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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 September 30, 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 class			Trading Symbol(s)			Name of each exchange on which registered
Common Stock, par value $0.001 per share			CMRX			The Nasdaq Global Market

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

 

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

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

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

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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 October 31, 2021, the number of outstanding shares of the registrant’s common stock, par value $0.001 per share, was 86,862,426.

---

CHIMERIX, INC.

 

FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2021

 

INDEX

  

			Page
Part I — Financial Information
Item 1. Financial Statements			3
Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020 (unaudited)			3
Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2021 and 2020 (unaudited)			4
Consolidated Statements of Stockholders' Equity (Deficit) for the Three and Nine Months Ended September 30, 2021 and 2020 (unaudited)			5
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020 (unaudited)			7
Notes to the Consolidated Financial Statements (unaudited)			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			20
Item 3. Quantitative and Qualitative Disclosures About Market Risk			30
Item 4. Controls and Procedures			30
Part II — Other Information
Item 1. Legal Proceedings			31
Item 1A. Risk Factors			31
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			59
Item 3. Defaults Upon Senior Securities			59
Item 4. Mine Safety Disclosures			59
Item 5. Other Information			59
Item 6. Exhibits			60
Signatures			61

Unless otherwise mentioned or unless the context indicates otherwise, as used in this prospectus, the terms “Chimerix,” “the Company,” “we,” “us” and “our” refer to Chimerix, Inc., a Delaware corporation. We have obtained a registered trademark for Chimerix® and TEMBEXA® in the United States. All other trademarks or trade names referred to in this Quarterly Report on Form 10-Q are the property of their respective owners.

2

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PART I - FINANCIAL INFORMATION

 

ITEM 1.    CONSOLIDATED FINANCIAL STATEMENTS

 

CHIMERIX, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(unaudited) 

						September 30, 2021						December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents						$	26,174					$	46,989
Short-term investments, available-for-sale						96,384						31,973
Accounts receivable						53						340
Inventories						1,595						—
Prepaid expenses and other current assets						4,327						2,356
Total current assets						128,533						81,658
Long-term investments						2,035						—
Property and equipment, net of accumulated depreciation						264						214
Operating lease right-of-use assets						2,509						2,825
Other long-term assets						60						26
Total assets						$	133,401					$	84,723
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable						$	1,792					$	1,283
Accrued liabilities						10,498						7,250
Note payable						14,000						—
Total current liabilities						26,290						8,533
Lease-related obligations						2,525						2,814
Total liabilities						28,815						11,347
Stockholders’ equity:
Preferred stock, $0.001 par value, 10,000,000 shares authorized at September 30, 2021 and December 31, 2020; no shares issued and outstanding as of September 30, 2021 and December 31, 2020						—						—
Common stock, $0.001 par value, 200,000,000 shares authorized at September 30, 2021 and December 31, 2020; 86,848,426 and 62,816,039 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively						87						63
Additional paid-in capital						950,597						785,673
Accumulated other comprehensive loss, net						—						—
Accumulated deficit						(846,098)						(712,360)
Total stockholders’ equity						104,586						73,376
Total liabilities and stockholders’ equity						$	133,401					$	84,723

 

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

3

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CHIMERIX, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except share and per share data)

(unaudited)

						Three Months Ended September 30,												Nine Months Ended September 30,
						2021						2020						2021						2020
Revenues:
Contract and grant revenue						$	105					$	1,591					$	1,928					$	4,158
Licensing revenue						2						18						5						94
Total revenues						107						1,609						1,933						4,252
Operating expenses:
Research and development						13,820						10,018						39,480						27,545
General and administrative						4,887						3,151						13,431						9,466
Acquired in-process research and development						—						—						82,890						—
Total operating expenses						18,707						13,169						135,801						37,011
Loss from operations						(18,600)						(11,560)						(133,868)						(32,759)
Other income:
Interest income and other, net						40						149						130						912
Net loss						(18,560)						(11,411)						(133,738)						(31,847)
Other comprehensive loss:
Unrealized gain (loss) on debt investments, net						11						(97)						—						(2)
Comprehensive loss						$	(18,549)					$	(11,508)					$	(133,738)					$	(31,849)
Per share information:
Net loss, basic and diluted						$	(0.21)					$	(0.18)					$	(1.59)					$	(0.51)
Weighted-average shares outstanding, basic and diluted						86,335,357						62,242,456						84,277,555						62,009,941

  

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

 

4

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CHIMERIX, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

(in thousands)

(unaudited) 

			Common Stock
			Shares						Amount						Additional Paid-in Capital						Accumulated Other Comprehensive Gain (Loss)						Accumulated Deficit						Total  Stockholders’ Equity (Deficit)
Balance, December 31, 2020			62,816,039						$	63					$	785,673					$	—					$	(712,360)					$	73,376
Share-based compensation			—						—						2,584						—						—						2,584
Exercise of stock options			710,132						1						3,529						—						—						3,530
Employee stock purchase plan purchases			259,837						—						330						—						—						330
RSU stock issuance			168,752						—						—						—						—						—
Issuance of common stock related to asset acquisition			8,723,769						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, 2021			86,208,279						$	86					$	943,381					$	(43)					$	(809,775)					$	133,649
Share-based compensation			—						—						3,112						—						—						3,112
Exercise of stock options			41,465						—						119						—						—						119
Comprehensive loss:
Unrealized gain on investments, net			—						—						—						32						—						32
Net loss			—						—						—						—						(17,763)						(17,763)
Total comprehensive loss																																	(17,731)
Balance, June 30, 2021			86,249,744						$	86					$	946,612					$	(11)					$	(827,538)					$	119,149
Share-based compensation			—						—						3,431						—						—						3,431
Exercise of stock options			74,588						—						130						—						—						130
Employee stock purchase plan purchases			283,094						1						424						—						—						425
RSU stock issuance			241,000						—						—						—						—						—
Comprehensive loss:
Unrealized loss on investments, net			—						—						—						11						—						11
Net loss			—						—						—						—						(18,560)						(18,560)
Total comprehensive loss																																	(18,549)
Balance, September 30, 2021			86,848,426						$	87					$	950,597					$	—					$	(846,098)					$	104,586

5

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			Common Stock
			Shares						Amount						Additional Paid-in Capital						Accumulated Other Comprehensive Gain (Loss)						Accumulated Deficit						Total  Stockholders’ Equity (Deficit)
Balance, December 31, 2019			61,590,013						$	62					$	778,693					$	35					$	(668,838)					$	109,952
Share-based compensation			—						—						1,326						—						—						1,326
Employee stock purchase plan purchases			177,193						—						229						—						—						229
RSU stock issuance			163,133						—						—						—						—						—
Comprehensive loss:
Unrealized loss on investments, net			—						—						—						(46)						—						(46)
Net loss			—						—						—						—						(10,420)						(10,420)
Total comprehensive loss																																	(10,466)
Balance, March 31, 2020			61,930,339						$	62					$	780,248					$	(11)					$	(679,258)					$	101,041
Share-based compensation			—						—						1,391						—						—						1,391
Exercise of stock options			242,079						—						578						—						—						578
Comprehensive loss:
Unrealized gain on investments, net			—						—						—						141						—						141
Net loss			—						—						—						—						(10,016)						(10,016)
Total comprehensive loss																																	(9,875)
Balance, June 30, 2020			62,172,418						$	62					$	782,217					$	130					$	(689,274)					$	93,135
Share-based compensation			—						—						1,282						—						—						1,282
Exercise of stock options			20,592						1						62						—						—						63
Employee stock purchase plan purchases			159,879						—						197						—						—						197
RSU stock issuance			276,833						—						—						—						—						—
Comprehensive loss:
Unrealized loss on investments, net			—						—						—						(97)						—						(97)
Net loss			—						—						—						—						(11,411)						(11,411)
Total comprehensive loss																																	(11,508)
Balance, September 30, 2020			62,629,722						$	63					$	783,758					$	33					$	(700,685)					$	83,169

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CHIMERIX, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited) 

						Nine Months Ended September 30,
						2021						2020
Cash flows from operating activities:
Net loss						$	(133,738)					$	(31,847)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation of property and equipment						143						309
Amortization of discount/premium on investments						648						(268)
Share-based compensation						9,127						4,000
Fair value of common stock issued related to asset acquisition						43,445						—
Note payable related to asset acquisition						14,000
Gain on sale of investments						(2)						(1)
Gain on sale of equipment						—						(10)
Lease-related amortization						314						(47)
Changes in operating assets and liabilities:
Accounts receivable						288						855
Inventories						(1,595)						—
Prepaid expenses and other assets						(2,005)						1,284
Accounts payable and accrued liabilities						3,468						(1,268)
Net cash used in operating activities						(65,907)						(26,993)
Cash flows from investing activities:
Purchases of property and equipment						(193)						(60)
Proceeds from sale of property and equipment						—						10
Purchases of short-term investments						(105,355)						(58,895)
Purchases of long-term investments						(9,594)						—
Proceeds from sales of short-term investments						2,007						1,498
Proceeds from maturities of short-term investments						45,850						104,602
Net cash (used in) provided by investing activities						(67,285)						47,155
Cash flows from financing activities:
Proceeds from exercise of stock options						3,780						641
Proceeds from employee stock purchase plan						754						426
Proceeds from issuance of common stock, net of commissions						107,843						—
Net cash provided by financing activities						112,377						1,067
Net (decrease) increase in cash and cash equivalents						(20,815)						21,229
Cash and cash equivalents:
Beginning of period						46,989						16,901
End of period						$	26,174					$	38,130

 

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

 

 

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CHIMERIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Note 1. The Business and Summary of Significant Accounting Policies

 

Description of Business

Chimerix is a biopharmaceutical company whose mission it is to develop medicines that meaningfully improve and extend the lives of patients facing deadly diseases. In June 2021, the U.S. Food and Drug Administration (FDA) approved TEMBEXA (brincidofovir) for the treatment of smallpox as a medical countermeasure. Our two most advanced clinical-stage development programs are ONC201 and dociparstat sodium (DSTAT). ONC201 is in development for recurrent H3 K27M-mutant glioma. DSTAT is in Phase 3 development as a potential first-line therapy in acute myeloid leukemia (AML).

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 and nine months ended September 30, 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 September 30, 2021 and December 31, 2020, the Company had cash equivalents including money market funds, whose value is based on quoted market prices. At September 30, 2021 and December 31, 2020, the Company had short-term investments, including U.S. Treasury securities, whose value is based on quoted market prices. At September 30, 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.

 

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At September 30, 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. 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
			September 30, 2021
			Total						Quoted Prices in Active Markets for Identical Assets (Level 1)						Significant Other Observable Inputs (Level 2)						Significant Unobservable Inputs (Level 3)
Cash equivalents
Money market funds			$	20,165					$	20,165					$	—					$	—
Total cash equivalents			20,165						20,165						—						—
Short-term investments
U.S. treasury securities			7,534						7,534						—						—
Commercial paper			51,277						—						51,277						—
Corporate bonds			37,573						—						37,573						—
Total short-term investments			96,384						7,534						88,850						—
Long-term investments
U.S. treasury securities			2,035						2,035						—						—
Total long-term investments			2,035						2,035						—						—
Total assets			$	118,584					$	29,734					$	88,850					$	—
			Fair Value Measurements
			December 31, 2020
			Total						Quoted Prices in Active Markets for Identical Assets (Level 1)						Significant Other Observable Inputs (Level 2)						Significant Unobservable Inputs (Level 3)
Cash equivalents
Money market funds			$	1,503					$	1,503					$	—					$	—
Total cash equivalents			1,503						1,503						—						—
Short-term investments
U.S. treasury securities			28,715						28,715						—						—
Corporate bonds			3,258						—						3,258						—
Total short-term investments			31,973						28,715						3,258						—
Total assets			$	33,476					$	30,218					$	3,258					$	—

  

Inventories

The Company considers regulatory approval of product candidates to be uncertain and product manufactured prior to regulatory approval may not be sold unless regulatory approval is obtained. As such, the manufacturing costs for product candidates incurred prior to regulatory approval are not capitalized as inventory but are expensed as research and development costs. The Company begins capitalization of these inventory related costs once regulatory approval is obtained. The Company primarily uses actual costs to determine its cost basis for inventories.

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At September 30, 2021, the Company’s inventory is related to TEMBEXA, which is being manufactured for the treatment of smallpox and potential delivery to the Strategic National Stockpile (SNS) for the U.S. government and other government agencies. TEMBEXA was approved by the FDA on June 4, 2021, at which time the Company began to capitalize inventory costs associated with TEMBEXA. Prior to FDA approval of TEMBEXA, all costs related to the manufacturing of TEMBEXA were charged to research and development expense in the period incurred as there was no alternative future use.

The Company values its inventories at the lower of cost or estimated net realizable value. The Company determines the cost of its inventories, which includes amounts related to materials, manufacturing costs, shipping and handling costs on a first-in, first-out (FIFO) basis. Work-in-process includes all inventory costs prior to packaging and labelling, including raw material, active product ingredient, and drug product. Finished goods include packaged and labelled products. The Company's inventories at September 30, 2021 consisted of $1.6 million of work-in-process and no finished goods.

The Company’s assessment of market value requires the use of estimates regarding the net realizable value of its inventory balances, including an assessment of excess or obsolete inventory. The Company’s determination that a valuation reserve might be required, in addition to the quantification of such reserve, requires it to utilize significant judgment. The Company determines excess or obsolete inventory based on multiple factors, including an estimate of the future demand for its products, product expiration dates and current sales levels. The Company’s assumptions of future demand for its products are inherently uncertain and if the Company were to change any of these judgments or estimates, it could cause a material increase or decrease in the amount of inventory reserves that the Company reports in a particular period. In addition, the Company's inventory may experience expiration of its shelf-life stability. During the nine months ended September 30, 2021, the Company did not record a reserve for inventory as the Company assumes TEMBEXA will be sold to the US government under a procurement contract with Biomedical Advanced Research and Development Authority (BARDA) or could be sold to other governmental agencies. Should no procurement contract be secured in the future, the Company may reserve part or all of our inventory balance, which would be included in cost of sales.

Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

			September 30, 2021						December 31, 2020
Accrued research and development expenses			$	3,276					$	1,375
Accrued compensation			4,502						4,473
Accrued legal expenses			213						651
Other accrued liabilities			2,507						751
Total accrued liabilities			$	10,498					$	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 TEMBEXA as a medical countermeasure in the event of a smallpox release. Under the contract, the Company received $72.5 million in expense reimbursement and $4.6 million in fees over the performance of one base segment and four option segments. Exercise of each option segment was solely at the discretion of BARDA. The Company assessed the services in accordance with the authoritative guidance and concluded that there was a potential of five separate contracts (one base segment and four option segments) within this agreement, each of which had a single performance obligation. All option segments (one through four) were exercised, as well as the base segment. The transaction price for each segment, based on the transaction price as defined in

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each segment contract, was allocated to the single performance obligation for each contract. The transaction price was recognized over time by measuring the progress toward complete satisfaction of the performance obligation. For reimbursable expenses, this occurred as qualifying research activities were conducted based on invoices from company vendors. For the fixed fee, the progress toward complete satisfaction was estimated based on the costs incurred to date relative to the total estimated costs per the terms of each contract. The Company typically invoiced BARDA monthly as costs were incurred. Any amounts received in advance of performance were recorded as deferred revenue until earned. The base segment and first option segment were completed prior to adoption of ASC 606. The second and third option segments were completed on August 20, 2020. The fourth option segment was completed on September 1, 2021 and the contract has expired in accordance with its terms.

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, of which the federal grant programs ended in the third quarter of 2021. At September 30, 2021, the Company has a deferred revenue balance of $0.2 million related to these grants. Additionally, for the three and nine months ended September 30, 2021, the Company recognized $18,000 and $0.4 million of grant revenue related to these grants, respectively.

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 TEMBEXA 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 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 TEMBEXA. 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 TEMBEXA 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 September 30, 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

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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 and nine months ended September 30, 2021 and 2020.

Use of Estimates

The preparation of financial statements in conformity with 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.

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):

						September 30, 2021
						Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses						Estimated Fair Value
Corporate bonds						$	37,579					$	1					$	(7)					$	37,573
U.S. treasury securities						9,568						2						(1)						9,569
Commercial paper						51,272						7						(2)						51,277
Total investments						$	98,419					$	10					$	(10)					$	98,419
						December 31, 2020
						Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses						Estimated Fair Value
Corporate bonds						$	3,256					$	2					$	—					$	3,258
U.S. treasury securities						28,717						1						(3)						28,715
Total investments						$	31,973					$	3					$	(3)					$	31,973

 

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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):

						September 30, 2021
						Less than 12 Months												Greater than 12 Months												Total
						Fair Value						Unrealized Loss						Fair Value						Unrealized Loss						Fair Value						Unrealized Loss
Corporate bonds						$	27,554					$	(7)					$	—					$	—					$	27,554					$	(7)
Commercial paper						10,491						(2)						—						—						10,491						(2)
U.S. treasury securities						7,034						(1)						—						—						7,034						(1)
Total						$	45,079					$	(10)					$	—					$	—					$	45,079					$	(10)
Number of securities with unrealized losses												16												—												16
						December 31, 2020
						Less than 12 Months												Greater than 12 Months												Total
						Fair Value						Unrealized Loss						Fair Value						Unrealized Loss						Fair Value						Unrealized Loss
U.S. treasury securities						$	16,598					$	(3)					$	—					$	—					$	16,598					$	(3)
Total						$	16,598					$	(3)					$	—					$	—					$	16,598					$	(3)
Number of securities with unrealized losses												6												—												6

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 September 30, 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 and nine months ended September 30, 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 September 30, 2021 (in thousands):

Maturing in one year or less			$	96,384
Maturing after one year through two years			2,035
Total debt investments			$	98,419

 

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 September 30, 2021 was 4.84 years.

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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 $0.2 million and $0.2 million, respectively, for the three months ended September 30, 2021 and 2020 and approximately $0.5 million and $0.6 million for the nine months ended September 30, 2021 and 2020, respectively.

The discount rate implicit within the Company's leases is generally not determinable and therefore the Company determines the discount rate based on its incremental borrowing rate based on the information available at commencement date. As of September 30, 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 September 30, 2021 (in thousands):

Assets
Operating lease right-of-use assets			$	2,509
Liabilities
Operating lease short-term liabilities (recorded within Accrued liabilities)			$	416
Operating lease long-term liabilities (recorded within Lease-related obligations)			2,525
Total operating lease liabilities			$	2,941

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

Years Ending December 31,			As of September 30, 2021
2021 (1)			$	97
2022			715
2023			736
2024			759
2025			781
All remaining years			467
Total future minimum rental payments			$	3,555
Less amount of lease payments representing interest			614
Total present value of lease payments			$	2,941

(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 five 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
2022			715
2023			736
2024			759
2025			781
Thereafter			467
Total future minimum rental payments			$	3,718
Less amount of lease payments representing interest			792
Total present value of lease payments			$	2,926

For the three months ended September 30, 2021 and 2020, the Company made lease payments of approximately $122,000 and $181,000, respectively, and for the nine months ended September 30, 2021 and 2020, the Company made lease payments of approximately $292,000 and $538,000, respectively.

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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 and nine months ended September 30, 2021, the Company recognized $0 and approximately $12,000 of income, respectively, and for the three and nine months ended September 30, 2020, the Company recognized approximately $18,000 and $53,000 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 September 30, 2021 and December 31, 2020, the Company had recorded a provision for potential refundable amounts of $52,000 and $38,000, respectively.

 

Note 4. Equity Transactions and Share-based Compensation

Common Stock

On January 20, 2021, the Company 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.

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 September 30, 2021, there was a total of 2.2 million shares reserved for future issuance under the 2013 Plan. The Company issued approximately 75,000 and 826,000 shares of common stock pursuant to the exercise of stock options during the three and nine months ended September 30, 2021, respectively. The Company issued 21,000 and 263,000 shares of common stock pursuant to the exercise of stock options during the three and nine months ended September 30, 2020, respectively.

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 2.3 million shares remained available for purchase as of September 30, 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

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each six-month purchase interval. The Company issued approximately 283,000 and 160,000 shares of common stock pursuant to the ESPP during the three months ended September 30, 2021 and 2020, respectively. The Company issued approximately 543,000 and 337,000 shares of common stock pursuant to the ESPP during the nine months ended September 30, 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 241,000 shares and approximately 410,000 shares of common stock pursuant to the vesting of RSUs during the three and nine months ended September 30, 2021, respectively. The Company issued 277,000 shares and approximately 440,000 shares of common stock pursuant to the vesting of RSUs during the three and nine months ended September 30, 2020, respectively.

Stock-based Compensation

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

						Three Months Ended September 30,												Nine Months Ended September 30,
						2021						2020						2021						2020
Research and development expense						$	1,853					$	625					$	4,995					$	2,090
General and administrative expense						1,578						657						4,132						1,910
Total share-based compensation expense						$	3,431					$	1,282					$	9,127					$	4,000

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 nine month period ended September 30, 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 September 30, 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 TEMBEXA as a medical countermeasure in the event of a smallpox release. Under the contract, BARDA agreed to reimburse the Company, plus pay a fixed fee, for the research and development of TEMBEXA 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, the Company received $72.5 million in expense reimbursement and $4.6 million in fees.

The fourth option segment ended on September 1, 2021 and the contract has expired in accordance with its terms. For the three months ended September 30, 2021 and 2020, the Company recognized revenue under this contract of $0.1 million and $1.6

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million, respectively, and for the nine months ended September 30, 2021 and 2020, the Company recognized revenue under this contract of $1.6 million and $4.2 million, respectively.

Cantex Pharmaceuticals, Inc.

In July 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. Under the terms of the license agreement, the Company is responsible for, and bears 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 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 TEMBEXA 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 TEMBEXA 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 TEMBEXA 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 TEMBEXA. Since entering into the license agreement in September 2019, the Company has recognized all of the $5.0 million upfront payment.

Ohara Agreement

In 2019, Oncoceutics, Inc., a Delaware corporation (Oncoceutics) entered into a license, development and commercialization agreement with Ohara Pharmaceutical Co., Ltd. for ONC201 in Japan. The Company is entitled to receive up to $2.5 million in nonrefundable regulatory milestone payments. The Company is entitled to tiered royalties based on the aggregate annual net sales of all products, as defined in the agreement, in Japan.

CR Sanjiu Agreement

In December 2020, Oncoceutics entered into a license, development and commercialization agreement with China Resources Sanjiu Medical & Pharmaceutical Co., Ltd. (CR Sanjiu). Oncoceutics granted CR Sanjiu an exclusive royalty bearing license to develop and commercialize ONC201 in China, Hong Kong, Macau and Taiwan (CR Sanjiu Territory). The Company is entitled to receive up to $5.0 million in nonrefundable regulatory milestone payments. The Company is entitled to tiered royalties based on the aggregate annual net sales of all licensed products, as defined in the agreement, in China.

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 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.

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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 September 30, 2021, the Company has recorded an estimated liability of $0.2 million related to closing payment adjustments. Additionally, as of September 30, 2021, the Company has recorded an estimated receivable of $0.6 million related to the repayment of certain severance amounts due from the Oncoceutics' shareholders.

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 (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.

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 payment			14,000
Shares common stock issued as consideration			8,723,769
Stock price per share on effective date			4.98
Value of estimated common stock consideration			43,445
Total consideration			$	81,281
Net assets acquired			$	(1,310)
IPR&D assets expensed			82,591
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 September 30, 2021, and events which occurred subsequently but were not recognized in the financial statements.

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In accordance with the terms of the merger agreement between Chimerix and Oncoceutics, Inc., the achievement of the 20% overall response rate (ORR) via Blinded Independent Central Review (BICR) will result in a success milestone payment of $20 million to the former Oncoceutics, Inc. shareholders to be paid prior to year-end.

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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 (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 biopharmaceutical company whose mission it is to develop medicines that meaningfully improve and extend the lives of patients facing deadly diseases. In June 2021, the U.S. Food and Drug Administration (FDA) approved TEMBEXA (brincidofovir) for the treatment of smallpox as a medical countermeasure. Our two most advanced clinical-stage development programs are ONC201 and dociparstat sodium (DSTAT). ONC201 is in development for recurrent H3 K27M-mutant glioma. DSTAT is in Phase 3 development as a potential first-line therapy in acute myeloid leukemia (AML).

Recent Developments

TEMBEXA (brincidofovir, BCV)

On June 4, 2021, the FDA granted TEMBEXA approval for the treatment of smallpox. TEMBEXA is available in tablets and oral suspension. It is approved for adult and pediatric patients, including neonates. TEMBEXA was developed as a medical countermeasure for the treatment of smallpox under an ongoing collaboration with Biomedical Advanced Research and Development Authority (BARDA). On July 19, 2021, the FDA confirmed that, following the recent approval, TEMBEXA is entitled to seven years’ orphan exclusivity for the treatment of smallpox beginning with the June 4, 2021 marketing approval. In addition to orphan exclusivity, TEMBEXA patent coverage is expected to extend to 2034.

TEMBEXA potentially fills an important role as a treatment countermeasure to smallpox; it has a differentiated mechanism of action, a relatively high barrier to resistance and available evidence suggests it can be used in patients who have received the other FDA approved smallpox antiviral treatment. In September, an article was published in the peer review journal, Antiviral Research, providing a thorough assessment of TEMBEXA as a medical counter measure for smallpox.

By year-end, we expect to complete initial TEMBEXA drug product manufacturing in order to execute first shipments to the strategic national stockpile in response to a potential procurement contract to support national preparedness in the United States.

Imipridones - ONC201, ONC206 and ONC212

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 the ongoing ONC201 clinical studies into a registration cohort, along with a natural history study and other supporting clinical pharmacological data and CMC with the potential for New Drug Application (NDA) submission seeking accelerated approval.

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ONC201 - Results from 50 Patient Cohort of ONC201 in Recurrent H3 K27M-mutant Glioma

On November 4, 2021, we reported top-line results from the blinded independent central review (BICR) efficacy analysis. The efficacy analysis by BICR of the 50 patient cohort determined the overall response rate (ORR) to be 20.0% (95% Confidence Interval (CI): 10.0-33.7%) as determined by Response Assessment in Neuro-Oncology Criteria for High Grade Gliomas (RANO-HGG). The median duration of response (mDOR) was 11.2 months (95% CI: 3.8 - not reached) and the median time to response (mTTR) was 8.3 months.

The cohort for a potential registration of ONC201 was comprised of the first 50 patients enrolled across five ONC201 clinical studies that met certain criteria. These patients were two years of age or older, had measurable diffuse midline glioma, harbored the H3 K27M mutation and had evidence of progression following prior therapy with at least radiation completed at least 90 days prior to enrollment, among certain other criteria.

One serious adverse event identified by an investigator was possibly related to ONC201. Full safety data collection and analysis for this cohort is ongoing. Prior safety review of ONC201 identified the most commonly reported adverse events (AEs) as nausea/vomiting, fatigue and decreased lymphocyte counts.

This data along with other supportive clinical data from the ONC201 clinical studies, a natural history evaluation, other supporting clinical pharmacology data and chemistry, manufacturing and controls (CMC) support will be compiled for review with the U.S. FDA in 2022.

In accordance with the terms of the merger agreement between Chimerix and Oncoceutics, Inc., the achievement of the 20% ORR via BICR will result in a success milestone payment of $20 million to the former Oncoceutics, Inc. shareholders to be paid prior to year-end.

ONC206 and ONC212

Phase 1 clinical trials for ONC206, our second imipridone product candidate, and IND-enabling work for our third imipridone candidate, ONC212, remain ongoing.

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. The multicenter, randomized, double-blind, placebo-controlled, parallel-group study will evaluate the efficacy and safety of DSTAT in combination with standard intensive induction and consolidation chemotherapy for the treatment of newly-diagnosed AML patients. Chimerix expects to unblind data following enrollment of the first 80 evaluable patients in this study to assess complete response rates and minimal residual disease rates between the study arm and the control arm. To date, enrollment of this study has proceeded more slowly than expected due to hospital staffing shortages related to COVID-19. We expect to complete enrollment of the first 80 evaluable patients in the second half of 2022.

Business Development Review

In addition to our transactions with Cantex Pharmaceuticals, Inc. (Cantex), SymBio Pharmaceuticals Limited (SymBio) and Oncoceutics, Inc. (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 government grants and a contract and the receipt of up-front proceeds under our collaboration and license agreements.

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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 was a cost-plus fixed fee development contract. Under the contract we received $72.5 million in expense reimbursement and $4.6 million in fees. The fourth and final option segment ended on September 1, 2021 and the contract expired in accordance with its terms. Under the BARDA contract, we recognized revenue of $0.1 million and $1.6 million during the three months ended September 30, 2021 and 2020, respectively, and we recognized revenue of $1.6 million and $4.2 million during the nine months ended September 30, 2021 and 2020, respectively.

In September 2019, we entered into a license agreement with SymBio for worldwide rights to develop, manufacture and commercialize TEMBEXA 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.

 

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.

 

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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 September 30,												Nine Months Ended September 30,
						2021						2020						2021						2020
Direct research and development expenses						$	7,296					$	5,943					$	19,169					$	15,151
Research and development personnel costs - excluding stock-based compensation						4,081						2,770						13,171						8,286
Research and development personnel costs - stock-based compensation						1,853						625						4,995						2,090
Indirect research and development expenses						590						680						2,145						2,018
Total research and development expenses						$	13,820					$	10,018					$	39,480					$	27,545

 

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.

TEMBEXA (Brincidofovir, BCV)

We developed TEMBEXA for the treatment of smallpox. FDA marketing approval for TEMBEXA was received on June 4, 2021. Under our cost-plus-fixed fee BARDA contract, we incurred expenses in connection with the development of orthopoxvirus animal models, the demonstration of efficacy and pharmacokinetics of TEMBEXA in the animal models, the conduct of clinical studies for subjects with DNA viral infections, the manufacture and process validation of bulk drug substance and TEMBEXA 100 mg tablets and TEMBEXA 10 mg/mL oral suspension, and submission of the NDAs to the FDA. In addition, we have incurred additional supportive costs for the development of TEMBEXA for smallpox that we did not seek reimbursement for from BARDA. We have incurred costs related to the manufacturing of TEMBEXA for a possible procurement contract. These costs were expensed as incurred until the June approval. Following the June approval, costs related to the manufacturing of TEMBEXA are recorded and shown as inventory on the Consolidated Balance Sheets.

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 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, we expect research and development expense to increase with the ongoing and planned clinical trials. We are currently enrolling 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 accounting and legal services, costs of various consultants, director and officer liability insurance, occupancy costs and information systems.

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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 $3.4 million and $1.3 million was recognized in the three months ended September 30, 2021 and 2020, respectively, and $9.1 million and $4.0 million was recognized in the nine months ended September 30, 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 nine months ended September 30, 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 September 30, 2021 and September 30, 2020

The following table summarizes our results of operations for the three months ended September 30, 2021 and September 30, 2020, together with the changes in those items (in thousands, except percentages): 

 

						Three Months Ended September 30,												Dollar Change						% Change
						2021						2020						Increase/(Decrease)
Revenues:
Contract and grant revenue						$	105					$	1,591					$	(1,486)					(93.4)		%
Licensing revenue						2						18						(16)						(88.9)
Total revenues						107						1,609						(1,502)						(93.3)		%
Operating expenses:
Research and development						13,820						10,018						3,802						38.0		%
General and administrative						4,887						3,151						1,736						55.1		%
Total operating expenses						18,707						13,169						5,538						42.1		%
Loss from operations						(18,600)						(11,560)						(7,040)						60.9		%
Other income:
Interest income and other, net						40						149						(109)						(73.2)		%
Net loss						$	(18,560)					$	(11,411)					$	(7,149)					62.7		%

Contract and Licensing Revenue

For the three months ended September 30, 2021, total contract and licensing revenue decreased to $0.1 million compared to $1.6 million for the three months ended September 30, 2020. The decrease of $1.5 million, or 93.3%, is primarily attributable to a decrease in reimbursable expenses under our contract with BARDA.

Research and Development Expenses

For the three months ended September 30, 2021, our research and development expenses increased to $13.8 million compared to $10.0 million for the three months ended September 30, 2020. The increase of $3.8 million, or 38.0%, is primarily related to the following:

•an increase of $4.8 million in research and development expenses related to our ongoing clinical trials in patients, preparation of data for the efficacy analysis by Blinded Independent Central Review of ONC201 in recurrent H3 K27M-mutant glioma patients, and the development and manufacture of ONC201 and ONC206 drug substance and drug product; and

•an increase of $2.5 million in compensation expenses, of which $1.2 million is related to non-cash stock compensation, to support development of our current pipeline; offset by

•a decrease of $2.4 million in brincidofovir development expenses with the approval of TEMBEXA in June 2021;

•a decrease of $1.1 million in DSTAT development costs primarily related to curtailment of the Phase 2 trial to assess DSTAT for acute lung injury in COVID-19 patients.

General and Administrative Expenses

For the three months ended September 30, 2021, our general and administrative expenses increased to $4.9 million compared to $3.2 million for the three months ended September 30, 2020. The increase of $1.7 million, or 55.1%, is primarily related to the following:

•an increase of $1.2 million in compensation expenses, of which $0.9 million is related to non-cash stock compensation expense; and

•an increase of $0.5 million in consulting, legal and operational expenses with the growth of the company’s infrastructure.

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Interest Income and Other, Net

For the three months ended September 30, 2021, our interest income and other, net decreased to $40,000 compared to $0.1 million for the three months ended September 30, 2020. This decrease is attributable to amortization of our investment premium balances offsetting interest earned.

Comparison of the Nine Months Ended September 30, 2021 and September 30, 2020

The following table summarizes our results of operations for the nine months ended September 30, 2021 and September 30, 2020, together with the changes in those items (in thousands except percentages): 

 

						Nine Months Ended September 30,												Dollar Change						% Change
						2021						2020						Increase/(Decrease)
Revenues:
Contract and grant revenue						$	1,928					$	4,158					$	(2,230)					(53.6)		%
Licensing revenue						5						94						(89)						(94.7)		%
Total revenues						$	1,933					$	4,252					(2,319)						(54.5)		%
Operating expenses:
Research and development						$	39,480					$	27,545					11,935						43.3		%
General and administrative						13,431						9,466						3,965						41.9		%
Acquired in-process research and development						$	82,890					$	—					$	82,890					*
Total operating expenses						135,801						37,011						98,790						266.9		%
Loss from operations						(133,868)						(32,759)						(101,109)						308.6		%
Other income:
Interest income and other, net						130						912						(782)						(85.7)		%
Net loss						$	(133,738)					$	(31,847)					$	(101,891)					319.9		%

* Not meaningful or not calculable

Contract and Licensing Revenue

For the nine months ended September 30, 2021, total contract and licensing revenue decreased to $1.9 million compared to $4.3 million for the nine months ended September 30, 2020. The decrease of $2.3 million, or 54.5%, is primarily related to a decrease in reimbursable expenses under our contract with BARDA.

Research and Development Expenses

For the nine months ended September 30, 2021, our research and development expenses increased to $39.5 million compared to $27.5 million for the nine months ended September 30, 2020. The increase of $11.9 million, or 43.3%, is primarily related to the following:

•an increase of $8.8 million related to research and development expenses of our ongoing clinical trials in patients, preparation of data for the efficacy analysis by Blinded Independent Central Review ONC201 in recurrent H3 K27M-mutant glioma, toxicology studies and development and the manufacture of ONC201 and ONC206 drug substance and drug product; and

•an increase of $7.7 million in compensation expenses, of which $2.9 million relates to non-cash compensation to support development of our current pipeline; offset by

•a decrease of $3.3 million in brincidofovir development expenses with the approval of TEMBEXA in June 2021; and

•a decrease of $1.5 million in DSTAT development costs related to curtailment of the Phase 2 trial to assess DSTAT for acute lung injury in COVID-19 patients.

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General and Administrative Expenses

For the nine months ended September 30, 2021, our general and administrative expenses increased to $13.4 million compared to $9.5 million for the nine months ended September 30, 2020. The increase of $4.0 million, or 41.9%, is primarily related to the following:

•an increase of $2.8 million in compensation, of which $2.2 million relates to non-cash stock compensation; and

•an increase of $1.1 million in consulting, legal other operational expense with the growth of the company’s infrastructure.

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 nine months ended September 30, 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 nine months ended September 30, 2021, our interest income and other, net decreased to $0.1 million compared to $0.9 million for the nine months ended September 30, 2020. This decrease is attributable to amortization of our investment premium balances offsetting interest earned.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2021, we had capital available to fund operations of approximately $124.6 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 September 30, 2021, we had an accumulated deficit of $846.1 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 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. As of September 30, 2021, 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 our common stock. The price to the public in this offering was $8.50 per share, and the Underwriters agreed to purchase the Shares from us pursuant to the Underwriting Agreement at a price of $7.99 per share. Under the terms of the Underwriting Agreement, we granted the Underwriters a 30-day option to purchase up to 1,764,750 additional shares of our common stock at the public offering price. The net proceeds to us 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 us. The offering closed on January 25, 2021.

On May 6, 2021, we filed an automatic shelf registration statement on Form S-3 with the SEC, which became effective upon filing, pursuant to which we registered for sale an unlimited amount of any combination of our common stock, preferred stock, debt securities, warrants, rights and/or units from time to time and at prices and on terms that we may determine, so long as we continue to satisfy the requirements of a “well-known seasoned issuer” under SEC rules, This registration statement will remain in effect for up to three years from the date it became effective. As of September 30, 2021, no sales have been made under the automatic shelf registration statement.

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

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marketing approval. We cannot assure you that we will successfully develop or commercialize our products under development or that our products, if successfully developed, will generate revenues sufficient to enable us to earn a profit.

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

Cash Flows

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

						Nine Months Ended September 30,
						2021						2020
Cash sources and uses:
Net cash used in operating activities						$	(65,907)					$	(26,993)
Net cash (used in) provided by investing activities						(67,285)						47,155
Net cash provided by financing activities						112,377						1,067
Net (decrease) increase in cash and cash equivalents						$	(20,815)					$	21,229

The table above sets forth the net decrease or increase in cash and cash equivalents alone and not the change in our total capital available to fund operations, which also includes short-term and long-term investments. Cash and cash equivalents includes cash on hand and securities with original maturities of 90 days or less.

 

Operating Activities

Net cash used in operating activities of $65.9 million for the nine months ended September 30, 2021 was primarily the result of our $133.7 million net loss, partially offset by the change in operating assets and liabilities and the add-back of non-cash expenses. The change in operating assets and liabilities includes an increase of $3.5 million in accounts payable and accrued liabilities and a decrease in accounts receivable of $0.3 million, partially offset by an increase in prepaid expenses and other assets of $2.0 million and an increase in inventories of $1.6 million. 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, $9.1 million for share-based compensation, $0.1 million of depreciation of property and equipment and $0.6 million of amortization of discount/premium on investments. Net cash used in operating activities of $27.0 million for the nine months ended September 30, 2020 was primarily the result of our $31.8 million net loss offset by the change in operating assets and liabilities and the add-back of non-cash expenses. The change in operating assets and liabilities includes a decrease in prepaid expenses and other assets of $1.3 million and a decrease in accounts receivable of $0.9 million related to work on the BARDA contract, partially offset by a decrease of $1.3 million in accounts payable and accrued liabilities. Non-cash expenses included add-backs of $4.0 million for share-based compensation and $0.3 million of depreciation of property and equipment, offset by $0.3 million of amortization of discount/premium on investments.

Investing Activities

Net cash used in investing activities of $67.3 million for the nine months ended September 30, 2021 was primarily the result of the purchase of $105.4 million in short-term investments and the purchase of $9.6 million in long-term investments, partially offset by the maturity of $45.9 million in short-term investments and the sale of $2.0 million in short-term investments. Net cash provided by investing activities of $47.2 million for the nine months ended September 30, 2020 was primarily the result of the maturity of $104.6 million in short-term investments and the sale of $1.5 million in short-term investments, partially offset by the purchase of $58.9 million in short-term investments.

Financing Activities

Net cash provided by financing activities of $112.4 million for the nine months ended September 30, 2021 was primarily the result of $107.8 million in proceeds from the issuance of common stock and $4.5 million in proceeds from the exercise of stock options and stock purchases through our ESPP. Net cash provided by financing activities of $1.1 million for the nine months ended September 30, 2020 was primarily the result of $1.1 million in proceeds from the exercise of stock options and stock purchases through our ESPP.

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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 and nine months ended September 30, 2021 or September 30, 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 (the Exchange Act)) as of September 30, 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 third 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

Summary of Risk Factors

Below is a summary of material factors that make an investment in our common stock speculative or risky. Importantly, this summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, as well as other risks that we face, can be found under the heading “Risk Factors” below.

•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 have only obtained regulatory approval for TEMBEXA, and all of our other product candidates are still under clinical development and may not obtain regulatory approval or be successfully commercialized. We may be unable to obtain, or may be delayed in obtaining, regulatory approval for other most advanced clinical candidates: ONC201 and DSTAT.

•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.

•Even though we have obtained regulatory approval for TEMBEXA, or if we obtain regulatory approval for any of our product candidates, including ONC201 and DSTAT, we will still face extensive regulatory requirements and our products may face future development and regulatory difficulties.

•We rely on third-party manufacturers to produce our preclinical and clinical drug supplies, and we intend to rely on third parties to produce commercial supplies of any approved product candidates. We rely on limited sources of supply for the drug components for each of our product candidates including, TEMBEXA, ONC201 and DSTAT, and any disruption in the chain of supply for either of these product candidates may cause delays in their development and commercialization.

•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. For example, we may experience difficulties in integrating the operations of Oncoceutics into our business and in realizing the expected benefits of the merger with Oncoceutics.

•If we are unable to obtain or protect intellectual property rights related to our products and product candidates, we may not be able to compete effectively in our market.

•If we fail to comply with the extensive legal and regulatory requirements affecting the health care industry, we could face increased costs, delays in the development of our product candidates, penalties and a loss of business.

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

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 and commercializing TEMBEXA 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). We have incurred significant net losses in each year since our inception, including net losses of

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$133.7 million and $31.8 million for the nine months ended September 30, 2021 and 2020, respectively. As of September 30, 2021, we had an accumulated deficit of approximately $846.1 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 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 and other potential indications;

•Enter into an agreement with BARDA to sell TEMBEXA into the US Strategic National Stockpile as a medical countermeasure for the treatment of smallpox;

•obtain regulatory approvals for ONC201 and DSTAT;

•scale-up manufacturing capabilities to commercialize TEMBEXA and in the event we receive regulatory approval, ONC201 and DSTAT;

•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 only obtained regulatory approval for TEMBEXA, and none of our product candidates have been commercialized. We may not succeed in developing additional product candidates 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. In addition to these risks in the United States, assuming regulatory approval in other geographies, our revenues are also dependent upon the size of markets outside of the United States, as well as our ability to obtain market approval and achieve commercial success outside of the United States.

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

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

Our ability to generate revenue and achieve profitability depends on our ability, alone or with collaborators, to successfully complete the development 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:

•reaching agreement with the US Federal government for the procurement of TEMBEXA in a dollar amount consistent with management's expectations, or at all;

•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 for a BARDA procurement agreement for TEMBEXA for the treatment of smallpox;

•obtaining United States regulatory approval(s) for ONC201 and DSTAT;

•obtaining foreign regulatory approval(s) for TEMBEXA, ONC201 and DSTAT;

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

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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, TEMBEXA, or any product candidate if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of products that may not be commercially available for a number of years, if at all. For any approved product candidate, 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 3 trial in AML.

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.

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 TEMBEXA, ONC201, DSTAT, or any other product candidate;

•seek corporate partners for TEMBEXA, 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.

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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 risk factors.

In addition to our current assets, 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 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.

We have only received regulatory approval for TEMBEXA, and all our other 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, as well as DSTAT, which we are developing for the treatment of AML and other potential indications. We are in late-stage clinical development for both ONC201 and DSTAT.

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 TEMBEXA will depend on several factors, including the following:

•generating positive safety and efficacy data from our clinical trials of DSTAT and ONC201;

•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;

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•establishing commercial manufacturing capabilities for TEMBEXA;

•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 TEMBEXA, ONC201, and DSTAT, which would materially harm our business.

We may be unable to obtain, or may be delayed in obtaining, regulatory approval for our most advanced clinical candidates: ONC201 and DSTAT.*

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 our 570-subject Phase 3 Dociparstat in AML with Standard Chemotherapy (DASH AML) study of DSTAT for the treatment of 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 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 reassessed 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 based on data from ongoing trials of our clinical candidates ONC201 and DSTAT. It is also possible that confirmatory clinical trials may not demonstrate clinical benefit.

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 and/or DSTAT, 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 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 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 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;

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•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;

•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 or quality requirements;

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

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

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

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

We do not know whether any clinical trials we may conduct will demonstrate adequate efficacy and safety to result in regulatory approval to market our most advanced product candidates, including 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 either 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;

•changes in standard of care in specific diseases;

•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

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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 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);

•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 ONC201 or DSTAT.*

We cannot commercialize our product candidates, including 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. Delays may occur because we may not be able to obtain accelerated approval for our product candidates and large confirmatory studies may be needed. For ONC201, a diagnostic test may be needed to identify patients with H3 K27M-mutant glioma before approval. 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 or 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

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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.

Following regulatory approval for TEMBEXA, or should any of our product candidates be approved, including 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 TEMBEXA, 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 TEMBEXA 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. For ONC201, a diagnostic test may be needed to identify the patients with H3 K27M-mutant glioma after approval.

With respect to the FDA’s approval of TEMBEXA for the treatment of smallpox, we received approval according to the Animal Rule and are subject to certain post-approval requirements. For example, we will need to conduct a large confirmatory clinical trial during a smallpox outbreak, which may be expensive and time-consuming and may not confirm the benefit making the marketing approval for TEMBEXA subject to withdrawal by the FDA, which could significantly harm our business. This study may be difficult to enroll due to the size and/or location of the smallpox outbreak. These outbreak studies are highly specialized in their design and conduct and are associated with considerable expenses, and based on the outcome, could result in further labeling restrictions that could impair or restrict the way in which we are able to market TEMBEXA, or negatively impact its overall clinical profile. In addition, we will need to conduct in vitro resistance testing to address post-marketing commitments which could negatively impact the labeling.

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. Physicians, on the other hand, may prescribe products for off-label uses in the U.S. Although the FDA and other regulatory agencies do not regulate a physician’s choice of drug treatment made in the physician’s independent medical judgment, they do restrict promotional communications from companies or their sales force with respect to off-label uses of products for which marketing clearance has not been issued. However, companies may share truthful and not misleading information that is otherwise consistent with a product’s FDA approved labeling. The promotion of medicinal products that are not subject to a marketing authorization is also prohibited in the EU. Violations of the rules

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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.

Having obtained FDA approval for TEMBEXA in the United States does not mean we will ever obtain approval for or commercialize TEMBEXA, 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 ONC201, DSTAT or any of our other current or future product candidates, which could make it difficult for us to sell profitably, if approved.*

Market acceptance and sales of ONC201, DSTAT, or any other 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,

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therapies and services, in addition to questioning their safety and efficacy. Even if favorable coverage and reimbursement status is attained for our products candidates for which we receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future. 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 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 payments and other transfers of value made 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

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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, restrict or regulate post-approval activities and affect our ability to profitably sell any products for which we obtain marketing approval.

For example, in March 2010, the ACA was enacted to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for health care and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. The ACA revises the definition of “average manufacturer price” for reporting purposes, which could increase the amount of Medicaid drug rebates to states. Further, the law imposes a significant annual fee on companies that manufacture or import branded prescription drug products. New provisions affecting compliance have also been enacted, which may affect our business practices with health care practitioners. However, there have been executive, judicial and Congressional challenges to certain aspects of the ACA. For example, the 2020 federal spending package permanently eliminated, effective January 1, 2020, the ACA-mandated “Cadillac” tax on high-cost employer-sponsored health coverage and medical device tax and, effective January 1, 2021, also eliminated the health insurer tax. The Bipartisan Budget Act of 2018 (the BBA), among other things, amended the ACA, effective January 1, 2019, to close the coverage gap in most Medicare drug plans, and also increased in the percentage that a drug manufacturer must discount the cost of prescription drugs from 50 percent to 70 percent. Additionally, on June 17, 2021, the U.S. Supreme Court dismissed a challenge on procedural grounds that argued the ACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress. Thus, the ACA will remain in effect in its current form. Further, prior to the U.S. Supreme Court ruling, on January 28, 2021, President Biden issued an executive order that initiated a special enrollment period for purposes of obtaining health insurance coverage through the ACA marketplace, which began on February 15, 2021 and remained open through August 15, 2021. The executive order also instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA. It is possible that the ACA will be subject to judicial or Congressional challenges in the future. It is unclear how any such challenges and other litigation, and the healthcare reform measures of the Biden administration will impact the ACA and our business.

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

Additionally, there has been increasing legislative and enforcement interest in the United States with respect to specialty drug pricing practices. Specifically, there have been several recent U.S. Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs, and reform government

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program reimbursement methodologies for drugs. At the federal level, the Trump administration used several means to propose or implement drug pricing reform, including through federal budget proposals, executive orders and policy initiatives. For example, on July 24, 2020 and September 13, 2020, the Trump administration announced several executive orders related to prescription drug pricing that attempted to implement several of the administration’s proposals. The FDA also released a final rule, effective November 30, 2020, implementing a portion of the importation executive order providing guidance for states to build and submit importation plans for drugs from Canada. Further, on November 20, 2020, the U.S. Department of Health and Human Services (DHHS) finalized a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy benefit managers, unless the price reduction is required by law. The implementation of the rule has been delayed by the Biden administration from January 1, 2022 to January 1, 2023 in response to ongoing litigation. The rule also creates a new safe harbor for price reductions reflected at the point-of-sale, as well as a new safe harbor for certain fixed fee arrangements between pharmacy benefit managers and manufacturers, the implementation of which have also been delayed until January 1, 2023. On November 20, 2020, CMS issued an interim final rule implementing President Trump’s Most Favored Nation (MFN) executive order, which would tie Medicare Part B payments for certain physician-administered drugs to the lowest price paid in other economically advanced countries, effective January 1, 2021. As a result of litigation challenging the MFN model, in August 2021, CMS published a proposed rule that seeks to rescind the MFN model interim final rule. In July 2021, the Biden administration released an executive order with multiple provisions aimed at prescription drugs. In response to this executive order, in September 2021, DHHS released a Comprehensive Plan for Addressing High Drug Prices that outlines principles for drug pricing reform and sets out a variety of potential legislative policies that Congress could pursue as well as potential administrative actions DHHS can take to advance these principles. No legislation or administrative actions have been finalized to implement these principles. In addition, Congress is considering drug pricing as part of the budget reconciliation process. At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. Such reform efforts are likely to continue the pressure on pharmaceutical pricing, especially under the Medicare program, and may also increase our regulatory burdens and operating costs.

Healthcare reform measures that may be adopted in the future may result in more rigorous coverage criteria, lower reimbursement, and additional downward pressure on the price that we receive for any future approved product. It is possible that additional governmental action may be taken in response to the COVID-19 pandemic. We cannot predict what healthcare reform initiatives may be adopted in the future.

Risks Related to Our Reliance on Third Parties

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

We do not own or operate, and we do not expect to own or operate, facilities for product manufacturing, storage and distribution, or testing with respect to TEMBEXA or our other product candidates, including ONC201 and DSTAT. In the past, we have relied on third-party manufacturers for supply of our preclinical and clinical drug supplies. We expect that in the future we will continue to rely on such manufacturers for drug supply that will be used in clinical trials and for commercialization of any of our product candidates that receive regulatory approval.

In July 2019, we were assigned Cantex’s rights under a supply agreement with Scientific Protein Laboratories LLC (SPL) pursuant to which SPL will exclusively produce DSTAT for us through October 2040. We have agreed that SPL will be our exclusive provider of DSTAT bulk drug substance during the term of the agreement.

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

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

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

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

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

•failure to comply with cGMP and similar foreign standards;

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

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

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

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

•operations of our third-party manufacturers or suppliers could be disrupted by conditions unrelated to our business or operations, including the bankruptcy of the manufacturer or supplier, or other factors such as the impact of the ongoing COVID-19 pandemic;

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

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

Any of these events could lead to clinical study delays, failure to obtain regulatory approval or impact our ability to successfully commercialize our products. Some of these events could be the basis for FDA or equivalent foreign regulator action, including injunction, recall, seizure, or total or partial suspension of production. The severity of the coronavirus (COVID-19) pandemic could make access to our existing supply chain difficult or impossible and could materially impact our business.

We rely on limited sources of supply for the drug components for TEMBEXA as well as each of our product candidates including ONC201 and DSTAT, and any disruption in the chain of supply for any of these product candidates may cause delays in their development and commercialization.*

Manufacturing of drug components is subject to certain FDA and comparable foreign qualifications with respect to manufacturing standards. Our manufacturing of TEMBEXA is comprised of separate processes for each of bulk drug substance, tablets, and suspension. In addition, each of these forms can be manufactured at either small or large scale. For each form and scale of manufacturing, the process must be validated in order to supply TEMBEXA commercially. We have validated the TEMBEXA drug substance manufacturing process at our selected contractor that will produce drug substance at large scale. We have selected our TEMBEXA tablet and suspension manufacturers that will produce at both small and large scale. We have scaled up the tablet manufacturing process and plan to scale up the suspension manufacturing process to meet forecasted demand. There can be no assurance that manufacturing the suspension at large scale will be successful or will be completed in a timely fashion in order to meet large scale demands. If we are unable to successfully scale up to meet forecasted demands our business could be materially harmed.

In connection with the approval of TEMBEXA, we have only one supplier of drug substance and one separate supplier of drug product qualified as vendors with the FDA. We plan to validate the DSTAT and ONC201 drug substance and drug product processes prior to regulatory approval. It is our expectation that only one supplier of drug substance and one supplier of drug product will be qualified as vendors with the FDA for each of DSTAT and ONC201. If supply from an approved vendor is interrupted, there could be a significant disruption in commercial supply. An alternative vendor would need to be qualified through an NDA supplement which could result in further delay. The FDA or other regulatory agencies outside of the United States may also require additional studies if a new drug substance or drug product supplier is relied upon for commercial production.

These factors could cause the delay of clinical trials, regulatory submissions, required approvals or commercialization of DSTAT, ONC201 or TEMBEXA, and cause us to incur additional costs. As an example, we source a significant number of materials used in the manufacture of our products from China; the impact of the recent coronavirus outbreak could make access to our existing supply chain difficult or impossible and could materially harm our business. If our suppliers fail to deliver the required commercial quantities of active pharmaceutical ingredient on a timely basis and at commercially reasonable prices, and we are unable to secure one or more replacement suppliers capable of production at a substantially equivalent cost, our clinical trials for DSTAT, ONC201 and TEMBEXA may be delayed, which could inhibit our ability to generate revenues.

Manufacturing issues may arise that could increase product and regulatory approval costs or delay commercialization of TEMBEXA, ONC201 and DSTAT.*

We have validated processes for drug substance and drug product production for TEMBEXA.

We plan to validate DSTAT and ONC201 drug substance and drug product processes prior to approval at our selected vendors. It is our expectation that only one supplier of drug substance and one supplier of drug product will be qualified as vendors for each of DSTAT and ONC201 with the FDA.

As more batch data is generated post-validation for both the drug substance and drug products, and as additional stability data is collected, issues may arise in our processes and stability programs which could require resolution in order to proceed with our planned clinical trials and obtain regulatory approval for the commercial marketing of our products and product candidates. In

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the future, we may identify significant impurities, which could result in increased scrutiny by the regulatory agencies, delays in clinical program and regulatory approval for our products and product candidates, increases in our operating expenses, or failure to obtain or maintain approval for each of DSTAT, ONC201 or in the case of TEMBEXA, maintain approval.

We depend on SymBio for developing and commercializing TEMBEXA for human diseases other than orthopoxviruses, including smallpox.

In 2019, we entered into a licensing arrangement with SymBio, whereby SymBio is responsible for the future development and commercialization of TEMBEXA. Under this arrangement, SymBio is responsible for conducting preclinical studies and clinical trials, obtaining required regulatory approvals for TEMBEXA in non-orthopox indications (e.g. smallpox), and manufacturing and commercializing TEMBEXA in those indications. Our right to receive milestone payments under the licensing agreement depends on the achievement of certain development, regulatory and commercial milestones by SymBio and our ability to receive royalties under the agreement depends on SymBio's successful commercialization of TEMBEXA in the licensed indications.

The development and commercialization of the non-orthopox uses of TEMBEXA in humans and our ability to receive potential milestones and royalty payments under the license agreement with SymBio, would be adversely affected if SymBio:

•lacks or does not devote sufficient time and resource to the development and commercialization of TEMBEXA;

•lacks or does not devote sufficient capital to fund the development and commercialization of TEMBEXA;

•develops, either alone or with others, products that compete with TEMBEXA;

•fails to gain the requisite regulatory approvals for TEMBEXA;

•does not successfully commercialize TEMBEXA;

•does not conduct its activities in a timely manner;

•terminates its license with us;

•does not effectively pursue and enforce intellectual property rights relating to TEMBEXA; or

•merges with a third-party that wants to terminate the collaboration.

We have limited or no control over the occurrence of any of the foregoing. Furthermore, disagreements with SymBio could lead to litigation or arbitration, which could be time-consuming and expensive. If any of these issues arise, it may delay the development and commercialization milestones and royalties based on further development and sales of TEMBEXA.

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

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

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

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

If our CROs do not successfully carry out their contractual duties or obligations, fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or

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regulatory requirements or for any other reasons, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for, or successfully commercialize ONC201, DSTAT, TEMBEXA or any other product candidates. Disagreements with our CROs over contractual issues, including performance, compliance or compensation could lead to termination of CRO agreements and/or delays in our clinical program and risks to the accuracy and usability of clinical data. As a result, our financial results and the commercial prospects for our product candidates that we develop would be harmed, our costs could increase, and our ability to generate revenues could be delayed.

Risks Related to Commercialization of Our Product Candidates

The commercial success of TEMBEXA, ONC201, DSTAT and any other product candidates will depend upon the acceptance of these products by the medical community, including physicians, patients, pharmacists, health care payers or government procurement agencies (e.g. BARDA).*

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

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

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

•prevalence and severity of any AEs;

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

•availability, efficacy and safety of alternative treatments;

•price and cost-effectiveness;

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

•ability to obtain hospital formulary approval;

•ability to ensure availability for product through appropriate channels;

•ability to maintain adequate inventory; and

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

Even if we obtain regulatory approval, the granting authority may still impose significant restrictions on the indicated uses, distribution or marketing of TEMBEXA or our other product candidates, including ONC201 and DSTAT, 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 or DSTAT 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 TEMBEXA includes a boxed warning, or “black box,” regarding the mortality disadvantage with extended dosing observed in the SUPPRESS trial.

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

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

Our strategy for each of ONC201 and DSTAT, is to establish a specialty sales force and/or collaborate with third parties to promote the product to healthcare professionals and third-party payers in the United States and elsewhere. We may elect to launch with a contract sales organization and utilize accompanying commercial support services provided by a contract sales organization. Our future collaboration partners, if any, may not dedicate sufficient resources to the commercialization of our product candidates or may otherwise fail in their commercialization due to factors beyond our control. If we are unable to establish effective collaborations to enable the distribution and sale of our product candidates to healthcare professionals and in geographical regions, including the United States, that are not covered by our own marketing and sales force, or if our potential

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future collaboration partners do not successfully commercialize our product candidates, our ability to generate revenues from product sales, including sales of ONC201 and DSTAT, will be adversely affected.

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

•recruiting and retaining talented people;

•training employees that we recruit;

•establishing compliance standards;

•setting the appropriate system of incentives;

•managing additional headcount;

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

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

If we are unable to establish our own sales force or negotiate a strategic partnership for the commercialization of our product candidates in any markets, we may be forced to delay the potential commercialization of our product candidates in those markets, reduce the scope of our sales or marketing activities for our product candidates in those markets or undertake the commercialization activities for in those markets at our own expense. If we elect to increase our expenditures to fund commercialization activities ourselves, we will need to obtain additional capital, which may not be available to us on acceptable terms, or at all. If we do not have sufficient funds, we will not be able to bring our product candidates to market or generate product revenue. Limited or lack of funding will impede our ability to achieve successful commercialization.

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

In addition, there are risks involved with both establishing our own sales and marketing capabilities and entering into arrangements with third parties to perform these services. For example, recruiting and training a sales force is expensive and time-consuming and could delay any product launch. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and our investment would be lost if we cannot retain or reposition our sales, marketing and market access personnel.

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

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

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

•reduced protection for intellectual property rights;

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

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

•compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;

•foreign taxes, including withholding of payroll taxes;

•foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident to doing business in another country;

•differing payer reimbursement regimes, governmental payers or patient self-pay systems and price controls;

•workforce uncertainty in countries where labor unrest is more common than in the United States;

•production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad;

•regulatory risks associated with cross-border transportation of animal-sourced material;

•business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters and other events outside our control including epidemics, pandemics, earthquakes, typhoons, floods and fires; and

•regulatory and compliance risks that relate to maintaining accurate information and control over activities that may fall within the purview of the U.S. Foreign Corrupt Practices Act, its books and records provisions or its anti‑bribery provisions, or similar anti‑bribery or anti‑corruption laws and regulations.

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We have limited experience in these areas. In addition, there are complex regulatory, tax, labor and other legal requirements imposed by both the EU and many of the individual countries in Europe with which we will need to comply. Many U.S.-based biopharmaceutical companies have found the process of marketing their own products outside the United States to be very challenging.

We face competition from other biotechnology and pharmaceutical companies and our operating results will suffer if we fail to compete effectively.

The biotechnology and pharmaceutical industries are intensely competitive. We have competitors both in the United States and internationally, including major multinational pharmaceutical companies, biotechnology companies and universities and other research institutions.

Many of our competitors have substantially greater financial, technical, commercial and other resources, such as larger research and development staff, stronger intellectual property portfolios and experienced marketing and manufacturing organizations and established sales forces. Additional mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in our competitors.

Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries. Our competitors may succeed in developing, acquiring or licensing, on an exclusive basis, drug products that are more effective or less costly than TEMBEXA, or any of our drug candidates that we are currently developing or that we may develop including ONC201 and DSTAT.

We will face competition from other drugs currently approved or that will be approved in the future for the same indications. Therefore, our ability to compete successfully will depend largely on our ability to:

•discover and develop medicines that are superior to other products in the market;

•demonstrate through our clinical trials that our product candidates, including ONC201 and DSTAT, are differentiated from existing and future therapies;

•attract qualified scientific, product development and commercial personnel;

•obtain and successfully defend and enforce patent and/or other proprietary protection for our medicines and technologies;

•obtain required regulatory approvals;

•successfully collaborate with pharmaceutical companies in the discovery, development and commercialization of new medicines;

•deliver a competitive value proposition compared to established competition and/or competitors who will enter the market before or after any of our product candidates, including TEMBEXA, ONC201 and DSTAT; and

•negotiate competitive pricing and reimbursement with third-party payers.

The availability of our competitors’ products could affect the price we are able to charge, for any product candidate we develop. The inability to compete with existing or subsequently introduced drug products would have a material adverse impact on our business, financial condition and prospects.

Established pharmaceutical companies may invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make our product candidates less competitive. In addition, any new product that competes with an approved product must demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to overcome price competition and to be commercially successful. Accordingly, our competitors may succeed in obtaining patent protection, receiving FDA approval or discovering, developing and commercializing medicines before we do, which would have a material adverse impact on our business.

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

The success of our business depends primarily upon our ability to identify, develop and commercialize product candidates. Because we have limited financial and managerial resources, we focus on research programs and product candidates for specific indications. As a result, we may forego or delay pursuit of opportunities with other product candidates or other indications that later prove to have greater commercial potential.

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Our research programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates for clinical development for a number of reasons, including:

•our research methodology or that of our collaboration partners may be unsuccessful in identifying potential product candidates;

•our potential product candidates may be shown to have harmful side effects or may have other characteristics that may make the products unmarketable or unlikely to receive marketing approval; and

•our collaboration partners may change their development profiles for potential product candidates or abandon a therapeutic area.

If any of these events occur, we may be forced to abandon our development efforts for a program or programs, which would have a material adverse effect on our business and could potentially cause us to cease operations. Research programs to identify new product candidates require substantial technical, financial and human resources. We may focus our research efforts and resources on potential programs or product candidates that ultimately prove to be unsuccessful.

If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been advantageous for us to retain sole development and commercialization rights.

Risks Related to Our Intellectual Property

If we are unable to obtain or protect intellectual property rights related to our products and product candidates, we may not be able to compete effectively in our market.

We rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to our products and product candidates. The strength of patents in the biotechnology and pharmaceutical field involves complex legal and scientific questions and can be uncertain. The patent applications that we own or in-license may fail to result in issued patents with claims that cover the products in the United States or in other countries. If this were to occur, early generic competition could be expected against any product candidates we may develop. There is no assurance that all of the potentially relevant prior art relating to our patents and patent applications has been found, which can invalidate a patent or prevent a patent from issuing based on a pending patent application. Even if patents do successfully issue, third parties may challenge their validity, enforceability, scope or ownership, which may result in such patents, or our rights to such patents, being narrowed or invalidated.

Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property or prevent others from designing around our claims. If the patent applications we hold or license with respect to any of our product candidates fails to issue or if their breadth or strength of protection is threatened, it could dissuade companies from collaborating with us to develop, and threaten our ability to commercialize, our products. We cannot offer any assurances about which, if any, patents will issue or whether any issued patents will be found not invalid and not unenforceable, will go unthreatened by third parties or will adequately protect our products and product candidates. Further, if we encounter delays in regulatory approvals, the period of time during which we could market DSTAT and TEMBEXA under patent protection could be reduced. Since patent applications in the United States and most other countries are confidential for a period of time after filing, and some remain so until issued, we cannot be certain that we or our licensors were the first to file any patent application related to any of our product candidates. Furthermore, if third parties have filed such patent applications, an interference proceeding in the United States can be provoked by a third party or instituted by us to determine who was the first to invent any of the subject matter covered by the patent claims of our applications. An unfavorable outcome could require us to cease using the related technology or to attempt to license it from the prevailing party, which may not be possible. In addition to the protection afforded by patents, we rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable, processes for which patents are difficult to enforce and other elements of our drug discovery and development processes that involve proprietary know-how, information or technology that is not covered by patents. Although we expect all of our employees to assign their inventions to us, and all of our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information or technology to enter into confidentiality agreements, we cannot provide any assurances that all such agreements have been duly executed, that such agreements provide adequate protection and will not be breached, that our trade secrets and other confidential proprietary information will not otherwise be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. If we are unable to prevent material disclosure of the non-patented intellectual property related to our technologies to third parties, and there is no guarantee that we will have any such enforceable trade secret protection, we may not be able to establish or maintain a competitive advantage in our market, which could materially adversely affect our business, results of operations and financial condition.

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Further, the laws of some foreign countries do not protect patents and other proprietary rights to the same extent or in the same manner as the laws of the United States. As a result, we may encounter significant problems in protecting and defending our intellectual property abroad. We may also fail to pursue or obtain patents and other intellectual property protection relating to our products and product candidates in all foreign countries.

Finally, certain of our activities and our licensors’ activities have been funded, and may in the future be funded, by the U.S. federal government. When new technologies are developed with U.S. federal government funding, the government obtains certain rights in any resulting patents, including a nonexclusive license authorizing the government to use the invention for non-commercial purposes. These rights may permit the government to disclose our confidential information to third parties and to exercise “march-in” rights to use or allow third parties to use our patented technology. The government can exercise its march-in rights if it determines that action is necessary because we fail to achieve practical application of the U.S. government-funded technology, because action is necessary to alleviate health or safety needs, to meet requirements of federal regulations or to give preference to U.S. industry. In addition, U.S. government-funded inventions must be reported to the government, U.S. government funding must be disclosed in any resulting patent applications, and our rights in such inventions may be subject to certain requirements to manufacture products in the United States.

Third-party claims of intellectual property infringement may prevent or delay our development and commercialization efforts or otherwise affect our business.

Our commercial success depends in part on our avoiding infringement and other violations of the patents and proprietary rights of third parties. There is a substantial amount of litigation, both within and outside the United States, involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits, interferences, oppositions and inter party reexamination proceedings before the United States Patent and Trademark Office (U.S. PTO) and its foreign counterparts. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we and our collaborators are developing product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, and as we gain greater visibility and market exposure as a public company, the risk increases that our product candidates or other business activities may be subject to claims of infringement of the patent and other proprietary rights of third parties. Third parties may assert that we are employing their proprietary technology without authorization. There may be third-party patents or patent applications with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of ONC201, DSTAT, TEMBEXA and/or any other product candidates. Because patent applications can take many years to issue, there may be currently pending patent applications which may later result in issued patents that our product candidates may infringe. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents. If any third-party patents were held by a court of competent jurisdiction to cover the manufacturing process of any of our product candidates, any molecules formed during the manufacturing process or any final product itself, the holders of any such patents may be able to block our ability to commercialize such product candidate unless we obtained a license under the applicable patents, or until such patents expire.

Similarly, if any third-party patent were held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture or methods of use, including combination therapy, the holders of any such patent may be able to block our ability to develop and commercialize the applicable product candidate unless we obtained a license or until such patent expires. In either case, such a license may not be available on commercially reasonable terms or at all. In addition, we may be subject to claims that we are infringing other intellectual property rights, such as trademarks or copyrights, or misappropriating the trade secrets of others, and to the extent that our employees, consultants or contractors use intellectual property or proprietary information owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions.

Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize one or more of our product candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event of a successful infringement or other intellectual property claim against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, obtain one or more licenses from third parties, pay royalties or redesign our affected products, which may be impossible or require substantial time and monetary expenditure. We cannot predict whether any such license would be available at all or whether it would be available on commercially reasonable terms. Furthermore, even in the absence of litigation, we may need to obtain licenses from third parties to advance our research or allow commercialization of our product candidates, and we have done so from time to time. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. In that event, we would be unable to further develop and commercialize one or more of our product candidates, which could harm our business significantly. We cannot provide any

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assurances that third-party patents do not exist which might be enforced against our products or product candidates, resulting in either an injunction prohibiting our sales, or, with respect to our sales, an obligation on our part to pay royalties and/or other forms of compensation to third parties.

We may be involved in lawsuits to protect or enforce our patents, the patents of our licensors and licensees or our other intellectual property rights, which could be expensive, time consuming and unsuccessful.

Competitors may infringe or otherwise violate our patents, the patents of our licensors or our other intellectual property rights. To counter infringement or unauthorized use, we may be required to file legal claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours or our licensors is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing. The initiation of a claim against a third party may also cause the third party to bring counterclaims against us.

We may not be able to prevent, alone or with our licensors, misappropriation of our intellectual property rights, particularly in countries where the laws may not protect those rights as fully as in the United States. Our business could be harmed if in a litigation the prevailing party does not offer us a license on commercially reasonable terms. Any litigation or other proceedings to enforce our intellectual property rights may fail, and even if successful, may result in substantial costs and distract our management and other employees.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of our common stock.

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

Periodic maintenance fees on any issued patent are due to be paid to the U.S. PTO and foreign patent agencies in several stages over the lifetime of the patent. The U.S. PTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process.

While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If we or our licensors that control the prosecution and maintenance of our licensed patents fail to maintain the patents and patent applications covering our product candidates, we may lose our rights and our competitors might be able to enter the market, which would have a material adverse effect on our business.

Risks Related to Our United States Government Contracts and Grants

There can be no assurances that we will be able to enter into a contract with BARDA to act as the sole supplier for the procurement of TEMBEXA for the treatment of smallpox.*

In April 2015, BARDA posted a notice of intent to use other than full and open competition to award a sole source contract to us for the procurement of TEMBEXA for the treatment of smallpox. In May 2015, BARDA posted an approved justification for the use of other than full and open competition for the contract. In July 2015, BARDA issued a Request for Proposal (RFP) entitled “2015 Procurement of a Second Smallpox Antiviral Drug for the Strategic National Stockpile.” In August 2015, we submitted a response to the RFP and we subsequently engaged in discussions with BARDA regarding our response. The issuance of that RFP did not culminate with agreement for the sole source supply of TEMBEXA for the Strategic National Stockpile (SNS).

We remain in discussions with BARDA regarding the potential to supply TEMBEXA to the SNS, and on March 24, 2021, BARDA issued a Small Business Sources Sought Notice (SSN) seeking information on availabilities and capabilities for

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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; however, there can be no assurances that a future RFP for TEMBEXA procurement will be issued.

Furthermore, in the event that BARDA issues an RFP for procurement of a smallpox antiviral therapeutic, there can be no assurance that we would reach agreement with BARDA on terms related to the manufacture and delivery of TEMBEXA to the SNS. Among the material terms to be negotiated and agreed to are: price, volume, and payment and delivery schedules, as we currently do not have TEMBEXA finished goods inventory that would be available for immediate delivery.

Unfavorable provisions in government contracts, including our contract with BARDA, may harm our business, financial condition and operating results.

United States government contracts typically contain unfavorable provisions and are subject to audit and modification by the government at its sole discretion, which will subject us to additional risks. For example, under our contract with BARDA, the U.S. government has the power to unilaterally:

•audit and object to any BARDA contract-related costs and fees on grounds that they are not allowable under the FAR, and require us to reimburse all such costs and fees;

•suspend or prevent us for a set period of time from receiving new contracts or extending our existing contract based on violations or suspected violations of laws or regulations;

•claim nonexclusive, nontransferable rights to product manufactured and intellectual property developed under the BARDA contract and may, under certain circumstances, such as circumstances involving public health and safety, license such inventions to third parties without our consent;

•cancel, terminate or suspend our BARDA contract based on violations or suspected violations of laws or regulations;

•terminate our BARDA contract in whole or in part for the convenience of the government for any reason or no reason, including if funds become unavailable to the applicable governmental agency;

•reduce the scope and value of our BARDA contract;

•decline to exercise an option to continue the BARDA contract;

•direct the course of a development program in a manner not chosen by the government contractor;

•require us to perform the option segments even if doing so may cause us to forego or delay the pursuit of other opportunities with greater commercial potential;

•take actions that result in a longer development timeline than expected; and

•change certain terms and conditions in our BARDA contract.

The U.S. government also has the right to terminate the BARDA contract if termination is in the government’s interest, or if we default by failing to perform in accordance with the milestones set forth in the contract. Termination-for-convenience provisions generally enable us to recover only our costs incurred or committed (plus a portion of the agreed fee) and settlement expenses on the work completed prior to termination. Except for the amount of services received by the government, termination-for-default provisions do not permit recovery of fees.

In addition, we must comply with numerous laws and regulations that affect how we conduct business with the United States government. Among the most significant government contracting regulations that affect our business are:

•FAR, and agency-specific regulations supplements to the FAR, which comprehensively regulate the procurement, formation, administration and performance of government contracts and implement federal procurement policy in numerous areas, such as employment practices, protection of the environment, accuracy and retention periods of records, recording and charging of costs, treatment of laboratory animals and human subject research;

•business ethics and public integrity obligations, which govern conflicts of interest and the hiring of former government employees, restrict the granting of gratuities and funding of lobbying activities and incorporate other requirements such as the Anti-Kickback Act and the Foreign Corrupt Practices Act;

•export and import control laws and regulations; and

•laws, regulations and executive orders restricting the use and dissemination of information classified for national security purposes and the exportation of certain products and technical data.

Furthermore, we may be required to enter into agreements and subcontracts with third parties, including suppliers, consultants and other third-party contractors, in order to satisfy our contractual obligations pursuant to our agreements with the U.S. government. Negotiating and entering into such arrangements can be time-consuming and we may not be able to reach agreement with such third parties. Any such agreement must also be compliant with the terms of our government contract. Any

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delay or inability to enter into such arrangements or entering into such arrangements in a manner that is non-compliant with the terms of our contract, may result in violations of our contract.

As a result of these unfavorable provisions, we must undertake significant compliance activities. The diversion of resources from commercial programs to these compliance activities, as well as the exercise by the U.S. government of any rights under these provisions, could materially harm our business.

Our business is subject to audit by the U.S. government, including under our contract with BARDA, and a negative audit could adversely affect our business.

United States government agencies, such as the DHHS, routinely audit and investigate government contractors and recipients of federal grants, including our contract with BARDA. These agencies review a contractor’s performance under its contracts, cost structure and compliance with applicable laws, regulations and standards.

The DHHS can also review the adequacy of, and a contractor’s compliance with, its internal control systems and policies, including the contractor’s purchasing, property, estimating, compensation and management information systems. Any costs found to be improperly allocated to a specific contract will not be reimbursed, while such costs already reimbursed must be refunded. If an audit uncovers improper or illegal activities, we may be subject to civil and criminal penalties and administrative sanctions, including:

•termination of contracts;

•forfeiture of profits;

•suspension of payments;

•fines; and

•suspension or prohibition from conducting business with the U.S. government.

In addition, we could suffer serious reputational harm if allegations of impropriety were made against us by the U.S. government, which could adversely affect our business.

Agreements with government agencies may lead to claims against us under the Federal False Claims Act, and these claims could result in substantial fines and other penalties.

The biopharmaceutical industry is, and in recent years has been, under heightened scrutiny as the subject of government investigations and enforcement actions. Our BARDA contract is subject to substantial financial penalties under the Federal Civil Monetary Penalties Act and the False Claims Act. The False Claims Act imposes liability on any person who, among other things, knowingly presents, or causes to be presented, a false record or statement material to a false or fraudulent claim paid or approved by the government. Under the False Claims Act’s “whistleblower” provisions, private enforcement of fraud claims against businesses on behalf of the U.S. government has increased due in part to amendments to the False Claims Act that encourage private individuals to sue on behalf of the government. These whistleblower suits, known as qui tam actions, may be filed by private individuals, including present and former employees. The False Claims Act provides for treble damages and significant civil monetary penalties per false claim. If our operations are found to be in violation of any of these laws, or any other governmental regulations that apply to us, we may be subject to penalties, including civil, criminal and administrative penalties, damages, fines, exclusion from the Medicare and Medicaid programs, and the curtailment or restructuring of our operations. Any penalties, damages, fines, exclusions, curtailment, or restructuring of our operations could adversely affect our ability to operate our business and our financial results.

Risks Related to Our Business Operations and Industry

Increasing demand for compassionate use of our unapproved therapies could result in losses.

Recent media attention to individual patients' expanded access requests has resulted in the introduction of legislation at the local and national level referred to as "Right to Try" laws, such as the Right to Try Act, which are intended to give patients access to unapproved therapies. New and emerging legislation regarding expanded access to unapproved drugs for life-threatening illnesses could negatively impact our business in the future. In addition, during 2014, we were the target of an active and disruptive social media campaign related to a request for access to TEMBEXA. If we experience similar social media campaigns in the future, we may experience significant disruption to our business which could result in losses.

A possible consequence of both activism and legislation in this area is the need for us to initiate an unanticipated expanded access program or to make ONC201, DSTAT or TEMBEXA more widely available sooner than anticipated. We are a small

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company with limited resources and unanticipated trials or access programs could result in diversion of resources from our primary goals.

In addition, patients who receive access to unapproved drugs through compassionate use or expanded access programs have life-threatening illnesses and have exhausted all other available therapies. The risk for serious adverse events in this patient population is high which could have a negative impact on the safety profile of our product candidates, which could cause significant delays or an inability to successfully commercialize them, which could materially harm our business. We may also need to restructure or pause ongoing compassionate use and/or expanded access programs in order to perform the controlled clinical trials required for regulatory approval and successful commercialization of our product candidates, which could prompt adverse publicity or other disruptions related to current or potential participants in such programs.

If we fail to comply with the extensive legal and regulatory requirements affecting the health care industry, we could face increased costs, delays in the development of our product candidates, penalties and a loss of business.

Our activities, and the activities of our collaborators, partners and third-party providers, are subject to extensive government regulation and oversight both in the United States and in foreign jurisdictions. The FDA and comparable agencies in other jurisdictions directly regulate many of our most critical business activities, including the conduct of preclinical and clinical studies, product manufacturing, advertising and promotion, product distribution, adverse event reporting and product risk management. States increasingly have been placing greater restrictions on the marketing practices of healthcare companies. In addition, pharmaceutical and biotechnology companies have been the target of lawsuits and investigations alleging violations of government regulations, including claims asserting submission of incorrect pricing information, impermissible off-label promotion of pharmaceutical products, payments intended to influence the referral of federal or state healthcare business, submission of false claims for government reimbursement, antitrust violations, violations of the Foreign Corrupt Practices Act, or violations related to environmental matters. Violations of governmental regulation may be punishable by criminal, civil and administrative sanctions, including fines and civil monetary penalties and exclusion from participation in government programs, including Medicare and Medicaid. In addition to penalties for violation of laws and regulations, we could be required to delay or terminate the development of our product candidates, or we could be required to repay amounts we received from government payers, or pay additional rebates and interest if we are found to have miscalculated the pricing information we have submitted to the government. Whether or not we have complied with the law, an investigation into alleged unlawful conduct could increase our expenses, damage our reputation, divert management time and attention and adversely affect our business.

Our future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel.*

We are highly dependent on the principal members of our executive team. While we have entered into employment agreements or offer letters with each of our executive officers, any of them could leave our employment at any time, as all of our employees are “at will” employees. To help attract, retain, and motivate qualified employees, we use share-based incentive awards such as employee stock options and restricted stock units. If our share-based compensation ceases to be viewed as a valuable benefit, our ability to attract, retain, and motivate employees could be weakened, which could harm our results of operations.

We do not maintain “key person” insurance for any of our executives or other employees. Recruiting and retaining other qualified employees for our business, including scientific and technical personnel, will also be critical to our success. There is currently a shortage of appropriately skilled executives in our industry, which is likely to continue. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. As a result, competition for skilled personnel is intense and the turnover rate can be high. We may not be able to attract and retain personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. In addition, failure of any of our clinical studies may make it more challenging to recruit and retain qualified personnel. The inability to recruit or loss of the services of any executive or key employee may adversely affect the progress of our research, development and commercialization objectives.

In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us, which could also adversely affect the progress of our research, development and commercialization objectives.

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

The use of our product candidates, including ONC201 and DSTAT, in clinical studies and the sale of any products for which we obtain marketing approval, including TEMBEXA, exposes us to the risk of product liability claims. Product liability claims

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might be brought against us by consumers, health care providers, pharmaceutical companies or others selling or otherwise coming into contact with our products. On occasion, large judgments have been awarded in class action lawsuits based on drugs that had unanticipated adverse effects. If we cannot successfully defend against product liability claims, we could incur substantial liability and costs. In addition, regardless of merit or eventual outcome, product liability claims may result in:

•impairment of our business reputation and significant negative media attention;

•withdrawal of participants from our clinical studies;

•significant costs to defend the related litigation;

•distraction of management’s attention from our primary business;

•substantial monetary awards to patients or other claimants;

•inability to commercialize TEMBEXA or our product candidates, including ONC201 and DSTAT; and

•decreased demand for our product candidates, if approved for commercial sale.

We currently carry $15 million in product liability insurance covering our clinical trials, but not yet extending coverage to commercial sales. Our current product liability insurance coverage may not be sufficient to reimburse us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive and in the future we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. If and when we obtain marketing approval for our product candidates, we intend to expand our insurance coverage to include the sale of commercial products; however, we may be unable to obtain product liability insurance on commercially reasonable terms or in adequate amounts. A successful product liability claim or series of claims brought against us could cause our stock price to decline and, if judgments exceed our insurance coverage, could adversely affect our results of operations and business.

The COVID-19 pandemic, which began in late 2019 and has spread worldwide, may affect our ability to initiate or continue our planned, ongoing and future clinical trials, disrupt regulatory activities, disrupt our ability to maintain a commercial infrastructure for our products or have other adverse effects on our business and operations. In addition, this pandemic has caused substantial disruption in the financial markets and may adversely impact economies worldwide, both of which could result in adverse effects on our business and operations.

The COVID-19 pandemic, which began in December 2019, has spread worldwide, causing many governments to implement measures to slow the spread of the outbreak through quarantines, strict travel restrictions, heightened border scrutiny, and other measures. The outbreak and government measures taken in response have also had a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred; supply chains have been disrupted; facilities and production have been suspended; and demand for certain goods and services, such as medical services and supplies, has spiked, while demand for other goods and services, such as travel, has fallen. The future progression of the pandemic and its effects on our business and operations are uncertain.

In the event of a continuation of shelter-in-place orders and/or other mandated local travel restrictions, our employees conducting research and development activities may not be able to access our research space, and our core activities may be significantly limited or curtailed, possibly for an extended period of time. In light of the pandemic, we may choose to pause certain research programs, delay the start of certain longer-term clinical studies and limit hiring.

We may face difficulties recruiting or retaining patients in our ongoing clinical trials because of the pandemic. For example, patients for our recently initiated trial of DSTAT as a treatment for AML may be unable or unwilling to visit clinical trial sites which may impact the collection of important clinical trial data or such a delay may alter DSTAT's potential time to market which could reduce its commercial attractiveness in a competitive AML marketplace. In addition, limitations in the ability to visit sites may adversely affect, our enrollment timelines for our clinical trials, and may adversely affect the timing of completion of our clinical trials or our ability to complete clinical trials in a fully compliant manner. Additionally, the potential suspension of clinical trial activity at clinical trial sites may have an adverse impact on our clinical trial plans and timelines.

We may face disruptions that may affect our ability to initiate and complete clinical trials including disruptions in procuring items that are essential for our research and development activities, including, for example, raw materials used in the manufacturing of our product candidates and laboratory supplies for planned and ongoing clinical trials, in each case, for which there may be shortages because of ongoing efforts to address the outbreak. Site initiation, participant recruitment and enrollment, participant dosing, distribution of clinical trial materials, study monitoring, data collection, data integrity and data analysis may be paused or delayed or negatively impacted due to changes in hospital or university policies, federal, state or local regulations, prioritization of hospital resources toward pandemic efforts, or other reasons related to the pandemic. We may face manufacturing disruptions or disruptions related to the ability to obtain necessary institutional review board (IRB) or other necessary site approvals, as well as other delays at clinical trial sites.

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The response to the COVID-19 pandemic may redirect resources with respect to regulatory and intellectual property matters in a way that would adversely impact our ability to progress regulatory approvals and protect our intellectual property. In addition, we may face impediments to regulatory meetings and approvals due to measures intended to limit in-person interactions.

The COVID-19 pandemic has already caused significant disruptions in the financial markets, and may continue to cause such disruptions, which could impact our ability to raise additional funds through public offerings and may also impact the volatility of our stock price and trading in our stock. Moreover, it is possible the pandemic will significantly impact economies worldwide, which could result in adverse effects on our business and operations. We cannot be certain what the overall impact of the COVID-19 pandemic will be on our business and it has the potential to adversely affect our business, financial condition, results of operations, and prospects.

We may experience difficulties in integrating the operations of Oncoceutics into our business and in realizing the expected benefits of the merger with Oncoceutics.

The success of our merger with Oncoceutics (the Merger) will depend in part on our ability to realize the anticipated benefits from combining the operations of Oncoceutics with our business in an efficient and effective manner. The integration process could take longer than anticipated and could result in the loss of key employees, the disruption of each company’s ongoing businesses, tax costs or inefficiencies, or inconsistencies in standards, controls, information technology systems, procedures and policies, any of which could adversely affect our ability to achieve the anticipated benefits of the Merger, and could harm our financial performance and impair stockholder value. If we are unable to successfully or timely integrate the operations of Oncoceutics with our business, we may incur unanticipated liabilities and be unable to realize the revenue growth, synergies and other anticipated benefits resulting from the Merger, and our business, results of operations and financial condition could be materially and adversely affected. We have incurred significant costs in connection with the Merger. The substantial majority of these costs are non-recurring expenses related to the Merger. We may incur additional costs in the integration of Oncoceutics, and may not achieve cost synergies and other benefits sufficient to offset the incremental costs of the Merger.

Risks Related To Our Common Stock

The market price of our common stock is likely to be volatile, and you may not be able to resell your shares at or above your purchase price.

The trading price of our common stock has been volatile, and is likely to continue to be volatile for the foreseeable future. Our stock price is subject to wide fluctuations in response to a variety of factors, including the following:

•results of clinical trials of our product candidates or those of our competitors;

•any delay in filing an application for any of our product candidates and any adverse development or perceived adverse development with respect to regulatory review of that application;

•failure to successfully develop and commercialize TEMBEXA or our product candidates, including ONC201 and DSTAT;

•termination of any of our license or collaboration agreements;

•any agency or judicial enforcement actions against us;

•inability to obtain additional funding;

•regulatory or legal developments in the United States and other countries applicable to our product candidates;

•adverse regulatory decisions;

•changes in the structure of healthcare payment systems;

•inability to obtain adequate product supply for our product candidates, or the inability to do so at acceptable prices;

•introduction of new products, services or technologies by our competitors;

•failure to meet or exceed financial projections we provide to the public;

•failure to meet or exceed the estimates and projections of the investment community;

•changes in the market valuations of similar companies;

•market conditions in the pharmaceutical and biotechnology sectors, and the issuance of new or changed securities analysts’ reports or recommendations;

•announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our competitors;

•significant lawsuits (including patent or stockholder litigation), and disputes or other developments relating to proprietary rights (including patents, litigation matters and our ability to obtain patent protection for our technologies);

•additions or departures of key scientific or management personnel;

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•sales of our common stock by us or our stockholders in the future;

•trading volume of our common stock;

•general economic, industry and market conditions, including the impact of the ongoing COVID-19 pandemic; and

•the other factors described in this “Risk Factors” section.

In addition, the stock market in general, and The Nasdaq Global Market in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance.

Our principal stockholders and management own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.

Based upon shares of common stock outstanding as of September 30, 2021, our then executive officers, directors, 5% stockholders (known to us through available information) and their affiliates beneficially owned approximately 7.7% of our voting stock. Therefore, these stockholders have the ability to substantially influence us through this ownership position. For example, these stockholders, if they choose to act together, may be able to influence the election of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This concentration of voting power could delay or prevent an acquisition of our company on terms that other stockholders may desire.

Failure to establish and maintain adequate finance infrastructure and accounting systems and controls could impair our ability to comply with the financial reporting and internal controls requirements for publicly traded companies.

As a public company, we operate in an increasingly demanding regulatory environment, which requires us to comply with the Sarbanes-Oxley Act of 2002, and the related rules and regulations of the Securities and Exchange Commission, expanded disclosure requirements, accelerated reporting requirements and more complex accounting rules. Company responsibilities required by the Sarbanes-Oxley Act include establishing and maintaining corporate oversight and adequate internal control over financial reporting and disclosure controls and procedures. Effective internal controls are necessary for us to produce reliable financial reports and are important to help prevent financial fraud.

Our compliance with Section 404 of the Sarbanes-Oxley Act has required and will continue to require that we incur substantial accounting expense and expend significant management efforts. In this or future years, our testing, or the subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls that we would be required to remediate in a timely manner so as to be able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act each year. If we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner each year, we could be subject to sanctions or investigations by the Securities and Exchange Commission, The Nasdaq Stock Market or other regulatory authorities which would require additional financial and management resources and could adversely affect the market price of our common stock. Furthermore, if we cannot provide reliable financial reports or prevent fraud, our business and results of operations could be harmed and investors could lose confidence in our reported financial information.

Future sales and issuances of our common stock or rights to purchase common stock, including pursuant to our equity incentive plans, could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall.

We expect that significant additional capital will be needed in the future to continue our planned operations. To the extent we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution. We may sell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell common stock, convertible securities or other equity securities in more than one transaction, investors may be materially diluted by subsequent sales. Such sales may also result in material dilution to our existing stockholders, and new investors could gain rights superior to our existing stockholders.

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. As partial consideration for our rights under the license agreement, we issued to Cantex 10,000,000 shares of our common stock. We are continuing to review additional potential transactions to add to our pipeline of product candidates, and these transactions could involve the issuance of additional shares of common stock or other equity securities. On January 7, 2021, we acquired Oncoceutics, a privately-held, clinical-stage biotechnology company developing imipridones, including ONC201. As part of the consideration for the acquisition, we paid an upfront cash payment of approximately $25.0 million and issued an aggregate of 8,723,769 shares of our common stock.

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Pursuant to our 2013 Equity Incentive Plan (the 2013 Plan), our management is authorized to grant stock options to our employees, directors and consultants. The number of shares available for future grant under our 2013 Plan will automatically increase on January 1st each year, through January 1, 2023, by an amount equal to 4.0% of all shares of our capital stock outstanding as of December 31st of the preceding calendar year, subject to the ability of our board of directors to take action to reduce the size of such increase in any given year. In addition, our board of directors may grant or provide for the grant of rights to purchase shares of our common stock pursuant to the terms of our 2013 Employee Stock Purchase Plan (ESPP). The number of shares of our common stock reserved for issuance under our ESPP will automatically increase on January 1st each year, through January 1, 2023, by an amount equal to the lesser of 422,535 shares or one percent of all shares of our capital stock outstanding as of December 31st of the preceding calendar year, subject to the ability of our board of directors to take action to reduce the size of such increase in any given year. Unless our board of directors elects not to increase the number of shares underlying our 2013 Plan and ESPP each year, our stockholders may experience additional dilution, which could cause our stock price to fall.

We have broad discretion in the use of the net proceeds from our financing transactions and may not use them effectively.

Our management has broad discretion in the application of the net proceeds from our financing transactions. Because of the number and variability of factors that will determine our use of the net proceeds from our financing transactions, their ultimate use may vary substantially from their currently intended use. The failure by our management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business, cause the price of our common stock to decline and delay the development of our product candidates. Pending their use, we have invested the net proceeds from our financing transactions in short-term, investment-grade, interest-bearing securities. These investments may not yield a favorable return to our stockholders.

Volatility in our stock price could subject us to securities class action litigation.

In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because pharmaceutical companies have experienced significant stock price volatility in recent years. If we face such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business.

Changes in tax laws or regulations that are applied adversely to us or our customers may have a material adverse effect on our business, cash flow, financial condition or results of operations.*

New income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time, which could adversely affect our business operations and financial performance. Further, existing tax laws, statutes, rules, regulations or ordinances could be interpreted, changed, modified or applied adversely to us. For example, legislation enacted in 2017 informally titled the Tax Cuts and Jobs Act (Tax Act) enacted many significant changes to the U.S. tax laws. Future guidance from the Internal Revenue Service and other tax authorities with respect to the Tax Act may affect us, and certain aspects of the Tax Act could be repealed or modified in future legislation. For example, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) modified certain provisions of the Tax Act. In addition, it is uncertain if and to what extent various states will conform to the Tax Act, the CARES Act or any newly enacted federal tax legislation. Changes in corporate tax rates, the realization of net deferred tax assets relating to our operations, the taxation of foreign earnings, and the deductibility of expenses under the Tax Act or future reform legislation could have a material impact on the value of our deferred tax assets, could result in significant one-time charges, and could increase our future U.S. tax expense.

Our effective tax rate may fluctuate, and we may incur obligations in tax jurisdictions in excess of accrued amounts.

Our effective tax rate is derived from a combination of applicable tax rates in the various places that we operate. In preparing our financial statements, we estimate the amount of tax that will become payable in each of such places. Nevertheless, our effective tax rate may be different than experienced in the past due to numerous factors, including passage of the Tax Act, the results of examinations and audits of our tax filings, our inability to secure or sustain acceptable agreements with tax authorities, changes in accounting for income taxes and changes in tax laws. Any of these factors could cause us to experience an effective tax rate significantly different from previous periods or our current expectations and may result in tax obligations in excess of amounts accrued in our financial statements.

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

Our U.S. net operating loss (NOL) carryforwards generated in tax years ending on or prior to December 31, 2017, are only permitted to be carried forward for 20 years under applicable U.S. tax law. Under the Tax Act, our federal NOLs generated in tax years ending after December 31, 2017, may be carried forward indefinitely. The CARES Act revised the NOL limitations such that the of federal NOLs in tax years beginning after December 31, 2020, is limited to 80% of taxable income. It is uncertain if and to what extent various states will conform to the Tax Act. In addition, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, and corresponding provisions of state law, if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50% change, by value, in its equity ownership over a three-year period, the corporation’s ability to use its pre-change NOL carryforwards and other pre-change U.S. tax attributes (such as research tax credits) to offset its post-change income or taxes may be limited. We have determined that a Section 382 ownership change occurred in 2002 and 2007 resulting in limitations of at least $64,000 and $762,000, respectively, of losses incurred prior to the respective ownership change dates. In addition, we have determined that another Section 382 ownership change occurred in 2013 with our IPO, our most recent private placement and other transactions that have occurred since 2007, resulting in a limitation of at least $6.7 million of losses incurred prior to the ownership change date. We may also experience ownership changes in the future as a result of subsequent shifts in our stock ownership. As a result, our pre-2018 NOL carryforwards may expire prior to being used, and our NOL carryforwards generated in 2018 and thereafter will be subject to a percentage limitation.  In addition, it is possible that we have in the past undergone, and in the future may undergo, additional ownership changes that could limit our ability to use all of our pre-change NOLs and other pre-change tax attributes (such as research tax credits) to offset our post-change income or taxes. Similar provisions of state tax law may also apply to limit our use of accumulated state tax attributes. In addition, at the state level, there may be periods during which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed. As a result, we may be unable to use all or a material portion of our NOLs and other tax attributes.

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

We have never declared or paid any cash dividends on our common stock. We currently anticipate that we will retain any future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. As a result, capital appreciation, if any, of our common stock would be your sole source of gain on an investment in our common stock for the foreseeable future.

Provisions in our corporate charter documents and under Delaware law could make it more difficult for a third party to acquire us or increase the cost of acquiring us, even if doing so would benefit our stockholders and may prevent attempts by our stockholders to replace or remove our current management.

Some provisions of our charter documents and Delaware law may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our stockholders and may prevent attempts by our stockholders to replace or remove our current management. These provisions include:

•authorizing the issuance of “blank check” preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval which could be used to institute a “poison pill” that would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by our board of directors;

•allowing the authorized number of our directors to be changed only by resolution of our board of directors;

•limiting the removal of directors;

•creating a staggered board of directors;

•requiring that stockholder actions must be effected at a duly called stockholder meeting and prohibiting stockholder actions by written consent;

•eliminating the ability of stockholders to call a special meeting of stockholders; and

•establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon at duly called stockholder meetings.

The amendment of any of these provisions, with the exception of the ability of our board of directors to issue shares of preferred stock and designate any rights, preferences and privileges thereto, would require the affirmative vote of the holders of at least 66 2/3 percent of the voting power of all of our then outstanding common stock.

These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the

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members of our management. In addition, we are subject to Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with an interested stockholder for a period of three years following the date on which the stockholder became an interested stockholder, unless such transactions are approved by our board of directors. This provision could have the effect of delaying or preventing a change of control, whether or not it is desired by or beneficial to our stockholders. Further, other provisions of Delaware law may also discourage, delay or prevent someone from acquiring us or merging with us.

Risks Related to Information Technology

Significant disruptions of information technology systems or breaches of data security could adversely affect our business.

Our business is increasingly dependent on critical, complex, and interdependent information technology (IT) systems, including Internet-based systems, to support business processes as well as internal and external communications. The size and complexity of our IT systems make us potentially vulnerable to IT system breakdowns, malicious intrusion, and computer viruses, which may result in the impairment of our ability to operate our business effectively.

In addition, our systems are potentially vulnerable to data security breaches-whether by employees or others-which may expose sensitive data to unauthorized persons. Such data security breaches could lead to the loss of trade secrets or other intellectual property, or could lead to the public exposure of personal information (including sensitive personal information) of our employees, clinical trial patients, customers, business partners and others.

Any such disruption or security breach could result in legal proceedings, liability under laws that protect the privacy of personal information, regulatory penalties, disruptions to our operations and collaborations, and damage to our reputation, which could harm our business and results of operations.

Increasing use of social media could give rise to liability, breaches of data security, or reputational damage.

We and our employees are increasingly utilizing social media tools as a means of communication both internally and externally. Despite our efforts to monitor evolving social media communication guidelines and comply with applicable rules, there is risk that the use of social media by us or our employees to communicate about our products or business may cause us to be found in violation of applicable laws and regulations. In addition, our employees may knowingly or inadvertently make use of social media in ways that may not comply with our social media policy or other legal or contractual requirements, which may give rise to liability, lead to the loss of trade secrets or other intellectual property, or result in public exposure of personal information of our employees, clinical trial patients, customers, and others. Furthermore, negative posts or comments about us or our products in social media could seriously damage our reputation, brand image, and goodwill.

ITEM 2.     UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

ITEM 3.     DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4.     MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5.     OTHER INFORMATION

 

Not applicable.

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ITEM 6.     EXHIBITS

 

The following exhibits are filed as part of this report: 

Number						Description
3.1(1)						Amended and Restated Certificate of Incorporation of the Registrant.
3.2(1)						Amended and Restated Bylaws of the Registrant.
4.1(2)						Form of Common Stock Certificate of the Registrant.
10.1						Contract modification No. 66, dated May 24, 2021, to the contract by and between the Registrant and the Biomedical Advanced Research and Development Authority of the United States Department of Health and Human Services dated February 16, 2011, as amended.
10.2+						Contract modification No. 67, dated September 20, 2021, to the contract by and between the Registrant and the Biomedical Advanced Research and Development Authority of the United States Department of Health and Human Services dated February 16, 2011, as amended.
31.1						Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
31.2						Certification of Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
32.1						Certification of Principal Executive Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2						Certification of Principal Financial Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS						Inline XBRL Instance Document - - the instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
101.SCH						Inline XBRL Taxonomy Extension Schema Document.
101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

 

*Schedules and exhibits to the Agreement have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the Securities and Exchange Commission upon request.

+ Certain portions of this exhibit are omitted because they are not material and would likely cause competitive harm to the Company if publicly disclosed.

(1)Incorporated by reference to the corresponding exhibit in Chimerix, Inc.’s Current Report on Form 8-K (No. 001-35867), filed with the SEC on April 16, 2013.

(2)Incorporated by reference to the corresponding exhibit in Chimerix, Inc.’s Registration Statement on Form S-1 (No. 333-187145), as amended.

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

			CHIMERIX, INC.
November 4, 2021			By:			/s/ Michael A. Sherman
						Michael A. Sherman
						President and Chief Executive Officer
						(Principal Executive Officer)
November 4, 2021			By:			/s/ Michael T. Andriole
						Michael T. Andriole
						Chief Business and Financial Officer
						(Principal Financial Officer)

 

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