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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
(Mark One)
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
 
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                  to                
 
Commission file number: 001-35867
 
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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.001 per shareCMRXThe 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.
Large accelerated filer  o
 
Accelerated filer o
Non-accelerated filer ☒
 
Smaller reporting company 
 
Emerging growth company 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o




Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No x
 
As of April 30, 2021, the number of outstanding shares of the registrant’s common stock, par value $0.001 per share, was 86,211,412.



CHIMERIX, INC.
 
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2021
 
INDEX
  
 Page
 
 


2



PART I - FINANCIAL INFORMATION
 
ITEM 1.    CONSOLIDATED FINANCIAL STATEMENTS
 
CHIMERIX, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(unaudited) 
 March 31, 2021December 31, 2020
ASSETS  
Current assets:  
Cash and cash equivalents$32,080 $46,989 
Short-term investments, available-for-sale112,898 31,973 
Accounts receivable482 340 
Prepaid expenses and other current assets2,677 2,356 
Total current assets148,137 81,658 
Long-term investments7,548  
Property and equipment, net of accumulated depreciation218 214 
Operating lease right-of-use assets2,717 2,825 
Other long-term assets29 26 
Total assets$158,649 $84,723 
LIABILITIES AND STOCKHOLDERS' EQUITY  
Current liabilities:  
Accounts payable$2,181 $1,283 
Accrued liabilities6,067 7,250 
Note payable14,000  
Total current liabilities22,248 8,533 
Lease-related obligations2,752 2,814 
Total liabilities25,000 11,347 
Stockholders’ equity:  
Preferred stock, $0.001 par value, 10,000,000 shares authorized at March 31, 2021 and December 31, 2020; no shares issued and outstanding as of March 31, 2021 and December 31, 2020
  
Common stock, $0.001 par value, 200,000,000 shares authorized at March 31, 2021 and December 31, 2020; 86,208,279 and 62,816,039 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively
86 63 
Additional paid-in capital943,381 785,673 
Accumulated other comprehensive loss, net(43) 
Accumulated deficit(809,775)(712,360)
Total stockholders’ equity133,649 73,376 
Total liabilities and stockholders’ equity$158,649 $84,723 
 
The accompanying notes are an integral part of the consolidated financial statements.



3



CHIMERIX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except share and per share data)
(unaudited)
 Three Months Ended March 31,
 20212020
Revenues:
Contract and grant revenue$1,433 $1,171 
Licensing revenue2 70 
Total revenues1,435 1,241 
Operating expenses:  
Research and development11,862 8,949 
General and administrative4,136 3,205 
Acquired in-process research and development82,890  
Total operating expenses98,888 12,154 
Loss from operations(97,453)(10,913)
Other income:
Interest income and other, net38 493 
Net loss(97,415)(10,420)
Other comprehensive loss:  
Unrealized loss on debt investments, net(43)(46)
Comprehensive loss$(97,458)$(10,466)
Per share information:  
Net loss, basic and diluted$(1.21)$(0.17)
Weighted-average shares outstanding, basic and diluted80,204,094 61,742,035 
  
The accompanying notes are an integral part of the consolidated financial statements.

 
4



CHIMERIX, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands)
(unaudited) 
Common Stock
SharesAmountAdditional
Paid-in Capital
Accumulated Other
Comprehensive
Gain (Loss)
Accumulated
Deficit
Total 
Stockholders’
Equity (Deficit)
Balance, December 31, 202062,816,039 $63 $785,673 $ $(712,360)$73,376 
Share-based compensation— — 2,584 — — 2,584 
Exercise of stock options710,132 1 3,529 — — 3,530 
Employee stock purchase plan purchases259,837 — 330 — — 330 
RSU stock issuance168,752 — — — — — 
Issuance of common stock related to asset acquisition8,723,769 9 43,436 — — 43,445 
Issuance of common stock, net of issuance costs of $7.2 million
13,529,750 13 107,829 — — 107,842 
Comprehensive loss:
Unrealized loss on investments, net— — — (43)— (43)
Net loss— — — — (97,415)(97,415)
Total comprehensive loss(97,458)
Balance, March 31, 202186,208,279 $86 $943,381 $(43)$(809,775)$133,649 

Common Stock
SharesAmountAdditional
Paid-in Capital
Accumulated Other
Comprehensive
Gain (Loss)
Accumulated
Deficit
Total 
Stockholders’
Equity (Deficit)
Balance, December 31, 201961,590,013 $62 $778,693 $35 $(668,838)$109,952 
Share-based compensation— — 1,326 — — 1,326 
Employee stock purchase plan purchases177,193 — 229 — — 229 
RSU stock issuance163,133 — — — — — 
Comprehensive loss:
Unrealized loss on investments, net— — — (46)— (46)
Net loss— — — — (10,420)(10,420)
Total comprehensive loss(10,466)
Balance, March 31, 202061,930,339 $62 $780,248 $(11)$(679,258)$101,041 

5



CHIMERIX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited) 
 Three Months Ended March 31,
 20212020
Cash flows from operating activities:  
Net loss$(97,415)$(10,420)
Adjustments to reconcile net loss to net cash used in operating activities:
  
Depreciation of property and equipment71 112 
Amortization of discount/premium on investments128 (191)
Share-based compensation 2,584 1,326 
Fair value of common stock issued related to asset acquisition43,445  
Note payable related to asset acquisition14,000  
Gain on sale of investments(2) 
Lease-related amortization41 (21)
Changes in operating assets and liabilities:  
Accounts receivable(159)154 
Prepaid expenses and other assets(309)762 
Accounts payable and accrued liabilities(280)(2,542)
Net cash used in operating activities(37,896)(10,820)
Cash flows from investing activities:  
Purchases of property and equipment(75)(7)
Purchases of short-term investments(91,944)(27,652)
Purchases of long-term investments(7,554) 
Proceeds from sales of short-term investments2,007  
Proceeds from maturities of short-term investments8,850 45,902 
Net cash (used in) provided by investing activities(88,716)18,243 
Cash flows from financing activities:  
Proceeds from exercise of stock options3,530  
Proceeds from employee stock purchase plan330 229 
Proceeds from issuance of common stock, net of commissions107,843  
Net cash provided by financing activities111,703 229 
Net (decrease) increase in cash and cash equivalents(14,909)7,652 
Cash and cash equivalents:
Beginning of period46,989 16,901 
End of period$32,080 $24,553 
 
The accompanying notes are an integral part of the consolidated financial statements.

 
 
6



CHIMERIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 
Note 1. The Business and Summary of Significant Accounting Policies
 
Description of Business

Chimerix is a development-stage 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. Our three most advanced clinical-stage development programs are brincidofovir (BCV), ONC201 and dociparstat sodium (DSTAT). BCV is an antiviral drug candidate developed as a potential medical countermeasure for smallpox and is currently under review for regulatory approval in the United States. ONC201 is currently being investigated in a number of efficacy studies for recurrent H3 K27M-mutant glioma and a blinded independent central review, potentially sufficient for accelerated approval, when considered with the totality of the other safety and efficacy data, is expected later this year. DSTAT is in Phase 3 development as a potential first-line therapy in acute myeloid leukemia (AML) and as a potential treatment for acute lung injury (ALI) in COVID-19 patients.

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, 2020. 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 months ended March 31, 2021 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 March 31, 2021 and December 31, 2020, the Company had cash equivalents including money market funds, whose value is based on quoted market prices. At March 31, 2021 and December 31, 2020, the Company had short-term investments,
7



including U.S. Treasury securities, whose value is based on quoted market prices. At March 31, 2021, the Company had long-term investments including U.S. Treasury securities, whose value is based on quoted market prices. Accordingly, these securities are classified as Level 1.
 
At March 31, 2021, the Company had short-term investments, including commercial paper and corporate bonds and on December 31, 2020, the Company had short-term investments including corporate bonds. At March 31, 2021, the Company had long-term investments including U.S. Treasury securities. 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
March 31, 2021
 TotalQuoted 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$26,990 $26,990 $ $ 
          Total cash equivalents26,990 26,990   
Short-term investments
     U.S. treasury securities21,064 21,064   
     Commercial paper57,524  57,524  
     Corporate bonds34,310  34,310  
          Total short-term investments112,898 21,064 91,834  
Long-term investments
     U.S. treasury securities7,548 2,553 4,995  
          Total long-term investments7,548 2,553 4,995  
               Total assets$147,436 $50,607 $96,829 $ 
Fair Value Measurements
December 31, 2020
 TotalQuoted 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$1,503 $1,503 $ $ 
          Total cash equivalents1,503 1,503   
Short-term investments
     U.S. treasury securities28,715 28,715   
     Corporate bonds3,258  3,258  
          Total short-term investments31,973 28,715 3,258  
               Total assets$33,476 $30,218 $3,258 $ 
  
8



Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):
March 31, 2021December 31, 2020
Accrued research and development expenses$2,168 $1,375 
Accrued compensation2,480 4,473 
Accrued legal expenses168 651 
Other accrued liabilities1,251 751 
Total accrued liabilities$6,067 $7,250 

Revenue Recognition

Policy

The Company’s revenues generally consist of (i) contract and grant revenue - revenue generated under federal and private foundation grants and 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 BCV 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. 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. At present, all option segments (1 through 4) have been exercised, as well as the base segment. 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. For reimbursable expenses, this occurs as qualifying research activities are conducted based on invoices from company vendors. For the fixed fee, 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. Any amounts received in advance of performance are recorded as deferred revenue until earned. The base segment and first option segment were completed prior to adoption of ASC 606. The Company is currently performing under the fourth option segment of the contract during which the Company may receive up to a total of $4.6 million in expense reimbursement and fees. The second and third option segments were completed on August 20, 2020. The fourth option segment is scheduled to end on September 1, 2021.

Grant Revenue

Grant revenue under cost-plus-fixed-fee grants from the federal government and private foundations is recognized as allowable costs are incurred and fees are earned. As a result of its acquisition of Oncoceutics, Inc. (Oncoceutics), the Company became the beneficiary of two federal grant programs and two grant programs with private foundations. At March 31, 2021, there is $0.1 million remaining to be funded on the federal grants. At March 31, 2021, the Company has a receivable balance of $0.1 million and a deferred revenue balance of $0.3 million related to these grants. Additionally, for the three months ended March 31, 2021, the Company recognized $0.2 million of grant revenue related to these grants.

SymBio Pharmaceuticals

On September 30, 2019, the Company entered into a license agreement with SymBio Pharmaceuticals Limited (SymBio) under which the Company granted SymBio exclusive worldwide rights to develop, manufacture and commercialize BCV for all human indications, excluding the prevention and treatment of orthopoxviruses, including smallpox. The Company assessed the agreement in accordance with the authoritative guidance and concluded that the SymBio contract includes multiple performance
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obligations. The SymBio contract has one fixed transaction amount of a $5.0 million upfront payment received in October 2019 and several variable transaction amounts, up to $180 million, due to the Company at certain regulatory and commercial milestones, along with low double-digit percent royalties based on net sales of BCV. All variable transaction amounts are fully constrained, therefore the allocated transaction price is $5.0 million. The majority of the transaction price of the contract has been allocated to the combined performance obligation of the granting of the license to BCV and associated technology transfer which was recognized when the technology transfer was completed in the fourth quarter of 2019. The revenue from regulatory and commercial milestones and royalties from net sales will be recognized upon the occurrence of the triggering events or when those transaction amounts are no longer fully constrained.
 
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 March 31, 2021, 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 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 months ended March 31, 2021 and 2020.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. In addition to estimates discussed in other sections of this Quarterly Report on Form 10-Q, the most significant estimates in the Company’s consolidated financial statements relate to the valuation of stock options and the valuation allowance for deferred tax assets resulting from net operating losses. These estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.

Segments

The Company operates in only one segment, pharmaceuticals.

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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 was originally due to become effective for the Company beginning in the first quarter of 2020, however the FASB in November 2019 issued ASU 2019-10 which moved the effective date for smaller reporting companies to the first quarter of 2023. The Company is currently evaluating the potential impact that this standard may have on its consolidated financial statements.

Note 2. Investments
 
The following tables summarize the Company's debt investments (in thousands):
 March 31, 2021
 Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Corporate bonds$34,342 $ $(32)$34,310 
U.S. treasury securities28,614 3 (5)28,612 
Commercial paper57,533 1 (10)57,524 
Total investments$120,489 $4 $(47)$120,446 
 December 31, 2020
 Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Corporate bonds$3,256 $2 $ $3,258 
U.S. treasury securities28,717 1 (3)28,715 
Total investments$31,973 $3 $(3)$31,973 
 
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):

March 31, 2021
Less than 12 MonthsGreater than 12 MonthsTotal
Fair ValueUnrealized LossFair ValueUnrealized LossFair ValueUnrealized Loss
Corporate bonds$32,066 $(32)$ $ $32,066 $(32)
Commercial paper50,936 (10)  50,936 (10)
U.S. treasury securities11,013 (5)  11,013 (5)
Total$94,015 $(47)$ $ $94,015 $(47)
Number of securities with unrealized losses34  34 
December 31, 2020
Less than 12 MonthsGreater than 12 MonthsTotal
Fair ValueUnrealized LossFair ValueUnrealized LossFair ValueUnrealized Loss
U.S. treasury securities$16,598 $(3)$ $ $16,598 $(3)
Total$16,598 $(3)$ $ $16,598 $(3)
Number of securities with unrealized losses6  6 

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The Company periodically reviews available-for-sale debt investments 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 March 31, 2021, the Company did not intend to sell, and was not more likely than not to be required to sell, the available-for-sale debt investments 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 months ended March 31, 2021 and 2020. Unrealized gains and losses on debt investments are recorded to unrealized (loss) gain on debt investments, net in the Consolidated Statements of Operations and Comprehensive Loss. Realized gains and losses on debt investments are recorded based on specific identification to interest income and other, 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 March 31, 2021 (in thousands):
Maturing in one year or less$112,898 
Maturing after one year through two years7,548 
     Total debt investments$120,446 
 
Note 3. Commitments and Contingencies
 
Leases

The Company leases its facilities under long-term operating leases that expire at various dates through 2026. 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 has 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 March 31, 2021 was 4.58 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 $144,000 and $193,000, respectively, for the three months ended March 31, 2021 and 2020.

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 March 31, 2021, the operating lease liabilities reflect a weighted-average discount rate of 7.89%.

The following table sets forth the operating lease right-of-use assets and liabilities as of March 31, 2021 (in thousands):
Assets
Operating lease right-of-use assets $2,717 
Liabilities
Operating lease short-term liabilities (recorded within Accrued liabilities)$105 
Operating lease long-term liabilities (recorded within Lease-related obligations)2,752 
     Total operating lease liabilities$2,857 

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Operating lease payments over the remainder of the lease terms are as follows (in thousands):
Years Ending December 31,As of March 31, 2021
2021 (1)$127 
2022715 
2023736 
2024759 
2025781 
All remaining years467 
Total future minimum rental payments$3,585 
     Less amount of lease payments representing interest728 
Total present value of lease payments$2,857 

(1)The Company entered into the Ninth Amendment of its lease for the Company's headquarters in Durham, North Carolina, which extended the term of the lease by 65 months to July 31, 2026. As part of the amendment, the Company is entitled to receive a rent abatement of the first 5 months of the new lease term which began on March 1, 2021. Additionally, the Ninth Amendment grants the Company a refurbishment allowance, which the Company expects to receive in 2021 after the refurbishment has been completed.

As of December 31, 2020, operating lease payments over the remainder of the lease terms were as follows (in thousands):
Years Ending December 31,As of December 31, 2020
2021$260 
2022715 
2023736 
2024759 
2025781 
Thereafter467 
Total future minimum rental payments$3,718 
     Less amount of lease payments representing interest792 
Total present value of lease payments$2,926 

For the three months ended March 31, 2021 and 2020, the Company made lease payments of approximately $133,000 and $178,000, respectively.

Sublease

The Company subleased 3,537 square feet of its office space under a non-cancelable operating lease that expired in February 2021. For the three months ended March 31, 2021 and 2020, the Company recognized approximately $12,000 and $18,000 of income, respectively, in Interest income and other, net on the Consolidated Statement of Operations and Comprehensive Loss. As this lease has terminated, there are no future minimum rentals payments to be received.

Significance of Revenue Source

The Company is the recipient of federal research contract funds from BARDA, the primary source of the Company's contract and grant revenue. Periodic audits are required under the Company’s BARDA agreement and certain costs may be questioned as appropriate under the BARDA agreement. At March 31, 2021 and December 31, 2020, the Company had recorded a $38,000 provision for potential refundable amounts.
 
Note 4. Equity Transactions and Share-based Compensation

Common Stock

On January 20, 2021, we entered into an underwriting agreement (the Underwriting Agreement) with Jefferies LLC and Cowen and Company, LLC, as representatives of the several underwriters named therein (collectively, the Underwriters), relating to the issuance and sale of 11,765,000 shares (the Shares) of the Company’s common stock, par value $0.001 per share (the Common Stock). The price to the public in this offering was $8.50 per share, and the Underwriters agreed to purchase the Shares from the
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Company pursuant to the Underwriting Agreement at a price of $7.99 per share. Under the terms of the Underwriting Agreement, the Company granted the Underwriters a 30-day option to purchase up to 1,764,750 additional shares of Common Stock at the public offering price. The net proceeds to the Company from this offering were approximately $107.8 million, as the Underwriters’ option to purchase additional shares was exercised in full, after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company. The offering closed on January 25, 2021.

Stock Options

The Company maintains a 2013 Equity Incentive Plan (the 2013 Plan), which 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, 2021, the common stock reserved for issuance under the 2013 Plan was automatically increased by 2.5 million shares. As of March 31, 2021, there was a total of 2.6 million shares reserved for future issuance under the 2013 Plan. The Company issued approximately 710,000 shares of common stock pursuant to the exercise of stock options during the three months ended March 31, 2021. The Company issued no shares of common stock pursuant to the exercise of stock options during the three months ended March 31, 2020.

Employee Stock Purchase Plan

The Company maintains a 2013 Employee Stock Purchase Plan (ESPP), which provides for the issuance of shares of common stock pursuant to purchase rights granted to the Company’s employees or to employees of any of its designated affiliates. The Company has reserved a total of 3.9 million shares of common stock to be purchased under the ESPP, of which 2.6 million shares remained available for purchase as of March 31, 2021. The number of shares of common stock reserved for issuance automatically increases on January 1 of each calendar year, 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, 2021, the common stock reserved for issuance under the ESPP was automatically increased by an additional 422,535 shares.

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 approximately 260,000 and 177,000 shares of common stock pursuant to the ESPP during the three months ended March 31, 2021 and 2020, respectively. 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 169,000 and 163,000 shares of common stock pursuant to the vesting of RSUs during the three months ended March 31, 2021 and 2020, respectively.

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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 March 31,
 20212020
Research and development expense$1,377 $740 
General and administrative expense1,207 586 
          Total share-based compensation expense$2,584 $1,326 

Note 5. Income Taxes
 
The Company estimates an annual effective tax rate of 0% for the year ending December 31, 2021 as the Company incurred losses for the three month period ended March 31, 2021, and is forecasting an estimated net loss for both financial statement and tax purposes for the year ending December 31, 2021. 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 cannot currently support that realization of its deferred tax assets is more likely than not. However, the Company feels its deferred tax assets may be used upon the Company becoming profitable.
 
At March 31, 2021, the Company had no unrecognized tax benefits that would reduce the Company’s effective tax rate if recognized.

Note 6. Significant Agreements
     
Biomedical Advanced Research and Development Authority (BARDA)

In February 2011, the Company entered into a contract with BARDA for the advanced development of BCV 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 BCV 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, of which all have been 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 fourth option segment of the contract during which the Company may receive up to a total of $4.6 million in expense reimbursement and fees. The second and third option segments were completed on August 20, 2020. The fourth option segment is scheduled to end on September 1, 2021. Of the $75.8 million in expense reimbursement and $5.3 million in fees that the Company may receive, approximately $78.9 million in expense reimbursement and fees has been awarded. As of March 31, 2021, of the total funding the Company had invoiced an aggregate of $76.7 million with respect to the base performance segment and the four option segments. For the three months ended March 31, 2021 and 2020, the Company recognized revenue under this contract of $1.2 million and $1.2 million, respectively.

Cantex Pharmaceuticals, Inc.

On July 26, 2019, the Company entered into a License and Development Agreement with Cantex Pharmaceuticals, Inc. (Cantex) pursuant to which the Company acquired exclusive worldwide rights to develop and commercialize, for any and all uses, a glycosaminoglycan compound known as DSTAT, which is currently being studied for the treatment of acute myeloid leukemia and acute lung injury in patients with COVID-19. Under the terms of the license agreement, the Company is responsible for, and bear the future costs of, worldwide development and commercialization of DSTAT. In connection with the transaction, Cantex assigned to the Company all of its rights under its DSTAT supply agreements, including its bulk API
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agreement with Scientific Protein Laboratories LLC (SPL), including subsequent amendments, pursuant to which SPL will exclusively produce DSTAT for the Company through December 2040.

The license agreement obligates the Company 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 $385.0 million upon achievement of specified net sales levels. The Company also agreed to pay Cantex tiered royalties based on percentages of net sales beginning at 10% and not to exceed the high-teens.

SymBio Pharmaceuticals

On September 30, 2019, the Company entered into a license agreement with SymBio under which the Company granted SymBio exclusive worldwide rights to develop, manufacture and commercialize BCV for all human indications, excluding the prevention and treatment of orthopoxviruses, including smallpox. Under the terms of the license agreement, SymBio will be responsible for, and bear the future costs of, worldwide development and commercialization of BCV in the licensed indications. Either party may terminate the license agreement upon the occurrence of a material breach by the other party (subject to standard cure periods). SymBio may also terminate the license agreement without cause on a country-by-country basis upon ninety days' prior notice.

In exchange for the license to SymBio under the Company's BCV rights, the Company received an upfront payment of $5.0 million in October 2019. In addition, the Company is eligible to receive up to $180.0 million in clinical, regulatory and commercial milestones worldwide, as well as low double-digit percent royalties based on net sales of BCV. Since entering into the license agreement in September 2019, the Company has recognized all of the $5.0 million upfront payment.

Note 7. Oncoceutics Acquisition

On January 7, 2021, the Company, Ocean Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of the Company (Merger Sub), Oncoceutics, Inc., a Delaware corporation (Oncoceutics), and Fortis Advisors, LLC solely in its capacity as representative of the securityholders of Oncoceutics (the Securityholders’ Representative), entered into an Agreement and Plan of Merger (the Merger Agreement). Concurrently with the execution of the Merger Agreement, Merger Sub merged with and into Oncoceutics (the Merger) whereupon the separate corporate existence of Merger Sub ceased, with Oncoceutics continuing as the surviving corporation of the Merger as a wholly-owned subsidiary of the Company.

As consideration for the Merger, the Company (a) paid an upfront cash payment of approximately $25.0 million, subject to certain customary adjustments, (b) issued an aggregate of 8,723,769 shares of the Company's common stock, (c) issued a promissory note to the Securityholders' Representative in the principal amount of $14.0 million (the Seller Note), to be paid in cash, subject to the terms and conditions of the Merger Agreement and the Seller Note, upon the one year anniversary of the closing of the Merger, and (d) agreed to make contingent payments up to an aggregate of $360.0 million based on the achievement of certain development, regulatory and commercialization events as set forth in the Merger Agreement, as well as additional tiered royalty payments based upon future net sales of ONC 201 and ONC 206 products, subject to certain reductions as set forth in the Merger Agreement, and a contingent payment in the event the Company receives any proceeds from the sale of a rare pediatric disease priority review voucher based on Oncoceutics' products. The closing payment may be adjusted after the closing, pursuant to procedures set forth in the Merger Agreement, in connection with the finalization of the cash, transaction expenses, debt and working capital amounts at closing. As of March 31, 2021, the Company has recorded an estimated liability of $0.2 million related to closing payment adjustments. This amount may be further adjusted based on final review from both parties.

The Company accounted for the Oncoceutics acquisition as an asset acquisition as the majority of the value of the assets acquired related to the ONC201 acquired in-process research and development (IPR&D) asset. In accordance with Accounting Standards Codification, or ASC, Subtopic 730-10-25, Accounting for Research and Development Costs, the up-front payments to acquire a new drug compound, as well as future milestone payments when paid or payable, are immediately expensed as acquired IPR&D in transactions other than a business combination provided that the drug has not achieved regulatory approval for marketing and, absent obtaining such approval, has no alternative future use. Therefore, the portion of the purchase price that was allocated to the IPR&D assets acquired was immediately expensed. Other assets acquired and liabilities assumed, were recorded at fair value.

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The following represents the consideration paid and purchase price allocation for the acquisition of Oncoceutics (in thousands, except for per share data):

Cash$23,836 
One-year closing anniversary payment14,000 
Shares common stock issued as consideration8,723,769 
Stock price per share on effective date4.98 
Value of estimated common stock consideration43,445 
Total consideration$81,281 
Net assets acquired$(1,310)
IPR&D assets expensed82,591 
Total purchase price allocated$81,281 
Transaction costs expensed to IPR&D(1)
$299 
Total IPR&D expensed$82,890 

(1) As a result of the asset acquisition accounting, the transaction costs associated with the acquisition should be included in the costs of the assets acquired. The primary asset acquired, the IPR&D asset, was expensed and the transaction related costs were included with and expensed with this asset. The transaction costs primarily included financial advisor fees, legal expenses and auditor expenses. Additionally, there were $0.6 million of expenses related to this acquisition recorded in the fourth quarter of 2020 to general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Loss.

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 March 31, 2021, and events which occurred subsequently but were not recognized in the financial statements.


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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, 2020 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, 2020, filed with the Securities and Exchange Commission (SEC) on February 25, 2021. 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 is a development-stage 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. Our three most advanced clinical-stage development programs are brincidofovir (BCV), ONC201 and dociparstat sodium (DSTAT). BCV is an antiviral drug candidate developed as a potential medical countermeasure for smallpox and is currently under review for regulatory approval in the United States. ONC201 is currently being investigated in a number of efficacy studies for recurrent H3 K27M-mutant glioma and a blinded independent central review, potentially sufficient for accelerated approval, when considered with the totality of the other safety and efficacy data, is expected later this year. DSTAT is in Phase 3 development as a potential first-line therapy in acute myeloid leukemia (AML) and as a potential treatment for acute lung injury (ALI) in COVID-19 patients.

Recent Developments

BCV Oral Treatment for Smallpox

We completed the rolling NDA submission for BCV tablets and for BCV suspension for the approval of BCV as a medical countermeasure for smallpox. In December 2020, we announced that the FDA had accepted the filing of the NDA. The FDA granted priority review and set a Prescription Drug User Fee Act (PDUFA) date of April 7, 2021. In February 2021, we received notification from the FDA that the PDUFA date for review of BCV as a medical countermeasure for smallpox has been moved to July 7, 2021.

On March 24, 2021, BARDA issued a Small Business Sources Sought Notice (SSN) seeking information on availabilities and capabilities for procuring, stockpiling, and investing in the development of FDA-approved smallpox antiviral(s) with alternative mechanism(s) of action to TPOXX®. We responded to the SSN with information on our relevant capabilities, experience and interest.

Oncoceutics Acquisition

On January 7, 2021, we acquired Oncoceutics, Inc. (Oncoceutics), a privately-held, clinical-stage biotechnology company developing imipridones, a novel potential class of small molecule compounds. Oncoceutics’ lead product candidate, ONC201, selectively induced cell death in multiple cancer types in clinical trials. ONC201 is currently being evaluated in a registrational program for recurrent H3 K27M-mutant glioma and a blinded independent central review is expected in 2021.
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Imipridones and ONC201

Imipridones are a potential new class of selective cancer therapies. Clinical trials of ONC201 in glioma patients with the H3 K27M-mutation are underway at several locations in the U.S. Based on discussions with the FDA, we plan to integrate data from ongoing ONC201 trials into a registration cohort with the potential for an NDA submission seeking accelerated approval. A Blinded Independent Central Review analysis of Overall Response Rate (ORR) is expected to take place in 2021 which, if favorable, may, alongside other supporting data including the safety, durability of response and other measures of clinical benefit, form the basis for an NDA submission seeking accelerated approval of ONC201 in the United States.

In addition, Phase 1 clinical trials for ONC206, the second product candidate in Oncoceutics' pipeline, were recently initiated and IND-enabling work for a third imipridone candidate, ONC212, is ongoing.

Dociparstat for the Treatment of Acute Lung Injury (ALI) in COVID-19 Patients

In late April we received data from the second cohort of our ongoing Phase 2 study of DSTAT for COVID-19 patients. Of the 12 patients enrolled, eight received a 4mg/kg bolus dose of DSTAT followed by a continuous infusion of 0.325mg/kg/hour (as opposed to 0.25mg/kg/hr in cohort one), three received placebo and one additional placebo patient withdrew. The trial enrolled patients with either NIAID 3 (more severe at baseline) or NIAID 4 (less severe at baseline) disease. None of the patients treated with placebo entered the trial with more severe disease while two DSTAT patients were identified with more severe disease at baseline. One patient randomized to DSTAT required transfer to the ICU within 24 hours of admission, along with discontinuation of DSTAT due to prohibited concomitant medications and died after the day 28 endpoint. One patient randomized to placebo withdrew consent before treatment. All remaining seven patients receiving DSTAT and three patients receiving placebo recovered by day 28. As with the first cohort, the ability to gain insight into efficacy signals in this cohort is limited due to the small sample size and random demographic imbalances. Supportive biomarker analysis will be performed as those results are available. The Data Safety Monitoring Board recommended advancing to cohort three, which will include approximately 50 patients, at the higher cohort two dose. Contingent upon positive results from the Phase 2 study, the Phase 3 portion of the study will enroll approximately 450 patients.

Dociparstat for First-Line Acute Myeloid Leukemia (AML)

During 2020, we conducted an end of Phase 2 meeting with the FDA related to our development of DSTAT in AML, which informed the design of the Phase 3 trial. We are currently enrolling in our 570-subject Phase 3 Dociparstat in AML with Standard Chemotherapy (DASH AML) study of DSTAT for the treatment of AML.

In order to supplement the previously reported data from pilot and Phase 2 studies and further evaluate DSTAT’s potential mechanism of action, DASH AML includes an early assessment of comparative CR and MRD rates among the first 80 evaluable patients.

The data from the first 80 evaluable patients of the trial are expected to be unblinded, reported publicly, and available for ongoing analysis of later endpoints. However, in the event that the independent DMC determines that exceptional pre-specified thresholds have been achieved, the DMC will have the discretion to recommend the continuation of the study while maintaining blinding, which would allow inclusion of these patients in the final analysis.

Public Offering of Common Stock

In January 2021, we entered into an underwriting agreement (the Underwriting Agreement) with Jefferies LLC and Cowen and Company, LLC, as representatives of the several underwriters named therein (collectively, the Underwriters), relating to the issuance and sale of 11,765,000 shares (the Shares) of the Company’s common stock, par value $0.001 per share (the Common Stock). The price to the public in this offering is $8.50 per share, and the Underwriters agreed to purchase the Shares pursuant to the Underwriting Agreement at a price of $7.99 per share. Under the terms of the Underwriting Agreement, the Company granted the Underwriters a 30-day option to purchase up to 1,764,750 additional shares of Common Stock at the public offering price which was exercised in full. The net proceeds to the Company from this offering were approximately $107.8 million after deducting underwriting discounts and commissions and estimated offering expenses. The offering closed on January 25, 2021.

Appointment of Ms. Vicki Vakiener to Board of Directors

On April 26, 2021, Vicki Vakiener was appointed to the Company’s board of directors. Ms. Vakiener currently serves as Chief Commercial Officer of Epizyme, Inc., where she leads the company’s commercial efforts and has overseen the successful
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launch of Tazemetostat in two indications. During her more than 20 years of experience in oncology, Ms. Vakiener has held positions of leadership across Johnson & Johnson’s pharmaceuticals and diagnostics businesses. Most recently, Ms. Vakiener was the Vice President and Oncology Global Commercial Leader for Prostate Cancer at Janssen and led a cross-functional team to develop and execute the global commercial strategy for its portfolio of late stage and early pipeline compounds. Ms. Vakiener also previously served as the Vice President of Oncology Marketing at Janssen Oncology U.S., where she directed all marketing activities for ZYTIGA, IMBRUVICA, DARZALEX and YONDELIS and drove launch planning for ERLEADA® and ZEJULA®.

Business Development Review

In addition to our transactions with Cantex, SymBio and Oncoceutics, management is continuing to conduct a review and assessment of potential transaction opportunities with the goal of building our product candidate pipeline, including, but not limited to, licensing, 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.

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, which have all been exercised. The contract is a cost-plus fixed fee development contract. Under the contract as currently in effect, we may receive up to $75.8 million in expense reimbursement and $5.3 million in fees if all remaining option segments are exercised. We are currently performing under the fourth option segment of the contract during which we may receive up to a total of $4.6 million in expense reimbursement and fees. The second and third option segments were completed on August 20, 2020. The fourth option segment is scheduled to end on September 1, 2021. As of March 31, 2021, of the total funding the Company had invoiced an aggregate of $76.7 million with respect to the base performance segment and the four option segments. Under the BARDA contract, we recognized revenue of $1.2 million and $1.2 million during the three months ended March 31, 2021 and 2020, respectively.

Following the acquisition of Oncoceutics, Chimerix has continued the on-going work pursuant to two separate U.S. government grants and two separate private foundation grants awarded to Oncoceutics. At March 31, 2021, there is $0.1 million remaining to be funded on the federal grants. At March 31, 2021, the Company has a receivable balance of $0.1 million and a deferred revenue balance of $0.3 million related to these grants. Additionally, for the three months ended March 31, 2021, the Company has recognized $0.2 million of grant revenue related to these grants.

In September 2019, we entered into a license agreement with SymBio for worldwide rights to develop, manufacture and commercialize BCV in all human indications, excluding the use for treatment of orthopoxviruses, including smallpox. Under the contract, we received a $5.0 million upfront payment in October 2019 and could receive up to an additional $180.0 million in potential regulatory and commercial milestones. Since the license agreement was entered into in September 2019, we have recognized all of the $5.0 million of revenue related to the upfront payment. The revenue from regulatory and commercial milestones and royalties from net sales will be recognized upon occurrence of the triggering events.
 
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.
 
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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.
 
The table below summarizes our research and development expenses for the periods indicated (in thousands). Our direct research and development expenses consist primarily of external costs, such as fees paid to investigators, consultants, central laboratories and CROs, in connection with our clinical trials, preclinical development, and payments to third-party manufacturers of drug substance and drug product. We typically use our employee and infrastructure resources across multiple research and development programs.
 Three Months Ended March 31,
 20212020
Direct research and development expenses$5,265 $4,947 
Research and development personnel costs - excluding stock-based compensation4,462 2,603 
Research and development personnel costs - stock-based compensation1,377 740 
Indirect research and development expenses758 659 
Total research and development expenses$11,862 $8,949 
 
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

We are developing BCV for the treatment of smallpox. Under our cost-plus-fixed fee BARDA contract and additional costs we are not seeking reimbursement for from BARDA, we incurred expense in connection with the development of orthopoxvirus animal models, the demonstration of efficacy and pharmacokinetics of BCV in the animal models, the conduct of an open label clinical safety study for subjects with DNA viral infections, the manufacture and process validation of bulk drug substance and BCV 100 mg tablets, and submission of the NDA to the FDA. In addition, we have incurred additional supportive costs for the development of BCV for smallpox that we are not seeking reimbursement for from BARDA.

Imipridones program

In January 2021, we acquired Oncoceutics. In connection with the transaction, we recorded $82.9 million of acquired in-process research and development expenses for the three months ended March 31, 2021, which included $25.0 million for an upfront payment to Oncoceutics, $43.4 million related to the fair value of 8,723,769 shares common stock issued to Oncoceutics, a $14.0 million promissory note due on the one-year anniversary of the acquisition, and $0.3 million related to transaction costs consisting primarily of legal and professional fees. As we continue to develop and prepare Oncoceutics’ lead
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compound, ONC201, for a U.S. regulatory approval, we expect to incur significant research and development expense. We also plan to incur development expenses in connection with the continued development of other Oncoceutics compounds, including ONC206 and ONC212.

Dociparstat sodium (DSTAT)

As we continue to focus on the development of DSTAT for treatment of AML patients and COVID-19, we expect research and development expense to increase with the ongoing and planned clinical trials. We are currently enrolling a Phase 2/3 study of DSTAT in ALI for patients with COVID-19 and have initiated our Phase 3 DASH AML trial.

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.
 
Interest Income and Other, Net

Interest income and other, net consists primarily of interest earned on our cash, cash equivalents and short-term 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. Total consolidated share-based compensation expense of $2.6 million and $1.3 million was recognized in the three months ended March 31, 2021 and 2020, 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, 2020 filed with the SEC on February 25, 2021. There have been no material changes during the three months ended March 31, 2021 to our critical accounting policies, significant judgments and estimates disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020.

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RESULTS OF OPERATIONS 

Comparison of the Three Months Ended March 31, 2021 and March 31, 2020

The following table summarizes our results of operations for the three months ended March 31, 2021 and March 31, 2020, together with the changes in those items (in thousands, except percentages): 
 
 Three Months Ended March 31,Dollar Change% Change
 20212020Increase/(Decrease)
Revenues:
Contract and grant revenue$1,433 $1,171 $262 22.4 %
Licensing revenue70 (68)(97.1)
Total revenues1,435 1,241 194 15.6 %
Operating expenses:    
Research and development11,862 8,949 2,913 32.6 %
General and administrative4,136 3,205 931 29.0 %
Acquired in-process research and development82,890 — 82,890 *
Total operating expenses98,888 12,154 86,734 713.6 %
Loss from operations(97,453)(10,913)(86,540)793.0 %
Other income:
Interest income and other, net38 493 (455)(92.3)%
Net loss$(97,415)$(10,420)$(86,995)834.9 %

* Not meaningful or not calculable

Contract and Licensing Revenue

For the three months ended March 31, 2021, total contract revenue increased to $1.4 million compared to $1.2 million for the three months ended March 31, 2020. The increase of $0.3 million, or 22.4%, is primarily attributable to grant revenue from the newly acquired ONC201 compound.

Research and Development Expenses

For the three months ended March 31, 2021, our research and development expenses increased to $11.9 million compared to $8.9 million for the three months ended March 31, 2020. The increase of $2.9 million, or 32.6%, is primarily related to the following:

an increase of $2.5 million in total compensation expense, of which $0.6 million relates to non-cash stock compensation, as headcount increased related to the retention of legacy Oncoceutics employees and hiring of additional employees to further support development of our current pipeline;
an increase of $1.1 in clinical and consulting expenses primarily related to the development of ONC201 in recurrent H3 K27M-mutant glioma and preparation for the Blinded Independent Center Review in 2021;
an increase of $1.0 million related to the conduct of the Phase 2 trial to assess DSTAT for acute lung injury in COVID-19 patients; and
an increase of $0.8 million in clinical trial expenses related to DASH, our Phase 3 clinical trial to assess DSTAT for first-line treatment of AML; offset by
a decrease of $2.1 million in DSTAT chemistry, manufacturing, and animal studies as the compound progressed into clinical trials for AML and acute lung injury; and
a net decrease of $0.4 million in brincidofovir program expenses primarily related to a $1.0 million decrease related to the conclusion of animal studies and the expanded access program, offset by an increase of $0.6 million in drug manufacturing and analytical expenses.
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General and Administrative Expenses

For the three months ended March 31, 2021, our general and administrative expenses increased to $4.1 million compared to $3.2 million for the three months ended March 31, 2020. The increase of $0.9 million, or 29.0%, is primarily related to the following:

an increase of $0.9 million in total compensation expense, of which $0.6 million relates to non-cash stock compensation, as headcount increased related to the retention of legacy Oncoceutics employees.

Acquired In-process Research and Development Expenses

In connection with our acquisition of Oncoceutics in January 2021, we recorded a total of $82.9 million of acquired in-process research and development expenses for the three months ended March 31, 2021, which included $25.0 million for an upfront payment to Oncoceutics, $43.4 million related to the fair value of the 8,723,769 shares of common stock issued to Oncoceutics, a $14.0 million promissory note due on the one-year anniversary of the acquisition and $0.3 million related to transaction costs consisting primarily of legal and professional fees.

Interest Income and Other, Net

For the three months ended March 31, 2021, our interest income decreased to $38,000 compared to $0.5 million for the three months ended March 31, 2020. This decrease is attributable to decreased interest earned on our cash and investments and amortization of our investment premium balances offsetting interest earned.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2021, we had capital available to fund operations of approximately $152.5 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 March 31, 2021, we had an accumulated deficit of $809.8 million. We may continue to incur losses 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.

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. We did not sell any shares of our common stock subsequent to 2018 and we terminated the ATM sales agreement with Cowen and Company, LLC in July 2020.

On August 10, 2020, we entered into an Open Market Sale AgreementSM (the Jefferies Sales Agreement) with Jefferies LLC, as agent, pursuant to which we may offer and sell, from time to time through Jefferies, up to $75 million of shares of our common stock. Sales of our common stock made pursuant to the Jefferies Sales Agreement, if any, will be made under our shelf registration statement on Form S-3 (File No. 333-244146), which was declared effective by the SEC on August 17, 2020. We have not sold any shares of our common stock under the Jefferies Sales Agreement.

On January 20, 2021, we entered into an underwriting agreement (the Underwriting Agreement) with Jefferies LLC and Cowen and Company, LLC, as representatives of the several underwriters named therein (collectively, the Underwriters), relating to the issuance and sale of 11,765,000 shares (the Shares) of the Company’s common stock, par value $0.001 per share (the Common Stock). The price to the public in this offering was $8.50 per share, and the Underwriters agreed to purchase the Shares from the Company pursuant to the Underwriting Agreement at a price of $7.99 per share. Under the terms of the Underwriting Agreement, the Company granted the Underwriters a 30-day option to purchase up to 1,764,750 additional shares of Common Stock at the public offering price. The net proceeds to the Company from this offering were approximately $107.8 million, as the Underwriters’ option to purchase additional shares was exercised in full, after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company. The offering closed on January 25, 2021.

We cannot assure 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
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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): 
 Three Months Ended March 31,
 20212020
Cash sources and uses:  
Net cash used in operating activities$(37,896)$(10,820)
Net cash (used in) provided by investing activities(88,716)18,243 
Net cash provided by financing activities111,703 229 
Net (decrease) increase in cash and cash equivalents$(14,909)$7,652 
 
Operating Activities

Net cash used in operating activities of $37.9 million for the three months ended March 31, 2021 was primarily the result of our $97.4 million net loss and the change in operating assets and liabilities, partially offset by add-back of non-cash expenses. The change in operating assets and liabilities includes an increase in prepaid expenses and other assets of $0.3 million, an increase in accounts receivable of $0.2 million and a decrease of $0.3 million in accounts payable and accrued liabilities. Non-cash expenses included add-backs of $43.4 million for the fair value of common stock issued in relation to the Oncoceutics acquisition, $14.0 million for the note payable due on the one-year anniversary of the Oncoceutics acquisition, $2.6 million for share-based compensation and $0.1 million of depreciation of property and equipment and $0.1 million of amortization of discount/premium on investments. Net cash used in operating activities of $10.8 million for the three months ended March 31, 2020 was primarily the result of our $10.4 million net loss and the change in operating assets and liabilities, partially offset by the add-back of non-cash expenses. The change in operating assets and liabilities includes a decrease of $2.5 million in accounts payable and accrued liabilities, partially offset by a decrease in prepaid expenses and other assets of $0.8 million and a decrease in accounts receivable of $0.2 million related to work on the BARDA contract. Non-cash expenses included add-backs of $1.3 million for share-based compensation and $0.1 million of depreciation of property and equipment, offset by $0.2 million of amortization of discount/premium on investments.

Investing Activities

Net cash used in investing activities of $88.7 million for the three months ended March 31, 2021 was primarily the result of the purchase of $91.9 million in short-term investments and the purchase of $7.6 million in long-term investments, partially offset by the maturity of $8.9 million in short-term investments and the sale of $2.0 million in short-term investments. Net cash provided by investing activities of $18.2 million for the three months ended March 31, 2020 was primarily the result of the maturity of $45.9 million in short-term investments, partially offset by the purchase of $27.7 million in short-term investments.

Financing Activities

Net cash provided by financing activities of $111.7 million for the three months ended March 31, 2021 was primarily the result of $107.8 million in proceeds from the issuance of common stock and $3.9 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 three months ended March 31, 2020 was primarily the result of $0.2 million in proceeds from stock purchases through our ESPP.

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, 2020 filed by us with the SEC on February 25, 2021.
 
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.
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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 months ended March 31, 2021 or March 31, 2020.
 
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 March 31, 2021, 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 first quarter of 2021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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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, 2020 filed with the Securities and Exchange Commission on February 25, 2021.

Risks Related To Our Financial Condition and Need For 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 (BCV) for the treatment of smallpox, ONC201 for the treatment of recurrent H3 K27M-mutant glioma and dociparstat (DSTAT) for the treatment of acute myeloid leukemia (AML) and the treatment of acute lung injury (ALI) in COVID-19 patients. We have incurred significant net losses in each year since our inception, including net losses of $97.4 million and $10.4 million for the three months ended March 31, 2021 and 2020, respectively. As of March 31, 2021, we had an accumulated deficit of approximately $809.8 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 may continue to incur losses and negative cash flows for the foreseeable future. The size of any loss 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:

continue development and manufacturing activities related to imipridones, including ONC201 for the treatment of recurrent H3 K27M-mutant glioma, and other potential indications;
continue development and manufacturing activities related to DSTAT for the treatment of AML, the treatment of ALI in COVID-19 patients, and other potential indications;
continue the development of BCV for the treatment of smallpox as a medical countermeasure;
obtain regulatory approvals for BCV, ONC201 and DSTAT;
scale-up manufacturing capabilities to commercialize BCV and DSTAT 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.
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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 of, obtain the necessary regulatory approvals for and commercialize product candidates. We may not generate 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 development of imipridones, including ONC201 for the treatment of recurrent H3 K27M-mutant glioma, and other potential indications;
obtaining favorable results for and advancing the development of DSTAT for the treatment of AML and ALI, and BCV for the treatment of smallpox;
obtaining United States and foreign regulatory approval(s) for ONC201, DSTAT and BCV;
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 may not 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 DSTAT. We are currently enrolling a Phase 2/3 study of DSTAT in ALI for patients with COVID-19 and plan to initiate a Phase 3 trial in AML in early 2021.

In January 2021, we acquired Oncoceutics, Inc. (Oncoceutics), a privately-held, clinical-stage biotechnology company developing imipridones, a novel potential class of compounds. Oncoceutics’ lead product candidate, ONC201, selectively induced cell death in multiple cancer types in clinical trials. ONC201 is currently being evaluated in multiple clinical studies including in a registrational program for recurrent H3 K27M-mutant glioma.
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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, 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 our most advanced clinical compounds, 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 BCV, ONC201, DSTAT, or any other product candidate;
seek corporate partners for BCV, ONC201, DSTAT, 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.

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.

In early 2019, 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 DSTAT for any and all uses. In January 2021, we acquired Oncoceutics, a privately-held, clinical-stage biotechnology company developing imipridones, including ONC201. In connection with these transactions, we are responsible for, and bear the future costs of, development and commercialization of the acquired compounds. These costs will be substantial, and we may require additional capital in order to pursue the development and commercialization of these compounds as planned. Moreover, the anticipated benefits of these transactions 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 DSTAT and ONC201, we may in-license or acquire additional assets, engage in a merger or acquisition transaction, issue additional shares of our common stock, or engage in other potential actions designed to maximize stockholder value. Our continuing 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.

 Risks Related to Clinical Development and Regulatory Approval

We face risks related to the coronavirus (COVID-19) outbreak, which could significantly disrupt our preclinical studies and clinical trials.

The duration and the geographic impact of the business disruption and related financial impact resulting from the coronavirus cannot be reasonably estimated at this time and our business could be adversely impacted by the effects. We are currently conducting clinical trials of our product candidates in the United States. We rely on independent clinical investigators, contract research organizations and other third-party service providers to assist us in managing, monitoring and otherwise carrying out our non-clinical studies and clinical trials, and the outbreak may affect their ability to devote sufficient time and resources to our programs. Similarly, clinical site initiation and patient enrollment may be delayed due to concerns for patient safety and prioritization of healthcare resources toward the COVID-19 pandemic. We also rely on third party suppliers and contract manufacturers to produce the drug product we utilize in our clinical trials, and the outbreak may cause delays in delivery and
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increases in the cost of active pharmaceutical ingredients (APIs) and drug product.  As a result, the expected timeline for data readouts of our non-clinical studies and clinical trials and certain regulatory filings may be negatively impacted, and our APIs and drug product may become more expensive to obtain. The COVID-19 pandemic is also causing disruption of global financial markets which, if sustained or recurrent, could make it more difficult for us to access capital. The ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change, and may adversely affect our business, healthcare systems and the global economy as a whole.

Our product candidates are still under clinical development and may not obtain regulatory approval or be successfully commercialized.

We have not marketed, distributed or sold any products. Our product candidates are ONC201, which we are developing for the treatment of recurrent H3 K27M-mutant glioma, DSTAT, which we are developing for the treatment of AML, the treatment of ALI in COVID-19 patients, and other potential indications and BCV, which we continue to develop for the treatment of smallpox as a medical countermeasure. We are in late stage clinical development for both ONC201 and DSTAT. The new drug application (NDA) for BCV as a medical countermeasure for the treatment of smallpox is currently under FDA review and has a PDUFA date of July 7, 2021.

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 DSTAT, ONC201 and BCV will depend on several factors, including the following:

generating positive safety and efficacy data from our clinical trials of DSTAT and ONC201;
acceptance of data from our studies of oral BCV in animal models, including analyses necessary to bridge to a recommended human dose, by the FDA and foreign regulatory bodies;
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 DSTAT;
establishing commercial manufacturing capabilities for BCV;
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 BCV, ONC201, and DSTAT, 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 our most advanced clinical candidates: BCV, ONC201 and DSTAT.

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 any of our lead clinical candidates.

Through our continuing development contract with BARDA, we completed the 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 BCV for the treatment of smallpox. The NDA for BCV is currently under review by FDA and has a PDUFA date of July 7, 2021.

In July 2019, we entered into a license agreement with Cantex where we acquired an exclusive license to global development and commercialization rights to DSTAT. We are currently enrolling a Phase 2/3 study of DSTAT in ALI for patients with COVID-19 and a Phase 3 trial in AML.

In January 2021, we acquired Oncoceutics, a privately-held, clinical-stage biotechnology company developing imipridones, a novel potential class of compounds. Oncoceutics’ lead product candidate, ONC201, is currently being evaluated in multiple clinical studies including in a registrational program for recurrent H3 K27M-mutant glioma.

We have not yet reached agreement with the FDA or foreign regulators regarding the adequacy of these planned studies, for any of our most advanced clinical candidates, 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
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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.

In particular, based on discussions with the FDA, we plan to integrate data from ongoing ONC201 trials into a registration cohort with the potential for an NDA submission seeking accelerated approval of ONC201 in the United States. Recently, the FDA has announced that the agency’s Oncology Center of Excellence was reassessing the marketing authorizations for several oncology medicines that received accelerated approvals where their confirmatory clinical trials did not demonstrate clinical benefit. It is possible that the occurrence or outcome of such reassessment may make it more difficult for us to apply for or obtain accelerated approval for ONC201 based on data from ongoing trials of our clinical candidates ONC201, DSTAT and ONC206.

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 ONC201, DSTAT and BCV, 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 BCV, ONC201 and DSTAT. 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 BCV, ONC201 and DSTAT, 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, or other factors such as the impact of the ongoing COVID-19 pandemic;
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.

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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 most advanced product candidates, including BCV, ONC201 and DSTAT. If later stage clinical trials do not produce favorable results, our ability to obtain regulatory approval for any of our product candidates 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 any of BCV, ONC201, or DSTAT, 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.

Many of the above factors may be caused or exacerbated by the impact of the ongoing COVID-19 pandemic. If initiation or completion of any of our clinical trials for our product candidates, 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 BCV have experienced gastrointestinal AEs and liver-related safety laboratory value changes. In addition, BCV 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 DSTAT 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);
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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 BCV, ONC201 or DSTAT.

We cannot commercialize our product candidates, including BCV, ONC201 and DSTAT, 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 any of our product candidates. Additional delays in the United States may result if any of our product candidates 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.

The FDA may determine that ONC201, BCV and any of our other product candidates, if approved, do not meet the eligibility criteria for a priority review voucher.

Upon regulatory approval of a product candidate for a rare pediatric disease, neglected tropical disease, or medical countermeasure, the FDA may award to the sponsor of the treatment a transferable voucher that enables the bearer to priority review of another product candidate.

The FDA has granted rare pediatric disease designation to ONC201 for treatment of H3 K27M-mutant glioma. Designation of a drug for a rare pediatric disease does not guarantee that an NDA for such drug will meet the eligibility criteria for a rare pediatric disease priority review voucher at the time the application is approved. Under the Federal Food, Drug, and Cosmetic Act (FDCA), we will need to request a rare pediatric disease priority review voucher in our original NDA for ONC201. The FDA may determine that an NDA for ONC201, if approved, does not meet the eligibility criteria for a priority review voucher, including for the following reasons:

treatment of H3 K27M-mutant glioma no longer meets the definition of a rare pediatric disease;
the NDA contains an active ingredient (including any ester or salt of the active ingredient) that has been previously approved in an NDA;
the NDA is not deemed eligible for priority review;
the NDA does not rely on clinical data derived from studies examining a pediatric population and dosages of the drug intended for that population (that is, if the NDA does not contain sufficient clinical data to allow for adequate labeling for use by the full range of affected pediatric patients); or
the NDA is approved for a different adult indication than the rare pediatric disease for which ONC201 is designated.

The authority for the FDA to award rare pediatric disease priority review vouchers for drugs that have received rare pediatric disease designation prior to September 30, 2024 currently expires on September 30, 2026, although it is possible the FDA’s authority to award rare pediatric disease priority review vouchers will be further extended through federal lawmaking. Absent any such extension, if the NDA for ONC201 is not approved prior to September 30, 2026 for any reason, regardless of whether it meets the criteria for a rare pediatric disease priority review voucher, it will not be eligible for a priority review voucher.

Similar risks apply to any of our other product candidates that may be eligible for a priority review voucher. For example, the FDA has accepted the filing of our NDA for the approval of BCV as a medical countermeasure for smallpox. The 21st Century
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Cures Act of 2016 established a priority review voucher program for medical countermeasures intended for use to prevent or treat harm from a biological, chemical, radiological, or nuclear agent determined by the Department of Homeland Security to be a material threat. However, recently passed legislation has altered the eligibility requirements for the priority review voucher. In order to be eligible for a medical countermeasure priority review voucher, a product candidate must be a drug for which an active moiety (including any ester thereof) has not been previously approved by the FDA. Accordingly, the FDA may determine that because BCV contains an active moiety (cidofovir) that has been previously approved by the FDA, we are not eligible for a priority review voucher upon any regulatory approval of BCV as a medical countermeasure for smallpox.

Even if we obtain regulatory approval for any of our product candidates, including BCV, ONC201 and DSTAT, 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 ONC201, DSTAT and BCV, or impose ongoing requirements for potentially costly post-approval studies or post-market surveillance. For example, the labeling ultimately approved for our product candidates, 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 ONC201, DSTAT or BCV 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 BCV may be required to include a boxed warning, or “black box,” regarding BCV being carcinogenic, teratogenic and impairing fertility in animal studies. The BCV labeling may also include warnings pertaining to gastrointestinal AEs or liver-related safety laboratory value changes or black boxes related to the mortality disadvantage with extended dosing observed in the SUPPRESS trial.

Our 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 Current Good Manufacturing Practices (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 our product candidates and inhibit our ability to generate revenues.

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Obtaining FDA approval for any one of our products in the United States does not mean we will ever obtain approval for or commercialize BCV, ONC201, DSTAT, 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.

Coverage and adequate reimbursement may not be available for our current or any future product candidates, which could make it difficult for us to sell profitably, if approved.

Market acceptance and sales of any product candidates that we commercialize, if approved, will depend in part on the extent to which coverage and adequate reimbursement will be available from third-party payers, including government health administration authorities, managed care organizations and private health insurers. Third-party payers decide which therapies they will pay for and establish reimbursement levels. Third-party payers in the United States often rely upon Medicare coverage policy and payment limitations in setting their own coverage and reimbursement policies. However, decisions regarding the extent of coverage and amount of reimbursement to be provided for any product candidates that we develop will be made on a payer-by-payer basis. One payer’s determination to provide coverage for a drug does not assure that other payers will also provide coverage and adequate reimbursement for the drug. Additionally, a third-party payer’s decision to provide coverage for a therapy does not imply that an adequate reimbursement rate will be approved. Third-party payers are increasingly challenging the price, examining the medical necessity and reviewing the cost-effectiveness of medical products, therapies and services, in addition to questioning their safety and efficacy. We cannot be sure that coverage and reimbursement in the United States or elsewhere will be available for any product that we may develop, and any reimbursement that may become available may be decreased or eliminated in the future.

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 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, 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 and the Federal Civil Monetary Penalties Act, 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
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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 impose 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, and their business associates as well as their covered subcontractors;
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 (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members. Beginning in 2022, applicable manufacturers also will be required to report such information regarding its payments and other transfers of value to physician assistants, nurse practitioners, clinical nurse specialists, anesthesiologist assistants, certified registered nurse anesthetists and certified nurse midwives during the previous year; 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, imprisonment, 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 significant 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,