoid arthritis is ongoing.

VIB7734. VIB7734 is a humanized mAb intended to be a novel treatment for autoimmune diseases where the pathology is driven principally by overproduction of type I interferons and other cytokines secreted by pDCs. VIB7734 is designed to target and bind to ILT7, a cell surface molecule specific to pDCs, leading to their depletion. pDCs generate large amounts of interferons in pathological states. The depletion of pDCs may also decrease other inflammatory cytokines such as TNF-a and IL-6, which are critical to the pathogenesis of a number of autoimmune diseases. We have completed a Phase 1a single-ascending dose trial in patients with any one of the following six autoimmune diseases: SLE, CLE, Sjögren’s syndrome, systemic sclerosis, polymyositis and dermatomyositis. The Phase 1a trial demonstrated that VIB7734 was generally well-tolerated and reduced pDC levels. In November 2020, we reported the final data from our Phase 1b trial with VIB7734 in an oral presentation at the American College of Rheumatology Convergence 2020. In this trial, treatment with VIB7734 was shown to potently deplete plasma dendritic cell (pDCs), both in blood and in cutaneous lupus erythematosus (CLE) skin lesions. Most patients experienced a clinically significant reduction in the extent and severity of skin lesions, as measured by Cutaneous Lupus Erythematosus Disease Area and Severity Index (CLASI) scores, following treatment with VIB7734. Rates of adverse events were similar between VIB7734 and placebo groups. Based on results from the Phase 1b study, we have selected systemic lupus erythematosus (SLE) as the lead indication of a planned Phase 2 trial, anticipated to initiate in the first half of 2021. Furthermore, we initiated patient screening for Phase 1 trial with VIB7734, which has demonstrated an ability to regulate key inflammatory mediators, in patients with COVID-19-related acute lung injury. This Phase 1 trial is on-going and results from this study are anticipated in the first half of 2021.

Pre-clinical Development. We are also conducting pre-clinical research and development on two product candidates. The first candidate, VIB1116, is a mAb designed to decrease the number and function of antigen-presenting dendritic cells. We completed pre-clinical toxicology studies and submitted an Investigational New Drug application, or IND, in Q4 2020. The second candidate is a mAb cytokine fusion protein designed to inhibit inflammatory responses. We are currently conducting pre-clinical efficacy studies of this candidate in animal models.

Our Team and Corporate History

We have an experienced internal research and development team focused on utilizing our deep understanding of autoimmune disease pathways to discover and develop novel therapies that more precisely target these pathways. Our founding management team, as well as a significant portion of our research and development team, joined us from MedImmune, the biologics division of AstraZeneca, where they played key roles in the autoimmune disease area and in the development of the product candidates in our existing portfolio. We believe this deep experience with and detailed technical knowledge of both the autoimmune disease area and our product candidates is a critical advantage for us.

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Since our founding, we have expanded our team to incorporate additional expertise as needed to pursue our goal of becoming a fully-integrated biopharmaceutical company. We have assembled key management team members with expertise in autoimmune research, development, regulatory affairs, medical affairs, operations, manufacturing and commercialization. Our Chairman and Chief Executive Officer, Zhengbin (Bing) Yao, Ph.D., has more than 20 years’ experience in the biopharmaceutical industry, with a track record of leading the successful discovery and development of multiple approved biotherapeutics. Our Chief Medical Officer and Head of Research and Development, Jörn Drappa, M.D., Ph.D., has more than 20 years’ experience in clinical development of multiple approved biotherapeutics for autoimmune and other diseases. Dr. Yao and Dr. Drappa have worked together for over a decade at other companies and other members of our management team have worked together in key positions at public companies that develop and commercialize therapies for autoimmune and other diseases.

We were incorporated in December 2017 and, in February 2018, we acquired six molecules from MedImmune, of which five constitute our current product candidates, for a purchase price of approximately $142.3 million financed by AstraZeneca’s purchase of our Series A preferred stock. Following the asset purchase, we entered into several agreements with AstraZeneca and MedImmune, including a license agreement, sublicense agreements, a master supply and development services agreement, a transition services agreement, a clinical supply agreement and a commercial supply agreement. Under our commercial supply agreement with AstraZeneca, AstraZeneca has agreed to provide us with commercial supplies of drug product for inebilizumab. We believe that our existing stock of drug substance that has already been manufactured will be sufficient to supply us for approximately the first two years of commercialization of inebilizumab in the United States. See “—Licenses and Strategic Agreements—Clinical Supply Agreement with AstraZeneca UK Limited” and “—Licenses and Strategic Agreements—Commercial Supply Agreement with AstraZeneca UK Limited.”

Concurrent with our acquisition of these MedImmune assets, we also closed a $250 million Series A preferred stock financing with five institutional investors (the “Series A Preferred Stock”). In June 2019, we closed a Series B preferred stock financing with five new institutional investors and one existing institutional investor for aggregate gross proceeds of $75 million (the “Series B Preferred Stock”). In October 2019, we completed an initial public offering, or the IPO of our common stock and issued and sold 9,085,000 shares of common stock at a public offering price of $19.00 per share, for aggregate gross proceeds of $172.6 million. In June 2020, we completed an underwritten public offering of our common stock and issued and sold 3,600,000 shares of common stock at a public offering price of $47.00 per share, for aggregate gross proceeds of $169.2 million and net proceeds before deducting underwriting discounts and commissions and other offering costs.

Our Strategy

Our vision is to become a fully integrated biopharmaceutical company pioneering treatments for autoimmune diseases by focusing on critical biological pathways shared across multiple indications. Key components of our business strategy include the following:

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Autoimmune Disease Overview

Autoimmune diseases result from an immune response directed against the body’s own healthy cells and tissues. According to a 2012 report from the National Institutes of Environmental Health Sciences, approximately 23.5 million people in the United States suffer from autoimmune diseases. In a significant subset of severe autoimmune diseases there remain substantial unmet medical needs, as patients are generally treated with broadly prescribed steroids and nonspecific immunosuppressive regimens. Current therapies are rarely considered curative and, even with modern standards of care, patients may suffer from chronic disease progression. There is a need for more targeted treatments with increased efficacy and decreased toxicity.

Autoimmune diseases usually involve autoreactive T cells and B cells, which can communicate through shared pathways, resulting in damage to the body’s cells and tissues. In a healthy individual, as the immune system develops during childhood, these T cells and B cells are eliminated or suppressed by various mechanisms. When any of these mechanisms fails, autoimmunity can arise. The presence of autoantibodies, a product of autoreactive B cells, is a hallmark of many of these diseases. Many autoimmune diseases are characterized by disease flares, in which symptoms worsen, followed by a period of remission, in which symptoms improve. Many autoimmune diseases are characterized by progressively worsening health status and life-altering disability.

Certain autoimmune diseases are not only due to the direct effects of autoantibodies, but also other mechanisms that cause immune dysfunction. These include activation of inflammatory T cells and cytotoxic T cells, which can cause inflammation and tissue damage. Cytokines released as a result of immune overactivation can further increase inflammatory tissue damage. Dysregulation of the same pathway can lead to a variety of symptoms, and multiple pathways may be dysregulated in any given autoimmune disease.

In many autoimmune diseases, existing therapy consists of long-term treatment with a combination of immunosuppressive agents and high-dose corticosteroids. These treatment regimens may result in increased rates of infection, increased risk of malignancy, and other side effects, including hypertension, diabetes and osteoporosis. Further, these currently available treatments often do not achieve adequate clinical responses. Targeted agents, such as TNF-a antagonists, are used to treat certain autoimmune diseases, such as rheumatoid arthritis, after immunosuppressive agents have failed. However, these therapies are not effective in treating many autoimmune diseases and, consequently, there remains a substantial unmet medical need for more effective therapies.

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Our Approach: Developing Therapies by Focusing on Shared Critical Biological Pathways of Autoimmune Diseases

We seek to redefine the treatment of autoimmune diseases by focusing on critical biological pathways shared across multiple diseases. We believe this approach permits us to develop novel therapies that more precisely target these pathways. We have initially focused on three pathways: the autoantibody pathway, the CD40/CD40L co-stimulatory pathway and the innate cytokine pathway, each of which we believe presents distinct mechanisms that drive autoimmune disease and can be targeted by our existing portfolio of product candidates. The following graphic illustrates each of these pathways and the molecules within these pathways that we are currently targeting.

 

Autoantibody Pathway. In the autoantibody pathway, autoantibodies are secreted by a subset of immune system B cells known as plasmablasts and plasma cells. In certain cases, these autoantibodies are directly pathogenic. In addition, B cells may contribute to autoimmunity through other mechanisms such as antigen presentation or cytokine production. A number of autoimmune diseases are associated with the B cell-mediated autoantibody pathway, including NMOSD, myasthenia gravis and idiopathic thrombocytopenic purpura, or ITP. B cells also play an important role in kidney transplant desensitization and IgG4-related disease.

Our lead molecule, inebilizumab, is designed to target these antibody-secreting cells by binding with high affinity to CD19 and depleting CD19-expressing B cells via antibody dependent cellular cytotoxicity, or ADCC, and antibody dependent cellular phagocytosis, or ADCP. CD19 is a molecule broadly expressed on B cells, including some antibody-secreting plasmablasts and plasma cells. In contrast, the expression of CD20, another cell surface molecule expressed on B cells, is lost as B cells differentiate into plasmablasts and plasma cells. Unlike existing CD20 targeting therapies, inebilizumab also directly depletes CD19-expressing plasmablasts and some plasma cells, most of which are not able to be directly targeted by anti-CD20 mAbs.

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CD40/CD40L Co-stimulatory Pathway. T cells interact with B cells, macrophages and endothelial cells through various co-stimulatory receptor-ligand interactions, including CD40/CD40L. CD40L is thought to be a component of immune responses involved in B cell activation, maturation and eventually antibody production. CD40L also mediates activation of macrophages, dendritic cells and stromal cells, including endothelial cells. A number of autoimmune diseases, such as Sjögren’s syndrome, ITP, SLE, type 1 diabetes and bullous pemphigoid, are associated with overactivation of the CD40/CD40L co-stimulatory pathway. This pathway may also be important in kidney transplant rejection and certain glomerular kidney diseases. Our second product candidate, VIB4920, is a fusion protein designed to target CD40L, blocking CD40L’s interaction with CD40 and potentially other binding partners, thereby potentially decreasing autoimmune and inflammatory responses. VIB4920 has been designed to avoid thromboembolic side effects observed with an earlier generation CD40L mAb.

Innate Cytokine Pathway. Specialized innate immune system cells called pDCs recognize and become activated by viral infection and immune complexes. Upon becoming activated, pDCs produce large amounts of innate cytokines such as type I interferons, IL-6 and TNFa and also help activate other arms of the immune system, including T cells and B cells. A number of autoimmune diseases, such as CLE, SLE, Sjögren’s syndrome, systemic sclerosis, polymyositis, and dermatomyositis, are associated with the overproduction of these innate cytokines. Our third product candidate, VIB7734, is a humanized mAb designed to target and bind to ILT7 on pDCs, leading to their depletion.

Our Product Candidates

Inebilizumab: Our Humanized Monoclonal Antibody for Patients with NMOSD and Additional Diseases that Share the Autoantibody Pathway

We are initially developing inebilizumab as a first-line monotherapy for NMOSD. NMOSD is a rare, severe, relapsing, neuroinflammatory autoimmune disease that attacks the optic nerve, spinal cord and brain stem, often leading to blindness and paralysis. We designed our N-MOmentum pivotal trial to evaluate inebilizumab as a monotherapy across a broad range of disease severity and patients, including both AQP4+ and AQP4- patients. Inebilizumab is designed to be dosed with two initial doses on days 1 and 15, followed by dosing every six months thereafter, which is a significantly less frequent dosing regimen compared to other therapies that have been approved or are currently in clinical development. The FDA granted Orphan Drug Designation for inebilizumab for the treatment of patients with NMOSD in February 2016 and Breakthrough Therapy Designation in April 2019. The EMA granted orphan designation to inebilizumab for the treatment of patients with NMOSD in March 2017.

In January 2019, we announced positive topline data from our N-MOmentum pivotal trial. The trial met its primary and a majority of secondary endpoints, and in May 2019, we presented detailed trial data at the plenary session of the Annual Meeting of the American Academy of Neurology. The N-MOmentum trial is a randomized, double-blinded, placebo-controlled, global registration trial that enrolled 231 patients with NMOSD, which is the largest controlled trial conducted in this indication. The primary analysis demonstrated a 77.3% reduction in the risk of developing an NMOSD attack in AQP4+ patients treated with inebilizumab monotherapy compared to placebo. Furthermore, secondary analyses demonstrated statistically significant reductions in worsening of disability, hospitalizations and new MRI lesions. Inebilizumab was generally well-tolerated, with an adverse event rate similar to placebo. Based on the results of the N-MOmentum trial, we submitted a BLA to the FDA in June 2019, which the FDA accepted for review in August 2019. On June 11, 2020, the FDA approved Uplizna® (inebilizumab-cdon) for the treatment of adult patients with NMOSD who are anti-AQP4 antibody positive as a twice-a-year maintenance regimen following initial doses. We commercially launched Uplizna® following FDA approval in June 2020

In addition to NMOSD, we initiated multiple clinical trials of inebilizumab in other indications associated with CD19-expressing B cells, including:

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Mechanism of Action

A number of autoimmune diseases, including NMOSD, are associated with autoantibodies secreted by plasmablasts and some plasma cells. B cells may contribute to autoimmunity through other mechanisms such as antigen presentation or cytokine production. CD19 is a cell surface molecule broadly expressed on B cells, including some antibody-secreting plasmablasts and plasma cells. Each of the graphics below illustrates a different role of CD19-expressing B cells in the pathogenesis of autoimmune disease and other inflammatory conditions. Graphic A shows the process by which B cells differentiate into antibody secreting cells, including plasmablasts and plasma cells. Graphic B reflects the process by which an antigen is presented by CD19-expressing B cells, which in turn activates T cells. Graphic C highlights the production of pro-inflammatory mediators, such as cytokines and chemokines, and the release of matrix metalloproteinases, or MMPs.

 

 

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In contrast, the expression of CD20, another cell surface molecule expressed on B cells, is lost as B cells differentiate into plasmablasts and plasma cells. As a result, existing therapies targeting CD20 do not directly target plasmablasts and plasma cells. The graphic below illustrates CD19’s broad expression as compared to CD20’s lack of expression as cells differentiate into plasmablasts and plasma cells.

 

Inebilizumab is a humanized, affinity-optimized, afucosylated immunoglobulin G1 kappa mAb that binds to CD19. The Fc portion of inebilizumab will recruit natural killer cells or macrophages, which deplete the CD19-expressing B cells through ADCC and ADCP. The depletion of CD19-expressing B cells may result in a reduction of autoantibodies, decreased antigen presentation and reduced pro- inflammatory mediators. In addition, the removal of fucose from the Fc results in approximately tenfold increased affinity to the Fc receptors and significantly enhances ADCC and ADCP. The antigen-binding properties of inebilizumab, including high affinity and slow internalization, are favorable for ADCC and ADCP-dependent mechanisms of action.

Background and Unmet Need

NMOSD

NMOSD is a unifying term for neuromyelitis optica, previously known as Devic’s disease, and related syndromes. NMOSD is a rare, severe, relapsing, neuroinflammatory autoimmune disease that attacks the optic nerve, spinal cord and brain stem, and often leads to irreversible blindness and paralysis. AQP4+ patients are thought to represent approximately 80% of the NMOSD patient population. These AQP4-IgG autoantibodies, produced by plasmablasts and plasma cells, bind primarily to astrocytes in the central nervous system. Binding of AQP4-IgG antibodies to central nervous system cells is believed to trigger attacks, which can damage the optic nerve, spinal cord and brain stem. Loss of vision, paralysis, loss of sensation, bladder and bowel dysfunction, nerve pain and respiratory failure can all be manifestations of the disease. Each NMOSD attack leads to further damage and disability. NMOSD occurs more commonly in women and it may be more common in individuals of African and Asian descent. Currently, patients are treated with immunosuppressants, steroids and off-label use of rituximab in an effort to prevent NMOSD attacks. Patients experiencing an attack are treated with steroids, intravenous immunoglobulin, or IVIG, and plasmapheresis. However, these treatments are known to cause adverse events that may lead to treatment discontinuation, and the benefits and risks of these off-label treatments in NMOSD remain uncertain. In June 2019, eculizumab from Alexion Pharmaceuticals, Inc. received FDA approval for the treatment of adults with NMOSD who are anti-AQP4 antibody positive.  In August 2020, satralizumab from Genentech, Inc. received FDA approval for the treatment of adults with NMOSD who are anti-AQP4 antibody positive.

We estimate the prevalence of NMOSD to be approximately 1 to 5 per 100,000 in the United States, with an estimated 10,000 patients suffering from NMOSD as of 2016. In Japan, the prevalence of NMOSD was approximately 4.1 per 100,000, and we estimate that there were 5,000 patients suffering from the disease as of 2017. In several European countries, the prevalence of NMOSD was estimated to range from less than 1 to 7 per 100,000, and we estimate a patient population of approximately 8,000 as of 2013.

Other Potential Diseases

We are also pursuing the following additional diseases associated with CD19-expressing B cells for potential treatment with inebilizumab:

Desensitization of highly sensitized candidates for kidney transplant. Patients with high levels of alloantibodies waiting for a kidney transplant have a lower chance of getting a matching organ and overall worse clinical outcomes following transplant. Approximately 6.5% of the estimated 95,000 patients on the waiting list for a kidney transplant in the United States are considered “sensitized” with a calculated panel-reactive antibodies score of 98% to 100%. We are exploring the potential of inebilizumab, used alone or in combination with VIB4920, to reduce levels of alloantibodies in kidney transplant candidates in a proof of concept study. In 2019, we initiated screening of patients for a Phase 2 trial.

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Myasthenia gravis. Myasthenia gravis is a neuromuscular disorder caused by autoantibodies against the acetylcholine receptor, muscle specific kinase or other acetylcholine receptor-related proteins in the post-synaptic muscle membrane. Its prevalence is estimated to be 20 per 100,000 in the United States, and based on this prevalence, we estimate the patient population to be approximately 56,000. The underlying pathogenesis has a high degree of similarity to NMOSD in that autoantibodies secreted by plasmablasts and/or plasma cells play a key role and are thought to be directly pathogenic. Patients with myasthenia gravis are currently managed with off-label immunosuppressants or steroids, or with one recently approved treatment. We initiated a Phase 3 trial of inebilizumab for myasthenia gravis in 2020

IgG4-related disease. This is a group of disorders marked by tumor-like swelling and fibrosis of affected organs, which may be caused by infiltration of CD19-expressing plasma cells that generate IgG4 antibodies. The clinical presentation is heterogeneous, and a variety of organs can be affected, including the pancreas, salivary glands, retroperitoneum and kidneys. Patients with this disorder have increased levels of IgG4, and IgG4 levels tend to correlate with disease activity. The prevalence is not well defined. A small trial of rituximab has suggested clinical benefits of B cell depletion in this disease. We are studying the potential of inebilizumab in the treatment of IgG4-related disease. We have initiated a Phase 3 trial for inebilizumab in IgG4-related diseases in 2020.

Clinical Development

In May 2019, we announced detailed results from the N-MOmentum trial, our pivotal clinical trial for inebilizumab and the largest controlled trial ever conducted in NMOSD. The N-MOmentum trial was a global, randomized, double-blind, placebo-controlled trial with an open-label extension period, evaluating the safety and efficacy of inebilizumab in adult patients with NMOSD. Key inclusion criteria were adult patients with NMOSD and an Expanded Disability Status Scale score of ≤7.5 (8.0 with medical monitor approval) having either a history of at least one NMOSD attack requiring rescue therapy during the past year, or at least two attacks requiring rescue therapy during the two years before screening. AQP4-IgG seropositive and seronegative, AQP4+ and AQP4- patients were eligible for inclusion, with stratification based on serostatus. Eligible patients were randomized in a 3:1 ratio to receive intravenous doses of inebilizumab 300 mg or placebo, respectively, administered on days 1 and 15. Patients received oral corticosteroid (prednisone 20 mg/day or equivalent) between days 1 and 14, tapered to day 21, to minimize risk of an attack while the pharmacological action of inebilizumab took effect. The randomized period for each patient was for a maximum of 197 days, or until occurrence of an adjudicated attack. The trial was designed to enroll patients until the earlier of the occurrence of 67 adjudicated NMOSD attacks or the randomization and dosing of 252 patients. Based on a recommendation of the Independent Data Monitoring Committee, or IDMC, for the trial, enrollment was stopped at 231 patients and 43 adjudicated NMOSD attacks. Based on the results observed, the IDMC determined that exposing patients to the risk of placebo was no longer justified. All patients continued in a safety follow-up period for 12 months after administration of their last dose of inebilizumab. Patients completing the randomized controlled period were given the option to enter into an open-label extension of the trial in which all patients received inebilizumab every six months. The open-label extension concluded in Q4 2020.

The primary endpoint was time from treatment initiation to occurrence of an NMOSD attack during the randomized controlled period. NMOSD attack diagnosis was standardized using 18 clinically meaningful criteria that were developed for the trial in consultation with the FDA and leading experts. Each attack was adjudicated by an independent blinded panel of experts in the treatment of NMOSD. The trial met the primary endpoint, with a statistically significant difference in the time to NMOSD attack in favor of inebilizumab over placebo. In the AQP4+ population, 11.2% (18/161) of the patients receiving inebilizumab had an attack, compared to 42.3% (22/52) of patients receiving placebo, representing a 77.3% risk reduction. In the intent-to-treat, or ITT, population which also included AQP4- patients, 12.1% (21/174) of the patients receiving inebilizumab had an attack, compared to 39.3% (22/56) of patients receiving placebo, representing a 72.8% risk reduction, as shown in the table below.

The trial enrolled a small number of AQP4- patients (n = 17), and very few attacks were observed in this population. As a result, no clear conclusions can be drawn with respect to the AQP4- population.

 

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The Kaplan-Mejer graphics below illustrate the probability of a patient being NMOSD attack-free during the course of the N-MOmentum randomized control period in AQP4-IgG seropositive patients and the ITT patient populations.

 

 

We also evaluated the following four secondary endpoints in the N-MOmentum randomized control period: worsening of the Expanded Disability Status Scale, or EDSS, score from baseline; change from baseline in low-contrast visual acuity binocular score (by low-contrast Landolt C Broken Ring Chart, or LCVNB); cumulative total number of new MRI lesions and the number of NMOSD-related inpatient hospitalizations (longer than an overnight stay). These endpoints were assessed at the last visit of each patient during the randomized controlled period. The trial met three of the four secondary endpoints with statistical significance, as illustrated in the table below.

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AQP4-IgG, aquaporin-4-immunoglobulin G; CI, confidence interval; EDSS, Expanded Disability Status Scale; ITT, intent-to-treat; LCVAB, low-contrast visual acuity binocular; LSM, least-squares mean; MRI, magnetic resonance imaging; OR, odds ratio; RR, rate ratio; SD, standard deviation; SE, standard error.

Compared to patients who received placebo, we observed that a significantly smaller proportion of patients experienced a worsening from baseline of their EDSS score when treated with inebilizumab. Of patients treated with inebilizumab, 15.5% (27/174) experienced a worsening from baseline of their EDSS score, compared to 33.9% (19/56) of patients who received placebo. We also observed a significant reduction in the number of NMOSD-related inpatient hospitalizations for patients treated with inebilizumab compared to patients who received placebo (p = 0.01; rate ratio 0.286). In addition, the cumulative new MRI lesion count was significantly lower in patients treated with inebilizumab (79/174) compared to patients who received placebo (32/56) (p = 0.0034; rate ratio 0.566). We did not observe a significant difference in the change from baseline in low-contrast visual acuity binocular score between the inebilizumab and placebo groups.

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Inebilizumab effectively depleted peripheral B cells within four weeks to below 10% of the average baseline in the N-MOmentum randomized control period, as illustrated below. The mean B cell count did not rise above this threshold throughout the 197-day randomized controlled period of the trial.

 

In September 2019, interim data from the ongoing open-label extension was presented at the Congress of the European Committee for Treatment and Research in Multiple Sclerosis (ECTRIMS). 216 patients entered the open-label extension of the N-MOmentum trial following the conclusion of the randomized-control period. The open-label extension completed in Q4 2020. The probability of a patient being NMOSD attack-free at one-year during the combined period of both the randomized control period and the open-label extension through the data cut-off of October 26, 2018 was 84.7% for patients treated with inebilizumab from the start of the trial and 50.1% for the patients who were treated with placebo during the randomized control period and switched to inebilizumab during the open-label extension.

Inebilizumab was generally well-tolerated in the randomized control period and the rates and types of treatment-emergent adverse events, or TEAEs, reported in patients receiving inebilizumab were broadly similar to TEAEs reported by patients receiving placebo, as illustrated below. Adverse events were reported in 71.8% (125/174) of the patients receiving inebilizumab and in 73.2% (41/56) of the patients receiving placebo in the randomized control period. Urinary tract infection, arthralgia, back pain, headache, fall, hypoesthesia, cystitis and eye pain were nominally more frequent in patients receiving inebilizumab. The incidence of serious adverse events, or SAEs, was 4.6% in patients receiving inebilizumab and 8.9% in patients receiving placebo during the randomized control period. No specific SAEs were reported in more than one patient and no deaths occurred throughout the randomized controlled period. Two deaths have been reported in the ongoing open-label period. One death occurred in a patient experiencing a myelitis attack and was considered unrelated to inebilizumab by the investigator. The second death was due to complications from mechanical ventilator-associated pneumonia in a patient who developed new neurological symptoms and seizures, the cause of which could not be definitively established. The possibility that the death was treatment-related could not be ruled out, and as a result, under the terms of the protocol for the trial, the death was assessed as treatment-related. The differential diagnosis

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of observed neurological symptoms and MRI lesions included atypical NMOSD attack, progressive multifocal leukoencephalopathy and acute disseminated encephalomyelitis.

 

 

The open-label phase of the N-MOmentum is designed to evaluate the longer-term efficacy and safety of inebilizumab. In the interim open-label extension safety data presented in September 2019, with a safety data cut-off of June 6, 2019, inebilizumab remained generally well-tolerated with the types of TEAEs consistent with that observed during the randomized control period. For patients who received at least one dose of inebilizumab during the combined period of both the randomized control period and the open-label extension through June 6, 2019, the incidence of SAEs after receiving inebilizumab was 16.0%. As discussed above, two deaths have been reported in the open-label period. As of June 6, 2019, adverse events occurring in greater than 10% of patients who received at least one dose of inebilizumab during the combined period of both the randomized control period and the open-label extension were UTI (22.2%), nasopharyngitis (16.4%), back pain (12.4%), infusion related reaction, or IRR (12.4%), arthralgia (11.6%) and headache (11.1%) after receiving inebilizumab.

Based on the positive results of the N-MOmentum trial, we submitted a BLA to the FDA in June 2019, which the FDA accepted for review in August 2019. On June 11, 2020, the FDA approved Uplizna® (inebilizumab-cdon) for the treatment of adult patients with NMOSD who are anti-AQP4 antibody positive as a twice-a-year maintenance regimen following initial doses. We commercially launched Uplizna® following FDA approval in June 2020.

In the interim open-label extension data presented in July 2020 to support Japan PMDA submission, with a data cut-off of February 28, 2020, inebilizumab remained generally well-tolerated with the types of TEAEs consistent with that observed during the randomized control period. For patients who received at least one dose of inebilizumab during the combined period of both the randomized control period and the open-label extension through February 28, 2020, the incidence of SAEs after receiving inebilizumab was 19.6%. As discussed above, two deaths have been reported in the open-label period. As of February 28, 2020, adverse events occurring in greater than 10% of patients who received at least one dose of inebilizumab during the combined period of both the randomized control period and the open-label extension were UTI (25.8%), nasopharyngitis (19.6%), arthralgia (14.7%), upper respiratory tract infection (14.2%) and headache (14.2%), back pain (13.3%), and infusion related reaction, or IRR (12.4%) after receiving inebilizumab.

VIB4920

VIB4920 is a fusion protein designed to bind to CD40L on activated T cells, blocking CD40L from interacting with CD40-expressing B cells and other binding partners. This is intended to prevent B cells from differentiating into plasma cells and memory B cells. Blocking CD40L can also inhibit stimulation of dendritic cells and monocytes by T cells, which reduces production of pro-inflammatory mediators. We believe that these combined effects produce powerful immunomodulation targeting of both T and B cell driven diseases.

Two Phase 1 clinical trials of VIB4920 have been completed to date: a Phase 1a single-ascending dose trial in healthy volunteers and a Phase 1b multiple-ascending dose trial in patients with rheumatoid arthritis, a disease with well understood clinical endpoints enabling proof of clinical activity in a relatively small clinical trial. In both trials, VIB4920 was generally well-tolerated, with no evidence of platelet aggregation that can lead to thromboembolic side effects observed with an earlier generation CD40L mAb. In the Phase 1b trial, VIB4920 decreased disease activity in patients with active rheumatoid arthritis, and the majority of patients achieved low level disease activity or remission at the two highest dose

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levels. We believe that the dose-dependent reduction in autoantibody levels coupled with the clinical activity observed in rheumatoid arthritis suggest that VIB4920 effectively blocks the CD40/CD40L interaction. A Phase 2b trial in Sjögren’s syndrome, which is designed as Phase 3-enabling, is ongoing and in 2019, we initiated a separate Phase 2 trial in kidney transplant rejection. Both of these diseases are associated with the CD40/CD40L co-stimulatory pathway. Furthermore, a Phase 2 trial of VIB4920 in rheumatoid arthritis is ongoing.

 

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Mechanism of Action

The CD40/CD40L interaction plays a critical role in driving humoral immune responses and has been implicated in the pathogenesis of several autoimmune diseases, including Sjögren’s syndrome, as well as other conditions such as kidney transplant rejection. CD40 is constitutively expressed on a variety of antigen presenting cells, including B cells, dendritic cells and macrophages. CD40L is highly regulated and predominately expressed on activated T cells. CD40/CD40L interactions between B cells and activated T cells are essential for mounting effective humoral responses to T cell dependent antigens. The binding of VIB4920 to both soluble CD40L and CD40L expressed on the surface of activated T cells is intended to block CD40L from interacting with CD40-expressing B cells and other binding partners, preventing B cells from differentiating into plasma cells and memory B cells. Each of the graphics below illustrates different elements of the CD40/CD40L co-stimulatory pathway that VIB4920 is designed to inhibit. CD40 signaling is required for germinal center formation, somatic hypermutation and the generation of memory B cells and long-lived plasma cells, as illustrated in graphic A below. Engagement of CD40 on macrophages and dendritic cells leads to activation of these cells with ensuing production of pro-inflammatory mediators, including cytokines, chemokines and MMPs, and upregulation of other co-stimulatory pathways, as illustrated in graphics B and C below.

 

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The potential benefits of targeting the CD40L/CD40 interaction in autoimmune diseases such as lupus nephritis and ITP have been suggested by previous clinical trials conducted by other companies using full antibodies directed at CD40L. However, the earlier generation CD40L mAb caused adverse thromboembolic side effects related to platelet aggregation due to crosslinking of anti-CD40L antibodies co-bound to platelet CD40L and FcgRIIa on adjacent platelets. To avoid complications associated with mAb-based targeting of CD40L, VIB4920 was designed as a novel CD40L binding protein comprised of two Tn3 proteins fused to human serum albumin. Tn3 is a small protein scaffold that does not possess an Fc domain and therefore is unlikely to induce adverse platelet responses.

Background and Unmet Medical Need for Sjögren’s Syndrome and Kidney Transplant Rejection

We are initially developing VIB4920 in parallel in two diseases: Sjögren’s syndrome and kidney transplant rejection. Sjögren’s syndrome is a chronic, systemic autoimmune disease characterized by lymphocytic infiltration of the exocrine glands such as the lacrimal and salivary glands. The disease frequently leads to keratoconjunctivitis sicca (dry eye) and xerostomia (dry mouth). Sjögren’s syndrome may occur with other autoimmune diseases, such as SLE or rheumatoid arthritis. Sjögren’s syndrome is estimated to affect 0.5% to 1.0% of the population, with an estimated one million people in the United States suffering from Sjögren’s syndrome. No treatments have been shown to alter the course of this disease. Supportive treatment is aimed at relieving dry mouth/dry eye symptoms.

Current regimens used to prevent rejection following kidney transplant commonly rely on a combination of CD28/B7 pathway blockade with belatacept and calcineurin inhibitors. While generally effective, these regimens are associated with slow deterioration of kidney function as a result of calcineurin inhibitor toxicity. Literature and data from animal models support the hypothesis that blockage of the CD40/CD40L pathway may be effective in the prevention of transplant rejection. We plan to conduct a proof of concept study to test the hypothesis that VIB4920, when combined with belatacept, will result in similar or reduced rates of kidney transplant rejection in comparison to current calcineurin based regimens while avoiding the renal toxicity associated with calineurin inhibitors.

Clinical Development

We initiated a Phase 2 trial in kidney transplant rejection in 2019 and a separate Phase 2b trial in Sjögren’s syndrome is ongoing, the latter of which is designed to be Phase 3-enabling. Both of these conditions are associated with immune overactivation through the CD40/CD40L co-stimulatory pathway. Furthermore, a Phase 2 trial of VIB4920 in rheumatoid arthritis is ongoing.

Phase 1b Trial

In August 2018, we completed a Phase 1b, randomized, double-blinded, placebo-controlled trial conducted in patients with rheumatoid arthritis, a disease with well understood clinical endpoints enabling proof of clinical activity in a relatively small clinical trial. Fifty-seven patients enrolled in the trial and were randomized into four sequential VIB4920 dose cohorts, with doses ranging from 75 mg to 1500 mg, or treated with placebo, given by intravenous infusion every other week for 12 weeks, followed by 12 weeks of post-treatment observation. All patients received a systemic immunosuppressant, methotrexate, or a disease-modifying antirheumatic drug as background therapy.

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The primary endpoint of the Phase 1b trial was the safety and tolerability of VIB4920. Consistent with the Phase 1a trial, VIB4920 was generally well-tolerated in patients with rheumatoid arthritis, with diarrhea, hyperhidrosis, upper respiratory tract infection and urinary tract infection being the most common TEAEs reported. We observed a balanced distribution of TEAEs between placebo and the four treatment groups, as shown in the table below. No thromboembolic events or clinically significant coagulation lab abnormalities were observed. One life-threatening treatment-emergent serious adverse event occurred, which was determined to be unrelated to VIB4920.

 

 

In addition to safety and tolerability, clinical benefit with VIB4920 in patients with rheumatoid arthritis was also evaluated. Key secondary and exploratory endpoints in the multiple ascending dose study in rheumatoid arthritis measured at week 12 included change in disease activity, as measured by changes from baseline in DAS28-CRP score, as well as biomarkers such as rheumatoid factor, or RF, autoantibodies, serum C-reactive protein, or CRP, and Vectra-DA score.

DAS28-CRP is a composite clinical disease activity scale used in assessing the disease activity score of rheumatoid arthritis which takes into account the number of swollen and tender joints, CRP levels and a patient global health assessment. In this trial, VIB4920 reduced disease activity quantified by DAS28-CRP score at the two highest doses, as shown in the graphic below. At week 12, the adjusted mean change from baseline of DAS28-CRP (standard error) was: -2.3 (0.3) in the VIB4920 1500 mg group, -2.2 (0.3) in the VIB4920 1000 mg group, -1.2 (0.3) in the VIB4920 500 mg group, 0.1 (0.4) in the VIB4920 75 mg group and -1.0 (0.3) in the placebo group. The effect of VIB4920 on DAS28-CRP was rapid, with reductions evident by day 15, after only a single dose of VIB4920. The reduction of disease activity as compared with placebo was both clinically and statistically meaningful in the groups receiving the highest two doses of VIB4920. Seventy-five percent of patients in the 1500 mg group and 50% of patients in the 1000 mg group achieved a DAS28-CRP score of 3.2 or less at week 12 indicating they achieved low disease activity or clinical remission in the trial, compared to 6.7% of the patients who received placebo.

 

RFs are a family of autoantibodies produced against the Fc portion of IgG which are elevated in rheumatoid arthritis and are associated with poor prognosis. VIB4920 reduced RF titers at the 500, 1000 and 1500 mg dose levels. Reductions in RF titers from baseline were evident in response to VIB4920 as early as day 29, with the 1500 mg dose reducing RF titers by approximately 50% by day 85.

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Vectra DA is a commercially available and validated biomarker panel which measures 12 biomarkers (adhesion molecules, growth factors, cytokines, matrix metalloproteinases, skeletal proteins, hormones, and acute phase proteins) and combines these parameters into a single score to assess the key mechanisms and pathways that drive rheumatoid arthritis disease activity. At day 85, Vectra DA multi-biomarker score was reduced in patients at the 1000 and 1500 mg VIB4920 dose levels (p = 0.018 and p = 0.001, respectively). The results of this clinical trial were published in a featured cover article in Science Translational Medicine.

In summary, VIB4920 decreased disease activity in patients with active rheumatoid arthritis, with at least 50% and 75% of patients, respectively, achieving low disease activity or clinical remission in the two highest dose groups at Day 85. We believe that the observed dose-dependent decrease in autoantibody levels, together with the inhibition of T cell dependent antibody responses in healthy volunteers, as reported in our Phase 1a trial of VIB4920, suggests that VIB4920 may effectively block the CD40/CD40L interaction.

Phase 1a Trial

In May 2016, a Phase 1a, randomized, double-blinded, placebo-controlled, single-ascending dose trial was completed to evaluate the safety and tolerability of VIB4920 in healthy adults. Fifty-nine patients enrolled in the trial and were randomized into seven active treatment cohorts, with doses ranging from 3 mg to 3000 mg, or treated with placebo. The primary endpoint of the Phase 1a trial was to measure the incidence of TEAEs and TESAEs. VIB4920 was generally well-tolerated, with the most common TEAEs being nasopharyngitis, headache and diarrhea, and no TESAEs were observed.

VIB4920 also demonstrated dose-dependent inhibition of T cell dependent antibody responses. In order to evaluate the ability of VIB4920 to influence humoral immune responses in healthy patients, the Phase 1a trial measured inhibition of an induced T cell dependent IgG antibody response to the neoantigen keyhole limpet hemocyanin, or KLH. We observed a 78% and 86% reduction in anti-KLH IgG antibody concentration in the VIB4920 1000 mg and 3000 mg cohorts, respectively, compared to placebo at day 43. In the highest VIB4920 dose group, 7 of 8 patients had undetectable titers of anti-KLH-IgG at day 43, suggesting near complete suppression of the humoral immune response by VIB4920. These data highlight the mechanism of action of VIB4920 and demonstrate its potential to suppress B cell activation and plasma cell differentiation.

VIB7734

VIB7734 is a humanized mAb intended to be a novel treatment for autoimmune diseases where the pathology is driven principally by overproduction of type I interferons and other cytokines secreted by pDCs. VIB7734 is designed to target and bind to ILT7, a cell surface molecule specific to pDCs, leading to pDC depletion. pDCs generate the majority of type I interferons in pathological states. The depletion of pDCs may also decrease other inflammatory cytokines such as TNF-a and IL-6, which are critical to the pathogenesis of a number of autoimmune diseases. We have completed a Phase 1a single-ascending dose trial in patients with any one of the following six different autoimmune diseases: CLE, SLE, Sjögren’s syndrome, systemic sclerosis, polymyositis and dermatomyositis. The Phase 1a trial demonstrated that VIB7734 was generally well-tolerated and reduced pDC numbers in peripheral blood. In November 2020, we reported the final data from our Phase 1b trial with VIB7734 in an oral presentation at the American College of Rheumatology Convergence 2020. In this trial, treatment with VIB7734 was shown to potently deplete pDCs, both in blood and in CLE skin lesions. Most patients experienced a clinically significant reduction in the extent and severity of skin lesions, as measured by CLASI scores, following treatment with VIB7734. Rates of adverse events were similar between VIB7734 and placebo groups. Based on results from the Phase 1b study, we have selected SLE as the lead indication of a planned Phase 2 trial, anticipated to initiate in the first half of 2021. Furthermore, we initiated patient screening for Phase 1 trial with VIB7734, which has demonstrated an ability to regulate key inflammatory mediators, in patients with COVID-19-related acute lung injury. This Phase 1 trial is on-going and results from this study are anticipated in the first half of 2021.

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Mechanism of Action

In certain autoimmune diseases, once pDCs are activated, they secrete large amounts of cytokines, including type I interferons, as illustrated in graphic A below. pDC infiltration and the resulting accumulation in tissues has been observed in a number of autoimmune diseases and appears to correlate with disease activity. Additionally, pDCs are involved in antigen presentation to T cells leading to the activation of autoreactive T cells, as illustrated in graphic B below. VIB7734 is a human IgG1 lambda afucosylated mAb specific for ILT7, a cell surface molecule expressed only on pDCs. VIB7734 binds to ILT7 on the surface of pDCs, which leads to recruitment of macrophages and natural killer cells, thus inducing apoptosis and depletion of pDCs in vivo. The afucosylation of VIB7734 is designed to enhance the potency of VIB7734 for antibody-dependent cell-mediated cytotoxicity against pDCs. We believe that depletion of pDCs will not only reduce type I interferons, but also other types of cytokines and mediators involved in a number of autoimmune diseases. Each of the graphics below illustrates different elements of the function of pDCs that VIB7734 is designed to deplete, with graphic A showing the production of pro-inflammatory cytokines and graphic B highlighting the antigen presenting process by pDCs to T cells.

 

Background and Market Opportunity in Selected Autoimmune Diseases

VIB7734 has potential utility across multiple autoimmune diseases that are characterized by elevated type I interferon signatures. These include CLE, SLE, Sjögren’s syndrome, systemic sclerosis, polymyositis, dermatomyositis and a subset of rheumatoid arthritis. The majority of these conditions can lead to significant morbidity and currently have no approved treatments.

Overexpression of type I interferons is consistently found in the majority of patients with SLE, a systemic autoimmune disease that is characterized by the presence of a variety of autoantibodies and can involve multiple organs, including the skin, joints, kidneys and central nervous system. The estimated number of people suffering from SLE in the United States was approximately 161,000 to 322,000 in 2011. Based on this, we estimate the prevalence of SLE in the United States to range between 49 to 100 per 100,000 individuals. Treatment of SLE still largely relies on corticosteroids and non-specific immunosuppressive drugs.

Infiltration of inflamed muscle tissue and overexpression of type I interferons have also been found in inflammatory myopathies, a group of conditions associated with inflammation of the muscles with resulting muscle weakness. We estimate that a subset of this group of myopathies, polymyositis and dermatomyositis, has a prevalence of approximately 5 to 22 per 100,000 individuals in the United States, and based on this prevalence, we estimate the patient population to be approximately 16,000 to 70,000. Treatment of inflammatory myopathies typically involves corticosteroids and nonspecific immunosuppressive drugs.

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Systemic sclerosis is a chronic autoimmune disease associated with thickening and fibrosis of the skin, frequently also involving other organ systems such as the lungs, heart and kidneys. The prevalence of systemic sclerosis is estimated to be between 13.5 and 44.3 per 100,000 individuals in Europe and North America, and based on this prevalence, we estimate the patient population to be approximately 300,000. No treatments that alter the course of this disease are currently available, and patients are managed with supportive treatment for the various organ manifestations of this disease.

Sjögren’s syndrome is an autoimmune condition involving inflammation and destruction of the salivary and lacrimal glands. Other organs such as joints, lungs and kidneys may be involved as well. Sjögren’s syndrome is estimated to have affected between 53,000 and 248,000 people in the United States in 2017. No treatments have been shown to alter the course of this disease.

Rheumatoid arthritis is a chronic autoimmune disease involving progressive inflammation and destruction of the joints. A subset of approximately 33% of patients with rheumatoid arthritis has been shown to have elevated expression of interferon regulated genes. This subgroup also appears to have a poorer response to rituximab treatment.

Clinical Development

Ongoing Phase 1b Trial

In December 2018, we initiated a multiple ascending dose Phase 1b trial to evaluate the safety and tolerability of multiple subcutaneous doses of VIB7734 in a cohort of patients with any one of the following six different autoimmune diseases: CLE, SLE, Sjögren’s syndrome, systemic sclerosis, polymyositis and dermatomyositis. In May 2020, we announced positive interim results from our Phase 1b trial of VIB7734 in patients with CLE. This Phase 1b clinical trial enrolled a total of 31 patients in three cohorts of patients and is designed to evaluate the safety and tolerability of VIB7734 when given by three monthly subcutaneous doses at escalating dose levels. Cohort 1 enrolled patients with several autoimmune diseases thought to be driven by plasmacytoid dendritic cell, or pDCs. Cohorts 2 and 3 enrolled patients with CLE. In cohorts 2 and 3, skin biopsies were taken before and after treatment to enumerate pDCs and measure interferon mediated gene expression. A clinical disease activity score was also periodically measured in cohorts 2 and 3. The primary endpoint was safety and tolerability. Additional endpoints included pDC depletion in peripheral blood and skin lesions of patients with CLE, and CLASI scores. Interim results included safety data from cohorts 1, 2 and a subset of patients in cohort 3, pharmacodynamics results from cohort 2, and CLASI results from cohort 2 and a subset of patients in cohort 3. In November 2020, we reported the final data from our Phase 1b trial with VIB7734 in an oral presentation at the American College of Rheumatology Convergence 2020. In this trial, treatment with VIB7734 was shown to potently deplete plasma dendritic cell (pDCs), both in blood and in cutaneous lupus erythematosus (CLE) skin lesions. Most patients experienced a clinically significant reduction in the extent and severity of skin lesions following treatment with VIB7734. Rates of adverse events were similar between VIB7734 and placebo groups. Based on results from the Phase1b study, we have selected systemic lupus erythematosus (SLE) as the lead indication of a planned Phase 2 trial, anticipated to initiate in the first half of 2021.

Phase 1a Trial

In a completed Phase 1a trial, the safety, PK, pharmacodynamics, or PD, and immunogenicity of single subcutaneous doses of VIB7734 were evaluated in patients with any one of the following six different autoimmune diseases: CLE, SLE, Sjögren’s syndrome, systemic sclerosis, polymyositis and dermatomyositis. A total of 36 patients were enrolled and randomized across five cohorts to receive a single subcutaneous dose of VIB7734 or matching placebo, of which ten patients received placebo treatment.

VIB7734 was generally well-tolerated. Sixty-nine percent (18/26) of the patients treated with VIB7734 experienced at least one TEAE, with a majority of such TEAEs characterized as non-serious and deemed not related to VIB7734. The most frequent TEAEs in the patients treated with VIB7734 were infections, musculoskeletal and connective tissue disorders, and gastrointestinal disorders. No VIB7734-related TESAEs were observed. The rates and types of TEAEs reported in patients receiving VIB7734 were broadly similar to TEAEs reported by patients receiving placebo.

After a single subcutaneous injection, drug exposure and pDC levels were measured periodically during the 85-day follow-up period. VIB7734 peak concentrations were observed 5 to 8 days post dose and levels increased in a dose-dependent manner. Increasing doses were associated with a non-linear reduction in pDCs. Median reduction of pDC levels by 57% was seen at the lowest dose of 1 mg, with median reductions of 90% observed in higher doses. Time to recovery of pDC levels appeared to be dose dependent.

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Pre-clinical Programs

We are also conducting pre-clinical research and development on two other product candidates. The first candidate, VIB1116, is a mAb designed to decrease the number and function of antigen-presenting dendritic cells. We completed pre-clinical toxicology studies and submitted an IND application in Q4 2020. The second candidate is a mAb cytokine fusion protein designed to inhibit inflammatory responses. We are currently conducting pre-clinical efficacy studies of this candidate in animal models.

Licenses and Strategic Agreements

Asset Purchase Agreement with MedImmune

In February 2018, we entered into an asset purchase agreement, or the APA, with MedImmune pursuant to which we acquired from MedImmune, among other things, the intellectual property and the biological, regulatory and other materials associated with a portfolio of clinical and pre-clinical biological molecules for a purchase price of approximately $142.3 million. The APA provided for the assignment to us of certain license and other contractual rights from various third parties and for our entrance into certain service and supply agreements with AstraZeneca and MedImmune, in each case on an arms-length basis, in order to ensure our ability to use the acquired molecules in our business as a biotechnology company focused on autoimmune disease. Furthermore, we may be required to make milestone payments to MedImmune, or to third parties upon MedImmune’s instruction, of up to an aggregate of approximately $119 million related to the initiation and execution of clinical trials, submission and approval of regulatory drug applications, and sales milestones, of which approximately $44 million remains payable upon the achievement of such milestones for inebilizumab.

MedImmune License Agreement

In connection with the asset acquisition pursuant to the APA, in February 2018 we entered into a license agreement with MedImmune. Pursuant to the agreement, MedImmune granted us an exclusive, worldwide, royalty-free license to use protein scaffolds and methods for purifying albumin-fusion proteins covered by certain patent rights owned by MedImmune in order to exploit products aimed at treating inflammation and autoimmune disorders.

Pursuant to the agreement, we may grant sublicenses to affiliates and certain third parties, provided that all sublicensees are required to comply with the terms and conditions of the agreement. In addition, we will be liable for any acts and omissions of a sublicensee, including in respect of any third party claim made against MedImmune or any of its affiliates resulting from such acts or omissions.

MedImmune has the right to prepare, file, prosecute and maintain certain patents, including directing any related interference, re-issuance, re-examination and opposition proceedings. If MedImmune decides not to prepare, file, prosecute or maintain certain patents, MedImmune has agreed to provide us with written notice of such decision at least 90 days prior to any applicable filing deadline. Thereafter, we will have the right, but not the obligation to assume the control and direction of the preparation, filing, prosecution and maintenance of certain patents at our sole cost and expense. MedImmune also has the first right, but not the obligation, to enforce the licensed patents.

The term of the agreement expires upon the expiration, revocation, invalidation or abandonment of the last patent or patent application within the licensed patents. Either we or MedImmune can terminate the agreement in the event of an uncured material breach by the other party or in the event of the other party’s bankruptcy or insolvency. MedImmune may immediately terminate the agreement with respect to any patent within the licensed intellectual property immediately upon written notice to us if we or our affiliates or our sublicensees knowingly assist any third party in opposing the grant of such patent or assist any third party in disputing the validity or enforceability of such patent. We may also terminate the agreement in its entirety or with respect to any particular product for any reason upon 60 days’ prior written notice to MedImmune. The rights and obligations of the parties that survive termination of the agreement vary depending on the basis for the termination.

Clinical Supply Agreement with AstraZeneca UK Limited

In February 2018, and in connection with the APA, we entered into a clinical supply agreement with AstraZeneca for the manufacture and supply of products by AstraZeneca for our clinical use and the performance by AstraZeneca of certain services, including shipping, distribution and regulatory support. Pursuant to the agreement, we will purchase and AstraZeneca will supply product containing inebilizumab as its active ingredient for clinical purposes.

The term of the agreement expires on February 23, 2023 unless terminated earlier in accordance with the agreement. Either we or AstraZeneca can terminate the agreement upon 60 days’ prior written notice to the breaching

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party in the event either party breaches, and does not cure such breach during a specified period, any of its material obligations under the agreement or immediately upon written notice to the other party if a specified bankruptcy-related event with regard to the other party occurs. AstraZeneca may terminate the agreement at any time after February 23, 2019 upon 30 months’ prior written notice to us. In addition, we may terminate the agreement upon 30 days’ prior written notice to AstraZeneca upon receiving a remediation plan from AstraZeneca, which if implemented, will not enable AstraZeneca to fulfill its delivery obligations under the agreement within twelve months of a force majeure event.

Commercial Supply Agreement with AstraZeneca UK Limited

In April 2019, and in connection with the APA, we entered into a commercial supply agreement with AstraZeneca for the manufacture and supply of products by AstraZeneca for our commercial supply use and the performance by AstraZeneca of certain services, including shipping, distribution and regulatory support. The agreement provides for the manufacture and supply for inebilizumab concentrates. Under the agreement, we will provide a forecast of orders for the quantities of bulk inebilizumab concentrates we believe we will require, and forecasted quantities will become binding at a certain point before the firm delivery date set forth in the forecast. We also have the right to request that AstraZeneca transfer manufacturing to a mutually agreed upon third party, subject to certain restrictions on technology transfer from third party licensors, in certain limited situations where AstraZeneca is unable or unwilling to supply inebilizumab in sufficient quantities to meet our orders. The agreement contains provisions relating to compliance by AstraZeneca with cGMP, indemnification, confidentiality, regulatory matters, dispute resolution, intellectual property and other customary matters for an agreement of this kind.

The term of the agreement expires on April 4, 2029, with automatic renewal for successive three-year terms, unless terminated earlier in accordance with the agreement. Either we or AstraZeneca can terminate the agreement upon 60 days’ prior written notice to the breaching party in the event either party breaches, and does not cure such breach during a specified period, any of its material obligations under the agreement or immediately in the event of the other party’s bankruptcy or insolvency. Either we or AstraZeneca may terminate the agreement at any time upon thirty six months’ prior written notice. In addition, we may terminate the agreement upon 30 days’ prior written notice to AstraZeneca upon receiving a remediation plan from AstraZeneca, which if implemented, will not enable AstraZeneca to fulfill its delivery obligations under the agreement within twelve months of a force majeure event.

Master Supply and Development Services Agreement with AstraZeneca UK Limited

In February 2018, and in connection with the APA, we entered into a master supply and development services agreement with AstraZeneca, or the MSDSA, pursuant to which AstraZeneca agreed to provide development services and supply clinical product for certain programs, including VIB7734. Our engagement with AstraZeneca under the MSDSA and any related product schedules are on a non-exclusive basis. We have the right, at our sole discretion, to engage other providers for VIB7734 development services and supply, subject to restrictions on the transfer of certain AstraZeneca manufacturing technology. Under the MSDSA, we have entered into a product schedule for AstraZeneca to provide clinical supply of VIB7734 and to develop a transferrable manufacturing process. The MSDSA contains provisions relating to compliance by AstraZeneca with cGMP, indemnification, confidentiality, regulatory matters, dispute resolution, intellectual property and other customary matters for an agreement of this kind.

The term of the MSDSA expires on February 23, 2028. Either we or AstraZeneca can terminate the agreement immediately if there are no product schedules in force for a continuous period of at least twelve months. We may terminate the agreement at any time upon six months’ prior written notice to AstraZeneca. Either we or AstraZeneca can terminate the agreement upon 60 days’ prior written notice to the breaching party in the event either party breaches any of its material obligations under the agreement or immediately in the event of the other party’s bankruptcy or insolvency.

Transition Services Agreement with MedImmune

In February 2018 and in connection with the APA, we entered into a transition services agreement with MedImmune, pursuant to which MedImmune has agreed to provide transitional services related to our use and operation of the acquired assets, including, but not limited to, financial services, procurement activities, information technology services, clinical data management and statistical programming, clinical operations and development and commercial activities. Pursuant to the agreement, we granted MedImmune a non-exclusive, royalty-free, non-transferable license and right of reference, with the right to grant further licenses and rights of reference to affiliates and subcontractors performing services under the agreement. The license and right of reference are to certain regulatory materials and all intellectual property rights owned or controlled by us that are necessary to perform the agreed upon services.

The term of the agreement expires upon the expiration of the last service period, unless terminated earlier in accordance with the agreement. We may terminate the agreement in its entirety or with respect to all or any services, at

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any time, upon 30 days’ prior written notice to MedImmune. Either we or MedImmune can terminate the agreement upon 30 days’ prior written notice to the breaching party in the event of an uncured breach and immediately if a specified bankruptcy-related event with regard to the other party occurs. In the event that a delay in connection with a force majeure event continues for a period of at least 30 days, the party affected by the other party’s delay may elect to (a) suspend performance and extend the time for performance for the duration of the force majeure event or (b) terminate the agreement without any liability to either party arising out of such termination.

Hansoh License and Collaboration Agreement

In May 2019, we entered into a license and collaboration agreement with Hansoh Pharma, for co-development and commercialization of inebilizumab in China, Hong Kong, and Macau for NMOSD as well as other potential inflammation/autoimmune and hematologic malignancy diseases. Under the terms of the agreement, we received up-front licensing fees of an aggregate of $20 million in 2019 and may receive payments contingent on certain development, regulatory and commercial milestones, for up to an aggregate of $203 million, plus royalties on net sales ranging from low double-digits to high teens.

Pursuant to the agreement, we granted Hansoh Pharma an exclusive, royalty-bearing, license to import, sell, have sold, offer for sale, and otherwise commercialize inebilizumab in China, Hong Kong, and Macau, as covered by our patent rights. We also granted Hansoh Pharma an exclusive license with us to co-develop inebilizumab in additional diseases in China, Hong Kong and Macau. Hansoh Pharma will be responsible for leading development and commercialization of inebilizumab in China, Hong Kong and Macau. We will be responsible for supplying inebilizumab to Hansoh Pharma pursuant to a supply agreement that we expect to enter into.

The agreement continues until terminated by Hansoh Pharma or by us. Hansoh Pharma may terminate the agreement at any time upon 120 days’ notice to us. Either we or Hansoh Pharma can terminate the agreement in its entirety, or on a region-by-region or product-by-product basis, if the other party is in material breach that is uncured after 60 days from written notice. Either we or Hansoh Pharma can terminate the agreement upon bankruptcy or insolvency of the other party, except for a dissolution for the purposes of reorganization, and the other party is unable to fulfill its obligations under the agreement. Upon termination, all rights and licenses granted to Hansoh Pharma terminate and all rights revert back to us.

MTPC Agreement

On October 8, 2019, we entered into a license agreement, or the MTPC License Agreement, with Mitsubishi Tanabe Pharma Corporation, or MTPC, for co-development and commercialization of inebilizumab in Japan, Thailand, South Korea, Indonesia, Vietnam, Malaysia, Philippines, Singapore, and Taiwan, or the Territory, for NMOSD as well as other indications that we and MTPC mutually agree to add to the MTPC License Agreement. Under the terms of the MTPC License Agreement, we received an up-front licensing fee of $30 million and are eligible to receive development and commercialization milestones and payments based, in part, on sales revenue.

Pursuant to the MTPC License Agreement, we granted MTPC an (i) exclusive license under our intellectual property to develop, commercialize, and conduct final manufacturing of inebilizumab in the Territory, and (ii) a non-exclusive license under any patent we control solely to the extent useful or necessary to enable MTPC to develop, commercialize and finally manufacture products in the Territory, but excluding rights to any active pharmaceutical ingredient or compound other than inebilizumab. MTPC will be responsible for leading development, commercialization, and final manufacturing of inebilizumab in the Territory. We will be responsible for supplying inebilizumab to MTPC pursuant to a supply agreement that we entered into with MTPC, dated October 8, 2019 (the “Supply Agreement”). Pursuant to the Supply Agreement, among other things, we will supply products for MTPC’s commercial and clinical use.  Under the Supply Agreement, MTPC provides a forecast of its requirements for product. Payment is based on the forecasted requirements and becomes due following delivery of product and invoicing by us. On a country-by-country and product-by-product basis, the licenses will become perpetual, non-exclusive and fully paid-up upon the later of (a) the expiration of the last valid claim of our patent covering the product; (b) the expiration of any regulatory exclusivity with respect to the product; or (c) 10 years after the first commercial sale of the product in such country.

The MTPC License Agreement continues for so long as MTPC is developing or commercializing inebilizumab in the Territory, unless terminated by MTPC or by us. MTPC may terminate the MTPC License Agreement at any time upon 180 days’ notice to us. We may terminate the MTPC License Agreement upon the occurrence of certain adverse events that are not cured by MTPC within the specified cure periods. Either party may terminate the MTPC License Agreement under specified circumstances relating to the other party’s insolvency.

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Duke License Agreement

In September 2004, Cellective Therapeutics, Inc., or Cellective, entered into a license agreement with Duke University, or the Duke License Agreement. In September 2015, Cellective was acquired by MedImmune. In February 2018, MedImmune assigned the Duke License Agreement to us.

Pursuant to the Duke License Agreement, we have an exclusive, world-wide license to make, use, manufacture, market, sell, and generally commercialize certain antibodies, including anti-CD19 antibodies, anti-CD22 antibodies, anti-CD20 antibodies, and MS4a gene products, covered by certain patent rights owned by Duke University. The rights licensed to us are for all fields of use. We have the right to sublicense these rights under certain conditions. Duke University retains the right to use the rights for non-commercial, academic research, teaching, clinical, and educational purposes.

Under the terms of the Duke License Agreement, we may be required to pay Duke University low single-digit royalties on net sales of products, including inebilizumab, by us or by our sublicensees that contain or incorporate, or are covered by, certain of the intellectual property licensed pursuant to the Duke License Agreement. Duke University may also be entitled to milestone payments of up to an aggregate of approximately $1 million, of which $212,500 are related to the initiation and execution of clinical trials and submission and approval of regulatory drug applications related to anti-CD19 antibodies. As of December 31, 2020, approximately $25,000 remains payable upon the achievement of such milestones. Pursuant to the Duke License Agreement, and subject to certain exceptions, we are required to indemnify Duke University against all third party claims related to or arising out of the Duke License Agreement. We are required to use commercially reasonable efforts to bring licensed products to market and to meet certain performance milestones.

Unless earlier terminated in accordance with the agreement, the Duke License Agreement will continue on a country-by-country basis for the life of the last-to-expire licensed patent. We may terminate the Duke License Agreement at any time upon at least three months’ prior notice. Duke University may terminate the license agreement in the event of our bankruptcy or insolvency. Either party may terminate the agreement in the event of an uncured material breach by the other party. The right to cure applies only to the first three material breaches properly noticed in a 24 month period. Upon termination of the agreement, we are required to cease manufacture, use, practice, lease, and sale, offering, distribution and other commercialization of licensed products.

SBI Biotech License Agreement

In September 2008, SBI Biotech Co. Ltd, or SBIBT, entered into a license agreement with MedImmune, which was subsequently assigned to us in February 2018 and further amended in August 2018. Pursuant to the agreement, we have an exclusive, world-wide license to make, have made, use, manufacture, have manufactured, market, import, export, offer for sale and sell, with the right to sublicense, anti-ILT7 antibodies and related methods covered by certain patent rights owned by SBIBT. The field of our license is therapeutic, prophylactic, and diagnostic uses in all possible indications, diseases and disorders.

Under the terms of the agreement, as assigned to us, we may be required to pay SBIBT mid-to-high single-digit royalties on net sales of products, including VIB7734, by us or our sublicensees covered by SBIBT’s patents or know-how licensed pursuant to this license agreement. We may also be required to pay SBIBT milestone payments of up to an aggregate of $137 million related to research and development, clinical trials, submission and approval of regulatory drug applications, and sales milestones.

The term of the agreement will continue until the earlier of (i) 50 years from the start of the license or (ii) expiration of all royalty and milestone payment obligations. Royalty and milestone payment obligations expire on a country-by-country and product-by-product basis on the later of (a) the tenth anniversary of the first commercial sale of a product in a country or (b) the last-to-expire of the licensed patents in the country where the product is sold. Upon expiration of the agreement, the licenses granted to us will become fully paid-up, non-exclusive, perpetual licenses.

We can terminate the agreement in its entirety or on a country-by-country and product-by-product basis by giving 60 days’ written notice to SBIBT.

If, in any calendar year, we fail to meet any diligence milestones related to research and development, clinical trials, regulatory filing, regulatory approval or commercial launch, SBIBT can terminate the license upon 90 days written notice, unless we cure the failure within 30 days after the written notice. SBIBT can terminate the license with respect to the European Union and Japan by providing 60 days’ written notice if we fail to use commercially reasonable efforts to develop a product in a member country of the European Union and in Japan after regulatory approval for a product in the United States, and we do not cure the failure within the notice period. SBIBT can terminate the license with respect to a country in which regulatory approval is obtained by providing 90 days’ written notice if we fail to use commercially reasonable efforts to market and sell a product in such country and we do not cure the failure within 30 days after the written notice.

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Either we or SBIBT can terminate the license at any time if the other party is in breach of its payment obligations or other obligations and has not cured the breach within 45 days of written notice.

DFCI License Agreement

In September 2004, Cellective entered into an exclusive license agreement with the Dana-Farber Cancer Institute, Inc., or DFCI, which we refer to as the DFCI License Agreement. In September 2015, Cellective was acquired by MedImmune. In February 2018, MedImmune assigned the DFCI License Agreement to us.

Pursuant to the DFCI License Agreement, we have an exclusive, worldwide license, with the right to grant sublicenses under certain conditions, to make, use, manufacture, market, sell, and generally commercialize certain anti-CD19 biological material, including hybridomas producing anti-CD19 antibodies, CD19 transgenic mouse lines, and CD19 cDNA transfected cell lines, certain anti-CD22 biological materials and certain patent rights owned by DFCI related to anti-CD19 antibodies and anti-CD22 antibodies. The rights licensed to us are for all fields except research reagents.

Under the terms of the agreement, DFCI was entitled to a milestone payment of $250,000 for each of the first three corporate alliances or other agreements involving the licensed intellectual property from which we receive at least $2 million. DFCI is currently entitled to two more potential milestone payment of $250,000 each. In addition, we may be required to pay DFCI low single-digit royalties on net sales by us, our affiliates and sublicensees of products, including inebilizumab, covered by the patent rights or making use of the biological materials, and a share of any sublicensing income related to the licensed intellectual property. We are obligated to manufacture the licensed products sold or used in the United States substantially in the United States. Pursuant to the DFCI License Agreement, and subject to certain exceptions, we are required to indemnify DFCI against all third party claims related to or arising out of the DFCI License Agreement. We are required to use commercially reasonable efforts to bring one or more licensed products to market.

Unless terminated in accordance with the agreement, the DFCI License Agreement will continue on a country-by-country basis until the later of (i) the expiration date of the last-to-expire of the licensed patents in the applicable country which patents have all expired, or (ii) when we cease to sell or manufacture any products using the licensed biological materials.

DFCI may immediately terminate the agreement upon written notice if we cease to carry on business with respect to licensed products, fail to make any required payments on schedule without cure within 30 days’ written notice from DFCI, fail to comply with any due diligence obligations without cure within 90 days’ written notice from DFCI, fail to procure and maintain insurance, are convicted of a felony relating to the manufacture use, sale or importation of licensed products, or we materially breach any other provision of the agreement without cure within 90 days’ written notice from DFCI. We may terminate the DFCI License Agreement at any time by giving DFCI at least 180 days’ prior written notice.

BioWa Sublicense Agreement

Pursuant to a sublicense agreement dated February 23, 2018, with MedImmune, LLC, or the BioWa Sublicense Agreement, we have an exclusive sublicense (as between MedImmune and us) under the non-exclusive licenses granted to MedImmune pursuant to a license agreement by and between MedImmune and BioWa, Inc. dated November 16, 2005, or the BioWa License Agreement, to develop, commercialize, make, have made, use, import, sell, and offer for sale any product containing or comprising inebilizumab expressed using a specific cell line that was developed, in part, using BioWa’s Potelligent™ technology, which we refer to as the 551 Cell Line, in the field of all human diseases and disorders, including, but not limited to, treatment and prevention.

Under the terms of the BioWa Sublicense Agreement, we may be required to pay low to mid-single digit royalties on net sales of products that are owed to BioWa under the BioWa License Agreement. We may also be required to make milestone payments of up to an aggregate of $11 million related to the commencement of clinical trials, submission and approval of regulatory drug applications, of which $3 million remains payable upon achievement of certain milestones for inebilizumab.

The term of the BioWa Sublicense Agreement will continue until the expiration or termination of the BioWa License Agreement in its entirety or with respect to a CD19 target. If we are not in breach of the BioWa Sublicense Agreement, MedImmune shall, at our request, designate us as a sublicensee and use reasonable efforts to assist us in obtaining a direct license from BioWa. The term of the BioWa License Agreement will continue on a country-by-country basis until the later of (i) the expiration of the last valid claim within the patent rights covering the product in such country where the product is sold or (ii) if a product is not covered by a valid claim within the patent rights, 10 years following the date of first commercial sale in the country where sold.

We may terminate the sublicense for any reason upon 30 days’ written notice to MedImmune. Either we or MedImmune may terminate the sublicense immediately upon written notice if the other party materially breaches the

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agreement without cure within 60 days of receiving written notice of the material breach from the other party. Either we or MedImmune can terminate the sublicense agreement in the event of the other party’s bankruptcy or insolvency.

Lonza Sublicense Agreement

Pursuant to a sublicense agreement dated February 23, 2018 with MedImmune, LLC, or the Lonza Sublicense Agreement, we have an exclusive sublicense (as between MedImmune and us) under the worldwide, perpetual and non-exclusive licenses granted to MedImmune under a license agreement with Lonza Sales AG, or Lonza, dated January 21, 2005, or the Lonza License Agreement, to develop, commercialize, make, have made, use, import, sell, and offer for sale (i) any product containing or comprising inebilizumab expressed using the 551 Cell Line, which was developed, in part, using Lonza’s gene expression technology and (ii) any product containing or comprising VIB7734 expressed using another specific cell line that was developed, in part, using Lonza’s gene expression technology, which we refer to as the 7734 Cell Line.

Under the terms of the Lonza Sublicense Agreement and the Lonza License Agreement, we may be required to pay MedImmune for further payment to Lonza, or pay directly to Lonza if instructed to do so by MedImmune, low single-digit royalties on all net sales of products containing or comprising inebilizumab expressed using the 551 Cell Line or containing or comprising VIB7734 expressed using the 7734 Cell Line. We may also be required to make milestone payments of up to an aggregate of £60,000. We may also be required to pay fees of up to an aggregate of £330,000 per year related to license maintenance and manufacturing.

The term of the sublicense agreement will continue until the expiration or termination of MedImmune’s license agreement with Lonza in its entirety, or with respect to inebilizumab expressed using the 551 Cell Line and VIB7734 expressed using the 7734 Cell Line. The Lonza License Agreement will continue until terminated by MedImmune with six months’ notice. If we are not in breach of the sublicense, MedImmune shall, at our request, use reasonable efforts to assist us in obtaining a direct license from Lonza.

We may terminate the sublicense for any reason upon 30 days’ written notice to MedImmune. Either we or MedImmune may terminate the sublicense immediately upon written notice if the other party materially breaches the agreement without cure within 60 days of receiving written notice of the material breach from the other party. Either we or MedImmune can terminate the sublicense agreement in the event of the other party’s bankruptcy or insolvency.

BioWa/Lonza Sublicense Agreement

Pursuant to a sublicense agreement dated February 23, 2018, with MedImmune, LLC, we have an exclusive sublicense (as between MedImmune and us) under the non-exclusive licenses granted to MedImmune under a license agreement with BioWa, Inc. and Lonza Sales AG, or Lonza, dated November 4, 2013, the BioWa/Lonza license, to develop, commercialize, make, have made, use, import, have imported, export, have exported, sell, have sold, offer for sale and otherwise dispose any product containing or comprising VIB7734 expressed using the 7734 Cell Line in the field of the diagnosis, prophylaxis and treatment of all human diseases, conditions or disorders.

Under the terms of the sublicense agreement and license agreement, we may be required to pay low to mid single-digit royalties on net sales of products containing or comprising VIB7734 expressed using the 7734 Cell Line that are owed to BioWa/Lonza under the BioWa/Lonza License Agreement. We may also be required to make milestone payments of up to an aggregate of $11 million related to clinical trials and submission and approval of regulatory drug applications. We may also be required to pay fees of up to an aggregate of £340,000 per year related to manufacturing.

The term of the sublicense agreement will continue until the expiration or termination of the BioWa/Lonza license in its entirety or with respect to a product containing VIB7734 expressed using the 7734 Cell Line. If we are not in breach of the sublicense, MedImmune shall, at our request, use reasonable efforts to assist us in obtaining a direct license from BioWa and Lonza. The term of the BioWa/Lonza license will continue on a country-by-country basis until the later of (i) the expiration of the last valid claim within the patent rights covering the product in such country where the product is sold or (ii) if a product is not covered by a valid claim within the patent rights, 10 years following the date of first commercial sale in the country where sold.

We may terminate the sublicense for any reason upon 30 days’ written notice to MedImmune. MedImmune may terminate the sublicense immediately upon written notice if we (i) knowingly oppose or assist any third party in opposing the grant of letters patent or patent application that are part of the BioWa/Lonza license or (ii) dispute or knowingly assist any third party in disputing the validity of any patent or patent claims that are part of the BioWa/Lonza license. Either we or MedImmune may terminate the sublicense immediately upon written notice if the other party materially breaches the agreement without cure within 30 days of receiving written notice of the material breach from the other party, or in the event of the other party’s bankruptcy or insolvency.

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MedImmune Payment Agreement

Pursuant to a payment agreement with MedImmune Limited dated February 23, 2018, we are responsible for certain royalty payments MedImmune may be required to make to Medical Research Council, or MRC, under a license agreement dated January 7, 1997. MedImmune obtained a license to patents and technology for library cloning and phage screening owned by MRC that was used in the identification of VIB7734. We may be required to reimburse MedImmune for payments to MRC, or pay MRC directly if instructed to do so by MedImmune, for low single-digit royalties on the net invoice price of products comprising or containing VIB7734.

The reimbursement agreement expires when there can be no further actual or contingent payment obligations under the MRC license. The royalty term of the MRC license expires on a country-by-country basis ten years after the first commercial sale in that country.

Medical Affairs and Patient Advocacy

We built a medical affairs team that is engaged in furthering awareness of autoimmune disease and education of clinicians with respect to the clinical knowledge we have gained from our clinical trials. Our medical affairs team also supports investigator sponsored trials and research collaborations. Our patient advocacy team focuses on expanding our relationships with the patient advocacy community for NMOSD and for other autoimmune diseases.

Commercial Opportunity and Commercialization Plan for Inebilizumab

The commercial opportunity for Uplizna^®, as the first FDA-approved monotherapy for the treatment of patients with NMOSD with one or more attacks, stems from its distinctive value proposition. We believe Uplizna^® has the potential for disease modification by preventing the next NMOSD attack through depletion of B cells and plasma cells. In addition, pivotal clinical trial data suggests that Uplizna^® reduces the worsening of disability, hospitalizations and new MRI lesions.

NMOSD is a rare, devastating condition that attacks the optic nerve, spinal cord and brain stem and often leads to irreversible blindness and paralysis. Patients with NMOSD are diagnosed by multiple physician specialties including ophthalmologists or neurologists once they suffer their first attack.

Highly specific serum autoantibodies, AQP4-IgG, are thought to be present in about 80% of patients and are likely pathogenic. AQP4 autoantibodies induce central nervous system damage through complement activation and antibody-mediated cytotoxicity. Since 2006, the presence of AQP4-IgG has been included as part of the NMOSD diagnostic criteria. However, it is noteworthy, that a patient can still be deemed a NMOSD patient even if no AQP4-IgG is present as long as other NMOSD definition criteria are met.

We have identified first-line newly diagnosed adult patients with NMOSD who are anti-AQP4 antibody positive and such patients with NMOSD that are unstable as our initial target population for Uplizna^®. Patients with NMOSD are considered unstable if they are on an unapproved therapy and are at risk of suffering another attack based on physician assessment of severity and frequency of recent attacks. The majority of our initial target population are treated by NMOSD specialists, multiple sclerosis specialists and community neurologists. We estimate that NMOSD affects approximately 10,000 patients in the United States with approximately 70% of patients treated in a small number of medical centers of excellence. We are initially commercializing Uplizna^® in the United States with a specialty clinical sales force of fewer than 30 individuals focused on the highest prescribers, which we believe is fewer than 300 physicians.

Our commercial activities focused on delivering comprehensive disease awareness and education to NMOSD specialists, multiple sclerosis specialists and community neurologists. These disease education efforts will communicate the importance of CD19-expressing B cells and plasma cells in producing autoantibodies, which leads to NMOSD. We believe the broad understanding of this evidence will help to establish Uplizna^® as a first-line treatment in patients with NMOSD and support our launch uptake following FDA approval. We believe the improved EDSS score, reduction in MRI lesions and reduction in hospitalization will be meaningful to patients. Furthermore, we believe the potential semi-annual maintenance dosing after the two initial doses on days 1 and 15 can improve patient quality of life.

We have conducted market research with physicians and payors to forecast the potential commercial opportunity for Uplizna^® in the United States. We have also completed preliminary health economic analyses of the potential direct cost savings that Uplizna^® may be able to provide to the healthcare system and have completed multiple surveys with payors to evaluate the potential coverage for Uplizna^® by health insurers. Health insurers surveyed have indicated that their perception of the likelihood of Uplizna^® coverage is influenced by the lack of FDA-approved first-line monotherapy treatments and the potential for Uplizna^® to provide significant direct cost savings based on its potential to prevent the next attack for patients with NMOSD.

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To address markets outside of the United States, we plan to seek one or more partners with international sales expertise who can sell inebilizumab in target markets. We anticipate that in certain markets additional clinical trials of Uplizna^® may be required to obtain regulatory approval and/or ensure market access. We have formed a collaboration partnership with Hansoh Pharma for co-development and commercialization of Uplizna^® in patients with NMOSD and other autoimmune diseases and hematological cancers in China, Hong Kong and Macau and we are continuing to evaluate potential partnerships to pursue regulatory approval and commercialization of Uplizna^® in NMOSD in other geographic regions. See “—Licenses and Strategic Agreements—Hansoh License and Collaboration Agreement”. In addition, we have formed a collaboration partnership with MTPC for co-development and commercialization of Uplizna^® in Japan, Thailand, South Korea, Indonesia, Vietnam, Malaysia, Philippines, Singapore, and Taiwan for NMOSD as well as other indications that we and MTPC mutually agree to add to the MTPC License Agreement. See “—Licenses and Strategic Agreements—MTPC Agreement”.

Competition

The biotechnology and pharmaceutical industries are characterized by rapid technological advancement, significant competition and an emphasis on intellectual property. We face potential competition from many different sources, including major and specialty pharmaceutical and biotechnology companies, academic research institutions, governmental agencies and public and private research institutions. Any product candidates that we successfully develop and commercialize will compete with current therapies and new therapies that may become available in the future. We believe that the key competitive factors affecting the success of any of our product candidates will include efficacy, safety profile, dosing, cost, effectiveness of promotional support and intellectual property protection. With respect specifically to inebilizumab for patients with NMOSD, we expect the key competitive factors affecting the success of inebilizumab will include the intended patient population (AQP4+ and AQP4- patients), the ability to use as a first-line therapy and as a monotherapy, the low frequency of dosing and administration and efficacy.

Uplizna^® for NMOSD

Uplizna^® competes with eculizumab from Alexion Pharmaceuticals, Inc., or Alexion, marketed as Soliris^®, and satralizumab from Genentech, Inc, and Chugai Pharmaceutical Co., Ltd., or Chugai, marketed as Enspryng^TM:

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In addition, Uplizna^® competes with rituxumab, a monoclonal anti-CD20 antibody marketed by Genentech USA, Inc., as Rituxan®. Rituximab is an approved therapy for the treatment of adults with Non-Hodgkin’s Lymphoma, Chronic Lymphocytic Leukemia, rheumatoid arthritis and Granulomatosis and Microscopic Polyangiitis. While not approved for the treatment of NMOSD, treatment of patients with NMOSD with rituximab has been found by clinicians to reduce the frequency of relapses of NMOSD.

VIB4920 and VIB7734

If VIB4920 is approved, it may compete with Belatacept (NULOJIX^®), a selective T cell co-stimulation blocker indicated for prophylaxis of organ rejection in adult patients receiving a kidney transplant that has been developed by Bristol-Myers Squib, as well as potential mAb drug candidates in development by UCB, Biogen, Boehringer Ingelheim, AbbVie and Novartis. If VIB7734 is approved, it may compete with drug candidates in development by Biogen and Boehringer Ingelheim.

All of our product candidates, if approved, may also compete with current treatments used for autoimmune disease, including various immunosuppressants and steroids.

Many of our competitors, either alone or with their collaboration partners, have significantly greater financial resources and expertise in research and development, pre-clinical testing, clinical trials, manufacturing, and marketing than we do. Future collaborations and mergers and acquisitions may result in further resource concentration among a smaller number of competitors.

Our commercial potential 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 or are less expensive than 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 or make our development more complicated. These competitors may also vie for a similar pool of qualified scientific and management talent, sites and patient populations for clinical trials, as well as for technologies complementary to, or necessary for, our programs.

Supply and Manufacturing

We do not currently have the infrastructure or internal capability to manufacture our product candidates for use in clinical development and, if any product candidate is approved, commercialization. We rely, and expect to continue to rely, on third-party manufacturers for the production of our product candidates in compliance with cGMP requirements for use in clinical trials under the guidance of members of our organization. In the case of inebilizumab, we rely on AstraZeneca and we currently have no alternative manufacturer in place. Under our commercial supply agreement with AstraZeneca, AstraZeneca has agreed to provide us with a commercial supply of drug product for Uplizna^®. We believe that our existing stock of drug substance that has already been manufactured will be sufficient to supply us for approximately the first two years of the commercialization of Uplizna^® in the United States. See “—Licenses and Strategic Agreements—Clinical Supply Agreement with AstraZeneca UK Limited” and “—Licenses and Strategic Agreements—Commercial Supply Agreement with AstraZeneca UK Limited”.

We have built an internal team with significant technical, manufacturing, analytical, quality, regulatory, including cGMP, and project management experience to oversee our third-party manufacturers and to manage manufacturing and quality data and information for regulatory compliance purposes. We plan to continue to invest in process science, product characterization and supply chain improvements over time.

Intellectual Property

Our success depends in part on our ability to obtain and maintain proprietary protection for our product candidates, technology and know-how, to operate without infringing the proprietary rights of others and to prevent others from infringing our proprietary rights. Our policy is to seek to protect our proprietary position by, among other methods, pursuing and obtaining patent protection in the United States and in jurisdictions outside of the United States related to our proprietary technology, inventions, improvements and product candidates that are important to the development and implementation of our business. For example, we or our licensors have or are pursuing patents covering the composition of matter for each of our product candidates and we generally pursue patent protection covering methods-of-use for each clinical program. We also rely on trade secrets, know-how, continuing technological innovation and potential in-licensing opportunities to develop and maintain our proprietary position. Additionally, we expect to benefit, where appropriate, from statutory frameworks in the United States, Europe and other countries that provide a period of clinical data exclusivity to compensate for the time required for regulatory approval of our drug products.

We continually assess and refine our intellectual property strategy as we develop new technologies and product candidates. We plan to file additional patent applications based on our intellectual property strategies where appropriate,

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including where we seek to adapt to competition or to improve business opportunities. Further, we plan to file patent applications, as we consider appropriate under the circumstances, to protect new technologies that we develop.

Our owned and in-licensed patent estate as of December 31, 2020, on a worldwide basis, includes over 325 granted or pending patent applications world-wide, spread over more than 15 patent families, with 10 granted U.S. patents. The term of individual patents depends upon the laws of the countries in which they are obtained. In the countries in which we currently file, the patent term is 20 years from the earliest date of filing of the first non-provisional patent application in a patent family, which may also serve as a priority application. However, the term of a U.S. patent, and certain ex-U.S. patents may be lengthened to compensate for the time required to obtain regulatory approval to sell a drug (a Patent Term Extension (PTE) in the U.S. award of a Supplementary Patent Certificate (SPC) ex-U.S.). In the U.S. by delays encountered during patent prosecution that are caused by the USPTO may also result in lengthened patent term (referred to as Patent Term Adjustment (PTA)). For example, the U.S. Hatch-Waxman Act permits a patent term extension for FDA-approved drugs of up to five years beyond the expiration of the patent. The length of the patent term extension is related to the length of time the drug is under regulatory review and diligence during the review process. Patent term extensions cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval and only one patent covering an approved drug, its method of use or its methods of manufacture may be extended. A similar kind of patent extension, referred to as a Supplementary Protection Certificate, is available in Europe and certain other countries including Japan. Legal frameworks are also available in certain other jurisdictions to extend the term of a patent. The Company applied for PTE for U.S. Patent 8,323,653 upon FDA approval of Uplizna^®. We currently intend to seek patent term extensions on any of our issued patents in any jurisdiction where we have a qualifying patent and the extension is available; however there is no guarantee that the applicable regulatory authorities, including the FDA in the United States, will agree with our assessment of whether such extensions should be granted, and even if granted, the length of such extensions. Further, even if our patent is extended, the patent, including the extended portion of the patent, may be held invalid or unenforceable by a court in the United States or a foreign country.  

As with other biotechnology and pharmaceutical companies, our ability to obtain and maintain a proprietary position on our drug candidates and technologies will depend on our success in obtaining effective patent claims on these pending patents and enforcing those claims if granted. However, our pending patent applications, and any patent applications that we may in the future file or license from third parties, may not result in the issuance of patents. We also cannot predict the breadth of claims that may be allowed or enforced in our patents. Furthermore, our competitors may be able to independently develop and commercialize drugs with similar mechanisms of action and duplicate our methods of treatments or strategies without infringing our patents. Because of the extensive time required for clinical development and regulatory review of a drug we may develop, it is possible that, before any of our drugs can be commercialized, any related patent may expire or remain in force for only a short period following commercialization, thereby reducing any advantage of any such patent. Moreover, even our issued patents do not guarantee us the right to practice our technology in relation to the commercialization of our clinical candidates. The area of patent and other intellectual property rights in pharmaceuticals is an evolving one with many risks and uncertainties, and third parties may have blocking patents that could be used to prevent us from commercializing our clinical candidates.

The biotechnology and pharmaceutical industries are characterized by extensive litigation regarding patents and other intellectual property rights. Our ability to obtain and maintain our proprietary position for our product candidates and technology will depend on our success in enforcing the claims that have been granted or may grant. However, any of our patents, including patents that we may rely on to protect our market for approved drugs, may be held invalid or unenforceable by a court. Alternatively, we may decide that it is in our interest to settle a litigation in a manner that affects the term or enforceability of our patent. Changes in either the patent laws or in interpretations of patent laws in the United States and other countries may diminish our ability to protect our inventions and enforce our intellectual property rights. Accordingly, we cannot predict the breadth or enforceability of claims that have been or may be granted in our patents or in third-party patents.

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Inebilizumab Patent Coverage

Inebilizumab is covered by Viela-owned and in-licensed pending and issued patents in multiple jurisdictions, including the U.S. Exclusive of any Patent Term Extension, our current, owned or exclusively licensed, issued patents and pending non-provisional applications covering inebilizumab will expire on dates ranging from 2026 to 2030, where issued, valid and enforceable. U.S. Patent 8,323,653, covering inebilizumab compositions of matter and pharmaceutical compositions, has been granted a Patent Term Adjustment from the Patent Office. As a result, if valid and enforceable, it is expected to expire in 2030, exclusive of any patent term extension. The Company applied for PTE for U.S. Patent 8,323,653 upon FDA approval of Uplizna^®.  

We have exclusively licensed from Duke University three international applications filed under the Patent Cooperation Treaty and all corresponding family members thereof. One U.S. patent relevant to our activities has issued from the licensed Duke University applications; this U.S. patent generically covers inebilizumab and related compounds. The year of expiration for these patent families, where issued, valid and enforceable, is 2026, without regard to any extensions or adjustments of term that may be available under national law.  

VIB4920 Patent Coverage

VIB4920 is covered by Viela-owned and in-licensed pending and issued patents in multiple jurisdictions, including in the US. Exclusive of any Patent Term Extension, our current, owned or exclusively licensed, issued patents and pending non-provisional applications covering VIB4920 will expire on dates ranging from 2028 to 2039, where issued, valid and enforceable. U.S. Patent 10,000,553, covering VIB4920 compositions of matter and pharmaceutical compositions, has been granted a Patent Term Adjustment from the Patent Office. As a result, if valid and enforceable, it is expected to expire in 2034, exclusive of any patent term extension.

Further, we have licensed from MedImmune, LLC two international patent applications, and all corresponding family members thereof that cover (i) recombinant polypeptide scaffolds and (ii) methods of purifying an albumin-fusion protein. VIB4920 is comprised of a specific recombinant polypeptide scaffold fused to an albumin protein. The expected year of expiration for the first patent family, covering recombinant polypeptide scaffolds, where issued, valid and enforceable, is 2028, without regard to any extensions or adjustments of term that may be available under national law. The expected year of expiration for the second patent family, covering methods of purifying an albumin-fusion protein, where issued, valid and enforceable, is 2036, without regard to any extensions or restorations of term that may be available under national law.

VIB7734 Patent Coverage

VIB7734 is covered by Viela-owned and in-licensed pending and issued patents in multiple jurisdictions. Exclusive of any Patent Term Extension, our current, owned or exclusively licensed, issued patents and pending non-provisional applications covering VIB7734 will expire on dates ranging from 2026 to 2037, where issued, valid and enforceable

We have exclusively licensed from SBI Biotech Co. a patent family comprising issued patents and pending applications in various jurisdictions, including the U.S. The expected year of expiration for this patent family, where issued, valid and enforceable, is 2026, without regard to any extensions or adjustments of term that may be available under national law. This family relates to, for example, monoclonal antibodies, which bind to human ILT7, binds to none of human ILT1, ILT2 and human ILT3, and suppresses interferon-a (IFNa) production from ILT7-expressing cells, or a fragment comprising its antigen binding region.  

Trade secrets

In addition to patents, we rely upon unpatented trade secrets and know-how and continuing technological innovation to develop and maintain our competitive position. We seek to protect our proprietary information, in part, using confidentiality agreements with our commercial partners, collaborators, employees, and consultants, and invention assignment agreements with our employees. These agreements are designed to protect our proprietary information and, in the case of the invention assignment agreements, to grant us ownership of technologies that are developed through a relationship with a third party. These agreements may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors. To the extent that our commercial partners, collaborators, employees, and consultants use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions.

Government Regulation

Government authorities in the United States at the federal, state and local level and in other countries and jurisdictions, including the European Union, extensively regulate, among other things, the research, development, testing,

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manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export and import of drug products, including biologic products. Generally, before a new drug can be marketed, considerable data demonstrating its quality, safety and efficacy must be obtained, organized into a format specific for each regulatory authority, submitted for review and approved by the regulatory authority.

U.S. government regulation of biological products

In the United States, the FDA regulates biologics under the Federal Food, Drug, and Cosmetic Act, or FDCA, and the Public Health Service Act, or PHSA, and their implementing regulations. Products are also subject to other federal, state and local statutes and regulations. The process of obtaining regulatory approvals and the subsequent compliance with applicable federal, state, local and foreign statutes and regulations requires the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval, may subject an applicant to a variety of administrative or judicial sanctions, such as the FDA’s refusal to approve pending biologic license applications, or BLAs, withdrawal of an approval, imposition of a clinical hold, issuance of warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement of profits or civil or criminal penalties.

The process required by the FDA before a biologic may be marketed in the United States generally involves the following:

Pre-clinical studies

Before testing any biological product candidate, including our product candidates, in humans, the product candidate must undergo rigorous pre-clinical testing. The pre-clinical developmental stage generally involves laboratory evaluations of drug chemistry, formulation and stability, as well as studies to evaluate toxicity in animals, which support subsequent clinical testing. The sponsor must submit the results of the pre-clinical studies, together with manufacturing information, analytical data, any available clinical data or literature and a proposed clinical protocol, to the FDA as part of the IND. An IND is a request for authorization from the FDA to administer an investigational product to humans, and must become effective before human clinical trials may begin.

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

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

Clinical trials

The clinical stage of development involves the administration of the investigational product to healthy volunteers or patients under the supervision of qualified investigators, generally physicians not employed by, or under control of, the trial sponsor, in accordance with GCPs, which include the requirement that all research patients provide their informed consent for their participation in any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives of the clinical trial, dosing procedures, subject selection and exclusion criteria and the parameters to be used to monitor subject safety and assess efficacy. Each protocol, and any subsequent amendments to the protocol, must be submitted to the FDA as part of the IND. Furthermore, each clinical trial must be reviewed and approved by an IRB for each institution at which the clinical trial will be conducted to ensure that the risks to individuals participating in the clinical trials are minimized and are reasonable in relation to anticipated benefits. The IRB also approves the informed consent form that must be provided to each clinical trial subject or his or her legal representative, and must monitor the clinical trial until completed. There also are requirements governing the reporting of ongoing clinical trials and completed clinical trial results to public registries. Information about most clinical trials must be submitted within specific timeframes for publication on the www.clinicaltrials.gov website. Information related to the product, patient population, phase of investigation, study sites and investigators and other aspects of the clinical trial is made public as part of the registration of the clinical trial. Sponsors are also obligated to disclose the results of their clinical trials after completion. Disclosure of the results of these trials can be delayed in some cases for up to two years after the date of completion of the trial. Competitors may use this publicly available information to gain knowledge regarding the progress of development programs.

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

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

Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and more frequently if serious adverse events occur. The FDA or the sponsor may suspend or terminate a clinical trial at any time or the FDA may impose other sanctions on various grounds, including a finding that the research patients are being exposed to an unacceptable health risk. Similarly, an IRB can refuse, suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients.

Concurrently with clinical trials, companies usually complete additional pre-clinical studies and must also develop additional information about the physical characteristics of the biological product as well as finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. To help reduce the risk of the introduction of adventitious agents with use of biological products, the PHSA emphasizes the importance of manufacturing control for products whose attributes cannot be precisely defined. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, the sponsor must develop

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methods for testing the identity, strength, quality, potency and purity of the final biological product. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the biological product candidate does not undergo unacceptable deterioration over its shelf life.

BLA review and approval

Assuming successful completion of the required clinical testing, the results of the pre-clinical studies and clinical trials, together with detailed information relating to the product’s chemistry, manufacture, controls and proposed labeling, among other things, are submitted to the FDA as part of a BLA requesting approval to market the product for one or more indications. The BLA must contain proof of safety, purity, potency and efficacy and may include both negative and ambiguous results of pre-clinical studies and clinical trials as well as positive findings. Data may come from company-sponsored clinical trials intended to test the safety and efficacy of a product’s use or from a number of alternative sources, including studies initiated by investigators. To support marketing approval, the data submitted must be sufficient in quality and quantity to establish the safety and efficacy of the investigational product to the satisfaction of the FDA. FDA approval of a BLA must be obtained before a biologic may be marketed in the United States.

In most cases, the submission of a BLA is subject to a substantial application user fee. Under the goals and policies agreed to by the FDA under the Prescription Drug User Fee Act, or PDUFA, for original BLAs, the FDA has ten months from the filing date in which to complete its initial review of a standard application and respond to the applicant, and six months from the filing date for an application with priority review. The FDA does not always meet its PDUFA goal dates, and the review process is often significantly extended by FDA requests for additional information or clarification and a sponsor’s process to respond to such inquiries. This FDA review typically takes twelve months from the date the BLA is submitted to the FDA (for a standard review) and eight months from the date the BLA is submitted (for a priority review) because the FDA has approximately two months after BLA submission to make a “filing” decision.

Before approving a BLA, the FDA will typically conduct a pre-approval inspection of the manufacturing facilities for the new product to determine whether the manufacturing processes and facilities comply with cGMPs. The FDA will not approve the product unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. The FDA also may inspect the sponsor and one or more clinical trial sites to assure compliance with GCP requirements and the integrity of the clinical data submitted to the FDA.

Additionally, the FDA may refer applications for novel biologic candidates which present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved and under what conditions, if any. The FDA is not bound by recommendations of an advisory committee, but it considers such recommendations when making decisions on approval. The FDA likely will re-analyze the clinical trial data, which could result in extensive discussions between the FDA and the applicant during the review process. The FDA also may require submission of a risk evaluation and mitigation strategy or “REMS” plan if it determines that a REMS is necessary to ensure that the benefits of the drug outweigh its risks and to assure the safe use of the biological product. The REMS plan could include medication guides, physician communication plans, assessment plans and/or elements to assure safe use, such as restricted distribution methods, patient registries or other risk minimization tools. The FDA determines the requirement for a REMS, as well as the specific REMS provisions, on a case-by-case basis. If the FDA concludes a REMS plan is needed, the sponsor of the BLA must submit a proposed REMS. The FDA will not approve a BLA without a REMS, if required.

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

After the FDA evaluates a BLA, it will issue an approval letter or a Complete Response Letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. A Complete Response Letter indicates that the review cycle of the application is complete and the application will not be approved in

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its present form. A Complete Response Letter usually describes all of the specific deficiencies in the BLA identified by the FDA. The Complete Response Letter may require additional clinical or other data, additional pivotal Phase 3 clinical trial(s) and/or other significant and time-consuming requirements related to clinical trials, pre-clinical studies or manufacturing. If a Complete Response Letter is issued, the applicant may either resubmit the BLA, addressing all of the deficiencies identified in the letter, or withdraw the application. Even if such data and information are submitted, the FDA may decide that the re-submitted BLA does not satisfy the criteria for approval.

If a product receives regulatory approval, the approval is limited to the conditions of use (e.g., patient population, indication) described in the application. Further, depending on the specific risk(s) to be addressed, the FDA may require that contraindications, warnings or precautions be included in the product labeling, require that post-approval trials, including Phase 4 clinical trials, be conducted to further assess a product’s safety after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution and use restrictions or other risk management mechanisms under a REMS, which can materially affect the potential market and profitability of the product. The FDA may prevent or limit further marketing of a product based on the results of post-marketing trials or surveillance programs. After approval, some types of changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further testing requirements and FDA review and approval.

Orphan drug designation

Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biologic product intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States, or more than 200,000 individuals in the United States and for which there is no reasonable expectation that the cost of developing and making the product available in the United States for this type of disease or condition will be recovered from sales of the product in the United States. Orphan drug designation must be requested before submitting a BLA. After the FDA grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. Orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers. If a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to orphan drug exclusivity, which means that the FDA may not approve any other applications to market the same drug for the same indication for seven years from the date of such approval, except in limited circumstances, such as a showing of clinical superiority to the product with orphan exclusivity by means of greater effectiveness, greater safety, by providing a major contribution to patient care or in instances of drug supply issues. Competitors, however, may receive approval of either a different product for the same indication or the same product for a different indication that could be used “off-label” by physicians in the orphan indication, even though the competitor’s product is not approved in the orphan indication. Orphan drug exclusivity also could block the approval of one of our products for seven years if a competitor obtains approval before we do of the same product, as defined by the FDA, for the same indication we are seeking, or if our product candidate is determined to be contained within the scope of the competitor’s product for the same indication or disease. If one of our products designated as an orphan drug receives marketing approval for an indication broader than that which is designated, it may not be entitled to orphan drug exclusivity. Orphan drug status in the European Union has similar, but not identical, requirements and benefits.

Expedited review and approval

The FDA has various programs, including fast track designation, breakthrough therapy designation, accelerated approval and priority review, which are intended to expedite or simplify the process for the development and FDA review of drugs and biologics that are intended for the treatment of serious or life-threatening diseases or conditions and demonstrate the potential to address unmet medical needs. The purpose of these programs is to provide important new drugs and biologics to patients earlier than under standard FDA review procedures.

To be eligible for a fast track designation, the FDA must determine, based on the request of a sponsor, that a product is intended to treat a serious or life-threatening disease or condition and demonstrates the potential to address an unmet medical need by providing a therapy where none exists or a therapy that may be potentially superior to existing therapy based on efficacy or safety factors. Fast track designation provides opportunities for more frequent interactions with the FDA review team to expedite development and review of the product. The FDA may also review sections of the BLA for a fast track product on a rolling basis before the complete application is submitted, if the sponsor and the FDA agree on a schedule for the submission of the application sections, and the sponsor pays any required user fees upon submission of the first section of the BLA.

In addition, under the provisions FDASIA, passed in July 2012, a sponsor can request designation of a product candidate as a “breakthrough therapy.” A breakthrough therapy is defined as a drug or biologic that is intended, alone or in combination with one or more other drugs or biologics, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the drug or biologic may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. Drugs or biologics designated as breakthrough therapies are also eligible for accelerated approval. The

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FDA must take certain actions with respect to breakthrough therapies, such as holding timely meetings with and providing advice to the product sponsor, intended to expedite the development and review of an application for approval of a breakthrough therapy.

Products studied for their safety and effectiveness in treating serious or life-threatening illnesses and that provide meaningful therapeutic benefit over existing treatments may be eligible for accelerated approval and may be approved on the basis of adequate and well-controlled clinical trials establishing that the product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than an irreversible effect on morbidity or mortality, or IMM, that is reasonably likely to predict an effect on IMM or other clinical benefit, taking into account the severity, rarity or prevalence of the condition and the availability or lack of alternative treatments. As a condition of approval, the FDA may require a sponsor of a product receiving accelerated approval to perform post-marketing trials to verify and describe the predicted effect on IMM or other clinical endpoint, and the product may be subject to expedited withdrawal procedures.

Once a BLA is submitted for a product intended to treat a serious condition, the FDA may assign a priority review designation if the FDA determines that the product, if approved, would provide a significant improvement in safety or effectiveness. Most products that are eligible for fast track or breakthrough therapy designation may also be considered appropriate to receive a priority review.

Even if a product qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for qualification or decide that the time period for FDA review or approval will not be shortened. Furthermore, fast track designation, breakthrough therapy designation, accelerated approval and priority review do not change the standards for approval and may not ultimately expedite the development or approval process.

Post-approval requirements

Following approval of a new product, the manufacturer and the approved product are subject to pervasive and continuing regulation by the FDA, including, among other things, monitoring and recordkeeping activities, reporting of adverse experiences with the product, product sampling and distribution restrictions, complying with promotion and advertising requirements, which include restrictions on promoting drugs for unapproved uses or patient populations (i.e., “off-label use”) and limitations on industry-sponsored scientific and educational activities. Although physicians may prescribe legally available products for off-label uses, manufacturers may not market or promote such uses. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability. If there are any modifications to the product, including changes in indications, labeling or manufacturing processes or facilities, the applicant may be required to submit and obtain FDA approval of a new BLA or BLA supplement, which may require the applicant to develop additional data or conduct additional pre-clinical studies and clinical trials. The FDA may also place other conditions on approvals including the requirement for a REMS to assure the safe use of the product. A REMS could include medication guides, physician communication plans or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. Any of these limitations on approval or marketing could restrict the commercial promotion, distribution, prescription or dispensing of products. Product approvals may be withdrawn for non-compliance with regulatory standards or if problems occur following initial marketing.

FDA regulations require that products be manufactured in specific approved facilities and in accordance with cGMPs. The cGMP regulations 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 and returned or salvaged products. The manufacturing facilities for our product candidates must meet cGMP requirements and satisfy the FDA or comparable foreign regulatory authorities’ satisfaction before any product is approved and our commercial products can be manufactured. We rely, and expect to continue to rely, on third parties for the production of clinical and commercial quantities of our products in accordance with cGMP regulations. These manufacturers must comply with cGMP regulations that require, among other things, quality control and quality assurance, the maintenance of records and documentation and the obligation to investigate and correct any deviations from cGMP. Manufacturers and other entities involved in the manufacture and distribution of approved drugs or biologics are required to register their establishments with the FDA and certain state agencies and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP and other laws. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain cGMP compliance. The discovery of conditions that violate these rules, including failure to conform to cGMPs, could result in enforcement actions, and the discovery of problems with a product after approval may result in restrictions on a product, manufacturer or holder of an approved BLA, including voluntary recall and regulatory sanctions as described below.

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Once an approval or clearance of a drug is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in mandatory revisions to the approved labeling to add new safety information; imposition of post-market or clinical trials to assess new safety risks; or imposition of distribution or other restrictions under a REMS program. Other potential consequences include, among other things:

Biosimilars and exclusivity

An abbreviated approval pathway for biological products that are biosimilar to or interchangeable with an FDA-licensed reference biological product was created by the Biologics Price Competition and Innovation Act of 2009, or BPCIA, as part of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or the Affordable Care Act. This amendment to the PHSA, in part, attempts to minimize duplicative testing. A recent federal district court ruling in Texas struck down the Affordable Care Act in its entirety based on constitutionality. This decision means numerous reforms enacted as part of the Affordable Care Act, but not specifically related to health insurance, such as the BPCIA, would be invalid as well. While the presidential administration and CMS have both stated that the ruling will have no immediate effect, it is unclear how this decision, subsequent appeals, and other efforts to repeal and replace the Affordable Care Act will impact the Affordable Care Act and our business. To date, the FDA has approved a number of biosimilars, and numerous biosimilars have been approved in Europe. The FDA has issued several guidance documents outlining its approach to reviewing and approving biosimilars.

Biosimilarity, which requires that the biological product be highly similar to the reference product notwithstanding minor differences in clinically inactive components and that there be no clinically meaningful differences between the product and the reference product in terms of safety, purity and potency, must be shown through analytical studies, animal studies and a clinical trial or trials. Interchangeability requires that a biological product be biosimilar to the reference product and that the product can be expected to produce the same clinical results as the reference product in any given patient and, for products administered multiple times to an individual, that the product and the reference product may be alternated or switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biological product without such alternation or switch. Complexities associated with the larger, and often more complex, structure of biological products as compared to small molecule drugs, as well as the processes by which such products are manufactured, pose significant hurdles to implementation that are still being worked out by the FDA.

A reference biological product is granted 12 years of data exclusivity from the time of first licensure of the product, and the FDA will not accept an application for a biosimilar or interchangeable product based on the reference biological product until four years after the date of first licensure of the reference product. “First licensure” typically means the initial date the particular product at issue was licensed in the United States. Date of first licensure does not include the date of licensure of (and a new period of exclusivity is not available for) a supplement for the reference product for a subsequent application filed by the same sponsor or manufacturer of the reference product (or licensor, predecessor in interest or other related entity) for a change (not including a modification to the structure of the biological product) that results in a new indication, route of administration, dosing schedule, dosage form, delivery system, delivery device or strength or for a modification to the structure of the biological product that does not result in a change in safety, purity or potency. Therefore, one must determine whether a new product includes a modification to the structure of a previously licensed product that results in a change in safety, purity or potency to assess whether the licensure of the new product is a first licensure that triggers its own period of exclusivity. Whether a subsequent application, if approved, warrants exclusivity as the “first licensure” of a biological product is determined on a case-by-case basis with data submitted by the sponsor.

The BPCIA is complex and only beginning to be interpreted and implemented by the FDA. In addition, recent government proposals have sought to reduce the 12-year reference product exclusivity period. Other aspects of the

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BPCIA, some of which may impact the BPCIA exclusivity provisions, have also been the subject of recent litigation. As a result, the ultimate impact, implementation and meaning of the BPCIA is subject to significant uncertainty.

U.S. patent term restoration

Depending upon the timing, duration and conditions of FDA marketing approval of our product candidates, one or more of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments, and similar legislation in the European Union. The Hatch-Waxman Amendments permit a patent term extension of up to five years for a patent covering an approved product as compensation for effective patent term lost during product development and the FDA regulatory review process. However, we may not receive an extension if we fail to apply within applicable deadlines, fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicable requirements. Moreover, the length of the extension could be less than we request. Only one patent per approved product can be extended, the extension must be based on the first approval for the product, and the extension cannot extend the total patent term beyond fourteen years from approval. If we are unable to obtain patent term extension or the term of any such extension is less than we request, the period during which we can enforce our patent rights for that product will be shortened and our competitors may obtain approval to market competing products sooner.

European Union drug development, review and approval

In the European Union, our product candidates also may be subject to extensive regulatory requirements. As in the United States, medicinal products can be marketed only if a marketing authorization from the competent regulatory agencies has been obtained.

Similar to the United States, the various phases of pre-clinical and clinical research in the European Union are subject to significant regulatory controls.

The Clinical Trials Directive 2001/20/EC, the Directive 2005/28/EC on GCP, and the related national implementing provisions of the individual EU Member States govern the system for the approval of clinical trials in the European Union. Under this system, an applicant must obtain prior approval from the competent national authority of the EU Member States in which the clinical trial is to be conducted. Furthermore, the applicant may only start a clinical trial at a specific study site after the competent ethics committee has issued a favorable opinion. The clinical trial application must be accompanied by, among other documents, an IMPD (the Common Technical Document) with supporting information prescribed by Directive 2001/20/EC, Directive 2005/28/EC, where relevant the implementing national provisions of the individual EU Member States and further detailed in applicable guidance documents. All suspected unexpected serious adverse reactions to the investigated drug that occur during the clinical trial have to be reported to the competent national authority and the Ethics Committee of the Member State where they occurred.

In April 2014, the new Clinical Trials Regulation, (EU) No 536/2014 (Clinical Trials Regulation) was adopted and it is anticipated to come into application in 2019. The Clinical Trials Regulation will be directly applicable in all the EU Member States, repealing the current Clinical Trials Directive 2001/20/EC. Conduct of all clinical trials performed in the European Union will continue to be bound by currently applicable provisions until the new Clinical Trials Regulation becomes applicable. The extent to which ongoing clinical trials will be governed by the Clinical Trials Regulation will depend on when the Clinical Trials Regulation becomes applicable and on the duration of the individual clinical trial. If a clinical trial continues for more than three years from the day on which the Clinical Trials Regulation becomes applicable the Clinical Trials Regulation will at that time begin to apply to the clinical trial.

The new Clinical Trials Regulation aims to simplify and streamline the approval of clinical trials in the European Union. The main characteristics of the regulation include: a streamlined application procedure via a single entry point, the “EU portal”; a single set of documents to be prepared and submitted for the application as well as simplified reporting procedures for clinical trial sponsors; and a harmonized procedure for the assessment of applications for clinical trials, which is divided in two parts. Part I is assessed by the competent authorities of all EU Member States in which an application for authorization of a clinical trial has been submitted (Member States concerned). Part II is assessed separately by each Member State concerned. Strict deadlines have been established for the assessment of clinical trial applications. The role of the relevant ethics committees in the assessment procedure will continue to be governed by the national law of the concerned EU Member State. However, overall related timelines will be defined by the Clinical Trials Regulation.

To obtain a marketing authorization of a drug in the European Union, we may submit marketing authorization applications, or MAA, either under the so-called centralized or national authorization procedures.

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Centralized procedure

The centralized procedure provides for the grant of a single marketing authorization following a favorable opinion by the EMA, that is valid in all EU member states, as well as Iceland, Liechtenstein and Norway. The centralized procedure is compulsory for medicines produced by specified biotechnological processes, products designated as orphan medicinal products, advanced-therapy medicines (such as gene-therapy, somatic cell-therapy or tissue-engineered medicines) and products with a new active substance indicated for the treatment of specified diseases, such as HIV/AIDS, cancer, diabetes, neurodegenerative disorders or autoimmune diseases and other immune dysfunctions and viral diseases. The centralized procedure is optional for products that represent a significant therapeutic, scientific or technical innovation, or whose authorization would be in the interest of public health. Under the centralized procedure the maximum timeframe for the evaluation of an MAA by the EMA is 210 days, excluding clock stops, when additional written or oral information is to be provided by the applicant in response to questions asked by the Committee for Medicinal Products for Human Use, or the CHMP. Accelerated assessment might be granted by the CHMP in exceptional cases, when a medicinal product is expected to be of a major public health interest, particularly from the point of view of therapeutic innovation. The timeframe for the evaluation of an MAA under the accelerated assessment procedure is of 150 days, excluding stop-clocks.

National authorization procedures

There are also two other possible routes to authorize medicinal products in several EU countries, which are available for investigational medicinal products that fall outside the scope of the centralized procedure:

Under the above described procedures, before granting the MA, the EMA or the competent authorities of the Member States of the EEA make an assessment of the risk-benefit balance of the product on the basis of scientific criteria concerning its quality, safety and efficacy.

European Union regulatory exclusivity

In the European Union, new products authorized for marketing (i.e., reference products) qualify for eight years of data exclusivity and an additional two years of market exclusivity upon marketing authorization. The data exclusivity period prevents generic applicants from relying on the pre-clinical and clinical trial data contained in the dossier of the reference product when applying for a generic marketing authorization in the European Union during a period of eight years from the date on which the reference product was first authorized in the European Union. The market exclusivity period prevents a successful generic applicant from commercializing its product in the EU until ten years have elapsed from the initial authorization of the reference product in the EU. The ten-year market exclusivity period can be extended to a maximum of eleven years if, during the first eight years of those ten years, the marketing authorization holder obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to their authorization, are held to bring a significant clinical benefit in comparison with existing therapies.

European Union orphan designation and exclusivity

The criteria for designating an orphan medicinal product in the European Union, are similar in principle to those in the United States. Under Article 3 of Regulation (EC) 141/2000, a medicinal product may be designated as orphan if (1) it is intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition; (2) either (a) such condition affects no more than five in 10,000 persons in the European Union when the application is made, or (b) the product, without the benefits derived from orphan status, would not generate sufficient return in the European Union to justify investment; and (3) there exists no satisfactory method of diagnosis, prevention or treatment of such condition authorized for marketing in the European Union, or if such a method exists, the product will be of significant benefit to those affected by the condition, as defined in Regulation (EC) 847/2000. Orphan medicinal products are eligible for financial incentives such as reduction of fees or fee waivers and are, upon grant of a marketing authorization, entitled to ten years of market exclusivity for the approved therapeutic indication. The application for orphan designation must be submitted before the application for marketing authorization. The applicant will receive a fee reduction for the marketing authorization application if the orphan designation has been granted, but not if the designation is still pending at the time

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the marketing authorization is submitted. Orphan designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process.

The ten-year market exclusivity in the European Union may be reduced to six years if, at the end of the fifth year, it is established that the product no longer meets the criteria for orphan designation, for example, if the product is sufficiently profitable not to justify maintenance of market exclusivity. Additionally, marketing authorization may be granted to a similar product for the same indication at any time if:

Rest of the world regulation

For other countries outside of the European Union and the United States, such as countries in Eastern Europe, Latin America or Asia, the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from jurisdiction to jurisdiction. Additionally, the clinical trials must be conducted in accordance with cGCP requirements and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki.

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

Other U.S. healthcare laws

In addition to FDA restrictions on the marketing of pharmaceutical products, other U.S., federal and state healthcare regulatory laws restrict business practices in the pharmaceutical industry. Manufacturing, sales, promotion and other activities following product approval are also subject to regulation by numerous regulatory authorities in the United States in addition to the FDA, including the Centers for Medicare & Medicaid Services, or CMS, other divisions of the Department of Health and Human Services, or HHS, the Department of Justice, the Drug Enforcement Administration, the Consumer Product Safety Commission, the Federal Trade Commission, the Occupational Safety & Health Administration, the Environmental Protection Agency, and state and local governments. For example, in the United States, sales, marketing, scientific and educational activities also must comply with federal and state fraud and abuse laws (including, but not limited to, federal and state anti-kickback and false claims), drug pricing laws, transparency reporting laws, and data privacy laws.

The U.S. federal anti-kickback statute is a key federal fraud and abuse law. The U.S. federal anti-kickback statute prohibits, among other things, any person or entity from knowingly and willfully offering, paying, soliciting, receiving or providing any remuneration, directly or indirectly, overtly or covertly, to induce or in return for purchasing, leasing, ordering or arranging for or recommending the purchase, lease or order of any good, facility, item or service reimbursable, in whole or in part, under Medicare, Medicaid or other federal healthcare programs. The term “remuneration” has been broadly interpreted to include anything of value. The anti-kickback statute has been interpreted to apply to arrangements between pharmaceutical and medical device manufacturers on the one hand and prescribers, purchasers, formulary managers and beneficiaries on the other hand. Recently, pharmaceutical manufacturers’ patient support activities have been increasingly scrutinized as potentially providing prohibited remuneration to patients (and where such services ease providers’ administrative burdens, to providers as well) where such activities are not appropriately structured to comply with the U.S. federal anti-kickback statute (and other applicable healthcare fraud and abuse laws and government guidance). Although there are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution, the exceptions and safe harbors are drawn narrowly. Practices that involve remuneration that may be alleged to be intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not meet the requirements of a statutory or regulatory exception or safe harbor. Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the U.S. federal anti-kickback statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all its facts and circumstances. Several courts have interpreted the statute’s intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of federal healthcare covered business, the statute has been violated. In addition, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. Moreover, a claim including items or services resulting from a violation of the U.S. federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act. The majority of states also have anti-kickback laws, which establish similar

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prohibitions and, in some cases, may apply to items or services reimbursed by any third-party payor, including commercial insurers, or to self-pay patients.

The federal false claims and civil monetary penalties laws, including the civil False Claims Act, prohibit, among other things, any person or entity from knowingly presenting, or causing to be presented, a false, fictitious or fraudulent claim for payment to, or approval by, the federal government, knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government, or knowingly making a false statement to avoid, decrease or conceal an obligation to pay money to the U.S. federal government. A claim includes “any request or demand” for money or property presented to the U.S. government. Actions under the civil False Claims Act may be brought by the Attorney General or as a qui tam action by a private individual in the name of the government. Violations of the civil False Claims Act can result in very significant monetary penalties and treble damages. As noted above, violations of the U.S. federal anti-kickback statute can give rise to False Claims Act violations. In addition, companies have been prosecuted for causing false claims to be submitted because of the companies’ marketing of products for unapproved (e.g., off-label), and thus non-covered, uses. In addition, the civil monetary penalties statute imposes penalties against any person who is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent. Many states also have similar fraud and abuse statutes or regulations that apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor.

Other U.S. healthcare laws and regulations may affect our current or future ability to operate. Federal laws require pharmaceutical manufacturers to report certain calculated product prices to the government or provide certain discounts or rebates to government authorities or private entities, often as a condition of reimbursement under federal healthcare programs. Some states also require reporting of certain drug prices or explanations for price increases.

The federal transparency requirements under the so-called federal “sunshine act” or Open Payments Act require certain manufacturers of drugs, devices, biologics and medical supplies reimbursed under Medicare, Medicaid, or the State Children’s Health Insurance Program to report to HHS information related to payments and other transfers of value provided to physicians and teaching hospitals and, beginning with transfers of value occurring in 2021, other healthcare practitioners, as well as ownership and investment interests held by physicians and their immediate family members. Analogous state laws and regulations require pharmaceutical companies to implement compliance programs including certain standards, to limit financial interactions with healthcare providers, or to track and report gifts, compensation and other remuneration provided to physicians and other health care providers.

In addition, products must meet applicable child-resistant packaging requirements under the U.S. Poison Prevention Packaging Act. Manufacturing, sales, promotion and other activities also are potentially subject to federal and state consumer protection and unfair competition laws. The distribution of biologic and pharmaceutical products is subject to additional requirements and regulations, including extensive record-keeping, licensing, storage and security requirements intended to prevent the unauthorized sale of pharmaceutical products.

HIPAA and subsequent amendments establish certain requirements related to the privacy, security, and transmission of individually identifiable health information apply to many healthcare providers, physicians and third-party payors with whom we interact, as do state health information privacy and data breach notification laws, which govern the collection, use, disclosure, and protection of health-related and other personal information, many of which differ from each other in significant ways and often are not pre-empted by HIPAA, thus complicating compliance efforts.

Because of the breadth of these laws and the narrowness of available exceptions and safe harbors, our business activities could potentially be subject to challenge under one or more of such laws. The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform, especially in light of the lack of applicable precedent and regulations. Federal and state enforcement bodies have recently increased their scrutiny of interactions between healthcare companies and healthcare providers, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry. Given the significant size of actual and potential settlements, we expect that the government authorities will continue to devote substantial resources to investigating healthcare providers’ and manufacturers’ compliance with applicable fraud and abuse laws.

Ensuring that business arrangements with third parties comply with applicable healthcare laws and regulations is costly and time consuming. If business operations are found to be in violation of any of the laws described above or any other applicable governmental regulations a pharmaceutical manufacturer may be subject to penalties, including civil, criminal and administrative penalties, damages, fines, disgorgement of profits, individual imprisonment, exclusion from governmental funded healthcare programs, such as Medicare and Medicaid, contractual damages, reputational harm, diminished profits and future earnings, additional reporting obligations and oversight if subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws, and curtailment or restructuring of operations, any of which could adversely affect a pharmaceutical manufacturer’s ability to operate its business and the results of its operations.

Similar foreign laws and regulations, which may include, for instance, applicable post-marketing requirements, anti-fraud and abuse laws and implementation of corporate compliance programs and reporting of payments or other transfers

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of value to healthcare professionals, may apply to us to the extent that any of our product candidates, once approved, are sold in a country other than the United States.

Coverage, pricing and reimbursement

Significant uncertainty exists as to the coverage and reimbursement status of any biological products for which we obtain regulatory approval. The United States government, state legislatures and foreign governments have shown significant interest in 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 drug and biologic products. In the United States and markets in other countries, patients who are prescribed products generally rely on third-party payors to reimburse all or part of the associated healthcare costs. Providers and patients are unlikely to use our products unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our products. As a result, if approved, sales of our product candidates will depend, in part, on the availability of coverage and adequate reimbursement from third-party payors. Third-party payors include government authorities, managed care plans, private health insurers and other organizations.

In the United States, the process for determining whether a third-party payor will provide coverage for a biological product typically is separate from the process for setting the price of such product or for establishing the reimbursement rate that the payor will pay for the product once coverage is approved. With respect to biologics, third-party payors may limit coverage to specific products on an approved list, also known as a formulary, which might not include all of the FDA-approved products for a particular indication, or place products at certain formulary levels that result in lower reimbursement levels and higher cost-sharing obligations imposed on patients. A decision by a third-party payor not to cover our product candidates could reduce physician utilization of a product. Moreover, a third-party payor’s decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available to enable a manufacturer to maintain price levels sufficient to realize an appropriate return on its investment in product development. Additionally, coverage and reimbursement for products can differ significantly from payor to payor. One third-party payor’s decision to cover a particular medical product does not ensure that other payors will also provide coverage for the medical product, or will provide coverage at an adequate reimbursement rate. As a result, the coverage determination process usually requires manufacturers to provide scientific and clinical support for the use of their products to each payor separately and is a time-consuming process.

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

Within the United States, if we obtain appropriate approval in the future to market any of our oral drug product candidates, those products could potentially be covered by various federal healthcare programs as well as purchased by government agencies. The participation in such programs or the sale of products to such agencies is subject to regulation. The marketability of any products for which we receive regulatory approval for commercial sale may suffer if such payors fail to provide adequate coverage and reimbursement.

Medicaid is a joint federal and state program that is administered by the states for low income and disabled beneficiaries. Under the Medicaid Drug Rebate Program, participating manufacturers are required to pay a rebate for each unit of product reimbursed by the state Medicaid programs. The amount of the rebate for each product is set by law and may be subject to an additional discount if certain pricing increases more than inflation.

Medicare is a federal program that is administered by the federal government that covers individuals age 65 and over as well as those with certain disabilities. Drugs that are not usually self-administered, such as infusion drugs, may be covered under Medicare Part B. Medicare Part B drugs are generally reimbursed at the “average sales price” of the drug plus 6%. Oral or other self-administered drugs may be covered under Medicare Part D. Medicare Part D provides coverage to enrolled Medicare patients for self-administered drugs (i.e., drugs that do not need to be injected or otherwise administered by a physician). Medicare Part D is administered by private prescription drug plans approved by the U.S. government and each drug plan establishes its own Medicare Part D formulary for prescription drug coverage and pricing, which the drug plan may modify from time-to-time. The prescription drug plans negotiate pricing with manufacturers and may condition formulary placement on the availability of manufacturer discounts. Since 2011, manufacturers with marketed brand name drugs have been required to provide a discount on brand name prescription drugs utilized by

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Medicare Part D beneficiaries when those beneficiaries reach the coverage gap in their drug benefits (initially 50% but increased to 70% in 2019).

Drug products are subject to discounted pricing when purchased by federal agencies via the Federal Supply Schedule, or FSS. FSS participation is required for a drug product to be covered and reimbursed by certain federal agencies and for coverage under Medicaid, Medicare Part B and the Public Health Service, or PHS pharmaceutical pricing program. FSS pricing is negotiated periodically with the Department of Veterans Affairs. FSS pricing is intended not to exceed the price that a manufacturer charges its most-favored non-federal customer for its product. In addition, prices for drugs purchased by the Veterans Administration, Department of Defense (including drugs purchased by military personnel and dependents through the TRICARE retail pharmacy program), Coast Guard, and PHS are subject to a cap on pricing (known as the “federal ceiling price”) and may be subject to an additional discount if pricing increases more than the rate of inflation.

To maintain coverage of drugs under the Medicaid Drug Rebate Program, manufacturers are required to extend discounts to certain purchasers under the PHS pharmaceutical pricing program. Purchasers eligible for discounts include hospitals that serve a disproportionate share of financially needy patients, community health clinics and other entities that receive health services grants from the PHS.

In addition, in many foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing and reimbursement vary widely from country to country. In the European Union, governments influence the price of products through their pricing and reimbursement rules and control of national healthcare systems that fund a large part of the cost of those products to consumers. Some jurisdictions operate positive and negative list systems under which products may only be marketed once a reimbursement price has been agreed to by the government. To obtain reimbursement or pricing approval, some of these countries may require the completion of clinical trials that compare the cost effectiveness of a particular product to currently available therapies. Other member states allow companies to fix their own prices for medicines, but monitor and control company profits. 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. The downward pressure on healthcare costs in general, particularly prescription products, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, in some countries, cross border imports from low-priced markets exert a commercial pressure on pricing within a country.

Healthcare reform and potential changes to healthcare laws

The FDA’s and other regulatory authorities’ policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. For example, in December 2016, the 21st Century Cures Act, or Cures Act, was signed into law. The Cures Act, among other things, is intended to modernize the regulation of drugs and devices and to spur innovation, but its ultimate implementation is uncertain. In addition, in August 2017, the FDA Reauthorization Act was signed into law, which reauthorized the FDAs user fee programs and included additional drug and device provisions that build on the Cures Act. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we otherwise may have obtained and we may not achieve or sustain profitability, which would adversely affect our business, prospects, financial condition and results of operations.

A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and other third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medical products and services, implementing reductions in Medicare and other healthcare funding and applying new payment methodologies. For example, in March 2010, the Affordable Care Act was enacted, which, among other things, increased the minimum Medicaid rebates owed by most manufacturers under the Medicaid Drug Rebate Program; introduced a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected; extended the Medicaid Drug Rebate Program to utilization of prescriptions of individuals enrolled in Medicaid managed care plans; imposed mandatory discounts for certain Medicare Part D beneficiaries as a condition for manufacturers’ outpatient drugs coverage under Medicare Part D; subjected drug manufacturers to new annual fees based on pharmaceutical companies’ share of sales to federal healthcare programs; imposed a new federal excise tax on the sale of certain medical devices; and established a Center for Medicare Innovation at the CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending.

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Since its enactment, there have been judicial and Congressional challenges to certain aspects of the Affordable Care Act, and we expect there will be additional challenges and amendments to the Affordable Care Act in the future. The current Presidential administration and members of the U.S. Congress have indicated that they may continue to seek to modify, repeal or otherwise invalidate all, or certain provisions of, the Affordable Care Act. Most recently, the Tax Cuts and Jobs Acts was enacted, which, among other things, removes penalties for not complying with the individual mandate to carry health insurance. A recent federal district court ruling struck down the Affordable Care Act in its entirety. While the presidential administration and CMS have both stated that the ruling will have no immediate effect, it is unclear how this decision, subsequent appeals, if any, and other efforts to repeal and replace the Affordable Care Act will impact the Affordable Care Act and our business.

In addition, other legislative changes have been proposed and adopted in the United States since the Affordable Care Act that affect healthcare expenditures. Recently, there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs and reform government program reimbursement methodologies for pharmaceutical and biologic products.

Other changes include the Budget Control Act of 2011, which, among other things, included aggregate reductions of Medicare payments to providers of 2% per fiscal year and that will remain in effect through 2027 unless additional action is taken by Congress. Individual states in the United States have become increasingly active in passing legislation and implementing regulations designed to control biotechnology and 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 cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative or executive action, either in the United States or abroad. We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services.

Human Capital

As of December 31, 2020, we had 170 full-time employees, including 70 in research and development, 23 in manufacturing, operations, and quality assurance, 43 in commercialization and 34 in general and administrative functions. We have no collective bargaining agreements with our employees, and we have not experienced any work stoppages. We consider our relations with our employees to be good.

We hire and maintain an experienced, committed, diverse, inclusive and highly motivated workforce. Effective attraction, development, and retention of human resource talent, or human capital, is vital to the success of our mission-driven growth strategy. We face intense competition for qualified individuals from numerous pharmaceutical and biotechnology companies, universities, governmental entities and other research institutions, and we believe that our future success will depend in large part on our continued ability to attract and retain highly skilled employees. To attract qualified applicants to our company and retain our employees, we offer a competitive rewards package consisting of base salary and cash target bonus, a comprehensive benefit package and equity compensation.

We want our employees to learn, grow and look for ways to help develop skills through industry, company and functional training, as well as mentoring opportunities. We offer a robust set of career-enhancing learning experiences and initiatives to all employees, aligned with our mission, vision, and values.

 

Corporate Information

We were incorporated in Delaware in 2017. Our principal executive offices are located at 1 Medimmune Way, Suite 100, Gaithersburg, MD 20878. Our website address is www.vielabio.com and the information contained in, or that can be accessed through, our website is not part of this annual report and should not be considered part of this annual report.

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Available Information

We file annual, quarterly, and current reports, proxy statements, and other documents with the Securities and Exchange Commission (SEC) under the Securities Exchange Act of 1934 (Exchange Act). The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers, including us, that file electronically with the SEC.

We also make available free of charge on our Internet website at www.vielabio.com our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and, if applicable, amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. These reports are available through the "Investor Relations—Financials and Filings—SEC Filings" section of our website.

Our code of ethics, other corporate policies and procedures, and the charters of our Audit Committee, Compensation Committee and Nominating and Governance Committee are available through our Internet website at www.vielabio.com.

Item 1A. Risk Factors.

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, the section of this Annual Report on Form 10-K entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operation” and our consolidated financial statements and related notes, before investing in our common stock. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that affect us. If any of the following risks occur, our business, operating results and prospects could be materially harmed. In that event, the price of our common stock could decline, and you could lose part or all of your investment.

 

Summary of Risk Factors

Our business is subject to numerous risks and uncertainties, including those highlighted in this section below, that represent challenges that we face in connection with the successful implementation of our strategy. The occurrence of one or more of the events or circumstances described in more detail in the risk factors below, alone or in combination with other events or circumstances, may have an adverse effect on our business, cash flows, financial condition and results of operations. Such risks include, but are not limited to:

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Risks Related to the Merger Agreement

 

The conditions under the Merger Agreement to Parent’s consummation of the Offer and our subsequent Merger with Purchaser may not be satisfied at all or in the anticipated timeframe.

 

Under the terms of the Merger Agreement, the consummation of Parent’s pending Offer and subsequent Merger is subject to customary conditions. Satisfaction of certain of the conditions is not within our control, and difficulties in otherwise satisfying the conditions may prevent, delay, or otherwise materially adversely affect the consummation of the pending Offer and subsequent Merger. These conditions include, among other things, there being validly tendered (and not validly withdrawn), a number of shares of our common stock that, considered together with all other shares of our common stock beneficially owned by Parent or any of its wholly owned subsidiaries (including Purchaser), subject to certain conditions, represent one more than 50% of the sum of (i) the total number of outstanding shares of our common stock at the expiration of the Offer, and (ii) the aggregate number of shares of our common stock issuable to holders of options (“Company Options”) to purchase shares of our common stock from whom we have received notices of exercise prior to the expiration of the Offer (and as to which shares of our common stock have not yet been issued to such exercising holders of Company Options).  We cannot predict with certainty whether and when any of the required conditions will be satisfied. If the Merger does not receive, or timely receive, the required regulatory approvals and clearances, or if another event occurs delaying or preventing the Merger, such delay or failure to complete the Merger may create uncertainty or otherwise have negative consequences that may materially and adversely affect our financial condition and results of operations, as well as the price per share for our common stock.

 

While Parent’s Offer and the proposed Merger are pending, we are subject to business uncertainties and contractual restrictions that could disrupt our business.

 

Whether or not the pending Offer and subsequent Merger is consummated, the Merger may disrupt our current plans and operations, which could have an adverse effect on our business and financial results. The pendency of the pending Offer and subsequent Merger may also divert management’s attention and our resources from ongoing business and operations, and our employees and other key personnel may have uncertainties about the effect of the pending Offer and

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subsequent Merger, and the uncertainties may impact our ability to retain, recruit, and hire key personnel while the Merger is pending or if it fails to close.

 

The preparations for the consummation of the Merger have placed and we expect will continue to place a significant burden on many of our management, employees and on our internal resources. The diversion of management’s attention away from operating our business in the ordinary course could adversely affect our financial results. Also, if, despite our efforts, key personnel depart because of these uncertainties and burdens, or because they do not wish to remain with the combined company, our business and results of operations may be adversely affected. We have incurred and will continue to incur significant expenses due to legal, advisory, printing and financial services fees related to the Merger. These expenses must be paid regardless of whether the Merger is consummated, which may materially and adversely affect our financial condition and results of operations.

Furthermore, we cannot predict how our business partners will view or react to the pending Offer and subsequent Merger upon consummation. If we are unable to reassure our business partners to continue transacting business with us, our financial condition and results of operations may be adversely affected.

 

In addition, the Merger Agreement generally requires us to operate our business and operations in the ordinary course pending consummation of the Merger and also restricts us from taking certain actions without Parent’s prior written consent during the interim period between the execution of the Merger Agreement and the effective time of the Merger (or the date on which the Merger Agreement is earlier terminated). For these and other reasons, the pendency of the proposed Merger could adversely affect our business and results of operations.

Our executive officers and directors may have interests that are different from, or in addition to, those of our stockholders generally.

 

Our executive officers and directors may have interests in the Merger that are different from, or are in addition to, those of our stockholders generally. These interests include direct or indirect ownership of our common stock and stock options, and for executive officers, employment agreements, retention bonuses and employee benefits following the completion of the pending Offer and subsequent Merger.

Litigation filed or that may be filed against us and/or the members of our board of directors could prevent or delay the consummation of the Merger.

 

Lawsuits filed, or that may be filed, could delay or prevent our acquisition by Parent, divert the attention of our management and employees from our day-to-day business and otherwise adversely affect us financially. The outcome of any lawsuit filed or that may be filed challenging the Merger is uncertain. One of the conditions to the closing of the Merger is that there has not been issued by any court of competent jurisdiction and remains in effect any judgment, temporary restraining order, preliminary or permanent injunction or other order preventing the consummation of the Merger. Accordingly, if any lawsuit (including but not limited to the legal proceedings discussed in this report in Part I, Item 3 — “Legal Proceedings”) is successful in obtaining an order enjoining the Merger, then the Merger may not be consummated within the expected time frame, or at all, and could result in substantial costs, including but not limited to, costs associated with the indemnification of our directors and officers.

In the event that the Merger is not consummated, the trading price of our common stock and our future business and results of operations may be negatively affected.

 

The conditions to the consummation of the pending Offer and subsequent Merger may not be satisfied, as noted above. If the Merger is not consummated, we would remain liable for significant transaction costs, and the focus of our management would have been diverted from seeking other potential strategic opportunities, in each case without realizing any benefits of the Merger. For these and other reasons, not consummating the Merger could adversely affect our business and results of operations.

 

Furthermore, if the pending Offer and subsequent Merger are not consummated, the price of our common stock may decline significantly from the current market price, which we believe reflects a market assumption that the Merger will be consummated. Further, a failure of the Merger may result in negative publicity and a negative impression of us in the investment community, and have a negative impact on our ability to raise additional financing in the future. Finally, any disruptions to our business resulting from the announcement and pendency of the Merger, including any adverse changes in our relationships with our business partners and employees or recruiting and retention efforts, could continue or accelerate in the event of a failed transaction.

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If the Merger Agreement is terminated, we may, under certain circumstances, be obligated to pay a termination fee to Parent. These costs could require us to use available cash that would have otherwise been available for other uses.

 

If the Merger is not completed, in certain circumstances, we could be required to pay a termination fee of $107.0 million to Parent. If the Merger Agreement is terminated, the termination fee we may be required to pay, if any, under the Merger Agreement may require us to use available cash that would have otherwise been available for general corporate purposes or other uses. For these and other reasons, termination of the Merger Agreement could materially and adversely affect our business, results of operations or financial condition, which in turn would materially and adversely affect the price per share of our common stock.

The following risk factors assume that we remain a stand-alone company except as otherwise noted

Risks Related to Our Financial Position and Need For Additional Capital

We have incurred significant operating losses since our inception. We expect to incur losses for the foreseeable future and may never achieve or maintain profitability.

We have incurred significant operating losses since our inception, including an operating loss of $153.9 million,   $89.7 million, and $192.3 million for the years ended December 31 2020, 2019, and 2018, respectively. To date, we have financed our operations through private placements of our preferred stock and public offering of our common stock. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. The operating losses we incur may fluctuate significantly from quarter-to-quarter and year-to-year. We anticipate that our expenses will increase substantially if and as we:

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Because of the numerous risks and uncertainties associated with developing pharmaceutical drugs, we are unable to predict the extent of any future losses or when we will become profitable, if at all. In addition, our expenses could increase beyond expectations if we are required by the FDA or foreign regulatory agencies, to perform nonclinical studies and clinical trials in addition to those that we currently anticipate, or if there are any delays in our or our partners completing clinical trials or the development of any of our product candidates.

To become and remain profitable, we must develop and eventually commercialize a product or products with significant product revenue. This will require us to be successful in a range of challenging activities, including the following:

In cases where we are successful in obtaining marketing approval for one or more of our product candidates, our revenue will be dependent, in part, upon the size of the markets in the territories for which we gain marketing approval, the accepted price for the product, the ability to obtain coverage and adequate reimbursement, and ownership of commercial rights for that territory. If the number of our addressable patients is not as significant as we estimate, the indication approved by regulatory authorities is narrower than we expect or the treatment population is narrowed by competition, physician choice or treatment guidelines, we may not generate significant revenue of such products, even if approved.

The revenue we generate may not be significant or large enough to achieve profitability. If we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis and we will continue to incur substantial research and development and other expenditures to develop and market additional product candidates. Our failure to become and remain profitable would decrease our value and could impair our ability to raise capital, maintain our discovery and nonclinical development efforts, expand our business or continue our operations and may require us to raise additional capital that may dilute your ownership interest. A decline in our value could also cause you to lose all or part of your investment.

Our limited operating history may make it difficult for you to evaluate the success of our business to date and to assess our future viability.

We are a biopharmaceutical company. Biopharmaceutical drug development is a highly speculative undertaking and involves a substantial degree of risk. We were incorporated in December 2017, and our operations to date have been limited to organizing and staffing our company, business planning, raising capital, developing our technology, identifying potential product candidates, undertaking nonclinical studies and conducting clinical trials. Our commercial product and each of our current product candidates was acquired from MedImmune in February 2018. Accordingly, prior to the February 2018 asset purchase, all nonclinical studies and clinical trials related to our current product candidates were conducted by MedImmune. Typically, it takes several years to develop one new drug from the time it is discovered to when it is available for treating patients. In addition, as a new business, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. We will need to continue transitioning from a company with a research focus to a company capable of supporting commercial activities while maintaining a research focus. We may not be successful in such a transition.

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We will need substantial additional funding. If we are unable to raise capital when needed, we would be compelled to delay, reduce or eliminate our product development programs or commercialization efforts.

The development of biological products is capital-intensive. We expect our expenses to increase in parallel with our ongoing activities, particularly as commercialize and manufacture Uplizna^® for treatment in patients with NMOSD and conduct larger-scale clinical trials of, and seek marketing approval for, our other product candidates. If we obtain marketing approval for any of our other product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. In addition, our expenses could increase beyond expectations if the FDA or comparable foreign regulatory authorities require us to perform nonclinical studies and clinical trials in addition to those that we currently anticipate. We may also need to raise additional funds sooner if we choose to pursue additional indications and/or geographies for our product candidates or otherwise expand more rapidly than we presently anticipate. Furthermore, we expect to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or eliminate our clinical programs, development efforts or any future commercialization efforts.

As of December 31, 2020, we had $130.1 million in cash and cash equivalents. We believe that, based upon our current operating plan, our existing capital resources, will be sufficient to fund our anticipated operations into 2023. Our future capital requirements and the period for which we expect our existing resources to support our operations may vary significantly from what we expect. Our monthly spending levels vary based on new and ongoing research and development and other corporate activities. Because the length of time and activities associated with successful research and development of our product candidates is highly uncertain, we are unable to estimate the actual funds we will require for development and any approved marketing and commercialization activities. In addition, our future capital requirements will depend on many factors, and could increase significantly as a result of many factors, including:  

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Conducting nonclinical studies and clinical trials is a time-consuming, expensive and uncertain process that can take years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve significant product sales. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, may be derived from sales of products that may not be commercially available for several years, if ever. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives.

Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates. Volatility in the financial markets have generally made equity and debt financing more difficult to obtain and may have a material adverse effect on our ability to meet our fundraising needs. We cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. Moreover, the terms of any financing may adversely affect the holdings or the rights of our stockholders and the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our shares to decline.

If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs or the commercialization of any product candidate or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could materially affect our business, financial condition and results of operations.

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

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of private and public equity financings, debt financings, collaborations, strategic alliances and licensing arrangements. The sale of additional equity or convertible debt securities would dilute all of our stockholders and the terms of these securities may include liquidation or other preferences that adversely affect the rights of other stockholders. The incurrence of indebtedness would result in increased fixed payment obligations, and we may be required to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights, limitations on declaring dividends, limitations on our ability to redeem our shares and other operating restrictions that could adversely impact our ability to conduct our business. We could also be required to seek funds through collaborations, strategic alliances or licensing arrangements with third parties, and we could be required to do so at an earlier stage than otherwise would be desirable. In connection with any such collaborations, strategic alliances or licensing arrangements, we may be required to relinquish valuable rights to our intellectual property, future revenue streams, research programs or product candidates, grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves, or otherwise agree to terms unfavorable to us, any of which may have a material adverse effect on our business, operating results and prospects.

Risks Related to Development of Our Product Candidates

We depend heavily on the success of inebilizumab, VIB4920 and VIB7734, which are in various stages of clinical development and commercialization. If we are unable to advance our product candidates in clinical development, obtain regulatory approval and ultimately commercialize our product candidates, or experience significant delays in doing so, our business will be materially harmed.

We do not currently generate any significant revenues from sales of any products.  On June 11, 2020, the FDA approved Uplizna^®  (inebilizumab-cdon) for the treatment of adult patients with NMOSD who are anti-AQP4 antibody positive as a twice-a-year maintenance regimen following initial doses. Even if we successfully commercialize Uplizna^® or any of our product candidates, if approved, our commercial opportunities may be limited.

Commencing clinical trials in the United States is subject to acceptance by the FDA of an Investigational New Drug Application, or IND, with respect to each product candidate in each indication, and finalizing the trial design based on discussions with the FDA. In the event that the FDA requires us to complete additional pre-clinical studies or we are required to satisfy other FDA requests, the start of our planned future clinical trials in the United States may be delayed. In particular, the FDA has not yet acknowledged IgG4-related diseases as an indication.

We have three product candidates in various stages of clinical development and two product candidates in the pre-clinical development stage. We may not be able to demonstrate that they are safe or effective in the indications for which we are studying them, and they may not be approved. On June 11, 2020, the FDA approved Uplizna^®  (inebilizumab-cdon) for the treatment of adult patients with NMOSD who are anti-AQP4 antibody positive as a twice-a-year maintenance regimen following initial doses. We commercially launched Uplizna^® in June following FDA approval. In 2019, we initiated

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a Phase 2b trial for VIB4920 in Sjögren’s syndrome, which is designed as Phase 3-enabling, and initiated a separate Phase 2 trial for VIB4920 in kidney transplant rejection. In November 2020, we reported the final data from our phase 1b trial with VIB7734 in an oral presentation at the American College of Rheumatology Convergence 2020. We also have pre-clinical product candidates that will need to progress through IND-enabling studies prior to clinical development. We are not permitted to market or promote any of our product candidates before we receive regulatory approval from the FDA or comparable foreign regulatory authorities, and we may never receive such regulatory approval for any of our product candidates

Other than the BLA for inebilizumab in patients with NMOSD that we submitted to the FDA in June 2019, which the FDA accepted for review in August 2019 and approved for the treatment of adult patients with NMOSD who are anti-AQP4 antibody positive as a twice-a-year maintenance regimen following initial doses, we have submitted a BLA in Europe, and our collaborators have submitted BLAs in Japan, Korea, and China. We may never submit marketing applications to the FDA or comparable foreign regulatory authorities for our product candidates. We cannot be certain that any of our product candidates will be successful in clinical trials or receive regulatory approval. Further, our product candidates may not receive regulatory approval even if they are successful in clinical trials and we do submit marketing applications seeking regulatory authorization for their use. If we do not receive regulatory approvals for one or more of our product candidates, we may not be able to continue our operations.

For each product candidate, we must demonstrate its safety and efficacy in humans, obtain regulatory approval in one or more jurisdictions, obtain manufacturing supply, capacity and expertise, and substantially invest in marketing efforts before we are able to generate any revenue from such product candidate. The success of our product candidates will depend on several factors, including the following:

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If we are unable to address one or more of these factors in a timely manner or at all, we could experience significant delays in the successful commercialization of, or an inability to successfully commercialize, our product candidates, which would materially harm our business. If we do not receive regulatory approvals for one or more of our product candidates, we may not be able to continue our operations. Even if we successfully obtain regulatory approvals to manufacture and market our product candidates, our revenues will be dependent, in part, upon the size of the markets in the territories for which we gain regulatory approval and have commercial rights. If the markets for patient subsets that we are targeting are not as significant as we estimate, we may not generate significant revenues from sales of such products, if approved.

Similar to Uplizna^®, we plan to seek regulatory approval to commercialize our product candidates in the United States and potentially in foreign countries. While the scope of regulatory approval is similar in many countries, to obtain separate regulatory approval in multiple countries we will be required to comply with numerous and varying regulatory requirements of each such country or jurisdiction regarding safety and efficacy and governing, among other things, clinical trials and commercial sales, pricing and distribution, and we cannot predict success in any such jurisdictions. The time required to obtain approval in foreign countries may differ substantially from that required to obtain FDA approval.

Clinical drug development involves a lengthy and expensive process, with an uncertain outcome. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates.

The risk of failure in drug development is high. The FDA approved Uplizna^® (inebilizumab-cdon) for the treatment of adult patients with NMOSD who are anti-AQP4 antibody positive as a twice-a-year maintenance regimen following initial doses. All our remaining product candidates are in clinical and pre-clinical development. Before obtaining marketing approval from regulatory authorities for the sale of any product candidate, we must complete nonclinical development and conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates in humans. Clinical trials are expensive, difficult to design and implement and can take several years to complete, and their outcomes are inherently uncertain. Failure can occur at any time during the clinical trial process. Nonclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in nonclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their products. It is impossible to predict when or if any of our product candidates will prove to be effective or safe in humans or will receive marketing approval.

We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval or commercialize our product candidates. Clinical trials may be delayed, suspended or prematurely terminated because costs are greater than we anticipate or for a variety of other reasons, such as:

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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 marketing approval for our product candidates. Further, the FDA or comparable foreign 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 it has reviewed and commented on the design for our clinical trials.

If we are required to conduct additional clinical trials or other nonclinical studies of our product candidates beyond those that we currently contemplate, if we are unable to successfully complete clinical trials of our product candidates or other studies, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may:

Prior to approving a new product, the FDA generally requires that the efficacy of the product be demonstrated in two adequate and well-controlled clinical trials. In some situations, the FDA approves products on the basis of a single well-controlled clinical trial. However, if the FDA or EMA determines that our pivotal trial results do not demonstrate a clinically meaningful benefit and an acceptable safety profile, or if the FDA or EMA requires us to conduct additional pivotal trials of our product candidates in order to gain approval, we will incur significant additional development costs, commercialization of our product candidates would be prevented or delayed and our business would be adversely affected.

Our product development costs will also increase if we experience delays in nonclinical and clinical development or receiving the requisite marketing approvals. We do not know whether any of our nonclinical studies or clinical trials will need to be restructured or will be completed on schedule, or at all. Significant nonclinical or clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do and impair our ability to successfully commercialize our product candidates and may harm our business and results of operations.

If we experience delays or difficulties in the enrollment of patients in clinical trials, development of our product candidates may be delayed or prevented, which would have a material adverse effect on our business.

We may not be able to initiate or continue clinical trials for our product candidates if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or comparable foreign regulatory authorities. Patient enrollment is a significant factor in the timing of clinical trials. In particular, because certain

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of our clinical trials are focused on indications with small patient populations, our ability to enroll eligible patients may be limited or may result in slower enrollment than we anticipate. For example, based on an estimated prevalence of myasthenia gravis of 20 per 100,000 in the United States, we estimate the patient population to be approximately 56,000 and based on an estimated prevalence of systemic sclerosis of 13.5 to 44.3 per 100,000 in Europe and North America, we estimate the patient population to be approximately 300,000.

Patient enrollment may be affected if our competitors have ongoing clinical trials for product candidates that are under development for the same indications as our product candidates, and patients who would otherwise be eligible for our clinical trials instead enroll in clinical trials of our competitors’ product candidates. Patient enrollment may also be affected by other factors, including:

If we experience delays or difficulties in the enrollment of patients in clinical trials, our clinical trials may be delayed or terminated. Any delays in completing our clinical trials will increase our costs, delay or prevent our product candidate development and approval process and jeopardize our ability to commence product sales and generate revenue. Any of these occurrences may harm our business, financial condition and prospects significantly.

The outcome of pre-clinical testing and early clinical trials may not be predictive of the success of later clinical trials, and the results of our clinical trials may not satisfy the requirements of the FDA or comparable foreign regulatory authorities.

Clinical failure can occur at any stage of clinical development. Clinical trials may produce negative or inconclusive results, and we or any future collaborators may decide, or regulators may require us, to conduct additional clinical trials or pre-clinical studies. We will be required to demonstrate with substantial evidence through well-controlled clinical trials that our product candidates are safe and effective for use in a diverse population before we can seek marketing approvals for their commercial sale. Success in pre-clinical studies and early-stage clinical trials does not mean that future larger registration clinical trials will be successful. This is because product candidates in later-stage clinical trials may fail to demonstrate sufficient safety and efficacy to the satisfaction of the FDA and comparable foreign regulatory authorities despite having progressed through pre-clinical studies and early-stage clinical trials. In particular, no compound with the mechanism of action of VIB4920 or VIB7734 has been commercialized, and the outcome of pre-clinical studies and early-stage clinical trials may not be predictive of the success of later-stage clinical trials.

From time to time, we may publish or report interim or preliminary data from our clinical trials. Interim or preliminary data from clinical trials that we may conduct may not be indicative of the final results of the trial and are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Interim or preliminary data also remain subject to audit and verification procedures that may result in the final data being materially different from the interim or preliminary data. As a result, interim or preliminary data should be viewed with caution until the final data are available.

In some instances, there can be significant variability in safety and efficacy results between different clinical trials of the same product candidate due to numerous factors, including changes in trial protocols, differences in size and type of the patient populations, differences in and adherence to the dosing regimen and other trial protocols and the rate of dropout among clinical trial participants. For example, in a Phase 1b trial, we observed that VIB4920 decreased disease

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activity in patients with rheumatoid arthritis. In 2019, we initiated a Phase 2b trial for VIB4920 in Sjögren’s syndrome and initiated a separate Phase 2 trial for VIB4920 in kidney transplant rejection. There is no assurance that VIB4920 will have a similar impact on disease activity in such Phase 2b and Phase 2 trials.

We do not know whether any clinical trials we may conduct will demonstrate consistent or adequate efficacy and safety sufficient to obtain marketing approval to market our product candidates.

If we do not achieve our projected development and commercialization goals in the timeframes we announce and expect, the commercialization of Uplizna^® or any additional product candidates, if approved, may be delayed, and our business will be harmed.

For planning purposes, we sometimes estimate the timing of the accomplishment of various scientific, clinical, regulatory and other product development objectives. These milestones may include our expectations regarding the commencement or completion of scientific studies and clinical trials, the submission of regulatory filings, or commercialization objectives. From time-to-time, we may publicly announce the expected timing of some of these milestones, such as the completion of an ongoing clinical trial, the initiation of other clinical programs, receipt of marketing approval or a commercial launch of a product. The achievement of many of these milestones may be outside of our control. All of these milestones are based on a variety of assumptions which, if not realized as expected, may cause the timing of achievement of the milestones to vary considerably from our estimates, including:

If we fail to achieve announced milestones in the timeframes we expect, the commercialization and clinical development of any of our product candidates may be delayed, and our business and results of operations may be harmed.

Risks Related to Marketing Approval and Other Legal Compliance Matters

If we are not able to obtain, or if there are delays in obtaining, required marketing approvals, we will not be able to commercialize our product candidates, and our ability to generate revenue will be materially impaired.

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 any of our product candidates, each such product candidate must be approved by regulatory authorities, such as the FDA pursuant to a BLA in the United States or in the EU by the EMA pursuant to a marketing authorization application, or MAA.

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The process of obtaining marketing approvals, both in the United States and abroad, is expensive and takes several years, 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. Failure to obtain marketing approval for a product candidate will prevent us from commercializing the product candidate in the relevant market or country. We have and expect to continue to rely on third-party CROs to assist us in planning and conducting clinical trials required for marketing approval. Obtaining marketing approval requires the submission of extensive nonclinical and clinical data and supporting information to regulatory authorities for each therapeutic indication to establish the product candidate’s safety and efficacy. Securing marketing approval also requires the submission of information about the product manufacturing process, and in many cases the inspection of manufacturing, processing, and packaging facilities by the regulatory authorities. Our product candidates 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, or there may be deficiencies in cGMP compliance by us or by our CMOs that could result in the candidate not being approved. Regulatory authorities 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 nonclinical studies or clinical trials. Our product candidates could be delayed in receiving, or fail to receive, marketing approval for many reasons, including the following:

In addition, even if we were to obtain approval, regulatory authorities may approve any of our product candidates for fewer or more limited indications than we request, may grant approval contingent on the performance of costly post-marketing clinical trials (referred to as “conditional” or “accelerated” approval depending on the jurisdiction) or may approve a product candidate with prescribing information that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. Any of the foregoing scenarios could materially harm the commercial prospects for our product candidates.

If we experience delays in obtaining approval or if we fail to obtain approval of our product candidates, the commercial prospects for our product candidates may be harmed and our ability to generate revenues will be materially impaired.

Our product candidates may cause undesirable side effects that could delay or prevent their marketing approval, limit their commercial potential, or result in significant negative consequences following marketing approval, if any.

Undesirable side effects caused by our product candidates could cause us or the FDA or other regulatory authorities to interrupt, delay or halt our clinical trials and could result in a more restrictive label or the delay or denial of marketing approval by the FDA or other regulatory authorities of our product candidates. Results of our clinical trials could reveal a high and unacceptable severity and prevalence of side effects. In such an event, our trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny approval of our product candidates for any or all targeted indications. In addition to this, the product-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences may harm our business, financial condition and prospects significantly.

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All of our product candidates modulate the immune system and carry risks, including the theoretical risk of serious infections and cancer. Across both the randomized and open-label treatment in our N-MOmentum trial for inebilizumab, the most common adverse reactions (greater than 10%) were urinary tract infection (20%), nasopharyngitis (13%), infusion reaction (12%), arthralgia (11%), and headache (10%). The most common infections reported by Uplizna^® -treated patients in the randomized and open-label periods included urinary tract infection (20%), nasopharyngitis (13%), upper respiratory tract infection (8%), and influenza (7%). In addition, two deaths were reported in the ongoing open-label period. One death occurred in a patient experiencing a myelitis attack and was considered unrelated to inebilizumab by the investigator. The second death was due to complications from mechanical ventilator-associated pneumonia in a patient who developed new neurological symptoms and seizures, the cause of which could not be definitively established. The possibility that the death was treatment-related could not be ruled out, and as a result, under the terms of the protocol for the trial, the death was assessed as treatment-related. There can be no assurance a foreign regulatory authority will agree with the classifications of the deaths made by the investigators or that we will not be required to conduct additional clinical trials of inebilizumab in order to establish an adequate safety database.

Further, clinical trials by their nature utilize a sample of the potential patient population. With a limited number of patients, rare and severe side effects of our product candidates may only be uncovered with a significantly larger number of patients exposed to the product candidate. If our product candidates receive marketing approval and we or others identify undesirable side effects caused by such product candidates (or any other similar products) after such approval, a number of potentially significant negative consequences could result, including:

We believe that any of these events could prevent us from achieving or maintaining market acceptance of the affected product candidates and could substantially increase the costs of commercializing our product candidates, if approved, and significantly impact our ability to successfully commercialize our product candidates and generate revenues.

A Breakthrough Therapy Designation by the FDA may not lead to a faster development or regulatory review or approval process, and does not increase the likelihood that our product candidates will receive marketing approval.

The FDA granted Breakthrough Therapy Designation to inebilizumab for the treatment of NMOSD, and we may seek such designation in the future for other product candidates. A Breakthrough Therapy is defined as a drug that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. For drugs that have been designated as Breakthrough Therapies, interaction and communication between the FDA and the sponsor can help to identify the most efficient path for development. Drugs designated as Breakthrough Therapies are also eligible for accelerated approval.

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FDA has discretion to determine whether the criteria for a Breakthrough Therapy has been met and whether to grant a Breakthrough Therapy Designation to an investigational product. Accordingly, even if we believe, after completing early clinical trials, that one of our product candidates meets the criteria for designation as a Breakthrough Therapy, the FDA may disagree and instead determine not to make such designation. In any event, the receipt of a Breakthrough Therapy Designation for a product candidate may not result in a faster development process, review or approval compared to product candidates considered for approval under conventional FDA procedures and does not assure ultimate approval by the FDA. In addition, even after granting Breakthrough Therapy Designation to our product candidates, the FDA may later decide that such product candidates no longer meet the conditions for qualification and withdraw such designation.

A Fast Track Designation by the FDA, even if granted for any of our product candidates, may not lead to a faster development or regulatory review or approval process and does not increase the likelihood that our product candidates will receive marketing approval.

We do not currently have Fast Track Designation for any of our product candidates, but may seek such designation in the future. If a drug is intended for the treatment of a serious or life-threatening condition and the drug demonstrates the potential to address unmet medical needs for this condition, the drug sponsor may apply for FDA Fast Track Designation. The FDA has broad discretion whether to grant this designation. Even if we believe a particular product candidate is eligible for this designation, we cannot assure you that the FDA would decide to grant it. Even if we do receive Fast Track Designation, we may not experience a faster development process, review or approval compared to conventional FDA procedures. The FDA may withdraw Fast Track Designation if it believes that the designation is no longer supported by data from our clinical development program. Many drugs that have received Fast Track Designation have failed to obtain regulatory approval.

Any product candidate for which we obtain marketing approval will be subject to extensive post-marketing regulatory requirements and could be subject to post-marketing restrictions or withdrawal from the market, and we may be subject to penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with our products, when and if any of them are approved.

If the FDA or a comparable foreign regulatory authority approves any of our product candidates, activities such as the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. The FDA or a comparable foreign regulatory authority may also impose requirements for costly post-marketing nonclinical studies or clinical trials (often called “Phase 4 trials”) and post-marketing surveillance to monitor the safety or efficacy of the product. If we or a regulatory authority discover previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, production problems or issues with the facility where the product is manufactured or processed, such as product contamination or significant not-compliance with applicable cGMPs, a regulator may impose restrictions on that product, the manufacturing facility or us. If we or our third-party providers, including our CMOs, fail to comply fully with applicable regulations, then we may be required to initiate a recall or withdrawal of our products.

We must also comply with requirements concerning advertising and promotion for any of our product candidates for which we obtain marketing approval. Promotional communications with respect to prescription drugs and biologics are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product’s approved labeling. Thus, we will not be able to promote any products we develop for indications or uses for which they are not approved. The FDA closely regulates the post-approval marketing and promotion of drugs to ensure drugs are marketed only for the approved indications and in accordance with the provisions of the approved labeling. The FDA imposes stringent restrictions on manufacturers’ communications regarding use of their products, and if we promote our products beyond their approved indications, we may be subject to enforcement actions or prosecution arising from that off-label promotion. Violations of the Federal Food, Drug, and Cosmetic Act relating to the promotion of prescription drugs and biologics may lead to investigations alleging violations of federal and state healthcare fraud and abuse laws, as well as state consumer protection laws. Accordingly, with the marketing approval for Uplizna^®, we and our CMOs and other third-party partners will continue to expend time, money and effort in all areas of regulatory compliance, including promotional and labeling compliance, manufacturing, production, product surveillance, and quality control. If we are not able to comply with post-approval regulatory requirements, we could have marketing approval for any of our products withdrawn by regulatory authorities and our ability to market any future products could be limited, which could adversely affect our ability to achieve or sustain profitability. Thus, the cost of compliance with post-approval regulations may have a negative effect on our operating results and financial condition.

In addition, later discovery of previously unknown adverse events or other problems with any of our approved products, manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may yield various results, including:

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Non-compliance with European Union and other jurisdiction’s requirements regarding safety monitoring or pharmacovigilance can also result in significant financial penalties. Similarly, failure to comply with the European Union’s and other jurisdiction’s requirements regarding the protection of personal information can also lead to significant penalties and sanctions.

The FDA’s policies may change and additional government regulations may be enacted that could prevent, limit or delay marketing approval of our product candidates. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained, which would adversely affect our business, prospects and ability to achieve or sustain profitability.

Our relationships with prescribers, purchasers, third-party payors and patients will be 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 diminished profits and future earnings.

With the approval of Uplizna^®, we are subject to additional healthcare statutory and regulatory requirements and oversight by federal and state governments as well as foreign governments in the jurisdictions in which we conduct our business. Physicians, other healthcare providers and third-party payors will play a primary role in the recommendation, prescription and use of any product candidates for which we obtain marketing approval. Our arrangements with such third parties may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain our business or financial arrangements and relationships through which we market, sell and distribute any products for which we may obtain marketing approval. Restrictions under applicable domestic and foreign healthcare laws and regulations include the following:

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Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. With the approval of Uplizna^® by FDA, we are subject to an expanded number of these laws and regulations and will need to expend resources to develop and implement policies and processes to promote ongoing compliance. If inebilizumab or any of our other product candidates are approved by comparable foreign regulatory authorities, we be subject to an expanded number of these laws and regulations and will need to expend resources to develop and implement policies and processes to promote ongoing compliance. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations, resulting in government enforcement actions.

If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion of products from federal healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians or other healthcare providers or entities with whom we expect to do business is found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from federal healthcare programs.

We may face difficulties from changes to current regulations and future legislation.

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

In the United States, there have been and continue to be a number of significant legislative initiatives to contain healthcare costs. Federal and state governments continue to propose and pass legislation designed to reform delivery of,

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or payment for, healthcare, which include initiatives to reduce the cost of healthcare. For example, in March 2010, the United States Congress enacted the Patient Protection and Affordable Care Act and the Healthcare and Education Reconciliation Act, or the ACA, which expanded healthcare coverage through Medicaid expansion and the implementation of the individual mandate for health insurance coverage and which included changes to the coverage and reimbursement of drug products under federal healthcare programs. The ACA contains a number of provisions that affect coverage and reimbursement of drug products and/or that could potentially reduce the demand for pharmaceutical products such as increasing drug rebates under state Medicaid programs for brand name prescription drugs and extending those rebates to Medicaid managed care and assessing a fee on manufacturers and importers of brand name prescription drugs reimbursed under certain government programs, including Medicare and Medicaid. Under the Trump administration, there have been ongoing efforts to modify or repeal all or certain provisions of the ACA. For example, tax reform legislation was enacted at the end of 2017 that eliminates the tax penalty established under the ACA for individuals who do not maintain mandated health insurance coverage beginning in 2019. In a May 2018 report, the Congressional Budget Office estimated that, compared to 2018, the number of uninsured individuals in the United States will increase by three million in 2019 and six million in 2028, in part due to the elimination of the individual mandate. The ACA has also been subject to judicial challenge. In December 2018, a federal district court, in a challenge brought by a number of state attorneys general, found the ACA unconstitutional in its entirety because, once Congress repealed the individual mandate provision, there was no longer a basis to rely on Congressional taxing authority to support enactment of the law. Pending appeals, which could take some time, the ACA is still operational in all respects.

Additional legislative actions to control U.S. healthcare or other costs have passed. The Budget Control Act, as amended, resulted in the imposition of 2% reductions in Medicare (but not Medicaid) payments to providers in 2013 and will remain in effect through 2027 unless additional Congressional action is taken.

Recently, there has been considerable public and government scrutiny in the United States of pharmaceutical pricing and proposals to address the perceived high cost of pharmaceuticals. The Trump administration has indicated an intent to address prescription drug pricing and recent Congressional hearings have brought increased public attention to the costs of prescription drugs and biologics. The Trump administration has made proposals, which, if implemented, could place limits or caps on pharmaceutical prices. Similarly, state governments also have sought to put in place limits and caps on pharmaceutical prices and have also requested rebates for certain pharmaceutical products. Whether any or all of these proposals will be implemented is uncertain.

We expect that current or future healthcare reform measures may result in more rigorous coverage criteria and in additional downward pressure on the price that we receive for any approved product. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our product candidates.

Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for biotechnology products. We cannot be sure whether additional legislative changes will be enacted, or whether FDA regulations, guidance or interpretations for biological products will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval and decision-making processes may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.

Inadequate funding for the FDA, the SEC and other government agencies could hinder their ability to hire and retain key leadership and other personnel, prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal business functions on which the operation of our business may rely, which could negatively impact our business.

The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, the ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory and policy changes. Average review times at the agency have fluctuated in recent years as a result. 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, which would adversely affect our business. For example, over the last several years, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA and the SEC, have had to furlough critical FDA, SEC and other government employees and stop critical activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business. Further, 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.

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Our future growth may depend, in part, on our ability to penetrate foreign markets, where we would be subject to additional regulatory burdens and other risks and uncertainties.

Our future profitability may depend, in part, on our ability to commercialize our product candidates in foreign markets. In order to market and sell products in the European Union and many other jurisdictions, separate marketing approvals must be obtained and numerous and varying regulatory requirements must be complied with. The approval procedure varies among countries and economic areas and can involve additional testing. The time required to obtain approval may differ substantially from that required to obtain FDA approval. The marketing approval process outside the United States generally includes all of the risks associated with obtaining FDA approval. In addition, in many countries outside the United States, it is required that the product be approved for reimbursement before the product can be approved for sale in these countries. Approval from regulatory authorities outside the United States may not be obtained on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside the United States does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA. Additionally, a failure or delay in obtaining marketing approval in one jurisdiction may have a negative effect on the marketing approval process in others. Obtaining foreign marketing approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs could delay or prevent the introduction of products in certain countries. Failure to comply with the regulatory requirements in international markets and/or receive applicable marketing approvals, will result in the reduced ability to realize the full market potential of product candidates.

We may not be able to file for marketing approvals and may not receive necessary approvals to commercialize our products in any foreign market. If we obtain approval of our product candidates and ultimately commercialize our product candidates in foreign markets, we would be subject to additional risks and uncertainties, including:

Foreign sales of our product candidates could also be adversely affected by the imposition of governmental controls, political and economic instability, trade restrictions and tariffs. In order to access certain foreign markets we anticipate entering into collaborations with third parties to develop and obtain certain products. For example, in May 2019, we entered into a collaboration agreement with Hansoh Pharmaceutical Group, or Hansoh Pharma, to co-develop and market inebilizumab in China, Hong Kong and Macau, and in October 2019, we entered into a license agreement with Mitsubishi Tanabe Pharma Corporation, or MTPC, for co-development and commercialization of inebilizumab in Japan, Thailand, South Korea, Indonesia, Vietnam, Malaysia, Philippines, Singapore, and Taiwan.

We may be subject to, or may in the future become subject to, U.S. federal and state, and foreign laws and regulations imposing obligations on how we collect, use, disclose, store and process personal information. Our actual or perceived failure to comply with such obligations could result in liability or reputational harm and could harm our business. Ensuring compliance with such laws could also impair our efforts to maintain and expand our customer base, and thereby decrease our revenue.

In many activities, including the conduct of clinical trials, we are subject to laws and regulations governing data privacy and the protection of health-related and other personal information. These laws and regulations govern our processing of personal data, including the collection, access, use, analysis, modification, storage, transfer, security breach notification, destruction and disposal of personal data.

The privacy and security of personally identifiable information stored, maintained, received or transmitted, including electronically, is subject to significant regulation in the United States and abroad. While we strive to comply with all applicable privacy and security laws and regulations, legal standards for privacy continue to evolve and any failure or

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perceived failure to comply may result in proceedings or actions against us by government entities or others, or could cause reputational harm, which could have a material adverse effect on our business.

Numerous foreign, federal and state laws and regulations govern collection, dissemination, use and confidentiality of personally identifiable health information, including state privacy and confidentiality laws (including state laws requiring disclosure of breaches), federal and state consumer protection and employment laws; HIPAA and European and other foreign data protection laws. These laws and regulations are increasing in complexity and number and may change frequently and sometimes conflict. The European Union’s omnibus data protection law, the General Data Protection Regulation, or GDPR, took effect on May 25, 2018. GDPR imposes numerous requirements on entities that process personal data in the context of an establishment in the European Economic Area, or EEA, or that process the personal data of data subjects who are located in the EEA. These requirements include, for example, establishing a basis for processing, providing notice to data subjects, developing procedures to vindicate expanded data subject rights, implementing appropriate technical and organizational measures to safeguard personal data, and complying with restrictions on the cross-border transfer of personal data from the EEA to countries that the European Union does not consider to have in place adequate data protection legislation, such as the United States. GDPR additionally establishes heightened obligations for entities that process “special categories” of personal data, such as health data. Nearly all clinical trials involve the processing of these “special categories” of personal data, and thus processing of personal data collected during the course of clinical trials is subject to heightened protections under GDPR. Violations of GDPR can lead to penalties of up to $20 million or 4% of an entity’s annual turnover.

As a means to transfer personal data from the EEA to the U.S., U.S.-based companies historically relied on compliance with the privacy principles of the EU-U.S. Privacy Shield, or the Privacy Shield. In July 2020, the Court of Justice for the European Union invalidated the Privacy Shield which was the fate of its predecessor, the EU-U.S. Safe Harbor. U.S. companies that currently rely on the Privacy Shield as the basis for cross-border transfer of personal data will need to establish another basis for cross-border transfer of personal data.

HIPAA establishes a set of national privacy and security standards for the protection of individually identifiable health information, including protected health information, or PHI, by health plans, certain healthcare clearinghouses and healthcare providers that submit certain covered transactions electronically, or covered entities, and their “business associates,” which are persons or entities that perform certain services for, or on behalf of, a covered entity that involve creating, receiving, maintaining or transmitting PHI. While we are not currently a covered entity or business associate under HIPAA, we may receive identifiable information from these entities. Failure to receive this information properly could subject us to HIPAA’s criminal penalties, which may include fines up to $250,000 per violation and/or imprisonment. In addition, responding to government investigations regarding alleged violations of these and other laws and regulations, even if ultimately concluded with no findings of violations or no penalties imposed, can consume company resources and impact our business and, if public, harm our reputation.

In addition, various states, such as California and Massachusetts, have implemented similar privacy laws and regulations, such as the California Confidentiality of Medical Information Act, that impose restrictive requirements regulating the use and disclosure of health information and other personally identifiable information. In addition to fines and penalties imposed upon violators, some of these state laws also afford private rights of action to individuals who believe their personal information has been misused. California’s patient privacy laws, for example, provide for penalties of up to $250,000 and permit injured parties to sue for damages. The interplay of federal and state laws may be subject to varying interpretations by courts and government agencies, creating complex compliance issues for us and potentially exposing us to additional expense, adverse publicity and liability. Further, as regulatory focus on privacy issues continues to increase and laws and regulations concerning the protection of personal information expand and become more complex, these potential risks to our business could intensify.

The legislative and regulatory landscape for privacy and data security continues to evolve, and there has been an increasing focus on privacy and data security issues which may affect our business. Failure to comply with current and future laws and regulations could result in government enforcement actions (including the imposition of significant penalties), criminal and/or civil liability for us and our officers and directors, private litigation and/or adverse publicity that negatively affects our business.

In the United States, California recently adopted the California Consumer Privacy Act of 2018, or CCPA, which will come into effect beginning in January 2020. The CCPA has been characterized as the first “GDPR-like” privacy statute to be enacted in the United States because it mirrors a number of the key provisions of the EU General Data Protection Regulation. The CCPA establishes a new privacy framework for covered businesses in the State of California, by creating an expanded definition of personal information, establishing new data privacy rights for consumers imposing special rules on the collection of consumer data from minors, and creating a new and potentially severe statutory damages framework for violations of the CCPA and for businesses that fail to implement reasonable security procedures and practices to prevent data breaches.

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Governments outside the United States tend to impose strict price controls, which may adversely affect our revenues  in such jurisdictions, if any.

In some countries, particularly the countries of the European Union, Japan and China, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. 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 reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be harmed, possibly materially.

If we or our third-party contractors fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could harm our business.

We and our third-party contractors are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations and those of our third-party contractors involve the use of hazardous and flammable materials, including chemicals and biological materials. Our operations and those of our third-party contractors also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from the use of hazardous materials by us or our third-party service contractors, we could be held liable for any resulting damages, and the amount of the liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties for failure to comply with such laws and regulations.

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

In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our discovery, nonclinical development or production efforts. Our failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.

Our business activities may be subject to the Foreign Corrupt Practices Act and similar anti-bribery and anti-corruption laws of other countries in which we operate.

We have conducted and have ongoing studies in international locations, and may in the future initiate additional studies in countries other than the United States. Our business activities may be subject to the Foreign Corrupt Practices Act, or FCPA, and similar anti-bribery or anti-corruption laws, regulations or rules of other countries in which we operate. The FCPA generally prohibits offering, promising, giving or authorizing others to give anything of value, either directly or indirectly, to a non-U.S. government official in order to influence official action or otherwise obtain or retain business. The FCPA also requires public companies to make and keep books and records that accurately and fairly reflect the transactions of the corporation and to devise and maintain an adequate system of internal accounting controls. Our business is heavily regulated and therefore involves significant interaction with public officials, including officials of non-U.S. governments. Additionally, in many other countries, the healthcare providers who prescribe pharmaceuticals are employed by their governments, and the purchasers of pharmaceuticals are government entities; therefore, our dealings with these prescribers and purchasers are subject to regulation under the FCPA. Recently the SEC and Department of Justice have increased their FCPA enforcement activities with respect to biotechnology and pharmaceutical companies. There is no certainty that all of our employees, agents or contractors, or those of our affiliates, will comply with all applicable laws and regulations, particularly given the high level of complexity of these laws. Violations of these laws and regulations could result in fines, criminal sanctions against us, our officers or our employees, the closing down of our facilities, requirements to obtain export licenses, cessation of business activities in sanctioned countries, implementation of compliance programs and prohibitions on the conduct of our business. Any such violations could include prohibitions on our ability to offer our products, if approved, in one or more countries and could materially damage our reputation, our brand, our international expansion efforts, our ability to attract and retain employees and our business, prospects, operating results and financial condition.

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Biologics carry unique risks and uncertainties, which could have a negative impact on future results of operations.

The successful discovery, development, manufacturing and sale of biologics is a long, expensive and uncertain process. There are unique risks and uncertainties with biologics. For example, access to and supply of necessary biological materials, such as cell lines, may be limited and governmental regulations restrict access to and regulate the transport and use of such materials. In addition, the development, manufacturing and sale of biologics is subject to regulations that are often more complex and extensive than the regulations applicable to other pharmaceutical products. Manufacturing biologics, especially in large quantities, is often complex and may require the use of innovative technologies. Such manufacturing also requires facilities specifically designed and validated for this purpose and sophisticated quality assurance and quality control procedures. Biologics are also frequently costly to manufacture because production inputs are derived from living animal or plant material, and some biologics cannot be made synthetically. Failure to successfully discover, develop, manufacture and sell our biological product candidates would adversely impact our business and future results of operations.

Risks Related to Our Dependence on Third Parties

We are reliant on AstraZeneca for a period of time for certain services and for the clinical supplies of our product candidates and the commercial supplies of Uplizna^®.

We were incorporated in December 2017 and, in February 2018, we acquired six molecules from MedImmune. Following the assets purchase, we entered into several agreements with AstraZeneca and MedImmune, including a license agreement, sublicense agreements, a transition services agreement, a master supply and development services agreement, a clinical supply agreement and a commercial supply agreement. AstraZeneca has no obligation to assist our operations and growth strategy, other than providing certain services or rights pursuant to these agreements. Pursuant to the transition services agreement, we are, and for a period of time will be, reliant on AstraZeneca for certain services, including, but not limited to, financial services, procurement activities, information technology services, clinical data management and statistical programming, clinical operations and development and commercial activities. AstraZeneca is obligated to provide each of these services for a designated period of time ranging from several months to approximately five years, depending upon the nature of the service provided.

We are, and for a period of time will be, substantially reliant on AstraZeneca to provide these services, and if AstraZeneca is unable or unwilling to satisfy its obligations under these agreements, we could incur operational difficulties or losses that could have a material and adverse effect on our business, prospects, financial condition and results of operations.

Furthermore, the services provided by AstraZeneca under these agreements do not include every service that is necessary to successfully operate our business, and AstraZeneca is only obligated to provide these services for limited periods of time. Accordingly, we must develop internal capabilities to perform these services, or obtain from other third parties services we currently receive from AstraZeneca. If we are unable to efficiently implement our own systems and services, or if we are unable to negotiate agreements with third-party providers of these services in a timely manner or on terms and conditions as favorable as those we receive from AstraZeneca, we may not be able to operate our business effectively and our financial condition may decline. Furthermore, if we fail to develop high-quality internal capabilities from third-party providers, in a cost-effective manner, we may be unable to operate our existing business or execute our strategic priorities successfully and efficiently, and our operating results and financial condition may be materially harmed.

We rely on, and expect to continue to rely on, third parties to conduct our clinical trials for our product candidates. If these third parties do not successfully carry out their contractual duties, comply with regulatory requirements or meet expected deadlines, we may not be able to obtain marketing approval for or commercialize our product candidates, and our business could be substantially harmed.

We do not have the ability to independently conduct clinical trials. We rely on and expect to continue to rely on medical institutions, clinical investigators, contract laboratories and other third parties, such as CROs, to conduct or otherwise support clinical trials for our product candidates. In addition, we rely on AstraZeneca for certain operational and regulatory services with respect to each of our product candidates and their clinical trials and pre-clinical studies.

We have and expect to continue to rely heavily on these parties to conduct clinical trials for our product candidates. Nevertheless, we will be responsible for ensuring that each of our clinical trials is conducted in accordance with the applicable protocol, legal and regulatory requirements and scientific standards.

We and our CROs will be required to comply with regulations, including good clinical practice, or GCP, and other related requirements for conducting, monitoring, recording and reporting the results of clinical trials to ensure that the data and results are scientifically credible and accurate, and that the trial patients are adequately informed of the potential risks of participating in clinical trials and their rights are protected. These regulations are enforced by the FDA, the Competent Authorities of the Member States of the EEA and comparable foreign regulatory authorities for any drugs in clinical development. The FDA and comparable foreign regulatory authorities enforce GCPs through periodic inspections of clinical trial sponsors, principal investigators and trial sites. If we or our CROs fail to comply with applicable GCPs, the

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clinical data generated in our clinical trials may be called into question and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before considering our marketing applications for approval. We cannot assure you that, upon inspection, the FDA or a comparable foreign regulatory authority will determine that any of our future clinical trials will comply with GCPs. In addition, our clinical trials must be conducted with product candidates produced under cGMPs. Our failure or the failure of our CROs to comply with these regulations may require us to repeat clinical trials, which would delay the marketing approval process and could also subject us to enforcement action. We also are required to register certain clinical trials and post the results of such completed clinical trials involving product candidates for which we receive marketing approval on a government-sponsored database, www.ClinicalTrials.gov, within certain timeframes. Failure to do so can result in fines, adverse publicity and civil and criminal sanctions.

Although we intend to design the clinical trials for our product candidates, CROs have administered and will continue to administer all of the clinical trials. As a result, many important aspects of our development programs, including their conduct and timing, will be outside of our direct control. Our reliance on third parties to conduct future clinical trials will also result in less direct control over the management of data developed through clinical trials than would be the case if we were relying entirely upon our own staff. Communicating with outside parties can also be challenging, potentially leading to mistakes as well as difficulties in coordinating activities. Outside parties may:

These factors may materially adversely affect the willingness or ability of third parties to conduct our clinical trials and may subject us to unexpected cost increases that are beyond our control. If the CROs have not or do not conduct clinical trials in a satisfactory manner, breach their obligations to us or fail to comply with regulatory requirements, the development, marketing approval and commercialization of our product candidates may be delayed, we may not be able to obtain marketing approval and commercialize our product candidates, or our development program may be materially and irreversibly harmed. If we are unable to rely on clinical data collected by our CROs, we could be required to repeat, extend the duration of, or increase the size of any clinical trials we conduct and this could significantly delay commercialization and require significantly greater expenditures.

If any of our relationships with these third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, any clinical trials such CROs are associated with may be extended, delayed or terminated, and we may not be able to obtain marketing approval for or successfully commercialize our product candidates. As a result, we believe that our financial results and the commercial prospects for our product candidates in the subject indication would be harmed, our costs could increase and our ability to generate revenue could be delayed.

We contract with third parties for the manufacture of our product candidates for nonclinical studies and clinical trials and expect to continue to do so for commercialization. This reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates or products or such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.

We do not currently own or operate, nor do we have any plans to establish in the future, any manufacturing facilities or personnel. We rely, and expect to continue to rely, on third parties for the manufacture of our product candidates for nonclinical studies and clinical trials, as well as for the commercial manufacture of Uplizna^®. In particular, we rely on AstraZeneca for the manufacture of the current clinical and commercial supplies of Uplizna^®, and for the current clinical and nonclinical supplies of our other product candidates. This reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates or approved products or such quantities at an acceptable cost or quality, which could delay, prevent or impair our development or commercialization efforts.

The facilities used to manufacture our product candidates must be evaluated by the FDA or a comparable foreign regulatory authority pursuant to inspections that will be conducted after we submit our marketing applications to the FDA to ensure compliance with cGMP. We do not control the manufacturing process of, and are completely dependent on, our contract manufacturers for compliance with cGMPs in connection with the manufacture of our product candidates. If AstraZeneca or other contract manufacturers we may engage in the future cannot successfully manufacture material that conforms to our specifications and the regulatory requirements of the FDA or a comparable foreign regulatory authority,

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we will not be able to use the product candidates or products produced at their manufacturing facilities. In addition, we have no control over the ability of AstraZeneca or other contract manufacturers we may engage in the future to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of our product candidates we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain marketing approval for or market our product candidates, if approved. Further, our failure, or the failure of AstraZeneca or other third party manufacturers we may engage in the future, to comply with applicable regulations could result in sanctions being imposed on us, including clinical holds, fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates or products, if approved, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect our business and supplies of our product candidates.

We may be unable to establish any agreements with third-party manufacturers or to do so on acceptable terms. Even if we are able to establish agreements with third party manufacturers, reliance on third party manufacturers entails additional risks, including:

Our current and future product candidates may compete with other product candidates and approved products for access to manufacturing facilities. There are a limited number of manufacturers that operate under cGMP regulations and that might be capable of manufacturing for us.

Any performance failure on the part of our existing or future manufacturers could delay clinical development or marketing approval. If our current contract manufacturers cannot perform as agreed, we may be required to replace such manufacturers. Although we believe that there are several potential alternative manufacturers who could manufacture our product candidates, we may incur added costs and delays in identifying and qualifying any such replacement. For example, AstraZeneca currently manufactures inebilizumab for us using their proprietary methods in certain steps of the manufacturing process. If we were to replace AstraZeneca for the manufacture of inebilizumab, we may incur additional costs and delays while the replacement manufacturer developed its own independent methods of manufacturing inebilizumab. Moreover, we would need to confirm that the drug product from the replacement manufacturer is comparable to the drug product that AstraZeneca is currently manufacturing for us.

Our current and anticipated future dependence upon others for the manufacture of our product candidates or products, if approved, may adversely affect our future profit margins and our ability to commercialize any products that receive marketing approval on a timely and competitive basis.

We, or our third-party manufacturers, may be unable to successfully scale-up manufacturing of our product candidates in sufficient quality and quantity, which would delay or prevent us from developing our product candidates and commercializing approved products, if any.

In order to conduct large-scale clinical trials of or commercialize our product candidates, we will need to manufacture them in large quantities. We, or any of our current or future manufacturing partners, including AstraZeneca, may be unable to successfully increase the manufacturing capacity for any of our product candidates in a timely or cost-effective manner, or at all. In addition, quality issues may arise during scale-up activities. Further, in order to release product and demonstrate stability of product candidates for use in late-stage clinical trials (and any subsequent products for commercial use), our analytical methods must be validated in accordance with regulatory guidelines. We may not be able to successfully validate, or maintain validation of, our analytical methods or demonstrate adequate purity, stability or comparability of the product candidates in a timely or cost-effective manner, or at all. If we, or any current or future manufacturing partners, including AstraZeneca, are unable to successfully scale up the manufacture of our product candidates, in sufficient quality and quantity, or if we encounter validation issues, the development, testing and clinical trials of that product candidate, may be delayed or infeasible, and regulatory approval or commercial launch of any resulting product, may be delayed or not obtained, which could significantly harm our business.

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The third parties upon which we rely for the supply of source materials, cell cultures and biological products are our sole sources of supply and have limited capacity, and the loss of any of these suppliers could harm our business.

Manufacturing biological products like our product candidates, especially in large quantities, is often complex and may require the use of innovative technologies to handle living microorganisms. Each lot of an approved biologic must undergo thorough testing for identity, strength, quality, purity and potency. Manufacturing biologics such as monoclonal antibodies and complex protein products requires facilities specifically designed for and validated for this purpose, and sophisticated quality assurance and quality control procedures are necessary. Slight deviations anywhere in the manufacturing process, including filling, labeling, packaging, storage and shipping and quality control and testing, may result in lot failures, product recalls or spoilage. When changes are made to the manufacturing process or any steps in the production and purification processes, we may be required to provide pre-clinical and clinical data showing the comparable identity, strength, quality, purity or potency of the products before and after such changes. Biologics are frequently more complex than chemical drugs to manufacture because production ingredients are derived from living animal or plant material, and most biologics cannot be made synthetically. Manufacturers of biological products often encounter difficulties in production, which include difficulties with production costs and yields, quality control and assurance and shortages of qualified personnel, as well as compliance with strictly enforced federal, state and foreign regulations.

The source materials and cell cultures used to produce our product candidates are supplied to us from single-source suppliers with limited capacity. Our ability to successfully develop our product candidates, and to ultimately supply our commercial products, if approved in quantities sufficient to meet the market demand, depends in part on our ability to obtain the source materials and biological products in accordance with cGMP regulatory requirements and in sufficient quantities for commercialization and clinical trials. We do not currently have arrangements in place for a redundant or second-source supply of any source material or biological product in the event any of our current suppliers cease their operations for any reason.

We do not know whether our suppliers will be able to meet our demand, either because of the nature of our agreements with those suppliers, our limited experience with those suppliers or our relative importance as a customer to those suppliers. It may be difficult for us to assess their ability to timely meet our demand in the future based on past performance. While our suppliers have generally met our demand for their products on a timely basis in the past, they may subordinate our needs in the future to their other customers.

For some of our product candidates, we intend to identify and qualify additional contract manufacturers prior to submission of a BLA to the FDA and/or an MAA to the EMA. Establishing additional or replacement suppliers for our product candidates, if required, may not be accomplished quickly. If we are able to find a replacement supplier, such replacement supplier would need to be qualified and may require additional marketing approval, which could result in further delay. While we seek to maintain adequate inventory of the source materials, cell cultures and other components needed to produce our product candidates, any interruption or delay in the supply of components or materials, or our inability to obtain such materials from alternate sources at acceptable prices in a timely manner could impede, delay, limit or prevent our development efforts, which could harm our business, results of operations, financial condition and prospects.

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

Our product candidate development programs and the potential commercialization of our product candidates will require substantial additional cash to fund expenses. For some of our product candidates, we may decide to collaborate with pharmaceutical and biotechnology companies for the development and potential commercialization of those product candidates. In particular, we initially plan to seek partnerships to pursue regulatory approval and commercialization of our product candidates outside the United States. For example, in May 2019, we entered into a license and collaboration agreement with Hansoh Pharma to co-develop and market inebilizumab in China, Hong Kong and Macau, and in October 2019, we entered into a license agreement with MTPC for co-development and commercialization of inebilizumab in Japan, Thailand, South Korea, Indonesia, Vietnam, Malaysia, Philippines, Singapore, and Taiwan.

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We face significant competition in seeking appropriate collaborators. Whether we reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include the design or results of clinical trials, the likelihood of approval by the FDA or comparable foreign regulatory authorities, the potential market for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, the potential of competing products and market conditions generally. The collaborator may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us for our product candidate. The terms of any collaborations or other arrangements that we may enter into may not be favorable to us.

We may also be restricted under existing or future collaboration agreements from entering into future agreements on certain terms with potential collaborators. Collaborations are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators.

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

In addition, any collaboration that we enter into may not be successful. The success of our collaboration arrangements will depend heavily on the efforts and activities of our collaborators. Collaborators generally have significant discretion in determining the efforts and resources that they will apply to these collaborations. Any such collaboration may require us to incur non-recurring or other charges, increase our near- and long-term expenditures and pose significant integration or implementation challenges or disrupt our management or business. These transactions would entail numerous operational and financial risks, including exposure to unknown liabilities, disruption of our business and diversion of our management’s time and attention in order to manage a collaboration, incurrence of substantial debt or dilutive issuances of equity securities to pay transaction consideration or costs, higher than expected collaboration or integration costs, write-down of assets or goodwill or impairment charges, increased amortization expenses and difficulty and cost in facilitating the collaboration.

Lastly, disagreements between parties to a collaboration arrangement regarding clinical development and commercialization matters can lead to delays in the development process or commercializing the applicable product candidate and, in some cases, termination of the collaboration arrangement. These disagreements can be difficult to resolve if neither of the parties has final decision-making authority. Collaborations with pharmaceutical or biotechnology companies and other third parties often are terminated or allowed to expire by the other party. Any such termination or expiration would adversely affect us financially and could harm our business reputation.

Risks Related to the Commercialization of Our Product Candidates

Uplizna^®, which received FDA approval in June 2020, or any of our product candidates that receive marketing approval, if any, may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success.

Uplizna^®, which received FDA approval in June 2020, or any of our product candidates that receive marketing approval, if any, may fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical community. If Uplizna^® or our product candidates, if approved, do not achieve an adequate level of acceptance, we may not generate significant product revenues and we may not become profitable. The degree of market acceptance of Uplizna^® or our product candidates, if approved for commercial sale, will depend on a number of factors, including:

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If any product candidate we commercialize fails to achieve market acceptance, it could have a material and adverse effect on our business, financial condition, results of operation and prospects.

We face substantial competition, which may result in others discovering, developing or commercializing competing products before or more successfully than we do.

The development and commercialization of new drug products is highly competitive. We face competition with respect to our current product candidates, and expect to face competition with respect to any product candidates that we may seek to develop or commercialize in the future, from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization.

Specifically, there are a number of companies developing or marketing treatments for autoimmune diseases, including many major pharmaceutical and biotechnology companies. Uplizna^®, our approved product for the treatment of patients with NMOSD, will compete with eculizumab from Alexion Pharmaceuticals, Inc., or Alexion, marketed as Soliris^®, and satralizumab, marketed as Ensprying^TM from Chugai Pharmaceuticals Co., Ltd., each for the treatment of patients with NMOSD. Both products have achieved successful pivotal studies in NMOSD and in June 2019, Alexion received FDA approval of Soliris^® for the treatment of adults with NMOSD and in August 2020 Chugai received approval for Ensprying^TM for the treatment of adults with NMOSD. If VIB4920 is approved, it would compete with: (a) if approved, dapirolizumab pegol, an investigational anti-CD40L pegylated Fab being developed in SLE jointly by UCB and Biogen, (b) Belatacept (NULOJIX^®), a selective T cell costimulation blocker indicated for prophylaxis of organ rejection in adult patients receiving a kidney transplant, developed by Bristol-Myers Squib, (c) if approved, BI 655064, a humanized mouse anti-human mAb being developed in SLE as part of a global collaboration of AbbVie and Boehringer Ingelheim, (d) if approved, CFZ533, a mAb being developed in primary Sjögren’s syndrome by Novartis and (e) multiple approved drugs or drugs that may be approved in the future for indications for which we may develop VIB4920. If VIB7734 is approved, it would compete with: (a) if approved for lupus, BIIB059, a mAb targeting BDCA2, which is a protein present in specific cells within the immune system, being developed by Biogen, (b) if approved for systemic sclerosis, Nintedanib, a tyrosine kinase inhibitor being developed by Boehringer Ingelheim and (c) multiple approved drugs or drugs that may be approved in the future for indications for which we may develop VIB7734.

Our commercial opportunity 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 or are less expensive than any products that we may develop. Our competitors also may obtain FDA or other marketing 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 and/or slow our marketing approval. For example, in June 2019 Alexion received FDA approval of Soliris^® for the treatment of adults with NMOSD and in August 2020 Chugai received approval for Ensprying^TM for the treatment of adults with NMOSD. Some of the important competitive factors affecting the success of all of our product candidates, if approved, are likely to be their efficacy, safety, convenience, price and the availability of reimbursement from government and other third-party payors.

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Many of the companies against which we are competing or against which we may compete in the future have significantly greater financial resources and expertise in research and development, manufacturing, nonclinical studies, conducting clinical trials, obtaining marketing approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller and early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.

Our product candidates for which we intend to seek approval may face generic or biosimilar competition sooner than anticipated.

Even if we are successful in achieving regulatory approval to commercialize a product candidate ahead of our competitors, our product candidates may face competition from biosimilar products. In the United States, our product candidates are regulated by the FDA as biological products and we intend to seek approval for these product candidates pursuant to the BLA pathway. The Biologics Price Competition and Innovation Act of 2009, or BPCIA, created an abbreviated pathway for FDA approval of biosimilar and interchangeable biological products based on a previously licensed reference product. Under the BPCIA, an application for a biosimilar biological product cannot be approved by the FDA until 12 years after the original reference biological product was approved under a BLA. The law is complex and is still being interpreted and implemented by the FDA. As a result, its ultimate impact, implementation, and meaning are subject to uncertainty. While it is uncertain when such processes intended to implement BPCIA may be fully adopted by the FDA, any such processes could have a material adverse effect on the future commercial prospects for our product candidates.

We believe that any of our product candidates approved as a biological product under a BLA should qualify for the 12-year period of exclusivity available to reference biological products. However, there is a risk that this exclusivity could be shortened due to congressional action or otherwise, or that the FDA will not consider our product candidates to be reference biological products pursuant to its interpretation of the exclusivity provisions of the BPCIA for competing products, potentially creating the opportunity for generic follow-on biosimilar competition sooner than anticipated. Moreover, the extent to which a biosimilar product, once approved, will be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing including whether a future competitor seeks an interchangeability designation for a biosimilar of one of our products. Under the BPCIA as well as state pharmacy laws, only interchangeable biosimilar products are considered substitutable for the reference biological product without the intervention of the health care provider who prescribed the original biological product. However, as with all prescribing decisions made in the context of a patient-provider relationship and a patient’s specific medical needs, healthcare providers are not restricted from prescribing biosimilar products in an off-label manner. In addition, a competitor could decide to forego the abbreviated approval pathway available for biosimilar products and to submit a full BLA for product licensure after completing its own preclinical studies and clinical trials. In such a situation, any exclusivity to which we may be eligible under the BPCIA would not prevent the competitor from marketing its biological product as soon as it is approved.

In Europe, the European Commission has granted marketing authorizations for several biosimilar products pursuant to a set of general and product class-specific guidelines for biosimilar approvals issued over the past few years. In addition, companies may be developing biosimilar products in other countries that could compete with our products, if approved.

If competitors are able to obtain marketing approval for biosimilars referencing our product candidates, if approved, our future products may become subject to competition from such biosimilars, whether or not they are designated as interchangeable, with the attendant competitive pressure and potential adverse consequences. Such competitive products may be able to immediately compete with us in each indication for which our product candidates may have received approval.

Uplizna^®, as well as any product candidates that we are able to commercialize, if any, may become subject to unfavorable pricing regulations or third-party coverage and reimbursement policies, which would harm our business.

The regulations that govern marketing approvals, pricing and reimbursement for new drugs vary widely from country to country. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain marketing approval for a product candidate in a particular country, but then be subject to price regulations that delay our commercial launch of the product candidate, possibly for lengthy time periods, and negatively impact the revenues we are able to generate from the sale of the product candidate in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates, even if our product candidates obtain marketing approval.

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Our ability to commercialize any product candidates successfully also will depend in part on the extent to which coverage and reimbursement for these product candidates and related treatments will be available from government authorities, private health insurers and other organizations. In the United States, reimbursement varies from payor to payor. Reimbursement agencies in Europe may be more conservative than federal healthcare programs or private health plans in the U.S. For example, a number of cancer drugs are generally covered and paid for in the United States, but have not been approved for reimbursement in certain European countries. A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and third-party payors have attempted to control costs by limiting coverage and the amount of payments for particular products. For example, payors may limit coverage to specific drug products on an approved list, also known as a formulary, which might not include all of the FDA-approved drugs for a particular indication. Payors may require use of alternative therapies or a demonstration that a product is medically necessary for a particular patient before use of a product will be covered. Additionally, payors may seek to control utilization by imposing prior authorization requirements. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for products. We cannot be sure that coverage will be available for any product candidate that we commercialize and, if coverage is available, what the level of reimbursement will be. Reimbursement may impact the demand for, or the price of, any product candidate for which we obtain marketing approval. Patients are unlikely to use our or our partners’ products unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of such products. If reimbursement is not available or is available only to limited levels, we may not be able to successfully commercialize any product candidate for which we obtain marketing approval.

In addition to CMS and private payors, professional organizations such as the American Autoimmune Related Diseases Association, Inc. can influence decisions about reimbursement for new medicines by determining standards of care. In addition, many private payors contract with commercial vendors who sell software that provide guidelines that attempt to limit utilization of, and therefore reimbursement for, certain products deemed to provide limited benefit to existing alternatives. Such organizations may set guidelines that limit reimbursement or utilization of our products.

There may be significant delays in obtaining reimbursement for newly approved drugs and biologics, and coverage may be more limited than the purposes for which the drug is approved by the FDA or comparable foreign regulatory authorities. Moreover, eligibility for reimbursement does not imply that any drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by discounts or rebates required by federal healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. Our inability to promptly obtain coverage and profitable payment rates from both government-funded and private payors for any approved products that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.

We currently have a focused marketing and sales force. If we are unable to establish effective sales or marketing capabilities or enter into agreements with third parties to sell or market our product candidates, we may not be able to effectively sell or market our product candidates, if approved, or generate product revenues.

To achieve commercial success for any approved product candidate for which we retain sales and marketing responsibilities, we must further build our sales, marketing, managerial, and other non-technical capabilities or make arrangements with third parties to perform these services. There are risks involved with both establishing our own sales and marketing capabilities and entering into arrangements with third parties to perform these services. For example, recruiting and training a sales force is expensive and time consuming and could delay any product launch. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.

Factors that may inhibit our efforts to commercialize our product candidates on our own include:

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We likely will have more limited control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our product candidates effectively, or they may fail to comply with promotional requirements for prescription products that could render our products misbranded in violation of FDA regulations and thus potentially subject to enforcement. If we do not establish sales and marketing capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing our other product candidates that receive marketing approval or any such commercialization may experience delays or limitations. If we are not successful in commercializing Uplizna^® or any of our other product candidates, either on our own or through collaborations with one or more third parties, our business, results of operations, financial condition and prospects will be materially adversely affected.

Product liability lawsuits against us could cause us to incur substantial liabilities and to limit commercialization of any products that we may develop.

We face an inherent risk of product liability exposure related to the evaluation of our product candidates in human clinical trials and will face an even greater risk with the commercialization of Uplizna^®. If we cannot successfully defend ourselves against claims that our product candidates or products caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:

Our current product liability insurance coverage may not be adequate to cover all liabilities that we may incur. We may need to increase our insurance coverage as we expand our clinical trials and have increased our insurance coverage as we commence commercialization of Uplizna^®. Insurance coverage is increasingly expensive. Our insurance policies also have various exclusions and deductibles, and we may be subject to a product liability claim for which we have no coverage. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.

The sizes of the patient populations suffering from some of the diseases we are targeting are small and based on estimates that may not be accurate.

Our projections of both the number of people who have some of the diseases we are targeting, as well as the subset of people with these diseases who have the potential to benefit from treatment with Uplizna^® and any of our future product candidates, are estimates. These estimates have been derived from a variety of sources, including scientific literature, surveys of clinics, physician interviews, patient foundations and market research, 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 Uplizna^® and any of our future product candidates may be limited or may not be amenable to treatment with Uplizna^® and any of our products, if and when approved. Even if we obtain significant market share for Uplizna^® and any of our products (if and when they are approved), small potential target populations for certain indications means we may never achieve profitability without obtaining market approval for additional indications.

Risks Related to Our Intellectual Property

If we are unable to obtain and maintain intellectual property protection for our technology and products, or if the scope of the intellectual property protection obtained is not sufficiently broad, our competitors could

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commercialize technology and products similar or identical to ours, and our ability to successfully commercialize our technology and products may be impaired.

Our success depends in large part on our ability to obtain and maintain patents in the United States and other countries that adequately protect our proprietary technology and products. We seek to protect our proprietary position by filing patent applications in the United States and in foreign countries that cover our novel technologies and product candidates. Our patent portfolio currently includes both patents and patent applications, most of which were acquired from MedImmune.

The patent prosecution process is expensive and time-consuming. We may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. We may choose not to seek patent protection for certain innovations and may choose not to pursue patent protection in certain jurisdictions. Under the laws of certain jurisdictions, patents or other intellectual property rights may be unavailable or limited in scope. It is also possible that we will fail to identify patentable aspects of our research and development before it is too late to obtain patent protection.

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. 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 with certainty whether we were the first to make the inventions claimed in our owned or licensed patents or pending patent applications, or that we were the first to file for patent protection of such inventions. As a result, the issuance, scope, validity, enforceability, term and commercial value of our patent rights are highly uncertain. Our pending and future patent applications may not result in patents being issued which protect our technology or products, in whole or in part, or which effectively prevent others from commercializing competitive technologies and products. For example, to date, none of our U.S. patent applications directed to VIB7734 have issued as patents. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection.

Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents. On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications are prosecuted and may also affect patent litigation. The U.S. Patent and Trademark Office, or U.S. PTO, recently developed new regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first-to-file provisions, became effective on March 16, 2013. The Leahy-Smith Act also created certain new administrative adversarial proceedings, discussed below. It is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business and financial condition.

The U.S. Supreme Court has issued opinions in patent cases in the last few years that many consider may weaken patent protection in the United States, either by narrowing the scope of patent protection available in certain circumstances, holding that certain kinds of innovations are not patentable or generally otherwise making it easier to invalidate patents in court. Additionally, there have been recent proposals for additional changes to the patent laws of the United States and other countries that, if adopted, could impact our ability to obtain patent protection for our proprietary technology or our ability to enforce our proprietary technology. Depending on future actions by the U.S. Congress, the U.S. courts, the U.S. PTO and the relevant law-making bodies in other countries, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.

Even if our patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our owned or licensed patents by developing similar or alternative technologies or products in a non-infringing manner.

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 in other countries. Such challenges 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 or identical technology and products, or limit the duration of the patent protection of our technology and products. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting

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such candidates might expire before or shortly after such candidates are commercialized. 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.

During patent prosecution in the United States and in most foreign countries, a third party can submit prior art or arguments to the reviewing patent office to attempt to prevent the issuance of a competitor’s patent. For example, our pending patent applications may be subject to a third-party preissuance submission of prior art to the U.S. PTO or an Observation in Europe. Such submission may convince the receiving patent office not to issue the patent. In addition, if the breadth or strength of protection provided by our patents and patent applications is reduced by such third party submission, it could affect the value of our resulting patent or dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates.

The risks described here pertaining to our patents and other intellectual property rights also apply to any intellectual property rights that we may license in the future, and any failure to obtain, maintain and enforce these rights could have a material adverse effect on our business. In some cases we may not have control over the prosecution, maintenance or enforcement of the patents that we license, and our licensors may fail to take the steps that we believe are necessary or desirable in order to obtain, maintain and enforce the licensed patents. In addition, even where we now have the right to control patent prosecution of patents and patent applications we have licensed from third parties or the patents and patent applications we acquired from others, we may still be adversely affected or prejudiced by actions or inactions of our licensors or the previous owners of such patents or patent applications. Any inability on our part to protect adequately our intellectual property may have a material adverse effect on our business, operating results and financial position.

Some intellectual property has been discovered through government-funded programs and thus may be subject to federal regulations such as “march-in” rights, certain reporting requirements and a preference for U.S.-based companies. Compliance with such regulations may limit our exclusive rights, and limit our ability to contract with non-U.S. manufacturers.

Some of our intellectual property rights, specifically, intellectual property rights related to inebilizumab that are in-licensed from Duke University, were generated through the use of U.S. government funding and are therefore subject to certain federal regulations. As a result, the U.S. government may have certain rights to intellectual property embodied in certain of our current or future product candidates pursuant to the Bayh-Dole Act of 1980, or the Bayh-Dole Act. These U.S. government rights in certain inventions developed under a government-funded program include a non-exclusive, non-transferable, irrevocable worldwide license to use inventions for any governmental purpose. In addition, the U.S. government has the right, under certain limited circumstances, to require us to grant exclusive, partially exclusive, or non-exclusive licenses to any of these inventions to a third party if it determines that: (i) adequate steps have not been taken to commercialize the invention; (ii) government action is necessary to meet public health or safety needs; or (iii) government action is necessary to meet requirements for public use under federal regulations (also referred to as “march-in rights”). To our knowledge, however, the U.S. government has, to date, not exercised any march-in rights on any patented technology that was generated using U.S. government funds. The U.S. government also has the right to take title to these inventions if we or the applicable grantee fail to disclose the invention to the government and fail to file an application to register the intellectual property within specified time limits. Intellectual property generated under a government funded program is also subject to certain reporting requirements, compliance with which may require us to expend substantial resources. In addition, the U.S. government requires that any products embodying the subject invention or produced through the use of the subject invention be manufactured substantially in the United States. The manufacturing preference requirement can be waived if the owner of the intellectual property can show that reasonable but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that would be likely to manufacture substantially in the United States or that under the circumstances domestic manufacture is not commercially feasible. This preference for U.S. manufacturers may limit our ability to contract with non-U.S. product manufacturers for products covered by such intellectual property. To the extent any of our current or future intellectual property is generated through the use of U.S. government funding, the provisions of the Bayh-Dole Act may similarly apply.

We may become involved in administrative adversarial proceedings in the U.S. PTO or in the patent offices of foreign countries brought by a third party to attempt to cancel or invalidate our patent rights, which could be expensive, time consuming and cause a loss of patent rights.

The Leahy-Smith Act created new and additional procedures to challenge issued patents in the U.S. PTO, including post-grant review, derivation proceedings and inter partes review proceedings, which some third parties have been using to invalidate selected or all claims of issued patents of competitors. For a patent with a priority date of March 16, 2013 or later, a petition for post-grant review can be filed by a third party in a nine month window from issuance of the patent. A petition for inter partes review can be filed immediately following the issuance of a patent (or at any time thereafter). A petition for inter partes review can be filed after the nine month period for filing a post-grant review petition has expired for a patent with a priority date of March 16, 2013 or later. Post-grant review proceedings can be brought on

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any ground of challenge, whereas inter partes review proceedings can only be brought to raise a challenge based on published prior art. These administrative adversarial actions at the U.S. PTO review patent claims without the presumption of validity afforded to U.S. patents in lawsuits in U.S. federal courts, use a lower standard of proof than used by U.S. federal courts. Moreover, any third party can request an inter partes review or post-grant review and does not have to satisfy the traditional requirements for standing to challenge the validity of an issued U.S. patent. Because of these differences between U.S. administrative and judicial adversarial patent proceedings, it is generally considered easier for a competitor or third party to have one or more U.S. patent claims cancelled in a patent office post-grant review or inter partes review proceeding than invalidated in a litigation in a U.S. federal court. If any of our patents are challenged by a third party in such a U.S. patent office proceeding, there is no guarantee that we will be successful in defending the patent, which would result in a loss of the challenged patent right to us.

Opposition or invalidation procedures are also available in most foreign countries. Many foreign authorities, such as the authorities at the European Patent Office, have only post-grant opposition proceedings, however, certain countries, such as India, have both pre-grant and post-grant opposition proceedings. If any of our patents are challenged in a foreign opposition or invalidation proceeding, we could face significant costs to defend our patents, and we may not be successful. Uncertainties resulting from the initiation, continuation or loss of such proceedings could have a material adverse effect on our ability to compete in the market place. Further, in many foreign jurisdictions, the losing party must pay the attorneys’ fees of the winning party, which can be substantial.

We may have to file one or more lawsuits in court to prevent a third party from selling a product or using a product in a manner that infringes our patent, which could be expensive, time consuming and unsuccessful, and ultimately result in the loss of our proprietary market.

Because competition in our industry is intense, competitors may infringe or otherwise violate our issued patents, patents of our licensors or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringement lawsuits, which can be expensive and time consuming. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that we infringe their patents. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is invalid or unenforceable, in whole or in part, construe the patent’s claims narrowly or 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 proceeding could put one or more of our patents at risk of being invalidated or interpreted narrowly. We may also elect to enter into license agreements in order to settle patent infringement claims or to resolve disputes prior to litigation, and any such license agreements may require us to pay royalties and other fees that could be significant. 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.

A number of pharmaceutical companies have been the subject of intense review by the U.S. Federal Trade Commission or a corresponding agency in another country based on how they have conducted or settled drug patent litigation, and certain reviews have led to an allegation of an anti-trust violation, sometimes resulting in a fine or loss of rights. We cannot be sure that we would not also be subject to such a review or that the result of the review would be favorable to us, which could result in a fine or penalty.

The U.S. Federal Trade Commission, or FTC, and various private plaintiff class actions have brought a number of lawsuits in federal court in recent years to challenge Hatch Waxman Abbreviated New Drug Application, or ANDA, litigation settlements between innovator companies and generic companies as anti-competitive violations of the Sherman Act. The FTC has successfully argued that if an innovator firm, as part of a patent litigation settlement with a generic company, agrees to provide anything of value to a generic firm to not launch or to delay launch of an authorized generic during the 180-day period granted to the first generic company to challenge an Orange Book listed patent covering an innovator drug, or negotiates a delay to a generic company’s entry, the FTC may consider it an unlawful “reverse payment” ” that violates the antitrust laws. In 2013, the U.S. Supreme Court held in FTC v. Actavis, Inc. that reverse payment settlements can potentially violate antitrust laws and are subject to the standard antitrust rule-of-reason analysis. Lower courts continue to adjudicate government enforcement and private actions challenging “reverse payments” as violations of the antitrust laws. If we are faced with product patent litigation challenging the validity of any patents we own, including Hatch Waxman litigation with a generic company, any settlement of that litigation could later be challenged by the FTC or private plaintiffs as unlawful, and we could face a significant expense or penalty.

Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of our business.

We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights covering our products and technology, including interference or derivation proceedings before the U.S.

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PTO. Third parties may assert infringement claims against us based on existing patents or patents that may be granted in the future. We may, in the future, receive letters or other threats or claims from third parties inviting us to take licenses under, or alleging that we infringe, their patents. We cannot be certain that we have identified all pending or issued patents of potential relevance to our product candidates or technologies. We may fail to identify relevant patent rights, or incorrectly conclude that an issued patent is invalid or not infringed by our activities. If any third-party patents were asserted against us, even if we believe such claims are without merit, there is no assurance that a court would find in our favor on questions of infringement, validity, enforceability or priority. A court of competent jurisdiction could hold that the asserted third party patents are valid, enforceable and infringed, which could materially and adversely affect our ability to commercialize our products. We may choose to or, if we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing and marketing our products and technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, to cease commercializing the infringing technology or product. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business.

Even if we are successful in defending against intellectual property claims, litigation or other legal proceedings relating to such claims may cause us to incur significant expenses, and could distract our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our ordinary shares. Such litigation or proceedings could substantially increase our operating losses and reduce our resources available for development activities. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. Uncertainties resulting from the initiation and continuation of litigation or other intellectual property related proceedings could have a material adverse effect on our ability to compete in the marketplace.

The patent protection and patent prosecution for some of our product candidates is dependent on third parties.

While we normally seek and gain the right to fully prosecute the patents relating to our product candidates, there may be times when patents relating to our product candidates are controlled by our licensors. This is the case with current patents and patent applications licensed from MedImmune related to VIB4920, and those licensed from Duke University related to inebilizumab. If we, or any of our future licensing partners fail to appropriately file, prosecute and maintain patent protection for patents covering any of our product candidates, our ability to develop and commercialize those product candidates may be adversely affected and we may not be able to prevent competitors from making, using, and selling competing products. In addition, even where we now have the right to control patent prosecution of patents and patent applications we have licensed from third parties, we may still be adversely affected or prejudiced by actions or inactions of our licensors.

If we fail to comply with our obligations in the agreements under which we license intellectual property and other rights from third parties or otherwise experience disruptions to our business relationships with our licensors, we could lose license rights that are important to our business.

We are a party to a number of intellectual property license agreements that are important to our business and expect to enter into additional license agreements in the future. Our existing license agreements impose, and we expect that future license agreements will impose, various diligence, milestone payment, royalty and other obligations on us. If we fail to comply with our obligations under these agreements, or we are subject to a bankruptcy, we may be required to make certain payments to the licensor, we may lose the exclusivity of our license, or the licensor may have the right to terminate the license, in which event we would not be able to develop or market products covered by the license. This includes (i) our licenses with Duke University and Dana-Farber Cancer Institute related to inebilizumab, (ii) our license with SBI Biotech related to VIB7734, (iii) our license with MedImmune related to VIB4920, (iv) our sublicense with MedImmune for its license with Lonza related to inebilizumab and VIB7734, (v) our sublicense with MedImmune for its license with BioWa related to inebilizumab, and (vi) our sublicense with MedImmune for its license with BioWa and Lonza related to VIB7734. Additionally, the milestone and other payments associated with these licenses and other agreements will make it less profitable for us to develop our drug candidates.

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In some cases, patent prosecution of our licensed technology is controlled solely by the licensor. If our licensors fail to obtain and maintain patent or other protection for the proprietary intellectual property we license from them, we could lose our rights to the intellectual property or our exclusivity with respect to those rights, and our competitors could market competing products using the intellectual property. In certain cases, we control the prosecution of patents resulting from licensed technology. In the event we breach any of our obligations related to such prosecution, we may incur significant liability to our licensing partners. Licensing of intellectual property is of critical importance to our business and involves complex legal, business, and scientific issues. Disputes may arise regarding intellectual property subject to a licensing agreement, including but not limited to:

If disputes over intellectual property and other rights that we have licensed prevent or impair our ability to maintain our current licensing arrangements on acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates.

Our intellectual property in-licenses with third parties may be subject to disagreements over contract interpretations, which could narrow the scope of our rights to the relevant intellectual property or technology or increase our financial or other obligations to our licensors.

The agreements under which we currently in-license intellectual property from third parties are complex, and certain provisions in such 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 relevant agreement, either of which could harm our business, financial condition, results of operations and prospects. If any of our current or future licenses or material relationships or any in-licenses upon which our current or future licenses are based are terminated or breached, we may:

If we experience any of the foregoing, it could harm our business, financial condition and results of operations.

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

Filing, prosecuting and defending patents on our product candidates in all countries throughout the world would be prohibitively expensive, and therefore we only file for patent protection in selected countries. The requirements for patentability may differ in certain countries, particularly in developing countries. Moreover, our ability to protect and enforce our intellectual property rights may be adversely affected by unforeseen changes in foreign intellectual property laws.

The laws of foreign countries may not protect our rights to the same extent as the laws of the United States. For example, Europe, India, China and certain other countries do not allow patents for methods of treating the human body. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions that do not favor patent protection on drugs. This could make it difficult for us to stop the infringement of our patents or the misappropriation of our other intellectual property rights. Competitors may use our technologies in

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jurisdictions where we have not obtained patent protection to develop their own drugs and, further, may export otherwise infringing drugs to territories where we have patent protection, if our ability to enforce our patents to stop infringing activities is inadequate. These drugs may compete with our product candidates, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

Proceedings to enforce our patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert our efforts and resources from other aspects of our business. Furthermore, while we intend to protect our intellectual property rights in the major markets for our product candidates, we cannot ensure that we will be able to initiate or maintain similar efforts in all jurisdictions in which we may wish to market our product candidates. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate.

A number of foreign countries have stated that they are willing to issue compulsory licenses to patents held by innovator companies on approved drugs to allow the government or one or more third party companies to sell the approved drug without the permission of the innovator patentee where the foreign government concludes it is in the public interest. India, for example, has used such a procedure to allow domestic companies to make and sell patented drugs without innovator approval. There is no guarantee that patents covering any of our products will not be subject to a compulsory license in a foreign country, or that we will have any influence over if or how such a compulsory license is granted. Further, Brazil allows its regulatory agency ANVISA to participate in deciding whether to grant a drug patent in Brazil, and patent grant decisions are made based on several factors, including whether the patent meets the requirements for a patent and whether such a patent is deemed in the country’s interest. In addition, several other countries have created laws that make it more difficult to enforce drug patents than patents on other kinds of technologies. Further, under the treaty on the Trade-Related Aspects of Intellectual Property, or TRIPS, as interpreted by the Doha Declaration, countries in which drugs are manufactured are required to allow exportation of the drug to a developing country that lacks adequate manufacturing capability. Therefore, our product markets in the United States or foreign countries may be affected by the influence of current public policy on patent issuance, enforcement or involuntary licensing in the healthcare area.

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

Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to be paid to the U.S. PTO and various governmental patent agencies outside of the United States in several stages over the lifetime of the patents and/or applications. We have systems in place to remind us to pay these fees, and we employ an outside firm and rely on our outside counsel to pay these fees due to non-U.S. patent agencies. We employ reputable law firms and other professionals to help us comply, and in many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, our competitors might be able to enter the market and this circumstance would have a material adverse effect on our business.

Intellectual property litigation could cause us to spend substantial resources and distract our personnel from their normal responsibilities.

Litigation or other legal proceedings relating to intellectual property claims, with or without merit, is unpredictable and generally expensive and time consuming and is likely to divert significant resources from our core business, including distracting our technical and management personnel from their normal responsibilities. 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 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 stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities.

We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors 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. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating or from successfully challenging our intellectual property rights. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.

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We may be subject to claims by third parties asserting that our employees or we have misappropriated their intellectual property, or claiming ownership of what we regard as our own intellectual property.

Although we try to ensure that our employees do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that these employees or we have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s former employer. Litigation may be necessary to defend against these claims.

In addition, while it is our policy to require our employees and contractors who may be involved in the 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 develops intellectual property that we regard as our own. Our and their assignment agreements may not be self-executing or may be breached, and we may be forced to bring claims against third parties, or defend claims they may bring against us, to determine the ownership of what we regard as our intellectual property.

If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to management.

If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.

In addition to seeking patents for some of our technology and product candidates, we also rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position. We seek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees, corporate collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors and other third parties. We seek to protect our confidential proprietary information, in part, by entering into confidentiality and invention or patent assignment agreements with our employees and consultants, however, we cannot be certain that such agreements have been entered into with all relevant parties. Moreover, to the extent we enter into such agreements, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them, or those to whom they communicate it, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor, our competitive position would be harmed.

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

We currently have a limited number of employees, and our future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel.

We are a biotechnology company, and, as of December 31, 2020, had 170 employees. We are highly dependent on the research and development, clinical and business development expertise of Zhengbin (Bing) Yao, Ph.D., our President and Chief Executive Officer, and Jörn Drappa, M.D., Ph.D., our Chief Medical Officer, as well as the other principal members of our management, scientific and clinical team. Although we have entered into employment agreements with some of our executive officers, each of them may terminate his or her employment with us at any time. We do not maintain “key person” insurance for any of our executives or other employees. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. If we are unable to continue to attract and retain high quality personnel, our ability to pursue our growth strategy will be limited.

Recruiting and retaining qualified scientific, clinical, manufacturing, sales and marketing personnel will also be critical to our success. The loss of the services of our executive officers or other key employees could impede the achievement of our research, development and commercialization objectives and seriously harm our ability to successfully implement our business strategy. Furthermore, replacing executive officers and key employees may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to successfully develop, obtain marketing approval of and commercialize products. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate these key personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also face competition for the hiring of scientific and clinical personnel from universities and research institutions. Failure to succeed in clinical trials may make it more challenging to recruit and retain qualified scientific

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personnel. If we are unable to continue to attract and retain high quality personnel, our ability to pursue our growth strategy will be limited.

We expect to expand our development and regulatory capabilities and potentially implement sales, marketing and distribution capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.

To manage our anticipated development and expansion, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Also, our management may need to divert a disproportionate amount of its attention away from its day-to-day activities and devote a substantial amount of time to managing these development activities. Due to our focused resources, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. This may result in weaknesses in our infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. The physical expansion of our operations may lead to significant costs and may divert financial resources from other projects, such as the development of our product candidates. If our management is unable to effectively manage our expected development and expansion, our expenses may increase more than expected, our ability to generate or increase our revenue could be reduced and we may not be able to implement our business strategy. Our future financial performance and our ability to commercialize our product candidates, if approved, and compete effectively will depend, in part, on our ability to effectively manage the future development and expansion of our company.

Unfavorable global economic conditions could adversely affect our business, financial condition or results of operations.

Our results of operations could be adversely affected by general conditions in the global economy and in the global financial markets. The last global financial crisis caused extreme volatility and disruptions in the capital and credit markets. A severe or prolonged economic downturn, such as the last global financial crisis, could result in a variety of risks to our business, including our ability to raise additional capital when needed on acceptable terms, if at all. A weak or declining economy could also strain our suppliers, possibly resulting in supply disruptions. Any of the foregoing could harm our business, and we cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our business.

Our employees, principal investigators, CROs and consultants may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements and insider trading.

We are exposed to the risk that our employees, principal investigators, CROs and consultants may engage in fraudulent conduct or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct or other unauthorized activities to us that violate the regulations of the FDA and other regulatory authorities, including those laws requiring the reporting of true, complete and accurate information to such authorities; healthcare fraud and abuse laws and regulations in the United States and abroad; or laws that require the reporting of financial information or data accurately. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. These laws also involve the improper use of information obtained in the course of clinical trials or creating fraudulent data in our nonclinical studies or clinical trials, which could result in regulatory sanctions and cause serious harm to our reputation. We have adopted a code of conduct applicable to all of our employees, but it is not always possible to identify and deter misconduct by employees and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. Additionally, we are subject to the risk that a person could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

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

Because we have limited financial and managerial resources, we focus on specific product candidates. As a result, we may forgo or delay pursuit of opportunities with other product candidates that later prove to have greater commercial potential. 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 product candidates. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate.

We may acquire businesses or products, or form strategic alliances, in the future, and we may not realize the benefits of such acquisitions or alliances.

We may acquire additional businesses or products, form strategic alliances or create joint ventures with third parties that we believe will complement or augment our existing business. If we acquire businesses with promising markets or technologies, we may not be able to realize the benefit of acquiring such businesses if we are unable to successfully integrate them with our existing operations and company culture. We may encounter numerous difficulties in developing, manufacturing and marketing any new products resulting from a strategic alliance or acquisition that delay or prevent us from realizing their expected benefits or enhancing our business. We cannot assure you that, following any such acquisition, we will achieve the expected synergies to justify the transaction.

We rely significantly on information technology and any failure, inadequacy, interruption or security lapse of that technology, including any cyber security incidents, could harm our ability to operate our business effectively.

Despite the implementation of security measures, our internal computer systems and those of third parties with which we contract are vulnerable to damage from cyber-attacks, computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. System failures, accidents or security breaches could cause interruptions in our operations, and could result in a material disruption of our clinical activities and business operations, in addition to possibly requiring substantial expenditures of resources to remedy. The loss of clinical trial data could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur a liability and our research and development programs and the development of our product candidates could be delayed.

We or the third parties upon which we depend may be adversely affected by earthquakes or other natural disasters and/or health epidemics and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.

Earthquakes or other natural disasters could severely disrupt our operations and have a material adverse effect on our business, results of operations, financial condition and prospects. If a natural disaster, health epidemic, power outage or other event occurred that prevented us from using all or a significant portion of our headquarters and/or lab space, that damaged critical infrastructure, such as the manufacturing facilities of our third-party contract manufacturers, 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. The disaster recovery and business continuity plans we have in place may prove inadequate 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 could have a material adverse effect on our business.

A pandemic, epidemic, or outbreak of an infectious disease, such as COVID-19 may materially and adversely affect our business and our financial results.

The novel coronavirus outbreak has affected segments of the global economy and may materially affect our operations, including potentially significant interruption of our clinical trial activities and pre-commercial launch activities. COVID-19 originated in Wuhan, China, in December 2019 the virus has since spread to multiple countries, including the United States, where we are currently conducting our clinical trials. The continued spread of the coronavirus may result in a period of business disruption, including material delays in our clinical trials or material delays or disruptions in our commercialization efforts. In addition, there could be a potential effect of COVID-19 to the business at FDA or other health authorities, which could result in delays of reviews and approvals, including with respect to our product candidates.

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The continued spread globally could also have a material adverse effect our clinical trial operations in the United States and elsewhere, including our ability to recruit and retain patients and principal investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19 if an outbreak occurs in their geography.

We are closely monitoring the potential impact of the coronavirus outbreak, and the associated restrictions on travel and work that have been implemented, on our business and clinical trials. The extent to which the coronavirus impacts us will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others. At present, we are not experiencing significant impact or delays from COVID-19 on our business operations. However, in order to prioritize patient health and that of the investigators at clinical trial sites, we had paused enrollment of new patients in certain of our clinical trials, including our Phase 2b trial of VIB4920 in Sjögren’s syndrome, our Phase 2 trial of VIB4920 in rheumatoid arthritis and our Phase 2 trial of inebilizumab in kidney transplant desensitization. We recently resumed all our clinical trials except the Phase 2 trial of inebilizumab in kidney transplant desensitization. The coronavirus outbreak may further delay enrollment in our planned or ongoing clinical trials due to prioritization of hospital resources toward the outbreak, the protection of the health of patients and investigators at the clinical trial sites, and restrictions on work and travel. In addition, some patients may be unwilling to enroll in our trials or be unable to comply with clinical trial protocols if quarantines or travel restrictions impede patient movement or interrupt healthcare services. These and other factors could significantly delay our ability to conduct clinical trials or release clinical trial results. Our ability to re-open enrollment in the paused clinical trials will be dependent on many factors, including the progression of the pandemic and its impact on patients and the investigators at our clinical trial sites. Furthermore, our ability to re-open enrollment in the paused clinical trial will require collaboration with, and permission from, each of the clinical trial sites. Over the coming weeks and months, we will continue to monitor carefully the situation with respect to each of our clinical trials and follow guidance from local and federal health authorities. Additionally, we believe that the pandemic has impacted the frequency of patient visits to physicians and has impacted physician office operations. These changes may impact prescribing rates of Uplizna® or other products, if approved.

COVID-19 may also affect employees of third-party contract research organizations located in affected geographies that we rely upon to carry out our clinical trials. The spread of COVID-19, or another infectious disease, could also negatively affect the operations at our third-party manufacturers, which could result in delays or disruptions in the supply of our product candidates. In addition, we have taken precautionary measures, and may take additional measures, intended to help minimize the risk of the virus to our employees, including temporarily requiring all employees to work remotely, suspending all non-essential travel worldwide for our employees, and discouraging employee attendance at industry events and in-person work-related meetings, which could negatively affect our business.

We cannot presently predict the extent to which current or future business shutdowns and disruptions may impact or limit our ability or the ability of any of the third parties with which we engage to conduct business in the manner and on the timelines presently planned. Any such impacts or limitations could have a material adverse impact on our business and our results of operation and financial condition. While the potential economic impact brought by and the duration of the coronavirus outbreak may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our common stock

Risks Related to Our Common Stock

The price of our common stock may be volatile and fluctuate substantially, which could result in substantial losses to stockholders.

The market price of shares of our common stock could be subject to wide fluctuations in response to many risk factors listed in this section and many others beyond our control, including:

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In addition, the stock market has experienced significant volatility, particularly with respect to pharmaceutical, biotechnology and other life sciences company stocks. The volatility of pharmaceutical, biotechnology and other life sciences company stocks often does not relate to the operating performance of the companies represented by the stock. In the past, securities class action litigation has often been initiated against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs and divert our management’s attention and resources, and could also require us to make substantial payments to satisfy judgments or to settle litigation.

Our executive officers, directors and principal stockholders and their affiliates, if they choose to act together, will continue to have the ability to exercise significant influence over all matters submitted to stockholders for approval.

Our executive officers and directors, combined with our stockholders who own more than 5% of our outstanding common stock, in the aggregate, beneficially own shares representing a majority of our outstanding capital stock. As a result, if these stockholders were to choose to act together, they would be able to influence our management and affairs and the outcome of matters submitted to our stockholders for approval, including the election of directors and any sale, merger, consolidation, or sale of all or substantially all of our assets. This concentration of ownership control may adversely affect the market price of our common stock by:

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Provisions in our corporate charter documents and under Delaware law could discourage takeover attempts and make more difficult and may prevent attempts by our stockholders to replace or remove our current management.

Provisions in our third amended and restated certificate of incorporation and our amended and restated bylaws may discourage, delay or prevent a change in control of our company. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. 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 stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. Although we believe these provisions collectively provide for an opportunity to obtain greater value for stockholders by requiring potential acquirers to negotiate with our board of directors, they would apply even if an offer rejected by our board of directors were considered beneficial by some stockholders. Among other things, these provisions:

Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.  

If securities or industry analysts publish negative evaluations of our stock or negative reports about our business, our stock price and trading volume could decline.

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. If few analysts commence coverage of us, the trading price of our stock would likely decrease. Even if we do obtain sufficient analyst coverage, there can be no assurance that analysts will cover us or provide favorable coverage. If one or more of the analysts who covers us downgrades our stock or changes his or her opinion of our stock, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline.

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

Sales of a substantial number of shares of our common stock in the public market or the perception that these sales might occur, could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that sales may have on the prevailing market price of our common stock.

Certain holders of our securities are entitled to rights with respect to the registration of their shares under the Securities Act. In November 2020, we registered for resale shares of common stock held by such stockholders. Any sales of securities by these stockholders could have a material adverse effect on the trading price of our common stock.

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We have registered on Form S-8 all shares of common stock that are issuable under our Amended and Restated 2018 Equity Incentive Plan. As a consequence, these shares can be freely sold in the public market upon issuance, subject to volume limitations applicable to affiliates and the lock-up agreements described above.

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

As a public company, and as we are no longer an emerging growth company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of the Nasdaq Stock Market and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance.

We are evaluating these rules and regulations, and cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. These rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.

Our ability to use our net operating loss carryforwards and certain other tax attributes to offset future taxable income may be limited.

Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code, a corporation that undergoes an “ownership change,” is subject to limitations on its ability to use its pre-change net operating loss carryforwards, or NOLs, and other pre-change tax attributes (such as research tax credits) to offset its post-change income or taxes. For these purposes, an ownership change generally occurs where the equity ownership of one or more stockholders or groups of stockholders who owns at least 5% of a corporation’s stock increases its ownership by more than 50 percentage points over its lowest ownership percentage within a three year period. We have not determined if we have experienced Section 382 ownership changes in the past and if a portion of our NOLs is subject to an annual limitation under Section 382. We may have experienced such ownership changes in the past, and we may experience ownership changes in the future as a result of the IPO or subsequent shifts in our stock ownership, some of which are outside of our control. These ownership changes may subject our existing NOLs or credits to substantial limitations under Sections 382 and 383. Accordingly, we may not be able to utilize a material portion of our NOLs or credits. As of December 31, 2020, we had federal NOLs of approximately $270.1 million and federal and state research and development tax credit carryforwards of $21.6 million. Limitations on our ability to utilize those NOLs to offset U.S. federal taxable income could potentially result in increased future tax liability to us. In addition, at the state level, there may be periods during which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed.

Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation, if any, will be your sole source of gain.

We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. In addition, the terms of any future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.

Our third amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Pursuant to our third amended and restated certificate of incorporation, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, if the Chancery Court does not have jurisdiction, the federal district court for the District of Delaware or other state courts of the State of Delaware) will be the sole and exclusive forum for state law claims for (i) any derivative action or proceeding brought on our behalf; (ii) any action asserting a claim of breach of a fiduciary duty by any of our directors, officers, employees or agents to us or our stockholders; (iii) any action asserting a claim against us or any of our current or former directors, officers or employees arising pursuant to any provision of the Delaware General Corporation Law or our third amended and restated certificate

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of incorporation or amended and restated bylaws; (iv) any action to interpret, apply, enforce or determine the validity of our third amended and restated certificate of incorporation or amended and restated bylaws; (v) any action as to which the Delaware General Corporation Law confers jurisdiction to the Court of Chancery of the State of Delaware; or (vi) any action asserting a claim governed by the internal affairs doctrine. This exclusive forum provision will not apply to any causes of action arising under the Securities Act or the Exchange Act. The forum selection clauses in our third amended and restated certificate of incorporation may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

Our headquarters is located in Gaithersburg and Rockville, Maryland, where we lease a total of approximately 92,847 square feet of office and laboratory space, under three leases that presently expire between June 2022 and February 2025. We believe our facilities are adequate for our current needs and that suitable additional substitute space would be available if needed.

Item 3. Legal Proceedings.

From time to time, we may become involved in litigation or other legal proceedings. We are not currently a party to any litigation or legal proceedings that, in the opinion of our management, are likely to have a material adverse effect on our business. Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

Item 4. Mine Safety Disclosures.

Not applicable.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

On October 3, 2019, our common stock began trading on The Nasdaq Global Select Market under the symbol “VIE”. Prior to that time, there was no public market for our common stock.

Holders of Our Common Stock

As of March 1, 2021, there were approximately 11 holders of record of shares of our common stock.

 

Stock Performance Graph

This performance graph is not “soliciting material,” is not deemed filed with the SEC and is not to be incorporated by reference in any filing by us under the Securities Act of 1933 or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing. The stock price performance shown on the graph is not necessarily indicative of future price performance.

 

Comparison of Cumulative Total Return

Among Viela Bio, Inc., the Nasdaq Biotechnology Index and the Nasdaq Composite Index

 

The above graph measures the change in a $100 investment in our common stock from October 2, 2019 (the date our common stock commenced trading on The Nasdaq Global Select Market) through December 31, 2020. Our relative performance is then compared with the Nasdaq Composite Index and the Nasdaq Biotechnology Index.

Dividends

We have never declared or paid cash dividends on our capital stock. We currently intend to retain all available funds and future earnings, if any, for use in the operation of our business and do not anticipate paying any cash dividends on our common stock in the foreseeable future. Any future determination to declare and pay dividends will be made at the discretion of our board of directors and will depend on various factors, including applicable laws, our results of operations, our financial condition, our capital requirements, general business conditions, our future prospects and other factors that our board of directors may deem relevant. Our ability to pay cash dividends on our capital stock in the future may also be limited by the terms of any preferred securities we may issue or agreements governing any additional indebtedness we may incur. Investors should not purchase our common stock with the expectation of receiving cash dividends.

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Recent Sales of Unregistered Equity Securities

We did not sell any of our unregistered securities during the three months ended December 31, 2020.

Use of Proceeds from Initial Public Offering

Our initial public offering of common stock, or the IPO, was effected through a Registration Statement on Form S-1 (File No. 333- 233528) that was declared effective by the SEC on October 2, 2019. We issued and sold in aggregate 9,085,000 shares of common stock, which included 1,185,000 shares of our common stock issued pursuant to the underwriters’ option to purchase additional shares, at a public offering price of $19.00 per share, for net proceeds of $156.9 million after deducting underwriting discounts and commissions and other offering costs. None of the underwriting discounts and commissions or offering expenses were incurred or paid to directors or officers of ours or their associates or to persons owning 10% or more of our common stock or to any of our affiliates. We have invested the net proceeds from the IPO in a variety of capital preservation investments, including short-term, investment-grade, interest-bearing instruments and U.S. government securities. There has been no material change in our planned use of the net proceeds from the IPO as described in our final prospectus filed pursuant to Rule 424(b)(4) under the Securities Act with the SEC on October 4, 2019.

 

Equity Compensation Plans

 

 

The information required by Item 5 of Form 10-K regarding equity compensation plans is incorporated herein by reference from Item 12 of Part III of this Annual Report.

Issuer Purchases of Equity Securities

Not applicable

Item 6. Selected Financial Data.

The consolidated statements of operations data for the years ended December 31, 2020, 2019, and 2018 and the consolidated balance sheet data as of December 31, 2020 and 2019 are each derived from our audited consolidated financial statements included in this annual report on Form 10-K. Our historical results for any prior period are not necessarily indicative of results to be expected in any future period. The consolidated balance sheet data as of December 31, 2018 is derived from audited consolidated financial statements that are not included in this Annual Report.

The following data should be read together with our consolidated financial statements and accompanying notes and the section entitled Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this annual report on Form 10-K.

 

 

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Form 10-K, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Form 10-K, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Investors and others should note that we routinely use the Investor Relations section of our website to announce material information to investors and the marketplace. While not all of the information that we post on the Investor Relations section of our website is of a material nature, some information could be deemed to be material. Accordingly, we encourage investors, the media, and others interested in us to review the information that it shares on the Investor Relations section of our website, www.vielabio.com.

Overview

We are a biotechnology company pioneering treatments for autoimmune and severe inflammatory diseases, which we collectively refer to as autoimmune diseases. Our approach seeks to redefine the treatment of autoimmune diseases by focusing on critical biological pathways shared across multiple indications. We believe that this approach, which targets the underlying molecular pathogenesis of the disease, allows us to develop more precise therapies, identify patients more likely to respond to treatment and pursue multiple indications for each of our product candidates. Our lead molecule, inebilizumab, is a humanized monoclonal antibody, or mAb, designed to target CD19, a molecule expressed on the surface of a broad range of immune system B cells. In January 2019, we reported positive pivotal clinical trial data for inebilizumab in patients with neuromyelitis optica spectrum disorder, or NMOSD. NMOSD is a rare, devastating condition that attacks the optic nerve, spinal cord and brain stem, and often leads to irreversible blindness and paralysis. We received Breakthrough Therapy Designation for the treatment of this disease from the U.S. Food and Drug Administration, or the FDA, in April 2019 and in August 2019, the FDA accepted for review our Biologics License Application, or BLA for inebilizumab. On June 11, 2020, the FDA approved Uplizna^® (inebilizumab-cdon) for the treatment of adult patients with NMOSD who are anti-AQP4 antibody positive as a twice-a-year maintenance regimen following initial doses. We commercially launched Uplizna^® following FDA approval in June 2020

Regulatory applications have also been filed in several other countries for inebilizumab in patients with NMOSD, based on results from the N-MOmentum trial.  In October 2020, a BLA was accepted by the National Medical Products Administration in China.  In June and September 2020, respectively, a marketing authorization application, or MAA, was filed in Japan and South Korea, and an MAA was filed with the European Medicines Agency, or EMA, in December 2020.  If approved, Mitsubishi Tanabe Pharma Corporation (“MTPC”) and Hansoh Pharma, our partners in Asia, will be responsible for commercializing inebilizumab in their respective territories, and we will be eligible for payments based on certain commercial milestones, as well as royalties on sales revenue.

Furthermore, we recently initiated a Phase 3 trial of inebilizumab for myasthenia gravis, a neuromuscular disorder caused by autoantibodies against acetylcholine receptors or muscle specific kinase and a Phase 3 trial of inebilizumab for IgG4-related disease, a group of disorders marked by tumor-like swelling and fibrosis of affected organs, which may be caused by infiltration of CD19-expressing plasmablasts and plasma cells that generate IgG4 antibodies. We are continuing to enroll patients in both of these trials.

In addition, we have a broad pipeline of two additional clinical-stage and two pre-clinical product candidates focused on a number of other autoimmune diseases with high unmet medical needs, including Sjögren’s syndrome and lupus, as well as other conditions such as kidney transplant rejection. A Phase 2b trial in Sjögren’s syndrome, which is designed as Phase 3-enabling, is ongoing and in 2019, we initiated a separate Phase 2 trial in kidney transplant rejection. We are currently advancing two candidates through pre-clinical studies. For the first candidate, VIB1116, we completed pre-clinical toxicology studies and submitted an IND in Q4 2020.

We incorporated on December 11, 2017 under the laws of the State of Delaware. From December 11, 2017 to December 31, 2017 we had no substantive operations. In February 2018, we acquired six molecules from MedImmune, of which five constitute our current product candidates, for a purchase price of approximately $142.3 million financed by AstraZeneca’s purchase of our Series A preferred stock. Following the asset purchase, we entered into several agreements with AstraZeneca and MedImmune, including a license agreement, a master supply and development services agreement, sublicense agreements, a transition services agreement, a clinical supply agreement and a commercial supply agreement.

To date, we have devoted substantially all of our resources to organizing and staffing our company, business planning, raising capital, identifying and developing product candidates, enhancing our intellectual property portfolio,

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undertaking research, conducting pre-clinical studies and clinical trials, conducting pre-commercial and commercial launch activities, and securing manufacturing for our development programs. To date, we have funded our operations primarily with proceeds from private placement of convertible preferred stock and the IPO. In October 2019, we completed the IPO and issued and sold an aggregate 9,085,000 shares of common stock, which included 1,185,000 shares of our common stock issued pursuant to the underwriters’ option to purchase additional shares, at a public offering price of $19.00 per share, for net proceeds of $156.9 million after deducting underwriting discounts and commissions and other offering costs. In June 2020, the Company completed an underwritten public offering of its common stock and issued and sold 3,600,000 shares of common stock, at a public offering price of $47.00 per share, for aggregate gross proceeds of $169,200 and net proceeds after deducting underwriting discounts and commissions and other offering costs of $158,338.

We have incurred significant operating losses since our inception, which are mainly attributed to research and development costs and employee payroll expense included in general and administrative expenses. Our net loss was $150.7 million, $86.4 million and $190.3 million for the years ended December 31, 2020, 2019, and 2018, respectively. Our operating losses may fluctuate significantly from quarter-to-quarter and year-to-year as a result of several factors, including the timing of our pre-clinical studies and clinical trials, our expenditures related to other research and development activities, and revenue generated from product sales and licensing agreements. We expect to continue to incur operating losses for the foreseeable future. We anticipate these losses will increase substantially as we advance our product candidates through pre-clinical and clinical development, develop additional product candidates and seek regulatory approvals for our product candidates. We expect to incur pre-commercialization expenses and significant commercialization expenses related to marketing, sales, manufacturing and distribution for any product candidate that obtain marketing approval. We may also incur expenses in connection with the in-licensing of additional product candidates. Furthermore, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations, compliance and other expenses that we did not incur as a private company.

As a result, in the event the Merger (defined below) and related transactions do not close and we remain a stand-alone company, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from sales of our product candidates, if ever, we expect to finance our cash needs through public or private equity offerings, debt financings, collaborations and licensing arrangements or other capital sources. However, 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 such other arrangements as and when needed would have a negative impact on our financial condition and could force us to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our product candidates that we would otherwise prefer to develop and market ourselves.

In December 2019 an outbreak of a novel strain of coronavirus was identified in Wuhan, China. This virus continues to spread globally, has been declared a pandemic by the World Health Organization and has spread to over 200 countries, including the United States. The impact of this pandemic has been and will likely continue to be extensive in many aspects of society, which has resulted in and will likely continue to result in significant disruptions to businesses and capital markets around the world. The extent to which the coronavirus impacts us will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others. At present, we are not experiencing significant impact or delays from COVID-19 on our business and operations. However, in order to prioritize patient health and that of the investigators at clinical trial sites, we had paused enrollment of new patients in certain of our clinical trials, including our Phase 2b trial of VIB4920 in Sjögren’s syndrome, our Phase 2 trial of VIB4920 in rheumatoid arthritis and our Phase 2 trial of inebilizumab in kidney transplant desensitization. We recently resumed our Phase 2b trial of VIB4920 in Sjögren’s syndrome and our Phase 2 trial of VIB4920 in rheumatoid arthritis. Our ability to re-open enrollment, and continue enrollment, in any paused clinical trials will be dependent on many factors, including the progression of the pandemic and its impact on patients and the investigators at our clinical trial sites. Furthermore, our ability to re-open enrollment, and continue enrollment, in each of these paused clinical trials will require collaboration with, and permission from, each of the clinical trial sites. Over the coming weeks and months, we will continue to monitor carefully the situation with respect to each of our clinical trials and follow guidance from local and federal health authorities. Additionally, with respect to our commercial launch of Uplizna^®, we believe that the pandemic has resulted in a decrease in patient visits to prescribing physicians, as well as challenges in coordination and communication between patients and prescribing physicians. Furthermore, we believe some prescribing physicians are reluctant to change existing treatment regimens for patients, except in the event of significant need, without first meeting patients in-person prior to making such a change. The ongoing pandemic has led to increased challenges in having in-person meetings between patients and prescribing physicians. We believe these factors are adversely impacting, and may continue to adversely impact for the duration of the pandemic, the number of new prescriptions written for Uplizna^®.  We plan to continue to adapt our commercialization efforts to address the uncertainty presented by this treatment environment.

Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when or if we will be able to achieve or

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maintain profitability. If we fail to become profitable or are unable to sustain profitability on a continuing basis, we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.

Merger Agreement

On January 31, 2021, we entered into a definitive Agreement and Plan of Merger (the “Merger Agreement”), with Horizon Therapeutics USA, Inc., a Delaware corporation (“Parent”), Teiripic Merger Sub, Inc., a Delaware corporation and a direct wholly owned subsidiary of Parent (“Purchaser”), and solely for purposes of Sections 6.7 and 9.12 of the Merger Agreement, Horizon Therapeutics plc, a public limited company organized under the laws of Ireland (“Ultimate Parent”), pursuant to which Parent, through Purchaser, will commence a tender offer (the “Offer”) to acquire all of the outstanding shares of our common stock, par value $0.001 per share (the “Shares”), at a price of $53.00 per share in cash, which represents a fully diluted equity value of approximately $3.05 billion, without interest, subject to any applicable withholding taxes. Parent and Purchaser commenced the Offer on February 12, 2021 and are obligated to keep the Offer open for twenty business days following the commencement of the Offer, subject to possible extension under the terms of the Merger Agreement. If successful, upon the terms and conditions set forth in the Merger Agreement, the Offer will be followed by a merger of Purchaser with and into the Company, with the Company continuing as the surviving corporation and as a direct wholly owned subsidiary of Parent (the “Merger”).

Completion of the Offer is subject to the satisfaction or waiver of customary conditions, including (i) there shall have been validly tendered (not including any Shares tendered pursuant to guaranteed delivery procedures that have not yet been “received,” as such term is defined in Section 251(h) of the General Corporation Law of the State of Delaware (the “DGCL”), by the depositary for the Offer pursuant to such procedures) and not validly withdrawn Shares that, considered together with all other Shares (if any) beneficially owned by Parent and its subsidiaries, represent one more Share than 50% of the total number of (A)  Shares outstanding at the time of the expiration of the Offer plus (B) the aggregate number of Shares issuable to holders of options to purchase Shares (the “Company Options”) from which we have received notices of exercise prior to the expiration of the Offer (and as to which Shares have not yet been issued to such exercising holders of Company Options); (ii) subject to certain materiality exceptions, the truth and accuracy of certain representations and warranties made by us contained in the Merger Agreement; (iii) compliance with, or performance of, in all material respects the covenants and agreements with or of which we are required to comply or perform; (iv) the termination or expiration of any applicable waiting period (and extensions thereof) relating to the Offer under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended; (v) the absence of a material adverse effect on us; and (vi) certain other customary conditions set forth in the Merger Agreement. The Offer and the Merger are not subject to any financing condition.

Between February 18, 2021 and February 26, 2021, five of our purported stockholders filed separate lawsuits against us and our directors.  Three of the lawsuits were filed in the federal district court for the Southern District of New York, one was filed in the federal district court for District of Delaware, and one in the federal district court for the Eastern District of Pennsylvania. The complaints allege violations of certain sections of the Exchange Act. All five lawsuits allege that the Schedule 14D-9 Solicitation/Recommendation Statement that we filed on February 12, 2021 (“14D-9”) is materially incomplete and misleading and seek to enjoin the tender offer until the purported deficiencies in the 14D-9 are corrected, or alternatively, monetary damages if the tender offer is consummated. The defendants believe the claims asserted in the complaints are without merit. Additional lawsuits arising out of or relating to the tender offer may be filed in the future.

We expect the Merger to close during the first quarter of 2021, subject to the regulatory approvals and other customary closing conditions described above and in the Merger Agreement.

 

Additional information about the Merger and related transactions is set forth in our filings with the Securities and Exchange Commission, or the SEC.

 

Components of our Results of Operations

Revenue

We did not generate any revenue from the sale of products since our inception through June 30, 2020. We initiated the commercial launch of Uplizna® and generated revenue from the sale of products in the third and fourth quarters of 2020. We have also generated revenue from commercial license and collaboration agreements related to the treatment of

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NMOSD with inebilizumab. We do not expect any revenues that we may generate in the near future to be significant enough to fund our operations. We generated $50 million of license revenue in 2019.

In connection with the license agreement with Mitsubishi Tanabe Pharma Corporation, or MTPC, dated October 8, 2019, we entered into a supply agreement with MTPC, pursuant to which, among other things, we will supply products for MTPC’s commercial use.  Under the supply agreement, MTPC provides a rolling forecast for a period of 36 months of its usage for product.  Payment is based on the forecasted usage of supplied product and becomes due following delivery of product and invoicing by the Company. Changes in demand from MTPC and any adjustments to MTPC’s forecasted usage requirements of inebilizumab may cause our revenue and net loss to fluctuate significantly from period-to-period, which may result in a high degree of variability in our results of operations.

Cost of Product Sold

Cost of product sales includes the cost of producing and distributing inventories that are related to product revenues during the respective period, and third-party royalties payable on our net product revenues. Cost of goods sold also includes, as applicable, costs related to excess or obsolete inventory adjustment charges, abnormal costs, unabsorbed manufacturing and overhead costs, amortization of intangible asset, and manufacturing variances. We presently expect to have a lower cost of product sold until 2023.

Research and Development Expenses

To date, our research and development expenses, net of the acquisition of IPR&D that is disclosed separately, have related primarily to development of inebilizumab, VIB4920 and VIB7734, pre-clinical studies and other pre-clinical activities related to our portfolio. Research and development expenses are recognized as incurred, and payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received.

Research and development expenses include:

We outsource a substantial portion of our clinical trial activities, utilizing external entities such as CROs, independent clinical investigators and other third-party service providers to assist us with the execution of our clinical trials. We also expect to incur additional expenses related to milestone and royalty payments payable to third parties with whom we have entered into license agreements relating to our product candidates.

We plan to substantially increase our research and development expenses for the foreseeable future, as we continue the development of our product candidates and seek to discover and develop new product candidates. Due to the inherently unpredictable nature of pre-clinical and clinical development, we cannot determine with certainty the timing of the initiation, duration or costs of future clinical trials and pre-clinical studies of product candidates. Clinical and pre-clinical development timelines, the probability of success and the amount of associated development costs can differ materially from expectations. We anticipate that we will make determinations as to which product candidates and development programs to pursue and how much funding to direct to each product candidate or program on an ongoing basis in response to the results of ongoing and future pre-clinical studies and clinical trials, regulatory developments and our ongoing assessments as to each product candidate’s commercial potential. In addition, we cannot forecast which product candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements.

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Our future clinical development costs may vary significantly based on factors such as:

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of salaries and employee-related costs, including stock-based compensation for personnel in our executive, finance and other administrative functions. Other significant costs include legal fees relating to intellectual property and corporate matters, professional fees for accounting and consulting services, facility and/or rent-related costs, and insurance costs. We anticipate that our general and administrative expenses will increase in the future to support our continued research and development activities and commercialization activities. We also anticipate increased expenses related to audit, legal, regulatory and tax-related services associated with maintaining compliance with stock exchange listing and SEC requirements, director and officer insurance premiums and investor relations costs associated with operating as a public company.

Acquisition of In-Process Research and Development

Acquisition of IPR&D represents the expense recognized related to the Asset Purchase Agreement with AstraZeneca and MedImmune (the “APA”). The six molecules we acquired from MedImmune pursuant to the APA consist of multiple IPR&D projects related to biological therapies which are intended to treat an interrelated subset of autoimmune disorders, represented in part by common biological characteristics. See Note 9, “Asset acquisition” for further information.

Interest Income

Interest income consists of interest earned on our cash and cash equivalents and marketable securities.

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Consolidated Results of Operations

Years Ended December 31, 2020, 2019, and 2018

The following table summarizes our results of operations for the years ended:

 

Product Revenue.    Product revenue was $11.7 million for the year ended December 31, 2020. We initiated the commercial launch of Uplizna^® in the third quarter and generated revenue from the sale of products in the third and fourth quarters of 2020. There was no product revenue generated during the years ended December 31, 2019 and 2018.

License Revenue.    There was no license revenue generated during the year ended December 31, 2020 or 2018. License revenue was $50.0 million for the year ended 2019. The $50.0 million recognized in 2019 was due to the revenue recognized pursuant to the Co-Development and Commercial License Agreement with Hansoh Pharma and the MTPC License Agreement.

Research and Development Expenses.    Research and development expenses were $103.3 million, $104.6 million and $42.4 million for the years ended December 31, 2020, 2019, and 2018, respectively. The decrease of $1.3 million from 2019 to 2020 was primarily driven by increases in personnel-related costs of $10.7 million, increases in clinical trial study and lab supply costs of $19.8 million, offset by decreases in regulatory milestone payments of $19.8 million, and decreases of other outside services of $12.0 million. The increase of $62.2 million from 2018 to 2019 was primarily driven by regulatory milestone payment of approximately $19.8 million in September 2019 in connection with acceptance for review by the FDA of the Company’s BLA for inebilizumab in patients with NMOSD in August 2019, an increase of $8.6 million in personnel related costs due to an increase in headcount, $33.8 million of direct program and external costs for payments to our research and development contractors driven primarily by manufacturing activities to support the BLA filing and pending approval process, and clinical trials for other potential indications for inebilizumab, as well as increased clinical material supplies for VIB4920.

Selling, General and Administrative Expenses.    Selling, general and administrative expenses were $60.2 million, $35.1 million, and $6.6 million for the years ended December 31, 2020, 2019, and 2018 respectively. The increase of $25.1 million from 2019 to 2020 was primarily due to increases in personnel-related expenses of $15.9 million, $4.2 million in professional services, and $5.0 million of facility related and other administrative expenses. The increase of $28.5 million from 2018 to 2019 was due primarily to increases of $12.6 million in professional services related to accounting services, corporate legal fees and patent legal fees, $10.9 million in personnel related expenses, including stock-based compensation, due to an increase in headcount, and $5.0 million of facility related and other administrative expenses.

Acquisition of In-process Research and Development.    Acquisition of IPR&D was $143.3 million for the year ended December 31, 2018, and consisted of IPR&D assets with no alternative future use acquired from the MedImmune and AstraZeneca. We did not acquire any IPR&D assets in 2019 or 2020.

Interest Income.    Interest income was $3.2 million, $3.3 million, and $2.0 million for the years ended December 31, 2020, 2019, and 2018, respectively. Interest income in 2020 was consistent with 2019 primarily due to market conditions resulting in lower yields on debt securities. The increase of $1.2 million from 2018 to 2019 was due primarily to higher cash and cash equivalents and marketable securities held during the year ended December 31, 2020.

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Liquidity and Capital Resources

Cash Flows

We have incurred net losses and negative cash flows from operations since our inception and anticipate we will continue to incur net losses for the foreseeable future. As of December 31, 2020, we had cash and cash equivalents of $130.1 million.

The following table sets forth a summary of the net cash flow activity for the years ended:

 

 

Operating Activities

Net cash used in operating activities was $106.1 million, $105.0 million, and $29.5 million for the years ended December 31, 2020, 2019, and 2018, respectively. The net cash used in operating activities for the year ended December 31, 2020 was primarily due to our net loss of $150.7 million, partially offset by $15.3 million of non-cash charges related to depreciation and amortization, stock-based compensation expense, and net amortization of premiums and discounts on marketable securities, and cash provided by changes in our operating assets and liabilities of $29.3 million. The net cash used in operating activities for the year ended December 31, 2019 was primarily due to our net loss of $86.4 million, partially offset by non-cash charges of $3.8 million related to depreciation, stock-based compensation expense and net amortization of premiums and discounts on marketable securities, and cash used by changes in our operating assets and liabilities of $22.4 million. The net cash used in operating activities for the year ended December 31, 2018 was primarily due to our net loss of $190.3 million, partially offset by non-cash charges of $143.3 million primarily related to our acquisition of IPR&D assets from MedImmune and AstraZeneca and cash provided by changes in our operating assets and liabilities of $15.5 million.

Investing Activities

Net cash used in investing activities was $124.3 million, $146.4 million, and $143.8 million for the years ended December 31, 2020, 2019, and 2018, respectively. The net cash used in investing activities for the year ended December 31, 2020 was primarily due to purchases, sales, and maturities of marketable securities and the purchase of intangible assets as a result of milestone payments upon the regulatory approval of Uplizna^® on June 11, 2020. The net cash used in investing activities for the year ended December 31, 2019 was primarily due to purchases, sales and maturities of marketable securities, and purchase of property and equipment. The net cash used in investing activities for the year ended December 31, 2018 was primarily due to our acquisition of IPR&D from MedImmune and AstraZeneca and purchases of property and equipment.

Financing Activities

Net cash provided by financing activities was $159.6 million for the year ended December 31, 2020 primarily due to the net proceeds of the issuance of common stock. Net cash provided by financing activities was $325.4 million for the year ended December 31, 2019, primarily due to the net proceeds of $167.0 million from the issuance of Series A-3 and Series B convertible preferred stock and $156.9 million of net proceeds from the IPO. Net cash provided by financing activities was $300.3 million for the year ended December 31, 2018 and was due to proceeds from the issuance of Series A-1 and A-2 convertible preferred stock.

Funding Requirements

We believe that our existing cash, will be sufficient to meet our anticipated cash requirements into 2023. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect.

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Our future capital requirements will depend on many factors, including:

We expect to finance our cash needs through a combination of revenues, public or private equity offerings, debt financings, collaborations and licensing arrangements or other capital sources. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, or other similar arrangements with third parties, we may need to relinquish valuable rights to our product candidates, future revenue streams, research programs or may have to grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock. If we are unable to raise additional funds through equity or debt financings as and 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 our product candidates even if we would otherwise prefer to develop and market such product candidates ourselves.

Contractual Obligations and Commitments

We enter into contracts in the normal course of business with CROs, clinical supply manufacturers and vendors for pre-clinical studies, research supplies and other services and products for operating purposes. These contracts generally provide for termination after a notice period, and, therefore, are cancelable contracts.

We have also entered into license and collaboration agreements with third parties, which are in the normal course of business. Obligations under these agreements are contingent upon future events such as our achievement of specified development, regulatory, and commercial milestones, or royalties on net product sales. We have paid approximately $20.0 million for the BLA approval for inebilizumab by the FDA for NMOSD. However, we are currently unable to estimate the timing or likelihood of achieving other milestones or generating future product sales.

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Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses and stock-based compensation. We base our estimates on historical experience, known trends and events, and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in Note 2, "Summary of significant accounting policies", we believe the following accounting policies and estimates to be most critical to the preparation of our consolidated financial statements.

Accrued Research and Development

As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued expenses as of each consolidated 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. We make estimates of our accrued 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 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 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 expense accordingly. 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 actually 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. To date, there have been no material differences between our estimates of such expenses and the amounts actually incurred.

Revenue Recognition for Contracts with Customers

Effective January 1, 2019, we adopted Accounting Standards Update, or ASU, No. 2014-09, Revenue (ASC 606): Revenue from Contracts with Customers, or ASC 606, using the modified retrospective transition method. Under this method, results for reporting periods beginning on January 1, 2019 are presented under ASC 606, while prior periods were prepared and reported in accordance with ASC Topic 605, Revenue Recognition, or ASC 605. The adoption of ASC 606 resulted in no cumulative adjustment as we had substantially no assets until executing the Asset Acquisition in February 2018 (as described in Note 9, “Asset acquisition”) and did not enter into a revenue contract with a customer until May 2019 (as described in Note 15, “Collaboration agreements”).

ASC 606 applies to all contracts with customers, except for contracts that are within the scope of other standards. Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

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At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract and determine those that are performance obligations and assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Arrangements that include rights to additional goods or services that are exercisable at a customer’s discretion are generally considered options. We assess if these options provide a material right to the customer and if so, they are considered performance obligations. The exercise of a material right is accounted for as a contract modification for accounting purposes.

We recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) each performance obligation is satisfied at a point in time or over time, and if over time this is based on the use of an output or input method.

Amounts received prior to revenue recognition are recorded as deferred revenue. Amounts expected to be recognized as revenue within the 12 months following the consolidated balance sheet date are classified as current portion of deferred revenue in the accompanying consolidated balance sheet. Amounts not expected to be recognized as revenue within the 12 months following the consolidated balance sheet date are classified as deferred revenue, net of current portion.

Milestone Payments—If an arrangement includes development and regulatory milestone payments, we evaluate whether the milestones are considered probable of being reached and estimate the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within our control or the licensee’s control, such as regulatory approvals, are generally not considered probable of being achieved until those approvals are received.

Royalties—For arrangements that include sales-based royalties, including milestone payments based on a level of sales, which are the result of a customer-vendor relationship and for which the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied or partially satisfied. To date, we have not recognized any royalty revenue resulting from any of our licensing arrangements.

Significant Financing Component—In determining the transaction price, we adjust consideration for the effects of the time value of money if the timing of payments provides us with a significant benefit of financing. We do not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the licensees and the transfer of the promised goods or services to the licensees will be one year or less. We assessed each of our revenue arrangements in order to determine whether a significant financing component exists and concluded that a significant financing component does not exist in any of our arrangements.

Collaborative Arrangements—We enter into collaboration agreements, which are within the scope of ASC 606, to discover, develop, manufacture and commercialize product candidates. The terms of these agreements typically contain multiple promises or obligations, which may include: (1) licenses, or options to obtain licenses, to use our technology, (2) research and development activities to be performed on behalf of the collaboration partner, and (3) in certain cases, services in connection with the manufacturing of preclinical and clinical material. Payments we receive under these arrangements typically include one or more of the following: non-refundable, upfront license fees; clinical and development, regulatory, and sales milestone payments; and royalties on future product sales.

We also analyze our collaboration arrangements to assess whether they are within the scope of ASC 808, Collaborative Arrangements, or ASC 808, to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities. This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement. For collaboration arrangements within the scope of ASC 808 that contain multiple elements, we first determine which elements of the collaboration are deemed to be within the scope of ASC 606. For those elements of the arrangement that are accounted for pursuant to ASC 606, we apply the five-step model described above.

For a complete discussion of accounting for collaboration revenues, see Note 15, “Collaboration agreements.”

Other Company Information

Net Operating Loss and Research and Development Carryforwards and Other Income Tax Information

At December 31, 2020, we had federal and state net operating loss carryforwards of $270.1 million. Federal and state net operating losses arising after December 31, 2017 can be carried forward indefinitely. As of December 31, 2020,

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we also had federal research credit carryforwards of $21.6 million. The federal research and development tax credit carryforwards expire beginning in 2038 unless previously utilized, and the state research and development tax credit carryforwards expire beginning in 2025.

We believe that it is more likely than not that we will not realize the benefits of the deferred tax assets. Accordingly, a full valuation allowance has been established against the net deferred tax assets as of December 31, 2020. Management reevaluates the positive and negative evidence at each reporting period.

We have not completed a Section 382 study to assess whether an ownership change has occurred or whether there have been multiple ownership changes since our formation due to the complexity and cost associated with such a study and the fact that there may be additional such ownership changes in the future. Pursuant to Sections 382 and 383 of the Internal Revenue Code, annual use of our net operating loss and research and development tax credit carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year period.

Recently Issued and Adopted Accounting Pronouncements

A description of recently issued and adopted accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2, "Summary of significant accounting policies".

Off-Balance Sheet Arrangements

During the periods presented we did not have, nor do we currently have, any off-balance sheet arrangements as defined under SEC rules.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate risks, foreign currency exchange rate risks and inflation risks. Periodically, we maintain deposits in accredited financial institutions in excess of federally insured limits. We deposit our cash in financial institutions that we believe have high credit quality and purchase marketable securities which are generally investment grade, liquid, short-term fixed income securities and money-market instruments denominated in U.S. dollars. Our marketable securities consist of commercial paper, corporate notes and U.S. government agency notes. We have not experienced any significant losses on such accounts and do not believe we are exposed to any unusual credit risk beyond the normal credit risk associated with commercial banking relationships. However, uncertain financial markets have resulted in a tightening in the credit markets, a reduced level of liquidity in many financial markets, and extreme volatility in fixed income and credit markets. The credit ratings of the securities we have invested in could deteriorate and may have an adverse impact on the carrying value of these investments.

Interest Rate Risk

Our cash consists of cash in readily-available checking accounts and short-term money market fund investments. Such interest-earning instruments carry a degree of interest rate risk and the returns from such instruments will vary as short-term interest rates change. While historical fluctuations in interest income have not been significant, in a financial environment with extremely low or negative interest rates, we could experience a significant reduction in the interest earned from such instruments.

Foreign Currency Exchange Risk

All of our employees and our operations are currently located in the United States. We have, from time-to-time, engaged in contracts with contractors or other vendors in a currency other than the U.S. dollar. To date, we have had minimal exposure to fluctuations in foreign currency exchange rates as the time period between the date that transactions are initiated and the date of payment or receipt of payment is generally of short duration. Additionally, we have two new foreign subsidiaries; however, there were no actual operations at these entities during the year-ended December 31, 2020. Accordingly, we believe we do not have a material exposure to foreign currency risk.

Effects of Inflation

Inflation generally affects us by increasing our cost of labor and research and development contract costs. We do not believe inflation has had a material effect on our results of operations during the periods presented.

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Item 8. Financial Statements and Supplementary Data.

The consolidated financial statements and related financial statement schedules required to be filed are listed in the Index to Consolidated Financial Statements and are incorporated in Item 15 of Part IV of this annual report on Form 10-K.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation and supervision of our Chief Executive Officer and our Chief Financial Officer, have evaluated the effectiveness 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”)) as of the end of the period covered by this Annual Report on Form 10-K.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost‑benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of December 31, 2020.

Management's Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f) and 15d-15(f). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with United States generally accepted accounting principles. Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our evaluation under the framework in Internal Control—Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2020.

Attestation Report of the Registered Public Accounting Firm

The effectiveness of our internal control over financial reporting has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their attestation report herein, which expresses an unqualified opinion on the effectiveness of our internal control over financial reporting as of December 31, 2020.

Changes in Internal Controls over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the period covered by this Annual Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on the Effectiveness of Controls

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the controls are met.  Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues or misstatements, if any, within a company have been detected. Accordingly, our controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our control system are met. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

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Item 9B. Other Information.

None.

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PART III

Item 10. Directors, Executive Officers and Corporate Governance.

The response to this item is incorporated by reference from the discussion responsive thereto under the captions “Management and Corporate Governance,” “Delinquent Section 16(a) Reports,” and “Code of Business Conduct and Ethics” in the Company’s Proxy Statement for the 2021 Annual Meeting of Stockholders

Item 11. Executive Compensation.

The response to this item is incorporated by reference from the discussion responsive thereto under the caption “Executive Officer and Director Compensation” in the Company’s Proxy Statement for the 2021 Annual Meeting of Stockholders

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The response to this item is incorporated by reference from the discussion responsive thereto under the captions “Security Ownership of Certain Beneficial Owners and Management,” and “Equity Compensation Plan Information” in the Company’s Proxy Statement for the 2021 Annual Meeting of Stockholders.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

The response to this item is incorporated by reference from the discussion responsive thereto under the captions “Certain Relationships and Related Person Transactions” and “Management and Corporate Governance” in the Company’s Proxy Statement for the 2021 Annual Meeting of Stockholders.

Item 14. Principal Accounting Fees and Services.

The response to this item is incorporated by reference from the discussion responsive thereto under the caption “Independent Registered Public Accounting Firm” in the Company’s Proxy Statement for the 2021 Annual Meeting of Stockholders.

 

 

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PART IV

Item 15. Exhibits, Financial Statement Schedules.

(a) The consolidated financial statements filed as part of this annual report on Form 10-K are listed in the Index to Consolidated Financial Statements. Certain schedules are omitted because they are not applicable, or not required, or because the required information is included in the consolidated financial statements or notes thereto. The Exhibits are listed in Item 15(b) below.

(b) Exhibit Index.

111

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112

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113

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Item 16. Form 10-K Summary

Not applicable.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints each of Zhengbin (Bing) Yao, Ph. D. and Mitchell Chan his or her true and lawful attorney-in-fact and agent, with full power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof.

 

IN WITNESS WHEREOF, each of the undersigned has executed this Power of Attorney as of the date indicated

opposite his name.

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.

 

 

 

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

F-1

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Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
Viela Bio, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Viela Bio, Inc. and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive loss, redeemable convertible preferred stock and stockholders’ equity (deficit), and cash flows for each of the years in the three‑year period ended December 31, 2020 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 December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 1, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

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 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. 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.

Critical Audit Matters

Critical audit matters are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.

 

We have served as the Company’s auditor since 2018.

Baltimore, Maryland
March 1, 2021

F-2

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Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
Viela Bio, Inc.:

Opinion on Internal Control Over Financial Reporting

We have audited Viela Bio, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive loss, redeemable convertible preferred stock and stockholders’ equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements), and our report dated March 1, 2021 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become

F-3

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inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Baltimore, Maryland
March 1, 2021

 

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VIELA BIO, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

 

 

The accompanying notes are an integral part of these consolidated financial statements.

F-5

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VIELA BIO, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except share and per share amounts)

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

F-6

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VIELA BIO, INC.

CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands, except share and per share amounts)

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

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VIELA BIO, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-8

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VIELA BIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

1. Nature of the business and basis of presentation

Viela Bio, Inc. (“Viela” or the “Company”) is a biotechnology company pioneering and advancing treatments for severe inflammation and autoimmune diseases by selectively targeting shared critical pathways that are the root cause of disease. The Company was incorporated on December 11, 2017 under the laws of the State of Delaware. The Company’s lead molecule, inebilizumab, is a humanized mAb designed to target CD19, a molecule expressed on the surface of a broad range of immune system B cells. In January 2019, the Company reported positive pivotal clinical trial data for inebilizumab in patients with neuromyelitis optica spectrum disorder, or NMOSD. NMOSD is a rare, devastating condition that attacks the optic nerve, spinal cord and brain stem, and often leads to irreversible blindness and paralysis. The Company received Breakthrough Therapy Designation for the treatment of this disease from the U.S. Food and Drug Administration (the “FDA”) in April 2019 and in August 2019, the FDA accepted for review the Company’s Biologics License Application (“BLA”) for inebilizumab. On June 11, 2020, the FDA approved Uplizna^® (inebilizumab-cdon) for the treatment of adult patients with NMOSD who are anti-AQP4 antibody positive as a twice-a-year maintenance regimen following initial doses. The Company commercially launched Uplizna^® following the FDA approval in June 2020.

The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, successfully commercializing its approved product Uplizna^® for the treatment of patients with NMOSD, ability to secure additional capital to fund operations, completion and success of clinical testing, compliance with applicable governmental regulations, development by competitors of new technological innovations, dependence on key personnel and protection of proprietary technology. The Company expects to continue to incur expenses related to commercialization activities, including marketing expenses, as well as manufacturing and distribution costs for Uplizna^® for treatment in patients in the US with NMOSD. Drug candidates currently under development will require extensive clinical testing prior to regulatory approval and commercialization. These efforts require significant amounts of additional capital, adequate personnel, and infrastructure and extensive compliance-reporting capabilities.

In October 2019, the Company completed an initial public offering (the “IPO”) of its common stock and issued and sold 9,085,000 shares of common stock, which included 1,185,000 shares issued pursuant to the underwriters’ option to purchase additional shares, at a public offering price of $19.00 per share, for aggregate gross proceeds of $172,615 and net proceeds after deducting underwriting discounts and commissions and other offering costs of $156,927. Upon the closing of the IPO, the outstanding shares of series A redeemable convertible preferred stock (the “Series A Preferred Stock”), and series B redeemable convertible preferred stock (the “Series B Preferred Stock” and together with the Series A Preferred Stock, the “Preferred Stock”) converted into an aggregate of 40,618,706 shares of common stock.

In April 2020, Viela Bio BV, a wholly-owned subsidiary of the Company (the “ Dutch Subsidiary”), was established as a legal entity domiciled in the Netherlands, for the purpose of import and export of drug substances and drug products in connection with development and commercialization of medicines. The Dutch Subsidiary did not have any operations during the period ended December 31, 2020.

In June 2020, the Company completed an underwritten public offering of its common stock and issued and sold 3,600,000 shares of common stock, at a public offering price of $47.00 per share, for aggregate gross proceeds of $169,200 and net proceeds after deducting underwriting discounts and commissions and other offering costs of $158,338.

In September 2020, Viela Bio GmbH, a wholly-owned subsidiary of the Dutch Subsidiary (the “Swiss Subsidiary”) was established as a legal entity domiciled in the Switzerland, for the purpose of the manufacture and trade of products as well as the provision of management, administrative, accounting and legal services to members of the Viela Group of companies.  The Swiss Subsidiary did not have any operations during the period ended December 31, 2020.

COVID-19

In December 2019 an outbreak of a novel strain of coronavirus was identified in Wuhan, China. This virus continues to spread globally, has been declared a pandemic by the World Health Organization and has spread to over 200 countries, including the United States. The impact of this pandemic has been and will likely continue to be extensive in many aspects of society, which has resulted in and will likely continue to result in significant disruptions to businesses and capital markets around the world. The extent to which the coronavirus impacts the Company will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others. At

 

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present, the Company is not experiencing significant impact or delays from COVID-19 on its business and operations. However, in order to prioritize patient health and that of the investigators at clinical trial sites, the Company had paused enrollment of new patients in certain of our clinical trials, most of which the Company recently resumed.  

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

 

2. Summary of significant accounting policies

 

Principles of consolidation

The consolidated financial statements include the Company’s accounts and those of its wholly owned subsidiaries.  

 

Foreign currency translation and transaction

The functional currency of the Company and its subsidiaries is the U.S. dollar. Our foreign subsidiaries did not have any substantive operations for the year ended December 31, 2020.

 

Use of estimates

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, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of expenses during the reporting period. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, the recognition of research and development expenses based on when services are performed, and the valuations of share-based compensation arrangements. 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. On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.

Cash and cash equivalents

Cash equivalents represent highly liquid instruments with an original maturity of 90 days or less at acquisition. Cash and cash equivalents include investments in money market funds with commercial banks and financial institutions, and commercial paper of high-quality corporate issuers.

Marketable Securities

The Company adopted Accounting Standards Update (ASU) No. 2016-13, Financial Instruments - Credit Losses (Topic 326) effective January 1, 2020, using the allowance approach. Declines in fair value below amortized cost related to credit losses (i.e., impairment due to credit losses), are included in the consolidated statement of operations and comprehensive loss, with a corresponding allowance established. If the estimate of expected credit losses decreases in subsequent periods, the Company will reverse the credit losses through current period earnings, and accordingly adjust the allowance (see Recently Issued Accounting Pronouncements).

Inventory

The Company capitalizes inventory costs that are expected to be sold commercially once it’s determined there is a probable future economic benefit such that the inventory costs will be recovered through commercial sale based on the review of several factors, as applicable, including (i) the likelihood that all required regulatory approvals will be obtained,

 

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(ii) the expected timing of validation (if not yet completed) of manufacturing processes in the associated facility, (iii) the expected expiration of the inventory, (iv) logistical or commercial constraints that may impede the timely distribution and sale of the product, including transport requirements and reimbursement status, (v) history of approvals of similar products or formulations and (vi) potential legal challenges.

The Company began capitalizing inventories upon FDA approval of Uplizna^® on June 11, 2020. Once capitalized, inventories are stated at the lower of cost or net realizable value with cost determined under the first-in-first-out (“FIFO”) cost method. Inventories consist of raw materials, work in process and finished goods. Costs incurred prior to the FDA approval of Uplizna^® have been recorded as research and development expenses because of the uncertainty as described above. As of year-ended December 31, 2020, the Company has $9 of inventory related to Uplizna® on hand, which is included in other current assets on the consolidated balance sheet, and no capitalized inventory costs related to other drug development programs.

The Company analyzes its inventory levels on a periodic basis to determine if any inventory is at risk for expiration prior to sale or has a cost basis that is greater than its estimated future net realizable value. Any adjustments are recognized through cost of sales in the period in which they are incurred.

 

Accounts Receivable, net

The Company’s accounts receivable arise from net product sales and license revenues. They are generally stated at the invoiced amount and do not bear interest. Revenues from product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established and which result from certain government programs, copay assistance, prompt-pay discounts and certain distribution fees. These reserves are based on the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable (if no payments are required of the Company) for certain chargebacks, prompt pay discounts and certain distribution fees, or a current liability (if a payment is required of us), for government rebates, co-pay assistance and certain distribution fees.

The accounts receivable from product sales represents receivables due from the Company’s specialty distributor and specialty pharmacy in the U.S. The Company monitors the financial performance and creditworthiness of its customers so that it can properly assess and respond to changes in the customers’ credit profiles. The Company provides reserves against trade receivables for estimated credit losses that may result from a customer’s inability to pay. Amounts determined to be uncollectible are written-off against the established reserve. As of December 31, 2020, the Company believes that such customers are of high credit quality and any expected credit loss is deemed immaterial.

Concentrations of credit risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and marketable securities. Periodically, the Company maintains deposits in accredited financial institutions in excess of federally insured limits. The Company deposits its cash in financial institutions that it believes have high credit quality and has not experienced any losses on such accounts and does not believe it is exposed to any unusual credit risk beyond the normal credit risk associated with commercial banking relationships. The Company also has two primary customers as of year ended December 31, 2020, which represent a source of credit risk.

Fair value measurements

Certain assets and liabilities of the Company are carried at fair value under 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:

 

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The carrying amount of the Company’s financial instruments, including cash and cash equivalents, accounts receivable and accounts payable approximate their fair values. No transfer of assets between Level 1 and Level 2 of the fair value hierarchy occurred during the years ended December 31, 2020 and 2019.

 

Property and equipment

Property and equipment, which consists mainly of laboratory equipment, are carried at cost less accumulated depreciation. Depreciation expense is recognized using straight-line method over the estimated useful life of each asset as follows:

Expenditures for maintenance and repairs which do not materially extend the useful lives of the assets are charged to expense as incurred. The cost and accumulated depreciation or amortization of assets either retired or sold are removed from the respective accounts, and any gain or loss is recognized in operations.

Impairment of Long-Lived Assets

Long-lived assets consist of property and equipment. Long-lived assets to be held and used are tested for impairment whenever indications of an impairment, or a triggering event, has deemed to have occurred. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long-lived asset group for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset group to its carrying value. An impairment loss would be recognized in operations when estimated undiscounted future cash flows expected to result from the use of an asset group are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset group over its fair value, determined based on discounted cash flows. The Company did not record any impairment losses on long-lived assets during any of the years in the three-year period ended December 31, 2020.

 

Intangible assets, net

The Company’s intangible asset consists of in-licensed rights, which are stated in the Company’s consolidated balance sheet net of accumulated amortization and impairment, if applicable, and are amortized using a straight-line method over the useful life. Additionally, the intangible asset is reviewed for impairment whenever a triggering event occurs.

 

F-12

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The in-licensed rights relate to agreements with previous developers of Uplizna^®. As a result of the FDA approval of Uplizna^® on June 11, 2020, the Company was required to make milestone payments of $19,700. As these represent payments securing the Company’s rights with respect to an acquired in-process R&D asset that is now considered complete based on its approval by the FDA, the Company has capitalized such payments as intangible assets. The in-licensed rights are being amortized on a straight-line basis over the remaining life of the related patents which is the expected time period that the Company will benefit from the in-licensed rights. Amortization related to the in-licensed rights, which commenced in the third quarter of 2020 and was included in cost of products sold in the consolidated statement of operations and comprehensive loss, for the year ended December 31, 2020 was $1,020. Estimated future amortization for the in-licensed rights is $1,884 annually for years ending 2021, 2022, 2023, 2024, and 2025. Thereafter, estimated remaining amortization is $9,260.

 

Revenue Recognition for Contracts with Customers

Effective January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) No. 2014-09: Revenue from Contracts with Customers (“ASC 606”), using the modified retrospective transition method. Under this method, results for reporting periods beginning on January 1, 2019 are presented under ASC 606, while prior periods were prepared and reported in accordance with ASC Topic 605, Revenue Recognition (“ASC 605”). The adoption of ASC 606 resulted in no cumulative adjustment as the Company had substantially no assets until executing the Asset Acquisition in February 2018 (as described in Note 9, “Asset acquisition”)) and did not enter into a revenue contract with a customer until May 2019 (as described in Note 15, “Collaboration agreements”).

ASC 606 applies to all contracts with customers, except for contracts that are within the scope of other standards. Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

Product Revenues, net

The Company’s contracts with its specialty distributor (the “SD”) and specialty pharmacy (the “SP”), referred to as its customers, are within the scope of ASC 606. Contractual performance obligations are limited to transfer of control of Uplizna^®  to the customer. The Company recognizes product revenues, net of variable consideration related to certain allowances and accruals, in our consolidated financial statements upon transfer of control of Uplizna^® to the customer. The transfer of control occurs at a point-in-time upon the customer’s receipt of the product after considering when the customer obtains legal title to the product and the customer has accepted the product. At this point, customers can direct the use of and obtain substantially all of the remaining benefits of the product.

The customer is initially invoiced at the contractual list price for Uplizna^®. Revenue is reduced from contractual list price at the time of recognition for expected chargebacks, rebates, discounts, and certain fees, which are referred to as gross to net adjustments, or GTN adjustments. These reductions are primarily attributed to government programs such as the Federal Supply Schedule, Tricare, Medicare, Medicaid and the 340B Drug Pricing Program containing various pricing implications such as mandatory discounts and pricing protection below the wholesaler list price. In addition, the reductions also include expected copay assistance for commercially insured patients, prompt-pay discounts and certain fees paid to the specialty distributor and specialty pharmacy based on contractually determined rates. The GTN adjustments are generally reflected as either a reduction to receivables (and settled through the issuance of credits), or, are reflected as a liability and settled through cash payments. The Company does not offer a general right of return and accordingly does not include product returns within the GTN adjustments.

Judgment is required in estimating GTN adjustments considering legal interpretations of applicable laws and regulations, current experience, current contract prices under applicable programs, unbilled claims, and processing time lags.

The Company also reduces product revenue for cash payments (e.g., distribution fees) made to entities within the distribution channel (including the customer) where the Company does not receive a distinct good or service in exchange for such payments. Shipping and handling activities represent fulfillment activities and the Company records such costs within cost of goods sold on the consolidated statements of operations and comprehensive loss. In addition, the Company

 

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has elected to exclude taxes collected from customers and remitted to governmental authorities from the measurement of the transaction price.

At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Arrangements that include rights to additional goods or services that are exercisable at a customer’s discretion are generally considered options. We assess if these options provide a material right to the customer and if so, they are considered performance obligations. The exercise of a material right is accounted for as a contract modification for accounting purposes.

The Company recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) each performance obligation is satisfied at a point in time or over time, and if over time this is based on the use of an output or input method.

Amounts recognized as revenue for which the Company has the contractual right to bill, but has not yet received, are classified as accounts receivable in the accompanying balance sheets. Amounts recognized as revenue for which the Company does not have the contractual right to bill are generally recognized as contract assets.

Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as current liabilities in the accompanying balance sheets. Amounts not expected to be recognized as revenue within the 12 months following the consolidated balance sheet date are classified as long-term liabilities.

Licenses of Intellectual Property – The terms of the Company’s contracts with customers may include the license of functional intellectual property, given the functionality of the intellectual property is not expected to change substantially as a result of the Company’s ongoing activities. If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from the portion of the transaction price allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises (that is, for licenses that are not distinct from other promised goods and services in an arrangement), the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

Milestone Payments – If an arrangement includes development and regulatory milestone payments, the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the Company’s control or the licensee’s control, such as regulatory approvals, are generally not considered probable of being achieved until those approvals are received.

Royalties – For arrangements that include sales-based royalties, including milestone payments based on a level of sales, which are the result of a customer-vendor relationship and for which the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied or partially satisfied. To date, the Company has not recognized any royalty revenue or milestone payments resulting from any of its licensing arrangements. As part of the collaboration and supply agreements entered into with Mitsubishi Tanabe Pharma Corporation (“MTPC”), the Company is required to supply product to MTPC for its development and commercialization of inebilizumab in the respective territories. MTPC orders supply based on their expectations of market conditions in the licensed territories and their planned utilization of the product. Payment is invoiced upon shipment of the product to MTPC and is based on the amount of product that is expected to be utilized in commercial sales, and the amount of product utilized for other purposes. The Company has determined that this transaction is an in-substance royalty arrangement, and that the intellectual property that has been licensed to MTPC under the arrangement is the predominate item to the supply agreement. As a result, such invoiced amounts in excess of the cost of the supplied product are deferred until MTPC has recognized a sale of the product. Product shipped to MTPC that has been accepted, is not subject to return, and the cost of such products is nonrefundable. In the event that MTPC is unable to sell the product in the licensed territories, the entire amount of the payment from MTPC that is in excess of the cost of the product is refundable. As of December 31, 2020, inebilizumab has not been authorized for use in any of the licensed territories. The Company has

 

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recorded a refund liability on the consolidated balance sheet for the amount received that is in excess of the cost of the product provided, and accepted, by MTPC.

Significant Financing Component – In determining the transaction price, the Company adjusts consideration for the effects of the time value of money if the timing of payments provides the Company with a significant benefit of financing. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the licensees and the transfer of the promised goods or services to the licensees will be one year or less. The Company assessed each of its revenue arrangements in order to determine whether a significant financing component exists and concluded that a significant financing component does not exist in any of its arrangements.

Collaborative Arrangements – The Company enters into collaboration agreements, which are within the scope of ASC 606, to discover, develop, manufacture or commercialize product candidates. The terms of these agreements typically contain multiple promises or obligations, which may include: (1) licenses, or options to obtain licenses, to use the Company’s technology, (2) research and development activities to be performed on behalf of the collaboration partner, and (3) in certain cases, services in connection with the manufacturing of preclinical and clinical material. Payments the Company receives under these arrangements typically include one or more of the following: non-refundable, upfront license fees; clinical and development, regulatory, and sales milestone payments; and royalties on future product sales.

The Company also analyzes its collaboration arrangements to assess whether they are within the scope of ASC 808, Collaborative Arrangements (“ASC 808”) to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities. This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement. For collaboration arrangements within the scope of ASC 808 that contain multiple elements, the Company first determines which elements of the collaboration are deemed to be within the scope of ASC 606. For those elements of the arrangement that are accounted for pursuant to ASC 606, the Company applies the five-step model described above.

Cost of Product Sold

Cost of product sales includes the cost of producing and distributing inventories that are related to product revenues during the respective period, and third-party royalties payable on our net product revenues. Cost of goods sold includes, as applicable, costs related to excess or obsolete inventory adjustment charges, abnormal costs, unabsorbed manufacturing and overhead costs, amortization of intangible asset, and manufacturing variances.

Stock-based compensation

The Company measures all stock-based awards granted to employees based on the fair value on the date of the grant and recognizes compensation expense into either selling, general and administrative expense or research and development expense for those awards over the requisite service period, which is generally the vesting period of the respective award. The Company accounts for forfeitures as they occur.

The fair value of each stock option grant 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 stock, expected stock price volatility, the expected term of the option, the risk-free interest rate for a period that approximates the expected term of the option, and the Company’s expected dividend yield. In order to determine the fair value, the Company considered, among other things, contemporaneous valuations of the Company’s common stock, the Company’s business, financial condition and results of operations, including related industry trends affecting its operations; the likelihood of achieving a liquidity event, such as an IPO or sale, given prevailing market conditions; the lack of marketability of the Company’s common stock; the market performance of comparable publicly traded companies; and U.S. and global economic and capital market conditions. As there was no public market for its common stock prior to October 3, 2019, which was the first day of trading, the Company estimates its expected share price volatility based on the historical volatility of publicly traded peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded share price. The expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain vanilla” options. 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. Expected dividend yield is based on the fact that the Company has never paid cash dividends on common stock and does not expect to pay any cash dividends in the

 

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foreseeable future. The fair value of each restricted common stock award is estimated on the date of grant based on the fair value of the Company’s common stock on that same date.

The Company classifies stock-based compensation expense in its statement of operations and comprehensive loss in the same manner in which the award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified.

Common stock valuations

Prior to the IPO, because there was no public market for our common stock as we were a private company, our board of directors determined the fair value of our common stock by considering a number of objective and subjective factors, including having contemporaneous and retrospective valuations of our equity performed by a third-party valuation specialist, valuations of comparable peer public companies, sales of our convertible preferred stock, operating and financial performance, the lack of liquidity of our common stock, and general and industry-specific economic outlook. Following our IPO, the closing sale price per share of our common stock as reported on The Nasdaq Global Select Market on the date of grant is used to determine the fair value exercise price per share of our share-based awards to purchase common stock.

Research and development expenses

Research and development costs are expensed as incurred. Research and development expenses consist of costs incurred to discover, research and develop drug candidates, including personnel expenses, stock-based compensation expense, allocated facility-related and depreciation expenses, third-party license fees and external costs including fees paid to consultants and clinical research organizations (“CROs”), in connection with nonclinical studies and clinical trials, and other related clinical trial fees, such as for investigator grants, patient screening, laboratory work, clinical trial database management, clinical trial material management and statistical compilation and analysis.

Costs incurred in purchasing technology or technology licenses are charged immediately to research and development expense if the technology has not reached technological feasibility and has no alternative future uses.

Clinical trial costs are a significant component of research and development expenses and include costs associated with third-party contractors. For each clinical trial that the Company conducts, certain clinical trial costs are expensed immediately, while others are expensed over time based on the expected total number of patients in the trial, the rate at which patients enter the trial, and/or the period over which clinical investigators or CROs are expected to provide services.

For clinical study sites, where payments are made periodically on a per-patient basis to the institutions performing the clinical study, the Company accrues expenses on an estimated cost-per-patient basis, based on subject enrollment and activity in each period. The Company’s estimates and assumptions for clinical expense recognition could differ significantly from the Company’s actual results, which could cause material increases or decreases in research and development expenses in future periods when the actual results become known.

Patent costs

All patent-related costs incurred in connection with filing and prosecuting patent applications are expensed as incurred due to the uncertainty about the recovery of the expenditure. Amounts incurred are classified as selling, general and administrative expenses.

Income taxes

The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes. Under the asset and liability method, deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. The effect of changes in tax rates on deferred tax assets and liabilities is recognized in income in the period such changes are enacted. A valuation allowance is provided against net deferred tax assets if recoverability is uncertain on a more likely than not basis. As of December 31, 2020 and 2019, the Company has established a full valuation allowance with respect to its deferred tax assets.

 

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The Company recognizes the impact of an uncertain tax position if the position will more likely than not be   sustained upon examination by a taxing authority, based on the technical merits of the position. The Company’s policy is   to record interest and penalties related to income taxes as part of its income tax provision. As of December 31, 2020, the   Company had no unrecognized tax benefits and as such, no liability, interest or penalties were required to be recorded.   The Company does not expect this to change significantly in the next twelve months

Net loss per share

Basic net loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period.

Prior to the IPO, the Company followed the two-class method when computing net loss per share, which is an earnings allocation formula that determines net loss per share for the holders of the Company’s common shares and participating securities. The Company’s Preferred Stock contains participating rights in any dividend paid by the Company and are deemed to be participating securities. Net income attributable to common stockholders and participating preferred shares is allocated to each share on an as-converted basis as if all of the earnings for the period had been distributed. The participating securities do not include a contractual obligation to share in the losses of the Company and are not included in the calculation of net loss per share in the periods that have a net loss. Common equivalent shares are excluded from the computation in periods in which they have an anti-dilutive effect on net loss per share.

Diluted net loss per share is computed using the more dilutive of (a) the two-class method or (b) the if-converted method. In periods in which the Company reports a net loss attributable to common stockholders, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive. Diluted net loss per share is equivalent to basic net loss per share for the periods presented herein because common stock equivalent shares from the Series A and Series B Preferred Stock were anti-dilutive.

Subsequent to the IPO, basic net loss per common share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding for the period. Diluted net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding for the period, including potential dilutive common shares assuming the dilutive effect of outstanding stock options. Accordingly, in periods in which the Company reported a net loss, dilutive common shares were not included in the calculation as their affect was anti-dilutive, and as a result, diluted net loss per common share was the same as basic net loss per common share for the years ended December 31, 2020, 2019, and 2018.

For the years ended, December 31, 2020, 2019, and 2018, there were no reconciling items between basic and diluted net loss per share. At December 31, 2020, the Company had outstanding stock options totaling 4,271,784. At December 30, 2019, the Company had outstanding stock options and restricted stock awards totaling 3,659,414. At December 30, 2018, the Company had outstanding stock options, restricted stock awards totaling 3,243,227, and 31,225,324 shares of Preferred Stock. These common stock equivalents are excluded from the calculation of diluted net loss per share as their effect would be anti-dilutive.

 

Segment information

The Company manages its operations as a single operating segment for the purposes of assessing performance and making operating decisions. The Company’s singular focus is developing and commercializing transformative treatments for severe inflammation and autoimmune diseases.

Recently adopted accounting pronouncements

Effective January 1, 2020, the Company adopted Accounting Standards Updated (“ASU”) No. 2016-02, Leases (Topic 842) (“ASU No. 2016-02”), including all its amendments, using the modified retrospective method. Under the modified retrospective method, the cumulative effect of the change is recognized in retained earnings as an adjustment in the period of adoption. However, the adoption of ASU No. 2016-02, and its related amendments, did not result in any cumulative adjustments to retained earnings. The Company has elected to not restate comparative periods in the period of adoption. The new guidance requires an entity to recognize a right-of-use asset and a lease liability initially measured at the present value of future lease payments. The company has opted to elect the package of practical expedients upon adoption and applied the practical expedient not to separate lease and non-lease components for new and modified leases commencing after adoption. In addition, the Company applied the short-term lease recognition exemption for

 

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leases with terms at inception not greater than 12 months. As of the period of adoption, the Company did not have any short-term leases. Further, the company chose not to elect the use of hindsight to reassess the lease terms. Refer to “Note 16 Leases” for further information.

In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which modifies the measurement of expected credit losses on certain financial instruments and became effective for the Company as of January 1, 2020. The adoption of ASU 2016-13 did not have a material impact on the Company’s consolidated financial statements and related disclosures.

Recently issued accounting pronouncements

There are no recently issued accounting pronouncements that are expected to have a material impact on our consolidated financial statements.

 

3. Accounts receivable, net

The following table summarizes the components of the Company’s accounts receivable:

 

 

 

 

 

4. Cash, cash equivalents and marketable securities

The following is a summary of the Company’s cash, cash equivalents and available-for-sale marketable securities by significant investment category:

 

 

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As of December 31, 2020, there was no impairment due to credit loss on any available-for-sale marketable securities.

 

    

 

5. Property and Equipment, net

The following is a summary of the Company’s property and equipment, at cost:

 

 

 

 

 

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6. Accrued expenses and other current liabilities

The following is a summary of the Company’s accrued liabilities and other current liabilities:

 

 

7. Common stock

Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders, provided, however, that except as otherwise required by law, holders of common stock shall not be entitled to vote on any amendment to the Company’s certificate of incorporation that relates solely to the terms of one or more outstanding series of preferred stock, if the holders of the affected series are entitled to vote thereon. Common stockholders 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 December 31, 2020, no cash dividends had been declared or paid.

 

8. Convertible redeemable preferred stock

The Preferred Stock converted into an aggregate of 40,618,706 shares of common stock upon the closing of the IPO in October 2019.

Series A Preferred Stock

On February 23, 2018 (the “Transaction Date”), pursuant to the Series A Preferred Stock Purchase Agreement, by and among the Company and certain purchasers, and as part of an initial tranche closing, the Company issued 14,225,324 shares of Series A-1 preferred stock and 14,000,000 shares of Series A-2 preferred stock, par value $0.001 per share, at a purchase price of $10.00 per share, resulting in gross proceeds of approximately $282,253 to the Company (the “Initial Tranche Closing”).

In addition to the Initial Tranche Closing, the Series A Preferred Stock Purchase Agreement provided for the issuance of up to 6,470,588 shares of Series A-3 at a purchase price of $17.00 per share upon acceptance for review by the U.S. FDA of the Company’s first biologics license application for lead product candidate, inebilizumab, for the indication neuromyelitis optica spectrum disorder (the “Milestone Closing”). However, at any time prior to the Milestone Closing, the board of directors could determine that the Company required additional capital to fund its operations, upon which the board of directors may cause the Company to sell and the holders of the Series A-2 to purchase up to 3,000,000 additional shares of Series A-2 preferred stock at a purchase price of $10.00 per share (the “Additional Closing”). In December 2018, the Additional Closing occurred, and the Company received $30,000 in exchange for 3,000,000 shares of Series A-2. As of December 31, 2018, $12,000 of the $30,000 was recorded as a receivable as funds were not received until January 2019 and the Company provided supplemental non-cash financing disclosure on its consolidated statement of cash flows for the year ended December 31, 2018. The proceeds received upon the Additional Closing would reduce the proceeds from the Milestone Closing.

In September 2019, the Company issued an aggregate of 4,705,882 shares of Series A-3 preferred stock at a purchase price of $17.00 per share for an aggregate gross consideration of $80,000.

Series B Preferred Stock

In June 2019, pursuant to the Series B Preferred Stock Purchase Agreement, by and among the Company and certain purchasers, the Company issued 4,687,500 shares of Series B Preferred Stock at a purchase price of $16.00 per share, resulting in gross proceeds of approximately $75,000 to the Company.

Prior to the closing of the IPO, the holders of the Preferred Stock had the following rights and preferences:

 

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Voting

Each holder of the Preferred Stock was entitled to the number of votes equal to the number of shares of Common Stock into which the number of shares of Preferred Stock held by such holder were convertible and should vote together with the holders of Common Stock as a single class. The holders of the preferred stock were entitled to elect seven of the eight directors on the Board of Directors. Two of the seven directors were elected by the Series A-1 preferred stockholders, four of the directors were elected by the Series A-2 preferred stockholders, one of the directors was elected by the Series B preferred stockholders, and the remaining director is the Company’s chief executive officer.

Dividends

The Series B preferred stock accrued cumulative dividends on a daily basis at a fixed dividend rate of $1.28 per share per annum payable only when, as and if declared by the Board of Directors of the Company, prior and in preference to any declaration or payment of any dividend on shares of any other class or series of capital stock of the Company (“Accruing Dividends”) unless the holders of the Series B preferred stock first (and Series A preferred stock thereafter) received, or simultaneously received, a dividend in an amount at least equal to the formula included in the Company’s charter which varied based on whether the dividend was on the Common Stock or on any other class or series not convertible into Common Stock. Through October 3, 2019, no dividends had been declared or paid by the Company.

Liquidation

In the event of any liquidation, dissolution or winding-up of the Company or a Deemed Liquidation Event (as defined below), the holders of the Series B preferred stock then outstanding would be entitled to be paid out of the assets of the Company available for distribution to stockholders, and before any payment would be made to holders of Series A preferred stock and Common Stock, in an amount per share equal to the original issue price per share, plus all Accruing Dividends accrued but unpaid thereon, whether or not declared, together with all other declared but unpaid dividends thereon. If upon such event, the assets of the Company available for distribution were insufficient to permit payment in full to the holders of Series B preferred stock, the proceeds would be ratably distributed among the holders of Series B preferred stock. After satisfaction of the Series B preferred stock liquidation preference, the holders of the Series A preferred stock were entitled to be paid before any payment shall be made to the holders of Common Stock in an amount equal to the original issue price per share, plus any declared but unpaid dividends thereon. Due to this redemption option, the Preferred Stock was recorded in mezzanine equity and subject to subsequent measurement under the guidance provided under ASC 480-10-S99.

After payments have been made in full to the holders of the Preferred Stock, the remaining assets of the Company available for distribution would be distributed among the holders of Preferred Stock and the holders of Common Stock on a pro-rata basis as if the shares of Preferred Stock were converted into Common Stock immediately prior to the liquidation event.

A merger or consolidation involving the Company in which the stockholders of the Company do not own a majority of the outstanding shares of the surviving company shall be considered a Deemed Liquidation Event. A sale, lease, transfer, exclusive license or other disposition of all or substantially all of the assets of the Company shall also be considered a Deemed Liquidation Event.  

Conversion

Each share of Preferred Stock was convertible into Common Stock at the option of the holder at any time after the date of issuance. In addition, each share of Preferred Stock would be automatically converted into shares of Common Stock, at the applicable conversion ratio then in effect, upon the earlier of (i) a qualified public offering with net proceeds of at least $75,000 and a price of not less than $17.60 per share, subject to appropriate adjustment for any stock dividend, stock split, combination or other similar recapitalization, (ii) by the affirmative vote of the holders of at least 75% of the then-outstanding Series A preferred stock and a majority of the holders of the outstanding shares of the Series B preferred stock, if such vote was obtained prior to the Milestone Closing or (iii) by the affirmative vote of the holders of at least 75% of the then-outstanding shares of Series A-2 preferred stock and Series A-3 preferred stock (voting together as a single class on an as-converted to Common Stock basis) and a majority of the outstanding shares of Series B preferred stock (voting together as a single class on an as-converted to Common Stock basis) if such vote was obtained after the Milestone Closing. Upon conversion, the shares of Preferred Stock would be converted into Common Stock, at par value, with the remainder recorded to additional paid-in capital.

 

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The conversion ratio of the Preferred Stock was determined by dividing the original issue price per share by the conversion price in effect at the time of conversion. The initial conversion price was equal to the original issuance price of the Preferred Stock and was subject to appropriate adjustment in the event of any stock dividend, stock split, combination or recapitalization affecting the Preferred Stock.

Upon the closing of the IPO, the Company’s outstanding Preferred Stock converted into an aggregate of 40,618,706 shares of common stock. Upon conversion of the Preferred Stock, the Company reclassified the carrying value of the Preferred Stock to common stock and additional paid-in capital.

9. Asset acquisition

In February 2018, the Company entered into the Asset Purchase Agreement with the AZ Parties (AstraZeneca Collaboration Ventures, LLC, MedImmune LLC, and MedImmune, LLC) to acquire the intellectual property and the biological, regulatory and other materials associated with a portfolio of clinical molecules (“Clinical Molecules”) and pre-clinical molecules for potential therapies for autoimmune diseases and inflammation (collectively, the “Acquired Molecules”), for a purchase price of approximately $142,253 (“Asset Acquisition”), which includes direct and incremental transaction expenses of approximately $1,000. The Acquired Molecules consist of multiple in-process research and development projects related to biological therapies which are intended to treat an interrelated subset of auto-immune disorders, represented in part by common biological characteristics. As of the acquisition date, the Acquired Molecules were either in the pre-clinical stage, Phase 1a trial, Phase 1b trial or Phase 2 trial. Further, the Acquired Molecules are related to various potential indications, all of which were identified by the Company as preliminary on the Transaction Date. Until a lead indication is identified, it is not uncommon for the preliminary indications of a drug compound to change during the early clinical development stages.

In addition to the Acquired Molecules, in connection with the Asset Acquisition certain former employees of the AZ Parties were either hired by the Company simultaneously or shortly following the Transaction Date. Further, the Company assumed certain ongoing CRO contracts from the AZ Parties related to the research and development of the Acquired Molecules. The services provided by the CRO contracts are readily available in the marketplace and are not considered to be unique or scarce. The estimated fair value associated with the employees and CRO contracts was deemed to be insignificant.

The Asset Acquisition was accounted for as an acquisition of assets that did not meet the definition of a business. The Asset Acquisition did not constitute a business as substantially all of the fair value of the gross assets acquired was concentrated in the Clinical Molecules, which represent a group of similar identifiable assets as of the acquisition date. As of the acquisition date, the Clinical Molecules were deemed to share similar risk characteristics as (1) each of the Clinical Molecules were in the early development stages of a drug compound and shared a similar financial, technical and regulatory risk profile, (2) only preliminary indications had been identified for any of the Clinical Molecules and (3) the underlying biologic therapies of the Clinical Molecules were similar in that each was intended to treat an interrelated subset of autoimmune disorders by interrupting biologic mechanisms that otherwise result in inflammation and tissue damage.

Because the Acquired Molecules were accounted for as an asset acquisition that did not meet the definition of a business, the Acquired Molecules were recorded at their fair values, which equaled the fair value of the consideration paid of approximately $142,253. However, because the Acquired Molecules represent in-process research and development with no alternative future use, the Company immediately expensed the fair value of the Acquired Molecules in the consolidated statement of operations and comprehensive loss for the year ended December 31, 2018.

10. Stock-based compensation

The Company’s Amended and Restated 2018 Equity Incentive Plan (the “Equity Incentive Plan”) provides for the grant of stock options (both incentive and non-statutory), restricted stock awards, restricted stock unit awards, stock appreciation rights, and other forms of stock-based awards to employees, consultants and directors.

During the years ended December 31, 2020, 2019, and 2018, the Company granted stock options that vest over four years and have a maximum contractual term of ten years. Vesting is subject to the holder’s continuous service with the Company. The Company reserved a total of 7,565,938 shares of common stock for issuance under the Equity Incentive Plan with 5,978,143 available for future issuance, which amount includes shares issuable upon the exercise of outstanding options.

 

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Stock option valuation

The fair value of each stock option grant was estimated using the Black-Scholes option-pricing model as of the date of grant. The fair value of the Company’s option awards granted during the years ended December 31, 2020, 2019, and 2018 was estimated using the following assumptions:

 

 

Stock options

The following table summarizes the Company’s stock option activity:

The weighted average grant date fair value per share of options granted during the years ended December 31, 2020, 2019, and 2018 was $22.43, $9.25, and $1.99, respectively.

The aggregate intrinsic value of options exercised during year ended December 31, 2020 was approximately $11,652. The aggregate intrinsic value of options vested and expected to vest as of December 31, 2020 was approximately $78,961. The aggregate intrinsic value of options vested and exercisable as of December 31, 2020 was approximately $36,848.

As of December 31, 2020, there was approximately $35,141 total unrecognized compensation expense, related to the unvested stock options, which is expected to be recognized over a weighted average period of 2.99 years.

 

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Restricted common stock

The following table summarizes the information about restricted stock awards (“RSA”) activity:  

 All restricted stock was vested as of December 31, 2020.

Stock-based Compensation

Stock-based compensation expense was comprised of the following:

 

11. Income taxes

During the years ended December 31, 2020, 2019, and 2018, the Company recorded no income tax benefits for the net operating losses incurred or for the research and development tax credits generated in each period due to its uncertainty of realizing a benefit from those items. All of the Company’s operating losses since inception have been generated in the United States. A summary of the Company’s current and deferred tax provision is as follows:

 

 

 

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A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate is as follows:

 

 

Net deferred tax assets consisted of the following:

 

 

At December 31, 2020, we had federal and state net operating loss carryforwards of $270.1 million. Federal and state net operating losses arising after December 31, 2017 can be carried forward indefinitely. As of December 31, 2020, we also had federal research credit carryforwards of $21.6 million. The federal research and development tax credit carryforwards expire beginning in 2038 unless previously utilized, and the state research and development tax credit carryforwards expire beginning in 2025.

Utilization of the U.S. federal and state net operating loss carryforwards and research and development tax credit carryforwards may be subject to a substantial annual limitation under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, and corresponding provisions of state law, due to ownership changes that may have occurred previously or that could occur in the future. These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income or tax liabilities. The Company has not conducted a study to assess whether a change of control has occurred or whether there have been multiple changes of control since inception due to

 

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the significant complexity and cost associated with such a study. If the Company has experienced a change of control, as defined by Section 382, at any time since inception, utilization of the net operating loss carryforwards or research and development tax credit carryforwards would be subject to an annual limitation under Section 382. Generally, an ownership change occurs when certain shareholders increase their aggregate ownership by more than 50 percentage points over their lowest ownership percentage in a testing period, which is typically three years or since the last ownership change. Any limitation may result in expiration of a portion of the research and development tax credit carryforwards before utilization and could potentially result in increased future cash tax liability if the Company earns taxable income in the future.

The Company recognizes valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized. In assessing the likelihood of realization, management has considered (i) future reversals of existing taxable temporary differences; (ii) future taxable income exclusive of reversing temporary difference and carryforwards; (iii) taxable income in prior carryback years if carryback is permitted under applicable tax law; and (iv) tax planning strategies. The Company's net deferred income tax asset is not more likely than not to be utilized due to the lack of sufficient sources of future taxable income and cumulative book losses. Accordingly, a full valuation allowance has been established against the net deferred tax assets as of December 31, 2020 and 2019.

As of December 31, 2020, 2019, and 2018, the Company had no unrecognized tax benefits. The Company’s policy is to record interest and penalties related to income taxes as part of its income tax provision. As of December 31, 2020, 2019, and 2018, the Company had no accrued interest or penalties related to uncertain tax positions.

The Company files income tax returns in the U.S., Maryland and certain other states, as prescribed by the tax laws of the jurisdictions in which it operates, where applicable. There are currently no pending tax examinations. The Company's U.S. Federal and state income tax returns from 2018 forward remain open to examination.

 

12. Benefit plan

The Company maintains a defined contribution 401(k) plan, under which employee contributions are voluntary and are determined on an individual basis, limited by the maximum amounts allowable under federal tax regulations. The Company provides an automatic matching contribution of $1.00 per $1.00 of employee contribution into the plan up to a maximum of 4% of employee deferral. The Company’s matching contributions to employees totaled approximately $1,020, $581, and $179 during the years ended December 31 2020, 2019, and 2018, respectively.

13. Commitments and contingencies

Contingencies

In the ordinary course of business, the Company may become a party to lawsuits involving various matters. The Company is not currently a party, and its properties are not currently subject, to any legal proceedings that, in the opinion of management, are expected to have a material adverse effect on the Company’s business, financial condition or results of operations.

Indemnification of Management and the Board

In accordance with the Company’s third amended and restated certificate of incorporation and amended and restated bylaws, the Company has indemnification obligations to its officers and directors for certain events or occurrences, subject to certain limits, while they are serving in such capacity. There have been no claims to date, and the Company has a directors and officers liability insurance policy that may enable it to recover a portion of any amounts paid for future claims.

Milestone and Royalty Payments

At the inception of each license and collaboration agreement with third parties, which may require the Company to make milestone payments, the Company evaluates whether each milestone and royalty payment is substantive and at risk to both parties on the basis of the contingent nature of the milestone and royalty. The Company aggregates milestones into three categories (i) research milestones, (ii) development milestones and (iii) commercial milestones and royalties. Research milestones are typically achieved upon reaching certain criteria as defined in each agreement related to developing a molecule against the specified target. Development milestones are typically reached when a molecule

 

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reaches a defined phase of clinical research or passes such phase, or upon gaining regulatory approvals. Commercial milestones and royalties are typically achieved when an approved pharmaceutical product reaches the status for commercial sale or certain defined levels of net sales by the licensee, such as when a product first achieves global sales or annual sales of a specified amount. The Company made a regulatory milestone payment of approximately $19,800 in September 2019, in connection with acceptance for review by the FDA of the Company’s Biologics License Application (“BLA”) for inebilizumab in patients with neuromyelitis optica spectrum disorder (“NMOSD”) in August 2019. For the year ended December 31, 2019, the $19,800 regulatory milestone payment was recorded within research and development expenses. The Company made $19,700 of regulatory milestone payments related to in-licensed rights in June 2020, in connection with the approval of Biologics License Application by the FDA for Uplizna^® for the treatment of NMOSD. For the year ended December 31, 2020, the $19,700 regulatory milestone payment was recorded as an intangible asset.

Employment Agreements

The Company has entered into employment agreements with certain of its executive officers. Generally, the terms of these agreements provide that, if the Company terminates the officer other than for cause, death or disability, or if the officer terminates his or her employment with the Company for good cause, the officer shall be entitled to receive certain severance compensation and benefits as described in each such agreement.

14. Related party transactions

In connection with the Asset Acquisition, the Company also entered into certain other agreements with the AZ Parties (AstraZeneca Collaboration Ventures, LLC, MedImmune LLC, and MedImmune, LLC), including a transition services agreement, a clinical supply agreement, a commercial supply agreement, a master supply and development services agreement, and a long-term lease agreement. During the year ended December 31, 2020, the Company incurred $20,969 of costs under these agreements, of which $3,423 is recorded as a related party liability on the Company’s consolidated balance sheet as of December 31, 2020. During the year ended December 31, 2019, the Company incurred $41,934 of costs under these agreements, of which $12,892 is recorded as a related party liability on the Company’s consolidated balance sheet as of December 31, 2019. During the year ended December 31, 2018, the Company incurred $32,092 of costs under these agreements.

15. Collaboration agreements

Commercial license and collaboration agreement with Hansoh

On May 24, 2019 (the “Hansoh Effective Date”), the Company entered into an exclusive commercial license and collaboration agreement with Hansoh Pharmaceutical Group Company Limited (“Hansoh”). By entering into this agreement, the Company promised to Hansoh the following goods or services:

 

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In addition, the Company and Hansoh formed a JCC to provide oversight to the activities performed under the agreement; however, the substance of the Company’s participation in the JCC does not represent an additional promised service, but rather, a right of the Company to protect its own interests in the arrangement. Further, the Company and Hansoh entered into a supply agreement through which the Company shall supply to Hansoh, and Hansoh agrees to purchase from the Company, any and all requirements of any licensed product including inebilizumab for development and commercialization in the Territory during the term. The terms of the supply agreement do not provide for either (i) an option to Hansoh to purchase product from the Company at a discount from the standalone selling price or (ii) minimum purchase quantities. Finally, Hansoh will bear (i) all costs and expenses for any development of inebilizumab for all indications in the Territory subject to the exclusive license and (ii) all costs and fees associated with applying for regulatory approval of any product candidates in the Territory.

The Company received a non-refundable upfront payment of $15,000 in June 2019 and an additional $5,000 in December 2019. In addition, the Company has the ability to receive additional payments under the agreement of up to approximately $203,000, including up to $180,000 in commercial milestone payments and development milestone payments ranging from $2,000 to $5,000 on an indication-by-indication basis. The Company is also entitled to receive tiered royalties ranging from the low double-digit percentages to the upper-teen percentages on aggregate net sales of any products developed and commercialized in the Territory, subject to customary potential reductions.

The Company assessed this arrangement in accordance with ASC 606 and concluded that the promises summarized above represent transactions with a customer within the scope of ASC 606. The Company determined that the following promises represent distinct promised services, and therefore, separate performance obligations: (i) the Commercialization License, (ii) FDA Approval, (iii) NMPA Approval, (iv) the Selected Indications (inclusive of the Co-Development License) and (y) the Opt-In (inclusive of the Co-Development License).

Specifically, in making these determinations, the Company considered the following factors:

 

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Under the agreement with Hansoh, in order to evaluate the appropriate transaction price, the Company determined that the upfront payment amount of approximately $20,000 constituted the entire consideration to be included in the transaction price as of the outset of the arrangement. While the Company identified multiple performance obligations, this amount was allocated entirely to the Commercialization License performance obligation as the standalone selling price of the remaining performance obligations was deemed to be immaterial at contract inception. In making this determination, the Company observed that the estimated costs associated with both the FDA Approval and NMPA Approval performance obligations are immaterial in the context of the arrangement with Hansoh. In addition, the Company also observed that significant uncertainty existed at the contract inception date related to whether (i) the Company would pursue any indications that would, in-turn, provide Hansoh with an opportunity to utilize the Opt-In (inclusive of the Co-Development License), (ii) Hansoh would pursue the development of any of the Selected Indications (inclusive of the Co-Development License), and (iii) the likelihood that any development activities would ultimately be successful.

The potential commercial and development milestone payments that the Company is eligible to receive were excluded from the transaction price, as all milestone amounts were fully constrained based on the probability of achievement, since the milestones relate to successful achievement of certain commercialization, developmental and regulatory approval goals, which might not be achieved. None of the future royalty payments were included in the transaction price, as the potential payments were determined to be subject to the sales-based royalty exception. The Company will reevaluate the transaction price, including all constrained amounts, at the end of each reporting period and as uncertain events are resolved or other changes in circumstances occur, and, if necessary, adjust its estimate of the transaction price.

Because the entire transaction price was allocated to the Commercialization License performance obligation, which represents functional intellectual property, the Company recognized the associated revenue of $20,000 at the Effective Date. As noted previously, approximately $15,000 of the total upfront payment was received within 30 days after the Effective Date. The remaining $5,000 was received within six months after the Effective Date.

Commercial license and collaboration agreement with Mitsubishi Tanabe Pharma Corporation

On October 8, 2019 (“MTPC Transaction Date”), the Company entered into an exclusive commercial license agreement with Mitsubishi Tanabe Pharma Corporation (“MTPC”). By entering into this agreement, the Company promised to MTPC the following goods or services:

In addition, the Company and MTPC formed a joint steering committee (“JSC”) to provide oversight to the activities performed under the agreement; however, the substance of the Company’s participation in the JSC does not represent an additional promised service, but rather, a right of the Company to protect its own interests in the arrangement. The agreement also includes that the Company and MTPC will enter into separate supply agreements through which the Company shall supply to MTPC the Product for development, commercialization and final manufacturing activities in the MTPC Territory during the term. Certain key terms of the supply agreement were pre-negotiated as part of the initial license agreement. The terms of the supply agreement, which the Company expects to enter into would not include minimum purchase quantities. The Company would supply the Product at a price calculated as a range of percentages of MTPC’s net selling price in the MTPC Territory.

The agreement requires MTPC to pay to the Company a non-refundable upfront payment of $30,000. The entire upfront payment was received in January 2020 and was included within accounts receivable as of December 31, 2019 as

 

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the Company had a contractual right to bill for the entire amount as of the balance sheet date. In addition, the Company can receive additional payments upon achieving certain sales milestones related to other LCM indications.

The Company assessed this arrangement in accordance with ASC 606 and concluded that the agreement represents a contract with a customer within the scope of ASC 606. The Company determined that the following promises represent distinct promised services, and therefore, separate performance obligations: (i) the MTPC License and (ii) the LCM Opt-in.

Specifically, in making these determinations, the Company considered the following factors:

In identifying the appropriate transaction price to allocate to the MTPC License, the Company determined that the upfront payment amount of $30,000 constituted the entire consideration to be included in the transaction price as of the outset of the arrangement. While the Company identified multiple performance obligations, this amount was allocated entirely to the MTPC License performance obligation as the standalone selling price of the remaining performance obligation was deemed to be immaterial at contract inception. In making this determination, the Company observed that significant uncertainty existed at the MTPC Transaction Date related to whether the Company would pursue any LCM indications that would, in-turn, provide MTPC with an opportunity to utilize the LCM Opt-in.

Because the entire transaction price was allocated to the MTPC License performance obligation, which represents functional intellectual property, the Company recognized the associated revenue of $30,000 at the MTPC Transaction Date.

The Company entered into a supply agreement with MTPC in August 2020 for the supply of inebilizumab (the “Product”) to MTPC. The Company assessed this arrangement in accordance with ASC 606 and concluded that the supply agreement represents a contract with a customer within the scope of ASC 606. The performance obligations within the supply agreement are limited to the supply of inebilizumab to MTPC. In identifying the appropriate transaction price and the allocation to performance obligations, the Company concluded that the sales-based royalty exception applies to the transaction price included in the supply agreement as the implicit royalty in the supply agreement relates to a license of IP (“Intellectual Property”), which is the predominant item in the transaction. There are two separate transaction prices related to the supply agreement: (i) non-refundable, minimum order quantity and consideration and (ii) and a future, implicit royalty related to the license of IP that is subject to the sale-based royalty exception. Although the sale of the product is not the predominate item in the supply agreement, control of the product transfers to MTPC upon delivery and acceptance. Upon acceptance, the Company will recognize revenue for the minimum, non-refundable order quantity and consideration. The Company will not recognize revenue related to the implicit royalty for the license of the IP until the subsequent sale of the Product, which triggers the royalty payment. The Company is required to refund all amounts received that are in excess of the eventual royalty earned.

During the fourth quarter 2020, the Company received the first two sales orders from MTPC related to the supply agreement for which the product was shipped and accepted by MTPC. The Company also received advanced payment, which was recorded as of December 31, 2020 as follows: (i) The Company recorded a nominal amount of product revenue in the consolidated statement of operations and comprehensive loss for the non-refundable, minimum order quantity and consideration upon acceptance of the Product by MTPC and (ii) the Company recorded a refund liability on the consolidated balance sheet for the portion of the order that is subject to the sales-based royalty exception in which the excess of the eventual royalty earned would be refundable to MTPC in the event that MTPC is not able to successfully commercialize the product. As of December 31, 2020, the product has not been approved in any of the territories, and MTPC has not established a selling price for the product in the territories

 

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16. Leases

Effective January 1, 2020, the Company accounts for its leases under ASC-842, Leases (Topic 842). Under ASC-842, Leases (Topic 842), a contract is or contains a lease when, (1) explicitly or implicitly identified assets have been deployed in the contract and (2) the customer obtains substantially all of the economic benefits from the use of that underlying asset and directs how and for what purpose the asset is used during the term of the contract. The Company will determine if an arrangement is a lease at inception of the contract based on the criteria mentioned above. For all leases (finance and operating leases), we recognize as of the adoption date on the consolidated balance sheet a liability for our obligation related to the lease and a corresponding asset representing our right to use the underlying asset over the period of use.

Operating leases are included in other assets, other current liabilities, and other non-current liabilities on our consolidated balance sheet. Finance leases are included in property and equipment, other current liabilities, and other non-current liabilities on our consolidated balance sheet.

The Company’s lessee arrangement consists of agreements to lease certain office space, laboratory space and equipment. None of our leases include residual value guarantees or restrictions/covenants imposed by the lease that require additional financial obligations.

Lease amortization expense for operating and finance leases is recognized on a straight-line basis over the term of the lease and is included in operating expenses in our consolidated statements of operations and comprehensive loss, based on the use of the facility or equipment for which rent is being paid. Variable rent payments related to both operating and finance leases are expensed in the period incurred and were not included in the measurement of lease liabilities. Our variable lease payments consist of costs related to one triple-net office lease in which the Company makes lease payments for taxes, insurance, CAM, and other tenant-paid rental costs.

Upon adoption on January 1, 2020, our leases had lease terms ranging from 1.5 to 5.2 years, some of which include options to renew the lease term for an extended period of time. We include options to extend the lease when it is reasonably certain that we will exercise that option during the period in which such a determination is made.

As the implicit rate on our leases is not readily determinable, the Company applied an incremental borrowing rate, which was derived using a portfolio approach and applied to all of our leases.

The following table summarizes the components of lease amortization expense:

 

 

Right-of-use assets and liabilities from operating and finance leases were as follows:

 

 

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Weighted average remaining lease terms and weighted average discount rates were as follows:

 

 

Maturities of lease liabilities were as follow:

 

 

As of December 31, 2020, the Company does not have any additional operating and finance leases that have not yet commenced.

Lease information related to years ended December 31, 2019 and 2018 under ASC-840:

The following table summarizes our contractual obligations at December 31, 2019:

 

 

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Office Lease

In July 2018, the Company entered into an operating lease agreement with a related party for its headquarters in Gaithersburg, Maryland. The lease became effective July 1, 2018 and expires in June 2022. Total lease payments under the lease are: $300 for the year ended December 31, 2018; $365 for the year ended December 31, 2019; $376 for the year ending December 31, 2020; and $191 for the remainder of the lease.

In October 2019, the Company entered into an operating lease agreement with a third party for an additional office space in Rockville, Maryland. The lease became effective October 1, 2019 and expires in June 2021. Total lease payments under the lease are: $101 for the year ended December 31, 2019; $407 for the year ending December 31, 2020; and $208 for the remainder of the lease.

In October 2019, the Company entered into an operating lease agreement with a third party for an additional lab space in Rockville, Maryland. The lease became effective October 15, 2019 and expires in February 2025. Total lease payments under the lease are: $11 for the year ended December 31, 2019, $103 for the year ending December 31, 2020; and $573 for the remainder of the lease.

Rent expense was $344 and $170 for years ended December 31, 2019 and 2018, respectively.

17. Subsequent Event

On January 31, 2021, the Company entered into a definitive Agreement and Plan of Merger (the “Merger Agreement”), with Horizon Therapeutics USA, Inc., a Delaware corporation (“Parent”), Teiripic Merger Sub, Inc., a Delaware corporation and a direct wholly owned subsidiary of Parent (“Purchaser”), and solely for purposes of Sections 6.7 and 9.12 of the Merger Agreement, Horizon Therapeutics plc, a public limited company organized under the laws of Ireland (“Ultimate Parent”), pursuant to which Parent, through Purchaser, will commence a tender offer (the “Offer”) to acquire all of the outstanding shares of the Company’s common stock, par value $0.001 per share (the “Shares”), at a price of $53.00 per share in cash, which represents a fully diluted equity value of approximately $3.05 billion, without interest, subject to any applicable withholding taxes. Parent and Purchaser commenced the Offer on February 12, 2021 and are obligated to keep the Offer open for twenty business days following the commencement of the Offer, subject to possible extension under the terms of the Merger Agreement. If successful, upon the terms and conditions set forth in the Merger Agreement, the Offer will be followed by a merger of Purchaser with and into the Company, with the Company continuing as the surviving corporation and as a direct wholly owned subsidiary of Parent (the “Merger”). The Merger and related transactions are currently expected to close in the first quarter of 2021, subject to the satisfaction or waiver of customary closing conditions. If the Merger is not completed, in certain circumstances, the Company could be required to pay a termination fee of $107.0 million to Parent. The Offer and Merger are not subject to any financing condition.  

Between February 18, 2021 and February 26, 2021, five purported stockholders of the Company filed separate lawsuits against the Company and its directors.  Three of the lawsuits were filed in the federal district court for the Southern District of New York, one was filed in the federal district court for District of Delaware, and one in the federal district court for the Eastern District of Pennsylvania. The complaints allege violations of certain sections of the Exchange Act. All five lawsuits allege that the Schedule 14D-9 Solicitation/Recommendation Statement filed by the Company on February 12, 2021 (“14D-9”) is materially incomplete and misleading and seek to enjoin the tender offer until the purported deficiencies in the 14D-9 are corrected, or alternatively, monetary damages if the tender offer is consummated. The defendents believe the claims asserted in the complaints are without merit.

 

 

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