SEC Filing | Chimerix, Inc.

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-35867

CHIMERIX, INC.

(Exact Name of Registrant as Specified in Its Charter)



Delaware		33-0903395
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

2505 Meridian Parkway, Suite 100
Durham, North Carolina		27713
(Address of Principal Executive Offices)		(Zip Code)

(919) 806-1074

(Registrant’s Telephone Number, Including Area Code)

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



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	CMRX	The Nasdaq Global Market

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 x 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 x No o

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. (Check one):



Large accelerated filer o		Accelerated filer x
Non-accelerated filer o		Smaller reporting company x
		Emerging growth company o

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. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of July 31, 2019, the number of outstanding shares of the registrant’s common stock, par value $0.001 per share, was 61,270,268.

CHIMERIX, INC.

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2019

INDEX



	Page
Part I — Financial Information
Item 1. Financial Statements	3
Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018 (unaudited)	3
Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months Ended June 30, 2019 and 2018 (unaudited)	4
Consolidated Statements of Stockholders' Equity (Deficit) for the Three and Six Months Ended June 30, 2019 and 2018 (unaudited)	5
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018 (unaudited)	7
Notes to the Consolidated Financial Statements (unaudited)	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3. Quantitative and Qualitative Disclosures About Market Risk	28
Item 4. Controls and Procedures	28
Part II — Other Information
Item 1. Legal Proceedings	29
Item 1A. Risk Factors	29
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	55
Item 3. Defaults Upon Senior Securities	55
Item 4. Mine Safety Disclosures	55
Item 5. Other Information	55
Item 6. Exhibits	56
Signatures	57

PART I - FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

CHIMERIX, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(unaudited)



	June 30, 2019			December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	21,644		$	81,106
Short-term investments, available-for-sale	136,755			105,424
Accounts receivable	774			330
Prepaid expenses and other current assets	2,200			2,598
Total current assets	161,373			189,458
Property and equipment, net of accumulated depreciation	1,054			1,210
Operating lease right-of-use assets	969			—
Other long-term assets	45			46
Total assets	$	163,441		$	190,714

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	1,832		$	4,691
Accrued liabilities	11,954			8,275
Total current liabilities	13,786			12,966
Lease-related obligations	537			144
Total liabilities	14,323			13,110

Stockholders’ equity:
Preferred stock, $0.001 par value, 10,000,000 shares authorized at June 30, 2019 and December 31, 2018; no shares issued and outstanding as of June 30, 2019 and December 31, 2018	—			—
Common stock, $0.001 par value, 200,000,000 shares authorized at June 30, 2019 and December 31, 2018; 51,230,916 and 50,735,279 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively	51			51
Additional paid-in capital	740,547			733,907
Accumulated other comprehensive gain (loss), net	125			(92		)
Accumulated deficit	(591,605		)	(556,262		)
Total stockholders’ equity	149,118			177,604
Total liabilities and stockholders’ equity	$	163,441		$	190,714

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

CHIMERIX, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except share and per share data)

(unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Contract revenue	$	1,438		$	1,193		$	3,794		$	1,983
Operating expenses:
Research and development	13,827			13,712			27,342			28,071
General and administrative	6,312			6,650			13,998			13,388
Total operating expenses	20,139			20,362			41,340			41,459
Loss from operations	(18,701		)	(19,169		)	(37,546		)	(39,476		)
Other (expense) income:
Unrealized loss on equity investment	(22		)	(78		)	(30		)	(212		)
Interest income and other, net	1,073			634			2,233			1,249
Net loss	(17,650		)	(18,613		)	(35,343		)	(38,439		)
Other comprehensive loss:
Unrealized gain on debt investments, net	77			225			217			122
Comprehensive loss	$	(17,573	)	$	(18,388	)	$	(35,126	)	$	(38,317	)
Per share information:
Net loss, basic and diluted	$	(0.35	)	$	(0.39	)	$	(0.69	)	$	(0.81	)
Weighted-average shares outstanding, basic and diluted	51,130,104			47,811,552			51,009,935			47,725,209

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

CHIMERIX, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

(in thousands)

(unaudited)



	Common Stock		Additional Paid-in Capital		Accumulated Other Comprehensive Gain (Loss)			Accumulated Deficit			Total Stockholders’ Equity (Deficit)
Balance, December 31, 2018	$	51	$	733,907	$	(92	)	$	(556,262	)	$	177,604
Share-based compensation	—		4,073		—			—			4,073
Exercise of stock options	—		13		—			—			13
Employee stock purchase plan purchases	—		170		—			—			170
Comprehensive loss:
Unrealized gain on investments, net	—		—		140			—			140
Net loss	—		—		—			(17,693		)	(17,693		)
Total comprehensive loss											(17,553		)
Balance, March 31, 2019	$	51	$	738,163	$	48		$	(573,955	)	$	164,307
Share-based compensation	—		2,367		—			—			2,367
Exercise of stock options	—		17		—			—			17
Employee stock purchase plan purchases	—		—		—			—			—
Issuance of common stock, net of issuance costs	—		—		—			—			—
Comprehensive loss:
Unrealized gain on investments, net	—		—		77			—			77
Net loss	—		—		—			(17,650		)	(17,650		)
Total comprehensive loss											(17,573		)
Balance, June 30, 2019	$	51	$	740,547	$	125		$	(591,605	)	$	149,118



	Common Stock		Additional Paid-in Capital		Accumulated Other Comprehensive Gain (Loss)			Accumulated Deficit			Total Stockholders’ Equity (Deficit)
Balance, December 31, 2017	$	47	$	709,514	$	(963	)	$	(486,788	)	$	221,810
Share-based compensation	1		3,391		—			—			3,392
Exercise of stock options	—		60		—			—			60
Employee stock purchase plan purchases	—		358		—			—			358
Comprehensive loss:
Unrealized loss on investments, net	—		—		(103		)	—			(103		)
Net loss	—		—		—			(19,826		)	(19,826		)
Total comprehensive loss											(19,929		)
Balance, March 31, 2018	$	48	$	713,323	$	(1,066	)	$	(506,614	)	$	205,691
Share-based compensation	—		4,035		—			—			4,035
Exercise of stock options	—		55		—			—			55
Employee stock purchase plan purchases	—		—		—			—			—
Issuance of common stock, net of issuance costs	—		—		—			—			—
Comprehensive loss:
Unrealized loss on investments, net	—		—		225			—			225
Net loss	—		—		—			(18,613		)	(18,613		)
Total comprehensive loss											(18,388		)
Balance, June 30, 2018	$	48	$	717,413	$	(841	)	$	(525,227	)	$	191,393

CHIMERIX, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)



	Six Months Ended June 30,
	2019			2018
Cash flows from operating activities:
Net loss	$	(35,343	)	$	(38,439	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation of property and equipment	306			487
Amortization of discount/premium on investments	(1,205		)	(171		)
Share-based compensation	6,440			7,427
Unrealized loss on equity investment	30			212
Lease-related amortization	(36		)	(24		)
Changes in operating assets and liabilities:
Accounts receivable	(444		)	1,463
Prepaid expenses and other assets	399			24
Accounts payable and accrued liabilities	302			(3,529		)
Net cash used in operating activities	(29,551		)	(32,550		)

Cash flows from investing activities:
Purchases of property and equipment	(150		)	(96		)
Purchases of short-term investments	(107,149		)	(18,117		)
Purchases of long-term investments	—			(6,031		)
Proceeds from sales of short-term investments	—			22,000
Proceeds from maturities of short-term investments	77,210			43,500
Net cash (used in) provided by investing activities	(30,089		)	41,256

Cash flows from financing activities:
Proceeds from exercise of stock options	30			115
Proceeds from employee stock purchase plan	171			358
Payments of deferred offering costs	(23		)	(280		)
Net cash provided by financing activities	178			193
Net (decrease) increase in cash and cash equivalents	(59,462		)	8,899
Cash and cash equivalents:
Beginning of period	81,106			18,548
End of period	$	21,644		$	27,447

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

CHIMERIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1. The Business and Summary of Significant Accounting Policies

Description of Business

Chimerix, Inc. (the Company) is a biopharmaceutical company dedicated to accelerating the advancement of innovative medicines that make a meaningful impact in the lives of patients living with cancer and other serious diseases. The Company is developing CX-01 (dociparstat sodium), an investigational product, targeting multiple proteins involved in cancer cell resistance to chemotherapy, for the treatment of acute myeloid leukemia (AML) and other hematologic malignancies. The Company is also developing brincidofovir (BCV or CMX001), an anti-viral drug candidate, as a medical countermeasure for smallpox.

Basis of Presentation

The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Company’s audited financial statements and notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2018. In the opinion of the Company’s management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of its financial position, operating results and cash flows for the periods presented have been included. Operating results for the three and six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the full year, for any other interim period or for any future year.

Fair Value of Financial Instruments

The carrying amounts of certain financial instruments, including accounts receivable, accounts payable and accrued expenses approximate their fair values due to the short-term nature of such instruments.

For assets and liabilities recorded at fair value, it is the Company’s policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements, in accordance with the fair value hierarchy. Fair value measurements for assets and liabilities where there exists limited or no observable market data are based primarily upon estimates and are often calculated based on the economic and competitive environment, the characteristics of the asset or liability and other factors. Therefore, fair value measurements cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability. Additionally, there may be inherent weaknesses in any calculation technique and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the calculated current or future fair values. The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.

The Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. The determination of where an asset or liability falls in the hierarchy requires significant judgment. These levels are:


•	Level 1 — Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.


•	Level 2 — Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and models for which all significant inputs are observable, either directly or indirectly.


•	Level 3 — Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

At June 30, 2019, the Company had cash equivalents including money market accounts, and at December 31, 2018, the Company had cash equivalents including money market accounts and U.S. Treasury securities, whose value is based on using quoted market prices. At June 30, 2019 and December 31, 2018, the Company had short-term investments including U.S. Treasury securities, whose value is based on using quoted market prices. Accordingly, these securities are classified as Level 1.

At June 30, 2019 and December 31, 2018, the Company had short-term investments including stock of a U.S. corporation. The Company's investment in ContraVir Pharmaceuticals (ContraVir) common stock was categorized as a Level 1 asset and had a value based on ContraVir's common stock value at June 30, 2019 and December 31, 2018. For the three months ended June 30, 2019 and 2018, the Company recorded an unrealized loss related to the Company's investment in ContraVir common stock of approximately $22,000 and $78,000, respectively, and for the six months ended June 30, 2019 and 2018, the Company recorded an unrealized loss related to the Company's investments in ContraVir common stock of approximately $30,000 and $212,000, respectively, which was recognized in unrealized loss on equity investment in the Consolidated Statements of Operations and Comprehensive Loss.

At June 30, 2019, the Company had cash equivalents including commercial paper and short-term investments including commercial paper and corporate bonds. At December 31, 2018, the Company had cash equivalents including commercial paper and corporate bonds, and short-term investments including commercial paper and corporate bonds. As quoted prices are not available for these securities, they are valued using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Accordingly, these securities are classified as Level 2.

There was no material re-measurement to fair value of financial assets and liabilities that are not measured at fair value on a recurring basis. For additional information regarding the Company's investments, please refer to Note 2, "Investments."

Below are tables that present information about certain assets measured at fair value on a recurring basis (in thousands):



	Fair Value Measurements
	June 30, 2019
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash equivalents
Money market funds	$	11,906	$	11,906	$	—	$	—
Commercial paper	5,835		—		5,835		—
Total cash equivalents	17,741		11,906		5,835		—
Short-term investments
U.S. treasury securities	38,405		38,405		—		—
Common stock of U.S. corporation	8		8		—		—
Commercial paper	45,673		—		45,673		—
Corporate bonds	52,669		—		52,669		—
Total short-term investments	136,755		38,413		98,342		—
Total assets	$	154,496	$	50,319	$	104,177	$	—

	Fair Value Measurements
	December 31, 2018
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash equivalents
Money market funds	$	30,726	$	30,726	$	—	$	—
U.S. treasury securities	11,482		11,482		—		—
Commercial paper	29,677		—		29,677		—
Corporate bonds	4,008		—		4,008		—
Total cash equivalents	75,893		42,208		33,685		—
Short-term investments
U.S. treasury securities	12,589		12,589		—		—
Common stock of U.S. corporation	38		38		—		—
Commercial paper	60,114		—		60,114		—
Corporate bonds	32,683		—		32,683		—
Total short-term investments	105,424		12,627		92,797		—
Total assets	$	181,317	$	54,835	$	126,482	$	—

Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):



	June 30, 2019		December 31, 2018
Accrued research and development expenses	$	6,378	$	4,525
Accrued compensation	4,154		2,469
Other accrued liabilities	1,422		1,281
Total accrued liabilities	$	11,954	$	8,275

Revenue Recognition

Policy

The Company’s revenues generally consist of (i) contract revenue - revenue generated under federal contracts, and (ii) collaboration and licensing revenue - revenue related to non-refundable upfront fees, royalties and milestone payments earned under license agreements. Revenue is recognized in accordance with the criteria outlined in Accounting Standards Codification (ASC) 606 issued by the Financial Accounting Standards Board (FASB). Following this accounting pronouncement, a five-step approach is applied for recognizing revenue, including (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, the entity satisfies a performance obligation.

Biomedical Advanced Research and Development Authority (BARDA)

In February 2011, the Company entered into a contract with BARDA for the advanced development of brincidofovir as a medical countermeasure in the event of a smallpox release. Under the contract, the Company may receive up to $75.8 million in expense reimbursement and $5.3 million in fees over the performance of 1 base segment and 4 option segments. Exercise of each option segment is solely at the discretion of BARDA. Currently, option segments 1 through 3 have been exercised. The Company assessed the services in accordance with the authoritative guidance and concluded that there is a potential of 5 separate contracts (1 base segment and 4 option segments) within this agreement, each of which has a single performance obligation. The transaction price for each segment, based on the transaction price as defined in each segment contract, is allocated to the single performance obligation for each contract. The transaction price is recognized over time by measuring the progress toward complete satisfaction of the performance obligation. The progress toward complete satisfaction is estimated based on the costs incurred to date relative to the total estimated costs per the terms of each contract. The Company typically invoices BARDA monthly as costs are incurred. The base segment and first option segment were completed prior to adoption of ASC 606. The Company is currently performing under the second and third option segments of the contract during which the Company may receive up to a total of $23.9 million and $14.1 million in expense reimbursement and fees, respectively. The second option and third option segments are scheduled to end on May 31, 2020.

ContraVir Pharmaceuticals

The Company entered into a license agreement with ContraVir on December 17, 2014 for the development and commercialization of CMX157 for certain antiviral indications. The Company assessed the agreement in accordance with the authoritative guidance and concluded that the ContraVir contract includes multiple performance obligations, which had all been satisfied in 2015 prior to the adoption of ASC 606. The ContraVir contract has one fixed and several variable transaction amounts. The fixed fee portion of the contract was for the license to CMX157 rights. The Company recognized revenue for the fixed fee portion of the contract in 2015 when the performance obligations were satisfied. The license agreement was terminated effective June 1, 2019. In July 2019, ContraVir changed its name to Hepion Pharmaceuticals, Inc.

Research and Development Prepaids and Accruals

As part of the process of preparing financial statements, the Company is required to estimate its expenses resulting from its obligation under contracts with vendors and consultants and clinical site agreements in connection with its research and development efforts. The financial terms of these contracts are subject to negotiations which vary contract to contract and may result in payment flows that do not match the periods over which materials or services are provided to the Company under such contracts.

The Company’s objective is to reflect the appropriate research and development expenses in its financial statements by matching those expenses with the period in which services and efforts are expended. The Company accounts for these expenses according to the progress of its research and development efforts. The Company determines prepaid and accrual estimates through discussion with applicable personnel and outside service providers as to the progress or state of communication of clinical trials, or other services completed. The Company adjusts its rate of research and development expense recognition if actual results differ from its estimates. The Company makes estimates of its prepaid and accrued expenses as of each balance sheet date in its financial statements based on facts and circumstances known at that time. Although the Company does not expect its estimates to be materially different from amounts actually incurred, its understanding of status and timing of services performed relative to the actual status and timing of services performed may vary and may result in the Company reporting amounts that are too high or too low for any particular period. Through June 30, 2019, there had been no material adjustments to the Company’s prior period estimates of prepaid and accruals for research and development expenses. The Company’s research and development prepaids and accruals are dependent upon the timely and accurate reporting of contract research organizations and other third-party vendors.

Basic and Diluted Net Loss Per Share of Common Stock

Basic net loss per share of common stock is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period, excluding the dilutive effects of non-vested restricted stock, stock options, and employee stock purchase plan purchase rights. Diluted net loss per share of common stock is computed by dividing net loss by the sum of the weighted-average number of shares of common stock outstanding during the period plus the potential dilutive effects of warrants to purchase common stock, non-vested restricted stock, stock options, and employee stock purchase plan purchase rights outstanding during the period calculated in accordance with the treasury stock method, but are excluded if their effect is anti-dilutive. Because the impact of these items is anti-dilutive during the periods of net loss, there was no difference between basic and diluted loss per share of common stock for the three and six months ended June 30, 2019 and 2018.

Impact of Recently Issued Accounting Standards

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which amends the impairment model by requiring entities to use a forward-looking approach on expected losses to estimate credit losses on certain financial instruments, including trade receivables and available-for-sale debt securities. The new guidance will be effective for the Company beginning in the first quarter of 2020, with early adoption permitted. The Company is currently evaluating the potential impact that this standard may have on its consolidated financial statements.

Impact of Recently Adopted Accounting Standards

In February 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-02, “Leases (Topic 842)”, which has been amended through subsequent ASUs, and which increases transparency and comparability among companies accounting for lease transactions. The most significant change of this update requires the recognition of lease assets and liabilities on the balance sheet for lessees for operating lease arrangements with lease terms greater than 12 months. This ASU is effective for financial statements issued for annual periods and interim periods within those annual periods, beginning after December 15, 2018. The Company adopted this standard effective January 1, 2019 using the alternative modified retrospective adoption method allowed by ASU 2018-11. The Company elected to use the package of three practical expedients which allows the Company not to reassess whether contracts are or contain leases, lease classification, and whether initial direct costs qualify for capitalization. The Company has completed its assessment of the impact of the standard and determined that the only material leases that the Company holds are real estate operating leases. Upon adoption of the standard, the Company recorded a right of use asset of $1.4 million and lease liability of $1.6 million on its consolidated balance sheets with no adjustment to beginning retained earnings in the period of adoption.

Note 2. Investments

The following tables summarize the Company's debt investments (in thousands):



	June 30, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Corporate bonds	$	52,595	$	74	$	—		$	52,669
U.S. treasury securities	38,379		27		(1		)	38,405
Commercial paper	45,649		25		(1		)	45,673
Total investments	$	136,623	$	126	$	(2	)	$	136,747

	December 31, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Corporate bonds	$	32,724	$	—	$	(41	)	$	32,683
Commercial paper	60,159		—		(45		)	60,114
U.S. treasury securities	12,592		—		(3		)	12,589
Total investments	$	105,475	$	—	$	(89	)	$	105,386

The following tables summarize the Company's debt investments with unrealized losses, aggregated by investment type and the length of time that individual investments have been in a continuous unrealized loss position (in thousands, except number of securities):



	June 30, 2019
	Less than 12 Months					Greater than 12 Months				Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Commercial paper	$	6,955	$	(1	)	$	—	$	—	$	6,955	$	(1	)
U.S. treasury securities	9,980		(1		)	—		—		9,980		(1		)
Total	$	16,935	$	(2	)	$	—	$	—	$	16,935	$	(2	)
Number of securities with unrealized losses			4					—				4

	December 31, 2018
	Less than 12 Months					Greater than 12 Months				Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Corporate bonds	$	32,683	$	(41	)	$	—	$	—	$	32,683	$	(41	)
Commercial paper	60,114		(45		)	—		—		60,114		(45		)
U.S. treasury securities	12,589		(3		)	—		—		12,589		(3		)
Total	$	105,386	$	(89	)	$	—	$	—	$	105,386	$	(89	)
Number of securities with unrealized losses			36					—				36

The Company periodically reviews available-for-sale securities for other-than-temporary declines in fair value below the cost basis and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company evaluates, among other things, the duration and extent to which the fair value of a security is less than its cost; the financial condition of the issuer and any changes thereto; and the Company’s intent to sell, or whether it will more likely than not be required to sell, the security before recovery of its cost basis. At June 30, 2019, the Company did not intend to sell, and was not more likely than not to be required to sell, the available-for-sale debt securities in an unrealized loss position before recovery of the cost basis of the securities, which may be at maturity. There were no such declines in value for the three and six months ended June 30, 2019 and 2018. Unrealized gains and losses on debt investments are recorded to unrealized gain (loss) on investments, net in the Consolidated Statements of Operations and Comprehensive Loss. The Company recognizes interest income on an accrual basis in interest income in the Consolidated Statements of Operations and Comprehensive Loss.

The following table summarizes the scheduled maturity for the Company's debt investments at June 30, 2019 (in thousands):



Maturing in one year or less	$	136,747
Maturing after one year through two years	—
Total debt investments	136,747
Common stock of U.S. corporation	8
Total investments	$	136,755

Note 3. Commitments and Contingencies

Leases

The Company leases its facilities under long-term operating leases that expire at various dates through 2021. The Company generally has options to renew lease terms on its facilities, which may be exercised at the Company's sole discretion. In addition, certain lease arrangements may be terminated prior to their original expiration date at the Company's discretion. The Company evaluates renewal and termination options at the lease commencement date to determine if it is reasonably certain to exercise the option and

have concluded on all operating leases that it is not reasonably certain that any options will be exercised. The weighted-average remaining lease term for the Company's operating leases as of June 30, 2019 was 1.75 years.

Expense related to leases is recorded on a straight-line basis over the lease term. Lease expense under operating leases, including common area maintenance fees, totaled approximately $182,000 and $181,000, respectively, for the three months ended June 30, 2019 and 2018, and $376,000 and $351,000 for the six months ended June 30, 2019 and 2018, respectively.

The discount rate implicit within the Company's leases is generally not determinable and therefore the Company determines the discount rate based on its incremental borrowing rate based on the information available at commencement date. As of June 30, 2019, the operating lease liabilities reflect a weighted-average discount rate of 13.07%.

The following table sets forth the operating lease right-of-use assets and liabilities as of June 30, 2019 (in thousands):



Assets
Operating Lease Right-of-Use Assets	$	969

Liabilities
Operating Lease Short-term Liabilities (recorded within Accrued liabilities)	$	618
Operating Lease Long-term Liabilities (recorded within Lease-related obligations)	519
Total Operating Lease Liabilities	$	1,137

Operating lease payments over the remainder of the lease terms are as follows (in thousands):



Years Ending December 31,	As of June 30, 2019
2019	$	365
2020	719
2021	182
Total future minimum rental payments	$	1,266
Less amount of lease payments representing interest	129
Total present value of lease payments	$	1,137

As of December 31, 2018, future minimum payments under operating leases under ASC 840 were as follows (in thousands):



Years Ending December 31,	As of December 31, 2018
2019	$	786
2020	797
2021	235
Total future minimum rental payments	$	1,818

For the three months ended June 30, 2019 and 2018, the Company made lease payments of approximately $194,000 and $186,000, respectively, and for the six months ended June 30, 2019 and 2018, the Company made lease payments of approximately $386,000 and $370,000, respectively, which are included in operating cash flows.

Sublease

The Company subleases 3,537 square feet of its office space under a non-cancelable operating lease that expires in February 2021. For the three and six months ended June 30, 2019, the Company recognized approximately $18,000 and $35,000 of income in Interest income and other, net on the Consolidated Statement of Operations and Comprehensive Loss. For the three and six months ended June 30, 2018, the Company recognized approximately $18,000 and $35,000 of a reduction of rent expense in operating expenses on the Consolidated Statement of Operations and Comprehensive Loss. Total future minimum rentals under the non-cancelable operating sublease are presented below (in thousands):



Years Ending December 31,	As of June 30, 2019
2019	$	39
2020	81
2021	14
Total future minimum sublease rentals	$	134

Significance of Revenue Source

The Company is the recipient of federal research contract funds from BARDA, the sole source of the Company's contract revenue. Periodic audits are required under the Company’s BARDA agreement and certain costs may be questioned as appropriate under the BARDA agreement. Management believes that such amounts in the current year, if any, are not significant. Accordingly, no provision for refundable amounts under the BARDA agreement had been made as of June 30, 2019 and December 31, 2018.

Note 4. Equity Transactions and Share-based Compensation

Stock Options

In connection with the Company’s IPO, the Company adopted the 2013 Equity Incentive Plan (the 2013 Plan). The 2013 Plan provides for the grant of incentive stock options (ISOs), non-statutory stock options (NSOs), stock appreciation rights, restricted stock awards, restricted stock unit (RSU) awards, performance-based stock awards, and other forms of equity compensation (collectively, stock awards), all of which may be granted to employees, including officers, non-employee directors and consultants of the Company and its affiliates. Additionally, the 2013 Plan provides for the grant of performance cash awards. The number of shares of common stock reserved for future issuance automatically increases on January 1 of each calendar year by 4% of the total number of shares of capital stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares determined by the Company’s board of directors. On January 1, 2019, the common stock reserved for issuance under the 2013 Plan was automatically increased by 2.0 million shares. As of June 30, 2019, there was a total of 2.3 million shares reserved for future issuance under the 2013 Plan. The Company issued approximately 6,000 and 14,000 shares of common stock pursuant to the exercise of stock options during the three and six months ended June 30, 2019, respectively.

Employee Stock Purchase Plan

In February 2013, the Company’s board of directors adopted the 2013 Employee Stock Purchase Plan (ESPP), which was subsequently ratified by stockholders and became effective in April 2013. Initially, the ESPP authorized the issuance of 704,225 shares of common stock pursuant to purchase rights granted to the Company’s employees or to employees of any of its designated affiliates. The number of shares of common stock reserved for issuance automatically increases on January 1 of each calendar year, from January 1, 2014 through January 1, 2023 by the lesser of (a) 1% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year, (b) 422,535 shares, or (c) a number determined by the Company’s board of directors that is less than (a) and (b). On January 1, 2019, the common stock reserved for issuance under the ESPP was automatically increased by an additional 422,535 shares.

The Company has reserved a total of 3.1 million shares of common stock to be purchased under the ESPP, of which 2.4 million shares remained available for purchase as of June 30, 2019. The ESPP provides for an automatic reset feature to start participants on a new twenty-four month participation period in the event that the common stock market value on a purchase date is less than the common stock value on the first day of the twenty-four month offering period. Eligible employees may authorize an amount up to 15% of their salary to purchase common stock at the lower of a 15% discount to the beginning price of their offering period or a 15% discount to the ending price of each six-month purchase interval. The Company issued no shares of common stock

pursuant to the ESPP during the three months ended June 30, 2019. The Company issued approximately 113,000 shares of common stock pursuant to the ESPP during the six months ended June 30, 2019. Compensation expense for shares purchased under the ESPP related to the purchase discount and the “look-back” option and were determined using a Black-Scholes option pricing model.

Restricted Stock Units

The Company has issued RSUs to certain employees which vest based on service criteria. When vested, the RSU represents the right to be issued the number of shares of the Company's common stock that is equal to the number of RSUs granted. The grant date fair value for RSUs is based upon the market price of the Company's common stock on the date of the grant. The fair value is then amortized to compensation expense over the requisite service period or vesting term. The Company issued approximately 201,000 and 369,000 shares of common stock pursuant to the vesting of RSUs during the three and six months ended June 30, 2019, respectively.

Stock-based Compensation

For awards with only service conditions and graded-vesting features, the Company recognizes compensation expense on a straight-line basis over the requisite service period. Total share-based compensation expense recognized related to stock options, the ESPP and RSUs was as follows (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Research and development expense	$	1,000	$	1,536	$	2,270	$	2,856
General and administrative expense	1,367		2,500		4,170		4,571
Total share-based compensation expense	$	2,367	$	4,036	$	6,440	$	7,427

On February 5, 2019, Dr. M. Michelle Berrey, the Company's then President and Chief Executive Officer, resigned. The Company entered into a severance agreement with Dr. Berrey that provides for severance benefits to her in connection with her resignation. Among other benefits, Dr. Berrey received accelerated vesting of her outstanding stock options and RSUs as if she had continued service for an additional 15 month period. In addition, Dr. Berrey's vested options were modified to extend her exercise period to May 5, 2020. The Company recorded a charge of $1.8 million to compensation expense on the date of her resignation related to the acceleration of vesting and the modifications of her outstanding stock options and RSUs.

In April 2019, the Company granted stock options covering a total of 1,750,000 shares in connection with the hiring of its Chief Executive Officer and Chief Business Officer. These grants were non-qualified stock options, have a 10-year term and will vest over four years, with one-fourth vesting on the one-year anniversary of the grant date and remaining three-fourths vesting over the following three years in equal monthly installments. These stock options are subject to the terms of the Company's 2013 Equity Incentive Plan, but were granted outside of the 2013 Equity Incentive Plan, as they constituted inducement grants in accordance with Nasdaq Stock Market rules.

In May 2019, related to the Company’s reduction in workforce further discussed in Note 7, certain outstanding stock option and RSU grants received accelerated vesting as if the service period of the terminated employee continued for an additional 12 month period. In addition, certain vested options were modified to extend their exercise period for 12 months. The Company recorded a charge of $0.7 million to compensation expense on the date of the reduction in workforce related to the acceleration of vesting and the modifications of the outstanding stock options and RSUs.

Note 5. Income Taxes

The Company estimates an annual effective tax rate of 0% for the year ending December 31, 2019 as the Company incurred losses for the six month period ended June 30, 2019 and is forecasting additional losses through the fourth quarter, resulting in an estimated net loss for both financial statement and tax purposes for the year ending December 31, 2019. Therefore, no federal or state income taxes are expected and none have been recorded at this time. Income taxes have been accounted for using the liability method in accordance with FASB ASC 740.

Due to the Company's history of losses since inception, there is not enough evidence at this time to support that the Company will generate future income of a sufficient amount and nature to utilize the benefits of its net deferred tax assets. Accordingly, the

deferred tax assets have been reduced by a full valuation allowance, since the Company does not currently believe that realization of its deferred tax assets is more likely than not.

At June 30, 2019, the Company had no unrecognized tax benefits that would reduce the Company’s effective tax rate if recognized.

Note 6. Significant Agreements

The Regents of the University of California

In May 2002, the Company entered into a license agreement with The Regents of the University of California (UC) under which the Company obtained an exclusive, worldwide license to UC’s patent rights in certain inventions (the UC Patent Rights) related to lipid-conjugated antiviral compounds and their use, including certain patents relating to brincidofovir. On July 1, 2019, the Company provided a notice of termination of the license agreement effective September 29, 2019. The termination of the license to the UC Patent Rights does not affect the Chimerix solely-owned patents covering CMX001/brincidofovir composition of matter that currently are set to expire in 2034.

Biomedical Advanced Research and Development Authority (BARDA)

In February 2011, the Company entered into a contract with BARDA for the advanced development of brincidofovir as a medical countermeasure in the event of a smallpox release. Under the contract, BARDA will reimburse the Company, plus pay a fixed fee, for the research and development of brincidofovir as a broad-spectrum therapeutic antiviral for the treatment of smallpox infections. The contract consists of an initial performance period, referred to as the base performance segment, plus up to four extension periods, referred to as option segments, each of which may be exercised at BARDA’s sole discretion. The Company must complete the agreed upon milestones and deliverables in each discrete work segment before the next option segment is eligible to be exercised. Under the contract as currently in effect, the Company may receive up to $75.8 million in expense reimbursement and $5.3 million in fees.

The Company is currently performing under the second and third option segments of the contract during which the Company may receive up to a total of $23.9 million and $14.1 million in expense reimbursement and fees, respectively. The second and third option segments are scheduled to end on May 31, 2020. Of the $75.8 million in expense reimbursement and $5.3 million in fees that the Company may receive, approximately $74.3 million in expense reimbursement and fees has been funded. As of June 30, 2019, of the total funding the Company had invoiced an aggregate of $66.3 million with respect to the base performance segment and the first three option segments. For the three months ended June 30, 2019 and 2018, the Company recognized revenue under this contract of $1.4 million and $1.2 million, respectively, and for the six months ended June 30, 2019 and 2018, the Company recognized revenue under this contract of $3.8 million and $2.0 million, respectively.

ContraVir Pharmaceuticals

On December 17, 2014, the Company entered into a license agreement with ContraVir (Nasdaq:CTRV) for the development and commercialization of CMX157 for certain antiviral indications. Under the terms of the agreement, ContraVir has sole responsibility with respect to the control of the development and commercialization of CMX157.

In exchange for the license to CMX157 rights, the Company received an upfront payment consisting of ContraVir Series B Convertible Preferred Stock which the Company converted into shares of ContraVir common stock in 2016. As of June 30, 2019 and December 31, 2018, the fair value of the investment was recorded as a short-term investment of approximately $8,000 and $38,000, respectively.

The license agreement was terminated effective June 1, 2019. In July 2019, ContraVir changed its name to Hepion Pharmaceuticals, Inc.

University of Michigan

In 2006, the Company entered into a license agreement with The Regents of the University of Michigan (UM) under which the Company obtained an exclusive, worldwide license to UM’s patent rights in certain inventions (UM Patent Rights) related to certain compounds originally synthesized at UM. Under the license agreement, the Company is permitted to research, develop, manufacture and commercialize products utilizing the UM Patent Rights, and to sublicense such rights subject to certain sublicensing fees and royalty payments.

In consideration for the rights granted to the Company, under the license agreement as amended in December 2016, the Company paid UM $50,000 in fees in 2016 and in January 2017 issued UM an aggregate of 33,058 shares of its common stock. In connection with the Company's commercialization or sublicensing of certain products covered by the license agreement, including CMX521, the Company could be required to pay royalties on net sales of such products ranging from 0.25% to 2%. Beginning in 2024, the Company is also subject to certain minimum annual royalty payments.

The UM license agreement requires that the Company use commercially reasonable efforts to develop and make commercially available licensed products as soon as practicable. Specifically, the Company has agreed to make the first commercial sale of a licensed product by June of 2026. UM may terminate the license agreement if the Company materially breaches the license agreement. The Company is currently in compliance with its milestone requirements.

Note 7. Restructuring Costs

In May 2019, the Company made the decision to discontinue the development of oral and IV BCV development programs for the treatment of Adenovirus (AdV) in pediatric stem-cell transplant (HCT) patients. The Company's development efforts with respect to BCV are now focused on the treatment of smallpox. As a result, the Company restructured its operations, which included a reduction in workforce of 43 full-time employees and the accrual of expenses to close-out the two Phase 2 clinical trials (study 210 and study 211), one Phase 3 (AdAPT) clinical trial and other supportive BCV development programs. The Company recorded charges for one-time employee termination benefits of $3.3 million, contract close-out costs of $2.8 million, and other BCV development costs of $0.3 million during the three months ended June 30, 2019. The $2.8 million of contract close-out costs were recorded through an increase in liabilities of $2.1 million with the remainder recognized through the expensing of prepaid balances. As of June 30, 2019, the Company had a clinical trial accrual balance related to the AdAPT, 210 and 211 trial terminations of $2.1 million, other development costs accrual of $0.3 million and a severance accrual balance of $1.8 million, which are expected to be fully paid by June 2020.

The following table summarizes the restructuring charges (in thousands) recorded for the three months ended June 30, 2019:



	Employee Termination Benefits	Clinical Trial Close-out Costs	Other Development Costs	Total
Research and development	1,426	2,837	315	4,578
General and administrative	1,909	—	—	1.909
Total restructuring expenses	3,335	2,837	315	6,487

The following table sets forth the accrual activity for employee termination benefits and contract close-out costs (in thousands) for the three months ended June 30, 2019. No additional charges are expected to be incurred.



	Employee Termination Benefits		Clinical Trial Close-out Costs		Other Development Costs	Total
Balance at March 31, 2019	—		—		—	—
Accruals	3,335		2,131		315	5,781
Payments	(1,551	)	(69	)	—	(1,620	)
Balance at June 30, 2019	1,784		2,062		315	4,161

Note 8. Subsequent Events

The Company has evaluated subsequent events through the issuance date of these financial statements to ensure that this filing includes appropriate disclosure of events both recognized in the financial statements as of June 30, 2019, and events which occurred subsequently but were not recognized in the financial statements.

On July 26, 2019, the Company entered into an exclusive worldwide license agreement with Cantex Pharmaceuticals (Cantex) for the development and commercialization of CX-01, the lead indication for which is first line AML.

In exchange for the exclusive worldwide license to CX-01, Cantex received an upfront payment of $30.0 million and 10.0 million shares of the Company's common stock. Cantex is also eligible to receive milestone payments upon completion of certain regulatory and net sales events as well as tiered royalty payments based on percentages of net sales.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto as of and for the year ended December 31, 2018 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission (SEC) on March 5, 2019. Past operating results are not necessarily indicative of results that may occur in future periods.

Forward-Looking Statements

The information in this discussion contains forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which are subject to the “safe harbor” created by those sections. These forward-looking statements include, but are not limited to, statements concerning our strategy, future operations, future financial position, future revenues, projected costs, prospects and plans and objectives of management. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, the risks set forth in Part II, Item IA, “Risk Factors” in this Quarterly Report on Form 10-Q and in our other filings with the SEC. The forward-looking statements are applicable only as of the date on which they are made, and we do not assume any obligation to update any forward-looking statements.

OVERVIEW

Chimerix, Inc. is a biopharmaceutical company dedicated to accelerating the advancement of innovative medicines that make a meaningful impact in the lives of patients living with cancer and other serious diseases. The Company is developing CX-01 (dociparstat sodium), an investigation product, targeting multiple proteins involved in cancer cell resistance to chemotherapy, for the treatment of acute myeloid leukemia and other hematologic malignancies. The Company is also developing brincidofovir (BCV or CMX001), an anti-viral drug candidate, as a medical countermeasure for smallpox.

Recent Developments

Our Strategy

Until recently, we have been developing BCV in commercial indications for the treatment and prevention of multiple DNA viruses. Our AdAPT trial was designed to study oral BCV as a treatment of adenovirus (AdV) in pediatric stem-cell transplant (HCT) patients with confirmed AdV infection. Concurrently, we have been conducting two Phase 2 studies of intravenous IV BCV in adult allogeneic HCT recipients with AdV (Study-210 and Study-211). In May 2019, we decided to discontinue both the oral and IV development programs of BCV in AdV and the associated clinical trials in order to conserve our cash resources while we pursue external opportunities to build our pipeline of product candidates.

In addition to our recently completed transaction with Cantex Pharmaceuticals, Inc. (Cantex) described below, management is conducting a review of transactions designed to build our product candidate pipeline, including, but not limited to, merger or acquisition transactions, issuing or transferring shares of common stock, or the license, purchase or sale of specific assets, in addition to other potential actions aimed at maximizing stockholder value. There can be no assurance that this review will result in the identification or consummation of any additional transaction.

License and Development Agreement with Cantex Pharmaceuticals, Inc.

In July 2019, we entered into a License and Development Agreement with Cantex pursuant to which we acquired exclusive worldwide rights to develop and commercialize, for any and all uses, a heparin derivative known as CX-01 (dociparstat sodium or ODSH), which is currently being studied for the treatment of acute myeloid leukemia (AML) and other serious diseases. Under the terms of the license agreement, we will be responsible for, and bear the future costs of, worldwide development and commercialization of CX-01.

In consideration for the license rights, we made an upfront cash payment of $30.0 million and issued 10,000,000 shares of our common stock to Cantex. The license agreement obligates us to pay Cantex regulatory milestone payments of up to $202.5 million upon receipt of product approvals in the United States, the European Union and Japan, and sales milestone payments of up to $385 million upon achievement of specified net sales levels. We also agreed to pay Cantex tiered royalties based on percentages of net sales beginning at 10% and not to exceed the high-teens.

CX-01 has received Fast Track and Orphan Drug Designations from the U.S. Food and Drug Administration for the treatment of AML.

We plan to initiate a Phase 3 clinical trial of CX-01 for the treatment of AML in mid-2020 subject to discussions with FDA.

Supply Agreement with Scientific Protein Laboratories LLC

In July, we were assigned Cantex’s rights under a supply agreement with Scientific Protein Laboratories LLC (SPL) pursuant to which SPL will exclusively produce CX-01 for us through October 2030 (the Supply Agreement). We have agreed that SPL will be our exclusive provider of CX-01 during the term of the Supply Agreement.

Supply Agreement with Pyramid Laboratories Inc

In July, we were assigned Cantex’s rights under a supply agreement with Pyramid Laboratories Inc. (Pyramid) pursuant to which Pyramid will provide CX-01 finished drug product to us.

Oral Brincidofovir for the Treatment of Smallpox

Earlier this year we announced positive top-line results from the in-life portion of both the rabbit pox and mouse ectromelia virus study (or "mousepox" study), which examined BCV using our second animal model of human smallpox conducted under the Animal Efficacy Rule. We are collaborating with the Biomedical Advanced Research and Development Authority (BARDA) for the development of BCV as a potential medical countermeasure for smallpox.

Data from these studies are intended to address the requirement under the FDA’s Animal Efficacy Rule for two different animal models of efficacy. Further confirmatory analyses (e.g. secondary endpoints) of these studies are currently underway.

Contingent upon receiving final audited results of these two key animal efficacy studies, along with preparing data necessary to bridge to a recommended human dose, we intend to submit marketing applications for BCV for the treatment of smallpox in 2020.

FINANCIAL OVERVIEW

Revenues

To date, we have not generated any revenue from product sales. All of our revenue to date has been derived from a government grant and contract and the receipt of up-front proceeds under our collaboration and license agreements.

In February 2011, we entered into a contract with BARDA, a U.S. governmental agency that supports the advanced research and development, manufacturing, acquisition, and stockpiling of medical countermeasures. The contract originally consisted of an initial performance period, referred to as the base performance segment, which ended on May 31, 2013, plus up to four extension periods, referred to as option segments. Subsequent option segments to the contract are not subject to automatic renewal and are not exercisable at our discretion. The contract is a cost plus fixed fee development contract. Under the contract as currently in effect, we may cumulatively receive up to $75.8 million in expense reimbursement and $5.3 million in fees if the remaining option segment is exercised. We are currently performing under the second and third option segments of the contract during which we may receive up to a total of $23.9 million and $14.1 million in expense reimbursement and fees, respectively. The second and third option segments are scheduled to end on May 31, 2020. Of the $75.8 million expense reimbursement and $5.3 million in fees that we may receive, approximately $74.3 million in expense reimbursement and fees has been funded. As of June 30, 2019, of the total funding the Company had invoiced an aggregate of $66.3 million with respect to the base performance segment and the first three option segments. Under the BARDA contract, we recognized revenue of $1.4 million and $1.2 million during the three months ended June 30, 2019 and 2018, respectively, and we recognized revenue of $3.8 million and $2.0 million during the six months ended June 30, 2019 and 2018, respectively.

In the future, we may generate revenue from a combination of product sales, license fees, milestone payments and royalties from the sales of products developed under licenses of our intellectual property. We expect that any revenue we generate will fluctuate

from quarter to quarter as a result of the timing and amount of license fees, milestone and other payments, and the amount and timing of payments that we receive upon the sale of our products, to the extent any are successfully commercialized. If we fail to complete the development of any product candidates in a timely manner or obtain regulatory approval for them, our ability to generate future revenue, and our results of operations and financial position, would be materially adversely affected.

Research and Development Expenses

Since our inception, we have focused our resources on our research and development activities, including conducting preclinical studies and clinical trials, manufacturing development efforts and activities related to regulatory filings for our product candidates. We recognize research and development expenses as they are incurred. Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors. We cannot determine with certainty the duration and completion costs of the current or future clinical studies of any product candidates. Our research and development expenses consist primarily of:


•	fees paid to consultants and contract research organizations (CROs), including in connection with preclinical 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;


•	salaries and related overhead expenses, which include stock option, restricted stock units and employee stock purchase program compensation and benefits, for personnel in research and development functions;


•	payments to third-party manufacturers, which produce, test and package drug substance and drug product (including continued testing of process validation and stability);


•	costs related to legal and compliance with regulatory requirements; and


•	license fees for and milestone payments related to licensed products and technologies.

From our inception through June 30, 2019, we have incurred approximately $487.4 million in research and development expenses, of which $438.7 million relates to our development of BCV. These costs were largely related to the conduct of our clinical trials of BCV.

The table below summarizes our research and development expenses for the periods indicated (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Direct research and development expenses	$	7,264	$	7,716	$	14,948	$	15,428
Research and development personnel costs - excluding stock-based compensation	4,637		2,857		8,259		6,775
Research and development personnel costs - stock-based compensation	1,000		1,536		2,270		2,856
Indirect research and development expenses	926		1,603		1,865		3,012
Total research and development expenses	$	13,827	$	13,712	$	27,342	$	28,071

The successful development of product candidates is highly uncertain. At this time, we cannot reasonably estimate the nature, timing or costs of the efforts that will be necessary to complete the development of any product candidates or the period, if any, in which material net cash inflows from any product candidates may commence. This is due to the numerous risks and uncertainties associated with our business, as detailed in Part II, Item IA, “Risk Factors” in this Quarterly Report on Form 10-Q and in our other filings with the SEC.

Brincidofovir

The majority of our research and development resources has been focused on completing our Phase 3 trial of brincidofovir for prevention of CMV in HCT recipients (SUPPRESS), our trial of brincidofovir as a treatment for AdV (AdVise), the AdAPT study in pediatric HCT recipients and our other clinical and preclinical studies and other work needed to provide sufficient data supporting the safety, tolerability and efficacy of brincidofovir for approval in the United States and equivalent health authority approval outside the United States. In May 2019, we decided to discontinue both the oral and IV development programs of BCV in AdV and the associated clinical trials in order to conserve our cash resources while we pursue external opportunities to build our pipeline of product candidates.

In addition, pursuant to our contract with BARDA, we are evaluating brincidofovir for the treatment of smallpox. During the base performance segment of the contract, we incurred significant expense in connection with the development of orthopoxvirus animal models, the demonstration of efficacy and pharmacokinetics of brincidofovir in the animal models, the conduct of an open label clinical safety study for subjects with DNA viral infections, and the manufacture and process validation of bulk drug substance and brincidofovir 100 mg tablets. During the first option segment of the contract, we performed additional animal testing of brincidofovir. In September 2014, we initiated performance under the second option segment of the contract with BARDA and are performing additional animal testing of brincidofovir. In September 2015, we initiated performance under the third option segment which focuses on brincidofovir chemistry, manufacturing and controls at large scale.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and related costs for employees in executive, finance, marketing, investor relations, information technology, legal, human resources and administrative support functions, including share-based compensation expenses and benefits. Other significant general and administrative expenses include costs related to commercial readiness efforts, accounting and legal services, costs of various consultants, director and officer liability insurance, occupancy costs and information systems.

Unrealized Loss on Equity Investment

Unrealized loss on equity investment consists of the decrease in fair value of our investment in ContraVir Pharmaceuticals common stock.

Interest Income and Other, Net

Interest income and other, net consists primarily of interest earned on our cash, cash equivalents, short-term investments and long-term investments.

Share-based Compensation

The Financial Accounting Standards Board authoritative guidance requires that share-based payment transactions with employees be recognized in the financial statements based on their fair value and recognized as compensation expense over the vesting period. The total consolidated share-based compensation expense of $2.4 million and $4.0 million was recognized in the three months ended June 30, 2019 and 2018, respectively, and $6.4 million and $7.4 million was recognized in the six months ended June 30, 2019 and 2018, respectively. The share-based compensation expense recognized included expense for stock options, RSUs and employee stock purchase plan purchase rights.

We estimate the fair value of our share-based awards to employees and directors using the Black-Scholes pricing model. This estimate is affected by our stock price as well as assumptions including the expected volatility, expected term, risk-free interest rate, expected dividend yield, expected rate of forfeiture and the fair value of the underlying common stock on the date of grant.

For performance-based RSUs, we begin to recognize the expense when it is deemed probable that the performance-based goal will be achieved. We evaluate the probability of achieving performance-based goals on a quarterly basis.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES

Our management’s discussion and analysis of financial condition and results of operations is based on our unaudited consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). 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. On an ongoing basis, we evaluate these estimates and judgments. We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities and the recording of revenues and expenses that are not readily apparent from other sources. Actual results and experiences may differ materially from these estimates. In addition, our reported financial condition and results of operations could vary if new accounting standards are enacted that are applicable to our business.

We discussed accounting policies and assumptions that involve a higher degree of judgment and complexity in Note 1 to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on March 5, 2019. There have been no material changes during the six months ended June 30, 2019 to our critical accounting policies, significant judgments and estimates disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.

RESULTS OF OPERATIONS

Comparison of the Three Months Ended June 30, 2019 and June 30, 2018

The following table summarizes our results of operations for the three months ended June 30, 2019 and June 30, 2018, together with the changes in those items (in thousands, except percentages):



	Three Months Ended June 30,						Dollar Change			% Change
	2019			2018			Increase/(Decrease)
Contract revenue	$	1,438		$	1,193		$	245		20.5	%
Operating expenses:
Research and development	13,827			13,712			115			0.8	%
General and administrative	6,312			6,650			(338		)	(5.1	)%
Total operating expenses	20,139			20,362			(223		)	(1.1	)%
Loss from operations	(18,701		)	(19,169		)	468			(2.4	)%
Other (expense) income:
Unrealized loss on equity investment	(22		)	(78		)	56			(71.8	)%
Interest income and other, net	1,073			634			439			69.2	%
Net loss	$	(17,650	)	$	(18,613	)	$	963		(5.2	)%

Contract Revenue

For the three months ended June 30, 2019, total contract revenue increased to $1.4 million compared to $1.2 million for the three months ended June 30, 2018. This change is related to an increase in reimbursable expenses related to our contract with BARDA.

Research and Development Expenses

For the three months ended June 30, 2019, our research and development expenses increased to $13.8 million compared to $13.7 million for the three months ended June 30, 2018. The increase of $0.1 million, or 0.8%, is primarily related to the following:


•	an increase of $1.2 million in compensation and severance expenses;


•	an increase of $0.9 million related to oral and IV BCV program costs mainly attributable to the acceleration of closeout costs; offset by


•	a decrease of $0.8 million in expenses related to the smallpox program;


•	a decrease of $0.8 million in legal fees and operational expenses;


•	a decrease of $0.5 million in expenses related to our development of early stage compounds.

General and Administrative Expenses

For the three months ended June 30, 2019, our general and administrative expenses decreased to $6.3 million compared to $6.7 million for the three months ended June 30, 2018. The decrease of $0.3 million, or 5.1%, is primarily related to the following:


•	a decrease of $1.5 million in commercial readiness and operational expenses; offset by


•	an increase of $0.7 million related to legal and consulting fees incurred in the pursuit of external opportunities to build our pipeline; and


•	an increase of $0.5 million in compensation and severance expenses.

Interest Income

For the three months ended June 30, 2019, our interest income increased to $1.1 million compared to $0.6 million for the three months ended June 30, 2018. This increase is attributable to increased interest earned on our cash and investments.

Comparison of the Six Months Ended June 30, 2019 and June 30, 2018

The following table summarizes our results of operations for the six months ended June 30, 2019 and June 30, 2018, together with the changes in those items (in thousands except percentages):



	Six Months Ended June 30,						Dollar Change			% Change
	2019			2018			Increase/(Decrease)
Contract revenue	$	3,794		$	1,983		$	1,811		91.3	%
Operating expenses:
Research and development	27,342			28,071			(729		)	(2.6	)%
General and administrative	13,998			13,388			610			4.6	%
Total operating expenses	41,340			41,459			(119		)	(0.3	)%
Loss from operations	(37,546		)	(39,476		)	1,930			(4.9	)%
Other (expense) income:
Unrealized loss on equity investment	(30		)	(212		)	182			(85.8	)%
Interest income and other, net	2,233			1,249			984			78.8	%
Net loss	$	(35,343	)	$	(38,439	)	$	3,096		(8.1	)%

Contract Revenue

For the six months ended June 30, 2019, total contract revenue increased to $3.8 million compared to $2.0 million for the six months ended June 30, 2018. The increase of $1.8 million, or 91.3%, is related to an increase in reimbursable expenses under our contract with BARDA.

Research and Development Expenses

For the six months ended June 30, 2019, our research and development expenses decreased to $27.3 million compared to $28.1 million for the six months ended June 30, 2018. The decrease of $0.7 million, or 2.6%, is primarily related to the following:


•	a decrease of $1.6 million in expenses related to development of early stage compounds; and


•	a decrease of $1.2 million in legal fees and operational expenses; offset by


•	an increase of $1.2 million in expenses related to oral and IV BCV program costs mainly attributable to the acceleration of closeout costs; and


•	an increase of $0.9 million in compensation and severance expenses.

General and Administrative Expenses

For the six months ended June 30, 2019, our general and administrative expenses increased to $14.0 million compared to $13.4 million for the six months ended June 30, 2018. The increase of $0.6 million, or 4.6%, is primarily related to the following:


•	an increase of $1.8 million related to compensation and severance expenses; and


•	an increase of $1.2 million related to legal and consulting fees incurred in the pursuit of external opportunities to build our pipeline; offset by


•	a decrease of $2.4 million in expenses related to commercial readiness and operational expenses.

Interest Income and Other, Net

For the six months ended June 30, 2019, our interest income and other, net increased to $2.2 million compared to $1.2 million for the six months ended June 30, 2018. This increase is attributable to increased interest earned on our cash and investments.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2019, we had capital available to fund operations of approximately $158.4 million. Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation. We have incurred losses since our inception in 2000 and as of June 30, 2019, we had an accumulated deficit of $591.6 million. We

anticipate that we will continue to incur losses for at least the next several years.

On November 8, 2017, we entered into an at-the-market (ATM) sales agreement with Cowen and Company, LLC to sell up to $75 million of our common stock under a shelf registration statement filed in November 2017. As of December 31, 2018, we had sold an aggregate of 2.8 million shares of common stock pursuant to the ATM at a weighted average price per share of $4.00 for net offering proceeds of $10.9 million. We have not sold any shares of our common stock pursuant to the ATM to-date in 2019.

We cannot assure you that adequate funding will be available on terms acceptable to us, if at all. Any additional equity financings will be dilutive to our stockholders and any additional debt may involve operating covenants that may restrict our business. If adequate funds are not available through these means, we may be required to curtail significantly one or more of our research or development programs, and any launch and other commercialization expenses for any of our products that may receive marketing approval. We cannot assure you that we will successfully develop or commercialize our products under development or that our products, if successfully developed, will generate revenues sufficient to enable us to earn a profit.

We believe that our existing cash, cash equivalents, and investments will enable us to fund our current operating expenses and capital requirements for at least the next 12 months. However, changing circumstances beyond our control may cause us to consume capital more rapidly than we currently anticipate.

Cash Flows

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



	Six Months Ended June 30,
	2019			2018
Cash sources and uses:
Net cash used in operating activities	$	(29,551	)	$	(32,550	)
Net cash (used in) provided by investing activities	(30,089		)	41,256
Net cash provided by financing activities	178			193
Net (decrease) increase in cash and cash equivalents	$	(59,462	)	$	8,899

Operating Activities

Net cash used in operating activities of $29.6 million for the six months ended June 30, 2019 was primarily the result of our $35.3 million net loss, partially offset by the change in operating assets and liabilities and the add-back of non-cash expenses. Non-cash expenses included add-backs of $6.4 million for share-based compensation and $0.3 million of depreciation of property and equipment, offset by $1.2 million of amortization of discount/premium on investments. The change in operating assets and liabilities includes a decrease in prepaid expenses and other assets of $0.4 million and an increase of $0.3 million in accounts payable and accrued liabilities, partially offset by an increase in accounts receivable of $0.4 million related to work on the BARDA contract. Net cash used in operating activities of $32.6 million for the six months ended June 30, 2018 was primarily the result of our $38.4 million net loss and the change in operating assets and liabilities, partially offset by the add-back of non-cash expenses of $7.4 million for share-based compensation and $0.5 million of depreciation of property and equipment. The change in operating assets and liabilities includes a decrease of $3.5 million in accounts payable and accrued liabilities, partially offset by a decrease in accounts receivable of $1.5 million related to work on the BARDA contract.

Investing Activities

Net cash used in investing activities of $30.1 million for the six months ended June 30, 2019 was primarily the result of the purchase of $107.1 million in short-term investments partially offset by the maturity of $77.2 million in short-term investments. Net cash provided by investing activities of $41.3 million for the six months ended June 30, 2018 was primarily the result of the sales and maturities of $65.5 million in short-term investments partially offset by the purchase of $18.1 million in short-term investments and $6.0 million in long-term investments.

Financing Activities

Net cash provided by financing activities of $0.2 million for the six months ended June 30, 2019 was primarily the result of $0.2 million in proceeds from the exercise of stock options and stock purchases through our ESPP. Net cash provided by financing activities of $0.2 million for the six months ended June 30, 2018 was the result of $0.5 million in proceeds from the exercise of

stock options and stock purchases through our ESPP offset by $0.3 million of payments of deferred offering costs.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

There have been no material changes to our contractual obligations and commitments outside the ordinary course of business from those disclosed under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Contractual Obligations and Commitments” as contained in our Annual Report on Form 10-K for the year ended December 31, 2018 filed by us with the SEC on March 5, 2019.

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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates. Due to the short-term duration of our investment portfolio and the low risk profile of our investments, an immediate 10% change in interest rates would not have a material effect on the fair market value of our portfolio. Accordingly, we would not expect our operating results or cash flows to be affected to any significant degree by the effect of a sudden change in market interest rates on our investment portfolio.

We do not believe that our cash, cash equivalents and available-for-sale investments have significant risk of default or illiquidity. While we believe our cash and cash equivalents and certificates of deposit do not contain excessive risk, we cannot provide absolute assurance that in the future our investments will not be subject to adverse changes in market value. In addition, we maintain certain amounts of cash and cash equivalents at one or more financial institutions that are in excess of federally insured limits.

Inflation generally affects us by increasing our cost of labor and clinical trial costs. We do not believe that inflation has had a material effect on our results of operations for the three and six months ended June 30, 2019 or June 30, 2018.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our principal executive officer and principal financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, or Exchange Act) as of June 30, 2019, have concluded that, based on such evaluation, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

We routinely review our internal control over financial reporting and from time to time make changes intended to enhance the effectiveness of our internal control over financial reporting. We will continue to evaluate the effectiveness of our disclosure controls and procedures and internal control over financial reporting on an ongoing basis and will take action as appropriate. There have been no changes to our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during the second quarter of 2019 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS

An investment in shares of our common stock involves a high degree of risk. You should carefully consider the following risk factors, as well as the other information contained elsewhere in this report, before deciding whether to purchase, hold or sell shares of our common stock. The occurrence of any of the following risks could harm our business, financial condition, results of operations and/or growth prospects or cause our actual results to differ materially from those contained in forward-looking statements we have made in this report and those we may make from time to time. You should consider all of the risk factors described when evaluating our business. We have marked with an asterisk (*) those risk factors that reflect changes from the risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the Securities and Exchange Commission on March 5, 2019.

Risks Related To Our Financial Condition and Need For Additional Capital

We are evaluating external assets to build our pipeline of product candidates and there can be no assurance that we will be successful in identifying or completing a transaction for a candidate, that any such transaction will result in additional value for our stockholders or that the process will not have an adverse impact on our business.*

Earlier this year, we initiated a review of external assets that could be added to our pipeline of product candidates. In July 2019, in connection with this process, we entered into a License and Development Agreement with Cantex Pharmaceuticals, Inc. (Cantex) pursuant to which we acquired exclusive worldwide rights to develop and commercialize, for any and all uses, a heparin derivative known as CX-01 (dociparstat sodium or ODSH), which is currently being studied for the treatment of acute myeloid leukemia (AML) and other serious diseases. Under the terms of the license agreement, we will be responsible for, and bear the future costs of, worldwide development and commercialization of CX-01. These costs will be substantial, and we may require additional capital in order to pursue the development and commercialization of CX-01 as planned. Moreover, the anticipated benefits of our license to CX-01 may never be realized due to the various risks and uncertainties associated with drug development detailed elsewhere in the following risk factors.

In addition to CX-01, we may in-license or acquire additional assets, engage in a merger or consolidation transaction, issue additional shares of our common stock, or engage in other potential actions designed to maximize stockholder value. Our review of external assets may not result in the identification or consummation of any transaction. The process of reviewing external opportunities may be time consuming and disruptive to our business operations and, if we are unable to effectively manage the process, our business, financial condition and results of operations could be adversely affected. We could incur substantial expenses associated with identifying, evaluating, negotiating, and consummating potential transactions. There can be no assurance that any potential additional transaction, if consummated, will provide greater value to our stockholders than that reflected in the current price of our common stock. In addition, once any potential additional transaction is consummated, we are likely to incur substantial costs associated with future development and testing of any new product candidate, which may require us to raise additional capital.

We have incurred significant losses since our inception. We anticipate that we will continue to incur significant losses for the foreseeable future, and we may never achieve or maintain profitability.*

We are a biopharmaceutical company focused primarily on developing brincidofovir for the treatment of smallpox and CX-01 for the treatment of AML. We have incurred significant net losses in each year since our inception, including net losses of $35.3 million and $38.4 million for the six months ended June 30, 2019 and 2018, respectively. As of June 30, 2019, we had an accumulated deficit of approximately $591.6 million.*

To date, we have financed our operations primarily through the sale of equity securities and, to a lesser extent, through government funding, licensing fees and debt. We have devoted most of our financial resources to research and development, including our preclinical development activities and clinical trials. We have not completed development of any product candidates. We expect to continue to incur losses and negative cash flows for the foreseeable future. The size of our losses will depend, in part, on the rate of future expenditures and our ability to generate revenues. In particular, we expect to incur substantial expenses as we seek to:


•	initiate development and manufacturing activities of CX-01 for the treatment of AML and other potential indications;


•	terminate our development activities of BCV for indications other than smallpox, including closing the AdAPT and IV studies of BCV;


•	continue the development of brincidofovir for the treatment of smallpox as a medical countermeasure;


•	obtain regulatory approvals for brincidofovir and CX-01;


•	scale-up manufacturing capabilities to commercialize brincidofovir and CX-01 in the event we receive regulatory approval;


•	identify and in-license additional product candidates to expand our research and development pipeline;


•	maintain, expand and protect our intellectual property portfolio; and


•	continue our internal research and development efforts and seek to discover additional product candidates.

To become and remain profitable, we must succeed in developing and eventually commercializing products with significant market potential. This will require us to be successful in a range of challenging activities, including acquiring or discovering product candidates, completing preclinical testing and clinical trials of our product candidates, obtaining regulatory approval for these product candidates, and manufacturing, marketing and selling those products for which we may obtain regulatory approval. We are only in the preliminary stages of some of these activities.

To date, we have not obtained regulatory approval for any product candidate, and none of our product candidates have been commercialized. We may never succeed in developing or commercializing any product candidate. If we do not successfully develop or commercialize any product candidate, or if revenues from any products that do receive regulatory approvals are insufficient, we will not achieve profitability and our business may fail. Even if we successfully obtain regulatory approval to market a product candidate in the United States, our revenues are also dependent upon the size of markets outside of the United States, as well as our ability to obtain market approval and achieve commercial success outside of the United States.

Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would depress the value of our company and could impair our ability to raise capital, expand our business, diversify our product offerings or continue our operations. A decline in the value of our company could cause you to lose all or part of your investment.

Our ability to generate future revenues from product sales is uncertain and depends upon our ability to successfully develop, obtain regulatory approval for, and commercialize product candidates.*

Our ability to generate revenue and achieve profitability depends on our ability, alone or with collaborators, to successfully complete the development, obtain the necessary regulatory approvals and commercialize product candidates. We do not anticipate generating revenues from product sales for the foreseeable future. Our ability to generate future revenues from product sales depends heavily on our success in:


•	obtaining favorable results for and advancing the development of brincidofovir for the treatment of smallpox and CX-01 for the treatment of AML;


•	obtaining United States and foreign regulatory approval(s) for brincidofovir and CX-01;


•	generating, licensing or otherwise acquiring a pipeline of product candidates which progress to clinical development, regulatory approval, and commercialization.

Conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data required to obtain regulatory approval and achieve product sales. Our anticipated development costs would likely increase if we do not obtain favorable results or if development of any product candidate is delayed. In particular, we would likely incur higher costs than we currently anticipate if development of any product candidate is delayed because we are required by the FDA or foreign regulatory authorities to perform studies or trials in addition to those that we currently anticipate, or we decide to conduct additional studies or trials for strategic reasons.

Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to predict with certainty the timing or amount of any increase in our anticipated development costs that will result should any additional trials be necessary.

In addition, any product candidate, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of products that we do not expect to be commercially available for a number of years, if at all. Even if any product candidate is approved for commercial sale, we anticipate incurring significant costs in connection with commercialization. As a result, we cannot assure you that we will be able to generate revenues from sales of any approved product candidate, or that we will achieve or maintain profitability even if we do generate sales.

If we fail to obtain additional financing, we could be forced to delay, reduce or eliminate our product development programs, seek corporate partners for the development of our product development programs or relinquish or license on unfavorable terms, our rights to technologies or product candidates.*

Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is a time-consuming, expensive and uncertain process that takes years to complete. We believe that our existing capital available to fund operations will enable us to fund our current operating expenses and capital requirements for at least the next twelve months. Changing circumstances beyond our control may cause us to consume capital more rapidly than we currently anticipate, and our clinical trials may encounter technical, enrollment or other difficulties that could increase our development costs more than we expected, or because the FDA or foreign regulatory authorities require us to perform studies or trials in addition to those that we currently anticipate.

In July 2019, we entered into a License and Development Agreement with Cantex in which we acquired an exclusive worldwide license to develop and commercialize CX-01. We plan to initiate a Phase 3 clinical trial of CX-01 for the treatment of AML in mid-2020 subject to discussions with FDA.

We are also pursuing additional external opportunities to build our pipeline of product candidates, and we may need to raise additional funds if we identify additional product candidates other than brincidofovir and CX-01, which we may obtain through one or more equity offerings, debt financings, government or other third-party funding, strategic alliances and licensing or collaboration arrangements.

Securing additional financing may divert our management from our day-to-day activities, which may adversely affect our ability to develop and commercialize brincidofovir, CX-01, or any other product candidate. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. If we are unable to raise additional capital when required or on acceptable terms, we may be required to:


•	significantly delay, scale back or discontinue the development or commercialization of brincidofovir or any other product candidate;


•	seek corporate partners for brincidofovir, CX-01, or any other product candidate at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available; or


•	relinquish or license on unfavorable terms, our rights to technologies or product candidates that we otherwise would seek to develop or commercialize ourselves.

If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we will be prevented from pursuing development and commercialization efforts, which will have a material adverse effect on our business, operating results and prospects and on our ability to develop our product candidates.

Risks Related To Clinical Development and Regulatory Approval

Our product candidates, brincidofovir and CX-01, are still under clinical development for the treatment of smallpox, AML and other potential indications, respectively, and may not obtain regulatory approval or be successfully commercialized.*

We have not marketed, distributed or sold any products. Our product candidates are brincidofovir, which we continue to develop for the treatment of smallpox as a medical countermeasure and CX-01, which we are developing for the treatment of AML and other potential indications. Until recently, we have been developing brincidofovir in commercial indications for the treatment and prevention of multiple DNA viruses. Our AdAPT trial was designed to study oral BCV as a treatment of adenovirus (AdV) in pediatric stem-cell transplant (HCT) patients with confirmed AdV infection. Concurrently, we have been conducting two Phase 2 studies of intravenous IV BCV in adult allogeneic HCT recipients with AdV (Study-210 and Study-211). In May 2019, we decided to discontinue both the oral and IV development programs of BCV in AdV and the associated clinical trials in order to conserve our cash resources while we pursue external opportunities to build our pipeline of product candidates.

In July 2019, we announced that we had entered into an agreement for the exclusive license of the rights to CX-01 from Cantex Pharmaceuticals. We plan to initiate a Phase 3 clinical trial of CX-01 for the treatment of AML in mid-2020 subject to discussions with FDA.

There is no guarantee that our current or future clinical trials will be approved by regulators, and no guarantee that they will be completed or, if completed, will be successful, or if successful, will result in an approval for the sale of any of our product candidates. The success of each of brincidofovir and CX-01 will depend on several factors, including the following:


•	acceptance of data from our studies of oral brincidofovir in animal models, including data necessary to bridge to a recommended human dose, by the FDA and foreign regulatory bodies;


•	reaching agreement with the FDA on the design and conduct of a pivotal Phase 3 clinical trial to support approval of CX-01;


•	receipt of marketing approvals from the FDA and corresponding regulatory authorities outside the United States;


•	establishing manufacturing capabilities necessary for a registration trial and commercialization of CX-01;


•	establishing commercial manufacturing capabilities for brincidofovir;


•	acceptance of the product, if approved for marketing;


•	effectively competing with other therapies;


•	a continued acceptable safety profile of the product following approval; and


•	obtaining, maintaining, enforcing and defending intellectual property rights and claims.

If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize brincidofovir, which would materially harm our business.

We have never obtained regulatory approval for a drug and we may be unable to obtain, or may be delayed in obtaining, regulatory approval for brincidofovir and CX-01.*

We have never obtained regulatory approval for a drug. It is possible that the FDA and/or foreign health authorities, such as the EMA, may refuse to accept our NDA (or corresponding foreign application) for substantive review or may conclude after review of our data that our application is insufficient to obtain regulatory approval of brincidofovir, CX-01 or both.

Through our continuing development contract with BARDA, we recently completed the in-life segment of our second rabbitpox efficacy study as well as a pivotal efficacy study in the mouse model (ectromelia virus). We believe that efficacy data from these models could support the approval of brincidofovir for the treatment of smallpox. The data from these trials is subject to on-going confirmatory studies and audit. In addition, we are preparing data necessary to bridge to a recommended human dose.

In July, we entered into a license agreement with Cantex where we acquired an exclusive license to global development and commercialization rights to CX-01. We plan to initiate a Phase 3 clinical trial of CX-01 for the treatment of AML in mid-2020 subject to discussions with FDA.

We have not yet reached agreement with the FDA or foreign regulators regarding the adequacy of these planned studies, for either brincidofovir or CX-01, with respect to a potential approval for marketing. We may be required to conduct additional clinical, nonclinical or manufacturing validation studies and submit those data before reconsideration of our application occurs. Depending on the extent of these or any other required studies, approval of any NDA or application that we submit may be delayed by several years, or may require us to expend more resources than we have available. It is also possible that additional studies, if performed and completed, may not be considered sufficient by the FDA and/or foreign health authorities to approve our NDA or foreign application.

Any delay in obtaining, or an inability to obtain, regulatory approvals could prevent us from generating revenues and achieving and sustaining profitability. If any of these outcomes occur, we may be forced to abandon our development efforts for brincidofovir and CX-01, which would have a material adverse effect on our business and could potentially cause us to cease operations.

We depend on the successful completion of clinical trials for our product candidates, including brincidofovir and CX-01. The positive clinical results obtained for our product candidates in prior clinical studies may not be repeated in future clinical studies.*

Before obtaining regulatory approval for the sale of our product candidates, including brincidofovir, we must conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates. Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. A failure of one or more of our clinical trials can

occur at any stage of testing. The outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval for their products.

We may experience a number of unforeseen events during, or as a result of, clinical trials or animal efficacy studies for our product candidates, that could adversely affect the completion of our clinical trials, including:


•	regulators or institutional review boards may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;


•	clinical trials of our product candidates may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs;


•	animal efficacy studies of our product candidates may produce negative or inconclusive results, and we may decide, or regulators may require us to conduct additional animal efficacy studies or abandon development programs;


•	we might be required to change one of our clinical research organizations (CROs) during ongoing clinical programs;


•	the number of subjects required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinical trials may be insufficient or slower than we anticipate or subjects may drop out of these clinical trials at a higher rate than we anticipate;


•	our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;


•	we may have to suspend or terminate clinical trials of our product candidates for various reasons, including a finding that the subjects are being exposed to unacceptable health risks;


•	regulators or institutional review boards may require that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements;


•	the cost of clinical trials of our product candidates may be greater than we anticipate;


•	we may encounter agency or judicial enforcement actions which impact our clinical trials;


•	the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate; or


•	our product candidates may have undesirable side effects or other unexpected characteristics, causing us or our investigators to suspend or terminate the trials.

We do not know whether any clinical trials we may conduct will demonstrate adequate efficacy and safety to result in regulatory approval to market our product candidates, including brincidofovir and CX-01. If later stage clinical trials do not produce favorable results, our ability to obtain regulatory approval for either or both of brincidofovir and CX-01 may be adversely impacted.

Delays in clinical trials are common and have many causes, and any delay could result in increased costs to us and jeopardize or delay our ability to obtain regulatory approval and commence product sales.*

Clinical testing is expensive, difficult to design and implement, can take many years to complete, and is uncertain as to outcome. We may experience delays in clinical trials at any stage of development and testing of our product candidates. Our planned clinical trials may not begin on time, have an effective design, enroll a sufficient number of subjects, or be completed on schedule, if at all.

Events which may result in a delay or unsuccessful completion of clinical trials, including our currently planned or future clinical trials for either brincidofovir, CX-01 or both, include:


•	inability to raise funding necessary to initiate or continue a trial;


•	delays in obtaining, or failure to obtain, regulatory approval of Investigational New Drug applications or to commence a trial;


•	delays in reaching agreement with the FDA and foreign health authorities on final trial design;


•	imposition of a clinical hold following an inspection of our clinical trial operations or trial sites by the FDA or other regulatory authorities;


•	delays caused by disagreements with existing CROs and/or clinical trial sites;


•	delays in reaching agreement on acceptable terms with prospective CROs and clinical trial sites;


•	delays in obtaining, or failure to obtain, required IRB or ethics committee (EC) approvals covering each site;


•	delays in recruiting suitable patients to participate in a trial;


•	delays in having subjects complete participation in a trial or return for post-treatment follow-up;


•	delays caused by subjects dropping out of a trial due to side effects or otherwise;


•	clinical sites declining to participate or dropping out of a trial to the detriment of enrollment;


•	agency or judicial enforcement actions against us;


•	time required to add new clinical sites; and


•	delays by our contract manufacturers to produce and deliver sufficient supply of clinical trial materials.

If initiation or completion of any of our clinical trials for our product candidates, including either brincidofovir or CX-01, are delayed for any of the above reasons, our development costs may increase, our approval process could be delayed, any periods during which we may have the exclusive right to commercialize our product candidates may be reduced and our competitors may have more time to bring products to market before we do. Any of these events could impair our ability to generate revenues from product sales and impair our ability to generate regulatory and commercialization milestones and royalties, all of which could have a material adverse effect on our business.

Our product candidates may cause adverse effects or have other properties that could delay or prevent their regulatory approval or limit the scope of any approved label or market acceptance.*

Adverse events (AEs) caused by our product candidates could cause us, other reviewing entities, clinical study sites or regulatory authorities to interrupt, delay or halt clinical studies and could result in the denial of regulatory approval. For example, subjects enrolled in our clinical trials for brincidofovir have experienced gastrointestinal AEs and liver-related safety laboratory value changes. In addition, brincidofovir is related to the approved drug cidofovir, a compound which has been shown to result in significant renal toxicity and impairment following use. As a second example, subjects enrolled in clinical trials for CX-01 have experienced febrile neutropenia and liver enzyme elevations. If an unacceptable frequency and/or severity of AEs are reported in our clinical trials for our product candidates, our ability to obtain regulatory approval for product candidates may be negatively impacted.

If any of our approved products cause serious or unexpected side effects prior to or after receiving market approval, a number of potentially significant negative consequences could result, including:


•	regulatory authorities may approve the product only with a risk evaluation and mitigation strategy (REMS), potentially with restrictions on distribution and other elements to assure safe use (ETASU);


•	regulatory authorities may withdraw their approval of the product or impose restrictions on its distribution in a form of a modified REMS;


•	regulatory authorities may require the addition of labeling statements, such as warnings or contraindications;


•	we may be required to change the way the product is administered or to conduct additional clinical studies;


•	we could be sued and held liable for harm caused to patients; and


•	our reputation may suffer.

Any of these events could prevent us from achieving or maintaining market acceptance of the affected product candidate and could substantially increase the costs of commercializing our product candidates.

After the completion of our clinical trials, we cannot predict whether or when we will obtain regulatory approval to commercialize any of our product candidates and we cannot, therefore, predict the timing of any future revenue from brincidofovir or CX-01.*

We cannot commercialize our product candidates, including brincidofovir and CX-01, until the appropriate regulatory authorities have reviewed and approved the product candidate. The regulatory agencies may not complete their review processes in a timely manner, or we may not be able to obtain regulatory approval for either of our product candidates. Additional delays in the United States may result if either brincidofovir or CX-01 is brought before an FDA advisory committee, which could recommend restrictions on approval or recommend non-approval of the product candidate. In the EU context, an Oral Explanation during MAA review could extend approval timelines and result in a Negative Opinion. A re-examination procedure is available in the EU whereby a Negative Opinion could be over-turned and become a Positive Opinion. New rapporteurs would be selected for the product. In addition, we may experience delays or rejections based upon additional government regulation from future legislation or administrative action, or changes in regulatory agency policy during the period of product development, clinical studies and the review process. As a result, we cannot predict when, if at all, we will receive any future revenue from commercialization of any of our product candidates.

Even if we obtain regulatory approval for brincidofovir and CX-01, we will still face extensive regulatory requirements and our products may face future development and regulatory difficulties.*

Even if we obtain regulatory approval, the granting authority may still impose significant restrictions on the indicated uses, distribution or marketing of our product candidates, including brincidofovir and CX-01, or impose ongoing requirements for

potentially costly post-approval studies or post-market surveillance. For example, the labeling ultimately approved for our product candidates, including brincidofovir and CX-01, will likely include restrictions on use due to the specific patient population and manner of use in which the drug was evaluated and the safety and efficacy data obtained in those evaluations. In addition, the distribution of brincidofovir and CX-01 may be tightly controlled through a REMS with ETASU, which are required medical interventions or other actions healthcare professionals need to execute prior to prescribing or dispensing the drug to the patient. Some actions may also be required in order for the patient to continue on treatment. For example, the label for brincidofovir may be required to include a boxed warning, or “black box,” regarding brincidofovir being carcinogenic, teratogenic and impairing fertility in animal studies, as well as a contraindication in patients who have had a demonstrated clinically significant hypersensitivity reaction to brincidofovir or cidofovir or any component of the formulation. The brincidofovir labeling may also include warnings or black boxes pertaining to gastrointestinal AEs or liver-related safety laboratory value changes.

Brincidofovir, CX-01 and any other product candidates will also be subject to additional ongoing regulatory requirements governing the labeling, packaging, storage, distribution, safety surveillance, advertising, promotion, record-keeping and reporting of safety and other post-market information. In the United States, the holder of an approved NDA is obligated to monitor and report AEs and any failure of a product to meet the specifications in the NDA. The holder of an approved NDA must also submit new or supplemental applications and obtain FDA approval for certain changes to the approved product, product labeling or manufacturing process. If a REMS is required, the NDA holder may be required to monitor and evaluate those in the healthcare system who are responsible for implementing ETASU measures. Advertising and promotional materials must comply with FDA rules and are subject to FDA review, in addition to other potentially applicable federal and state laws. Moreover, EU and member countries impose strict restrictions on the promotion and marketing of drug products. The off-label promotion of medicinal products is prohibited in the U.S., EU and in other territories. The promotion of medicinal products that are not subject to a marketing authorization is also prohibited in the EU. Violations of the rules governing the promotion of medicinal products in the EU and in other territories could be penalized by administrative measures, fines and imprisonment.

In addition, manufacturers of drug products and their facilities are subject to payment of user fees and continual review and periodic inspections by regulatory authorities for compliance with cGMP, and adherence to commitments made in the application. If we, or a regulatory agency, discover previously unknown problems with a product, such as quality issues or AEs of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions relative to that product or the manufacturing facility, including requiring recall or withdrawal of the product from the market or suspension of manufacturing.

If we fail to comply with applicable regulatory requirements following approval of any product candidates, a regulatory agency may:


•	issue an untitled or warning letter asserting that we are in violation of the law;


•	seek an injunction or impose civil or criminal penalties or monetary fines;


•	suspend or withdraw regulatory approval;


•	suspend any ongoing clinical trials;


•	refuse to approve a pending application or supplements to an application submitted by us;


•	recall and/or seize product; or


•	refuse to allow us to enter into supply contracts, including government contracts.

Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. The occurrence of any event or penalty described above may inhibit our ability to commercialize brincidofovir, CX-01 and any other product candidates and inhibit our ability to generate revenues.

Obtaining FDA approval for any one of our products in the United States does not mean we will ever obtain approval for or commercialize brincidofovir, CX-01, or any other products outside of the United States, nor does approval of any of our products outside the United States mean we will ever obtain approval for or commercialize any other products inside the United States, all of which could limit our ability to realize their full market potential.*

In order to market any products outside of the United States, we must establish and comply with numerous and varying regulatory requirements on a country-by-country basis regarding safety and efficacy. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions. In addition, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not guarantee regulatory approval in any other country. Approval processes vary among countries and can involve additional product testing and validation and additional administrative review periods. Seeking foreign regulatory approval could result in difficulties and costs for us and require additional preclinical studies or clinical trials which could be costly and time consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of our products in those countries. We do not have any product

candidates approved for sale in any jurisdiction, including international markets, and we do not have experience in obtaining regulatory approval in any markets. If we fail to comply with regulatory requirements in international markets or to obtain and maintain required approvals, or if regulatory approvals in international markets are delayed, our target market will be reduced and our ability to realize the full market potential of our products will be unrealized.

Conversely, approval by regulatory authorities outside the United States, such as the European Commission, does not ensure approval by the FDA. Moreover, clinical trials conducted outside the United States may not be accepted by the FDA.

Our relationships with investigators, health care professionals, consultants, third-party payers, and customers may 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.

Healthcare providers, physicians and others play a primary role in the recommendation and prescribing of any products for which we obtain marketing approval. Our current business operations and future arrangements with investigators, healthcare professionals, consultants, third-party payers and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations. These laws may constrain the business or financial arrangements and relationships through which we research, market, sell and distribute our products for which we obtain marketing approval. Restrictions under applicable federal and state healthcare laws and regulations, include, but are not limited to, the following:

•

the federal healthcare anti-kickback statute which prohibits, among other things, persons or entities from knowingly and willfully soliciting, offering, receiving or paying remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, lease, order or recommendation of, any good, facility, item or service, for which payment may be made, in whole or in part, under federal healthcare programs such as Medicare and Medicaid;

•

the federal civil and criminal false claims laws and the Federal Civil Monetary Penalties Act, including the Federal Civil False Claims Act (False Claims Act) which permit private individuals to bring a civil action on behalf of the federal government to enforce certain of these laws thought civil whistleblower or qui tam actions, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, to the federal government, claims for payment or approval that are false or fraudulent or from knowingly making a false statement to improperly avoid, decrease or conceal an obligation to pay money to the federal government;

•

the federal Health Insurance Portability and Accountability Act of 1996 (HIPAA) which, among other things, imposes criminal liability for knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or to obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payer (e.g., public or private) and knowingly or willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false statement in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters;

•

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (HITECH) and their implementing regulations, and as amended again by the final HIPAA omnibus rule, Modifications to the HIPAA Privacy, Security, Enforcement, and Breach Notification Rules Under HITECH and the Genetic Information Nondiscrimination Act; Other Modifications to HIPAA, published in January 2013, which imposes certain obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information without appropriate authorization by entities subject to the rule, such as health plans, healthcare clearinghouses and certain healthcare providers, as well as their business associates;


•	the General Data Protection Regulation (GDPR), which impose obligations on companies in relation to the handling of personal data of individuals within the EU, along with related national legislation;


•	mandated physician payments reporting laws and/or requirements throughout global jurisdictions, including EU member states, in which we conduct research and development and/or other business activities;


•	the FDCA which prohibits, among other things, the adulteration or misbranding of drugs and devices;

•

the federal transparency law, enacted as part of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the ACA), and its implementing regulations, which requires manufacturers of drugs, devices, biologicals and medical supplies to report to the Centers for Medicare & Medicaid Services (CMS) information related to payments and other transfers of value made to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members; and


•	analogous state laws and regulations, including: state anti-kickback and false claims laws, which may apply to our business practices, including but not limited to, research, distribution, sales and marketing arrangements and claims involving healthcare items or services reimbursed by state governmental and non-governmental third-party payers,

including private insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government; state and local laws that require the registration of pharmaceutical sales representatives; state laws and regulations that require manufacturers to file reports relating to pricing and marketing information, which requires tracking gifts and other remuneration and items of value provided to healthcare professionals and entities; and state laws governing the privacy and security of health information, many of which differ from each other in significant ways and often are not preempted by HIPAA.

Efforts to ensure that our business arrangements with third parties comply with applicable healthcare laws and regulations involve substantial costs. It is possible that governmental authorities will conclude that our business practices do not comply with current or future statutes, regulations, agency guidance or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these or any other health regulatory laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, disgorgement, additional reporting obligations and oversight if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our financial results. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and/or divert our management’s attention from the operation of our business. If any of the physicians or other providers or entities with whom we expect to do business are found to be not in compliance with applicable laws, they also may be subject to criminal, civil or administrative sanctions, including, but not limited to, exclusions from government funded healthcare programs, which could also materially affect our business.

Recently enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and affect the prices we may obtain.

In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell any products for which we obtain marketing approval.

In the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Medicare Modernization Act) changed the way Medicare covers and pays for pharmaceutical products. The legislation expanded Medicare coverage for drug purchases by the elderly and introduced a new reimbursement methodology based on average sales prices for physician-administered drugs. In addition, this legislation provided authority for limiting the number of drugs that will be covered in any therapeutic class. Cost reduction initiatives and other provisions of this legislation could decrease the coverage and price that we receive for any approved products. While the Medicare Modernization Act applies only to drug benefits for Medicare beneficiaries, private payers often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from the Medicare Modernization Act may result in a similar reduction in payments from private payers.

More recently, in March 2010, the ACA was enacted to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for health care and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. The ACA revises the definition of “average manufacturer price” for reporting purposes, which could increase the amount of Medicaid drug rebates to states. Further, the new law imposes a significant annual fee on companies that manufacture or import branded prescription drug products. New provisions affecting compliance have also been enacted, which may affect our business practices with health care practitioners. However, there have been judicial and Congressional challenges to certain aspects of the ACA, as well as recent efforts by the Trump administration to repeal and replace certain aspects of the ACA, and we expect such challenges to continue. Since January 2017, President Trump has signed two Executive Orders and other directives designed to delay the implementation of certain provisions of the ACA or otherwise circumvent some of the requirements for health insurance mandated by the ACA. Concurrently, Congress has considered legislation that would repeal or repeal and replace all or part of the ACA. While Congress has not passed comprehensive repeal legislation, two bills affecting the implementation of certain taxes under the ACA have been enacted. The Tax Cuts and Jobs Act of 2017 (Tax Act) includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate.” On January 22, 2018, President Trump signed a continuing resolution on appropriations for fiscal year 2018 that delayed the implementation of certain fees mandated by the ACA, including the so-called “Cadillac” tax on certain high cost employer-sponsored insurance plans, the annual fee imposed on certain health insurance providers based on market share, and the medical device excise tax on non-exempt medical devices. The Bipartisan Budget Act of 2018, or the BBA, among other things, amended the ACA, effective January 1, 2019, to close the coverage gap in most Medicare drug plans, and also increases in 2019 the percentage that a drug manufacturer must discount the cost of prescription

drugs from 50 percent to 70 percent. In July 2018, CMS published a final rule permitting further collection and payments to and from certain ACA qualified health plans and health insurance issuers under the ACA risk adjustment program in response to the outcome of federal district court litigation regarding the method CMS uses to determine this risk adjustment. On December 14, 2018, a Texas U.S. District Court Judge ruled that ACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress as part of the Tax Act. While the Texas U.S. District Court Judge, as well as the Trump administration and CMS, have stated that the ruling will have no immediate effect pending appeal of the decision, it is unclear how this decision, subsequent appeals, and other efforts to repeal and replace ACA will impact ACA and our business. Congress also could consider additional legislation to repeal or repeal and replace other elements of the ACA.

Although it is too early to determine the full effect of the ACA, the law appears likely to continue the pressure on pharmaceutical pricing, especially under the Medicare program, and may also increase our regulatory burdens and operating costs.

Legislative and regulatory proposals have also been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products.

Additionally, there has been increasing legislative and enforcement interest in the United States with respect to specialty drug pricing practices. Specifically, there have been several recent U.S. Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs. At the federal level, the Trump administration’s budget proposal for fiscal year 2019 contains additional drug price control measures that could be enacted during the 2019 budget process or in other future legislation, including, for example, measures to permit Medicare Part D plans to negotiate the price of certain drugs under Medicare Part B, to allow some states to negotiate drug prices under Medicaid and to eliminate cost sharing for generic drugs for low-income patients. Further, the Trump administration released a "Blueprint" to lower drug prices and reduce out-of-pocket costs of drugs. This "Blueprint" contains additional proposals to increase manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products and reduce the out-of-pocket costs of drug products paid by consumers. The U.S. Department of Health and Human Services (DHHS) has already started the process of soliciting feedback on some of these measures and, at the same time, is immediately implementing other measures under its existing authority. For example, in September 2018, CMS announced that it will allow Medicare Advantage Plans the option to use step therapy for Part B drugs beginning January 1, 2019, and in October 2018, CMS proposed a new rule that would require direct-to-consumer television advertisements of prescription drugs and biological products, for which payment is available through or under Medicare or Medicaid, to include in the advertisement the Wholesale Acquisition Cost, or list price, of that drug or biological product. On January 31, 2019, the DHHS Office of Inspector General proposed modifications to federal Anti-Kickback Statute safe harbors which, among other things, may affect rebates paid by manufacturers to Medicare Part D plans, the purpose of which is to further reduce the cost of drug products to consumers. Although a number of these, and other potential, proposals will require authorization through additional legislation to become effective, Congress and the Trump administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs. At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.

Further, on May 30, 2018, the Trickett Wendler, Frank Mongiello, Jordan McLinn, and Matthew Bellina Right to Try Act of 2017 (Right to Try Act) was signed into law. The law, among other things, provides a federal framework for certain patients to access certain investigational new drug products that have completed a Phase I clinical trial and that are undergoing investigation for FDA approval. Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials and without obtaining FDA permission under the FDA expanded access program. There is no obligation for a drug manufacturer to make its drug products available to eligible patients as a result of the Right to Try Act.

Healthcare reform measures that may be adopted in the future may result in more rigorous coverage criteria, lower reimbursement, and additional downward pressure on the price that we receive for any future approved product. We cannot predict what healthcare reform initiatives may be adopted in the future.

Risks Related to Our Reliance on Third Parties

We rely on third-party manufacturers to produce our preclinical and clinical drug supplies, and we intend to rely on third parties to produce commercial supplies of any approved product candidates.*

We do not own or operate, and we do not expect to own or operate, facilities for product manufacturing, storage and distribution, or testing with respect to either brincidofovir or CX-01. In the past, we have relied on third-party manufacturers for supply of our preclinical and clinical drug supplies. We expect that in the future we will continue to rely on such manufacturers for drug supply that will be used in clinical trials of both brincidofovir and CX-01, and for commercialization of any of our product candidates that receive regulatory approval.

In July 2019, we were assigned Cantex’s rights under a supply agreement with Scientific Protein Laboratories LLC (SPL) pursuant to which SPL will exclusively produce CX-01 for us through October 2030. We have agreed that SPL will be our exclusive provider of CX-01 bulk drug substance during the term of the agreement.

Also in July 2019, we were assigned Cantex's rights under a supply agreement with Pyramid Laboratories for production of finished drug product.

Our reliance on third-party manufacturers entails risks, including:


•	inability to meet our product specifications and quality requirements consistently;


•	delay or inability to procure or expand sufficient manufacturing capacity;


•	manufacturing and product quality issues related to scale-up of manufacturing;


•	costs and validation of new equipment and facilities required for scale-up;


•	failure to comply with cGMP and similar foreign standards;


•	inability to negotiate manufacturing agreements with third parties under commercially reasonable terms;


•	termination or nonrenewal of manufacturing agreements with third parties in a manner or at a time that is costly or damaging to us;


•	reliance on a limited number of sources, and in some cases, single sources for product components, such that if we are unable to secure a sufficient supply of these product components, we will be unable to manufacture and sell our product candidates in a timely fashion, in sufficient quantities or under acceptable terms;


•	lack of qualified backup suppliers for those components that are currently purchased from a sole or single source supplier;


•	operations of our third-party manufacturers or suppliers could be disrupted by conditions unrelated to our business or operations, including the bankruptcy of the manufacturer or supplier;


•	carrier disruptions or increased costs that are beyond our control; and


•	failure to deliver our products under specified storage conditions and in a timely manner.

Any of these events could lead to clinical study delays, failure to obtain regulatory approval or impact our ability to successfully commercialize our products. Some of these events could be the basis for FDA or equivalent foreign regulator action, including injunction, recall, seizure, or total or partial suspension of production.

We rely on limited sources of supply for the drug components for each of brincidofovir and CX-01, and any disruption in the chain of supply for either of these product candidates may cause delays in their development and commercialization.*

Manufacturing of drug components is subject to certain FDA and comparable foreign qualifications with respect to manufacturing standards. We are currently validating the BCV drug substance manufacturing process at our selected contractor that will produce the commercial supply of drug substance. We have selected our BCV commercial tablet and suspension manufacturers to optimize tablet and suspension formulation production to meet forecasted commercial demand. There can be no assurance that such transfer to the selected vendors will be successful. We plan to validate the CX-01 drug substance and drug product processes prior to regulatory approval. It is our expectation that only one supplier of drug substance and one supplier of drug product will be qualified as vendors for both BCV and CX-01 with the FDA. If supply from an approved vendor is interrupted, there could be a significant disruption in commercial supply. An alternative vendor would need to be qualified through an NDA supplement which could result in further delay. The FDA or other regulatory agencies outside of the United States may also require additional studies if a new drug substance or drug product supplier is relied upon for commercial production.

These factors could cause the delay of clinical trials, regulatory submissions, required approvals or commercialization of brincidofovir and CX-01, and cause us to incur additional costs. Furthermore, if our suppliers fail to deliver the required commercial quantities of active pharmaceutical ingredient on a timely basis and at commercially reasonable prices, and we are unable to secure

one or more replacement suppliers capable of production at a substantially equivalent cost, our clinical trials for brincidofovir and CX-01 may be delayed, which could inhibit our ability to generate revenues.

Manufacturing issues may arise that could increase product and regulatory approval costs or delay commercialization of brincidofovir and CX-01.*

We have a validated process for drug substance production for brincidofovir at a scale that is well in excess of our anticipated commercial scale. We are currently revalidating this drug substance process, and are in the process of revalidating our drug product processes for brincidofovir, using our current commercial processes at our intended commercial scale with our intended commercial manufacturers.

We plan to validate CX-01 drug substance and drug product processes prior to approval at our selected vendors. It is our expectation that only one supplier of drug substance and one supplier of drug product will be qualified as vendors for CX-01 with the FDA.

The validation processes, along with ongoing stability studies and analyses we are conducting, may reveal difficulties in our processes which could require resolution in order to proceed with our planned clinical trials and obtain regulatory approval for the commercial marketing of brincidofovir and CX-01. In the future, we may identify significant impurities, which could result in increased scrutiny by the regulatory agencies, delays in clinical program and regulatory approval for brincidofovir and CX-01, increases in our operating expenses, or failure to obtain or maintain approval for either brincidofovir, CX-01 or both.

We rely on third parties to conduct, supervise and monitor our clinical studies and related data, and if those third parties perform in an unsatisfactory manner, it may harm our business.*

We rely on CROs and clinical trial sites to ensure the proper and timely conduct of our clinical trials. While we have agreements governing their activities, we have limited influence over their actual performance. We have relied and plan to continue to rely upon CROs to monitor and manage data for our ongoing clinical programs for brincidofovir, CX-01 and any other product candidates, as well as the execution of nonclinical studies. We control only certain aspects of our CROs’ activities. Nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards and our reliance on CROs does not relieve us of our regulatory responsibilities.

We and our CROs are required to comply with the FDA’s guidance for clinical trials conducted within the jurisdiction of the United States (or the foreign regulatory authority equivalent for clinical trials conducted outside the jurisdiction of the United States), which follows the International Council for Harmonization Good Clinical Practice (ICH GCP), which are regulations and guidelines enforced by the FDA for all of our product candidates in clinical development. The FDA enforces the ICH GCP through periodic inspections of trial sponsors, principal investigators and clinical trial sites. If we or our CROs fail to comply with the ICH GCP, the clinical data generated in our clinical trials may be deemed unreliable and the FDA may require us to perform additional clinical trials before approving our marketing applications.

Our CROs are not our employees, and we cannot control whether or not they devote sufficient time and resources to our ongoing clinical and nonclinical programs. These CROs may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical studies, or other drug development activities which could harm our competitive position. We face the risk of potential unauthorized disclosure or misappropriation of our intellectual property by CROs, which may reduce our trade secret protection and allow our potential competitors to access and exploit our proprietary technology.

If our CROs do not successfully carry out their contractual duties or obligations, fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for any other reasons, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for, or successfully commercialize brincidofovir, CX-01 or any other product candidates. Disagreements with our CROs over contractual issues, including performance, compliance or compensation could lead to termination of CRO agreements and/or delays in our clinical program and risks to the accuracy and usability of clinical data. As a result, our financial results and the commercial prospects for brincidofovir, CX-01 and any other product candidates that we develop would be harmed, our costs could increase, and our ability to generate revenues could be delayed.

Risks Related to Commercialization of Our Product Candidates

The commercial success of brincidofovir, CX-01 and any other product candidates will depend upon the acceptance of these products by the medical community, including physicians, patients, pharmacists and health care payers.*

If any of our product candidates, including brincidofovir and CX-01, receive marketing approval, they may nonetheless not gain sufficient market acceptance by physicians, patients, healthcare payers and others in the medical community. If these products do not achieve an adequate level of market acceptance, we may not generate significant product revenues and we may not become profitable. The degree of market acceptance of any of our product candidates, including brincidofovir and CX-01, will depend on a number of factors, including:


•	demonstration of clinical safety and efficacy in our clinical trials;


•	relative convenience, ease of administration and acceptance by physicians, patients, pharmacists and health care payers;


•	prevalence and severity of any AEs;


•	limitations or warnings contained in the FDA-approved labeling from Regulatory Authorities such as the FDA and EMA for the relevant product candidate;


•	availability, efficacy and safety of alternative treatments;


•	price and cost-effectiveness;


•	effectiveness of our or any future collaborators’ or competitor’s sales and marketing strategies;


•	ability to obtain hospital formulary approval;


•	ability to ensure availability for product through appropriate channels;


•	ability to maintain adequate inventory; and


•	ability to obtain and maintain sufficient third-party coverage and adequate reimbursement, which may vary from country to country.

If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell our product candidates, we may be unable to generate any revenue.*

We currently do not have an organization for the sales and distribution of pharmaceutical products. The cost of establishing and maintaining such an organization may exceed the cost-effectiveness of doing so. In order to market any products that may be approved, including brincidofovir and CX-01, we must establish our sales, marketing, managerial and other non-technical capabilities or make arrangements with third parties to perform these services. We may enter into strategic partnerships with third parties to commercialize our product candidates, including brincidofovir.

Our strategy for brincidofovir and CX-01 is to establish a specialty sales force and/or collaborate with third parties to promote the product to healthcare professionals and third-party payers in the United States and elsewhere. We may elect to launch with a contract sales organization and utilize accompanying commercial support services provided by a contract sales organization. Our future collaboration partners, if any, may not dedicate sufficient resources to the commercialization of our product candidates or may otherwise fail in their commercialization due to factors beyond our control. If we are unable to establish effective collaborations to enable the distribution and sale of our product candidates to healthcare professionals and in geographical regions, including the United States, that are not covered by our own marketing and sales force, or if our potential future collaboration partners do not successfully commercialize our product candidates, our ability to generate revenues from product sales, including sales of brincidofovir and CX-01, will be adversely affected.

Establishing an internal or contract sales force involves many challenges, including:


•	recruiting and retaining talented people;


•	training employees that we recruit;


•	establishing compliance standards;


•	setting the appropriate system of incentives;


•	managing additional headcount;


•	ensuring that appropriate support functions are in place to support sales force organizational needs; and


•	integrating a new business unit into an existing corporate architecture.

If we are unable to establish our own sales force or negotiate a strategic partnership for the commercialization of brincidofovir and CX-01 in any markets, we may be forced to delay the potential commercialization of brincidofovir and CX-01 in those markets, reduce the scope of our sales or marketing activities for brincidofovir and CX-01 in those markets or undertake the commercialization activities for brincidofovir and CX-01 in those markets at our own expense. If we elect to increase our

expenditures to fund commercialization activities ourselves, we will 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 will not be able to bring brincidofovir and CX-01 to market or generate product revenue. Limited or lack of funding will impede our ability to achieve successful commercialization.

If we are unable to establish adequate sales, marketing and distribution capabilities, whether independently or with third parties, we may not be able to generate sufficient product revenue and may not become profitable. We will be competing with many companies that currently have extensive and well-funded marketing and sales operations. Without an internal team or the support of a third party to perform marketing and sales functions, we may be unable to compete successfully against these more established companies.

In addition, 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, marketing and market access personnel.

If we obtain approval to commercialize any products outside of the United States, a variety of risks associated with international operations could materially adversely affect our business.*

If our product candidates are approved for commercialization, we may enter into agreements with third parties to market those product candidates outside the United States, including brincidofovir and CX-01. We expect that we will be subject to additional risks related to entering into international business relationships, including:


•	different regulatory requirements for drug approvals in the EU and other foreign countries;


•	reduced protection for intellectual property rights;


•	unexpected changes in tariffs, trade barriers and regulatory and labor requirements;


•	economic weakness, including inflation, or political instability in particular foreign economies and markets;