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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022
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 NO. 001-14888

INOVIO PHARMACEUTICALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

Delaware |  | 33-0969592
(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

660 W. GERMANTOWN PIKE, SUITE 110
PLYMOUTH MEETING, PA 19462
(Address of principal executive offices)
REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: (267) 440-4200
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, $0.001 PAR VALUE | INO | Nasdaq Global Select 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 ☒ 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer | ☒ |  | Accelerated filer | ☐
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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The number of shares outstanding of the Registrant’s Common Stock, $0.001 par value, was 229,041,114 as of May 9, 2022.

INOVIO PHARMACEUTICALS, INC.
FORM 10-Q
For the Quarterly Period Ended March 31, 2022
INDEX

Part I. Financial Information | 1
Item 1. Financial Statements | 1
a) Condensed Consolidated Balance Sheets | 2
b) Condensed Consolidated Statements of Operations | 3
c) Condensed Consolidated Statements of Comprehensive Loss | 4
d) Condensed Consolidated Statements of Stockholders' Equity | 5
e) Condensed Consolidated Statements of Cash Flows | 6
f) Notes to Condensed Consolidated Financial Statements | 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | 26
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 30
Item 4. Controls and Procedures | 31
Part II. Other Information | 32
Item 1. Legal Proceedings | 32
Item 1A. Risk Factors | 33
Item 6. Exhibits | 57
Signatures | 58

SUMMARY OF THE MATERIAL RISKS ASSOCIATED WITH OUR BUSINESS
Our business is subject to a number of risks, including risks that may prevent us from achieving our business objectives or may adversely affect our business, financial condition, results of operations, cash flows and prospects. These risks are discussed more fully in Item 1A. Risk Factors herein. These risk factors include, but are not limited to, the following:
•We have incurred significant losses in recent years, expect to incur significant net losses in the foreseeable future and may never become profitable.
•We have limited sources of revenue and our success is dependent on our ability to develop our DNA vaccines, DNA immunotherapies, dMAbs and electroporation equipment.
•We will need substantial additional capital to develop our DNA vaccines, DNA immunotherapies and dMAb programs and electroporation delivery technology.
•None of our human vaccine candidates or our immunotherapy and DNA encoded monoclonal antibody product candidates have been approved for sale, and we may never develop commercially successful vaccine, immunotherapy or DNA encoded monoclonal antibody products.
•We have modified our COVID-19 vaccine strategy to develop our vaccine candidate as a potential heterologous booster for other available vaccines, which will result in new and added risks and may not be successful.
•There can be no assurance that our COVID-19 vaccine candidate will ever be granted an Emergency Use Authorization by the FDA or similar authorization by regulatory authorities outside of the United States if we were to decide to apply for such an authorization. The option of seeking an Emergency Use Authorization may no longer exist for our primary vaccine candidates, and if we cannot obtain such authorization or, if granted, it is terminated, we will be unable to sell our vaccine candidate and instead will be required to pursue the biologic licensure process, which is lengthy and expensive.
•DNA medicines are a novel approach, and negative perception of the efficacy, safety, or tolerability of any investigational medicines that we develop could adversely affect our ability to conduct our business, advance our investigational medicines, or obtain regulatory approvals.
•If we and the contract manufacturers upon whom we rely fail to produce our electroporation devices and product candidates in the volumes that we require on a timely basis, or at all, or fail to comply with their obligations to us or with stringent regulations, we may face delays in the development and commercialization of our electroporation equipment and product candidates.
•If we lose or are unable to secure collaborators or partners, or if our collaborators or partners do not apply adequate resources to their relationships with us, our product development and potential for profitability will suffer.
•We have agreements with government agencies, which are subject to termination and uncertain future funding.
•We are currently subject to litigation and may become subject to additional litigation, which could harm our business, financial condition and reputation.
•We face intense and increasing competition and steps taken by of our competitors, such as the introduction of a new, disruptive technology, may impede our ability to successfully commercialize our DNA medicines.
•It is difficult and costly to generate and protect our intellectual property and our proprietary technologies, and we may not be able to ensure their protection.
•If we are sued for infringing intellectual property rights of third parties, it will be costly and time-consuming, and an unfavorable outcome in that litigation would have a material adverse effect on our business.

Part I. Financial Information
Item 1. Financial Statements
1

INOVIO PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

| March 31, 2022 |  | December 31, 2021
| (Unaudited) |  |
ASSETS |  |  |
Current assets: |  |  |
Cash and cash equivalents | $ | 59,009,491 |  |  | $ | 71,143,778 |
Short-term investments | 301,384,357 |  |  | 330,170,940 |
Accounts receivable | 4,003,680 |  |  | 5,466,850 |
Accounts receivable from affiliated entities | 3,487,116 |  |  | 2,565,194 |
Prepaid expenses and other current assets | 31,946,477 |  |  | 38,836,991 |
Prepaid expenses and other current assets from affiliated entities | 75,772 |  |  | 261,192 |
Total current assets | 399,906,893 |  |  | 448,444,945 |
Fixed assets, net | 16,696,936 |  |  | 17,453,206 |
Investment in affiliated entity | 3,369,068 |  |  | 3,906,796 |
Intangible assets, net | 2,499,585 |  |  | 2,626,355 |
Goodwill | 10,513,371 |  |  | 10,513,371 |
Operating lease right-of-use assets | 11,251,440 |  |  | 11,571,026 |
Other assets | 1,273,795 |  |  | 1,425,794 |
Total assets | $ | 445,511,088 |  |  | $ | 495,941,493 |
LIABILITIES AND STOCKHOLDERS’ EQUITY |  |  |
Current liabilities: |  |  |
Accounts payable and accrued expenses | $ | 38,115,396 |  |  | $ | 47,644,530 |
Accounts payable and accrued expenses due to affiliated entities | 1,407,386 |  |  | 548,032 |
Accrued clinical trial expenses | 11,827,755 |  |  | 10,326,266 |
Deferred revenue | 15,378 |  |  | 21,628 |
Operating lease liability | 2,672,974 |  |  | 2,603,956 |
Grant funding liability | 5,283,271 |  |  | 4,559,721 |
Grant funding liability from affiliated entity | 37,500 |  |  | 37,500 |
Total current liabilities | 59,359,660 |  |  | 65,741,633 |
Deferred revenue, net of current portion | 60,648 |  |  | 64,361 |
Convertible senior notes | 16,207,864 |  |  | 14,959,647 |
Operating lease liability, net of current portion | 14,765,868 |  |  | 15,459,559 |
Deferred tax liabilities | 32,046 |  |  | 32,046 |
Other liabilities | — |  |  | 14,826 |
Total liabilities | 90,426,086 |  |  | 96,272,072 |
Stockholders’ equity: |  |  |
Preferred stock | — |  |  | — |
Common stock | 226,509 |  |  | 217,382 |
Additional paid-in capital | 1,642,419,819 |  |  | 1,609,589,797 |
Accumulated deficit | (1,287,103,438) |  |  | (1,209,855,522) |
Accumulated other comprehensive loss | (457,888) |  |  | (282,236) |
Total Inovio Pharmaceuticals, Inc. stockholders’ equity | 355,085,002 |  |  | 399,669,421 |
Total liabilities and stockholders’ equity | $ | 445,511,088 |  |  | $ | 495,941,493 |

See accompanying notes to unaudited condensed consolidated financial statements.
2

INOVIO PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

| Three Months Ended March 31, |  |
| 2022 |  | 2021 |  |  |  |
Revenues: |  |  |  |  |  |  |
Revenue under collaborative research and development arrangements | $ | 65,895 |  |  | $ | 39,615 |  |  |  |  |
Revenue under collaborative research and development arrangements with affiliated entities | 8,842 |  |  | 49,949 |  |  |  |  |
Other revenue | 124,337 |  |  | 281,556 |  |  |  |  |
Total revenues | 199,074 |  |  | 371,120 |  |  |  |  |
Operating expenses: |  |  |  |  |  |  |
Research and development | 55,978,611 |  |  | 39,044,418 |  |  |  |  |
General and administrative | 15,953,458 |  |  | 13,881,194 |  |  |  |  |
Total operating expenses | 71,932,069 |  |  | 52,925,612 |  |  |  |  |
Loss from operations | (71,732,995) |  |  | (52,554,492) |  |  |  |  |
Other income (expense): |  |  |  |  |  |  |
Interest income | 669,814 |  |  | 769,237 |  |  |  |  |
Interest expense | (313,488) |  |  | (513,034) |  |  |  |  |
Loss on investment in affiliated entities | (537,728) |  |  | (830,475) |  |  |  |  |
Net unrealized loss on available-for-sale equity securities | (4,840,641) |  |  | (847,958) |  |  |  |  |
Other income (expense), net | (153,468) |  |  | 8,978 |  |  |  |  |
Net loss before share in net loss of Geneos | (76,908,506) |  |  | (53,967,744) |  |  |  |  |
Share in net loss of Geneos | (2,165,213) |  |  | (434,387) |  |  |  |  |
Net loss | (79,073,719) |  |  | (54,402,131) |  |  |  |  |
Net loss per share |  |  |  |  |  |  |
Basic and diluted | $ | (0.36) |  |  | $ | (0.27) |  |  |  |  |
Weighted average number of common shares outstanding |  |  |  |  |  |  |
Basic and diluted | 218,940,693 |  |  | 202,414,445 |  |  |  |  |

See accompanying notes to unaudited condensed consolidated financial statements.
3

INOVIO PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)

| Three Months Ended March 31, |  |
| 2022 |  | 2021 |  |  |  |
Net loss | $ | (79,073,719) |  |  | $ | (54,402,131) |  |  |  |  |
Other comprehensive income (loss): |  |  |  |  |  |  |
Foreign currency translation | (6,555) |  |  | (14,419) |  |  |  |  |
Unrealized gain (loss) on short-term investments, net of tax | (169,097) |  |  | 4,861 |  |  |  |  |
Comprehensive loss | (79,249,371) |  |  | (54,411,689) |  |  |  |  |

See accompanying notes to unaudited condensed consolidated financial statements.
4

INOVIO PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)

| Three Months Ended March 31, 2022
| Preferred stock |  | Common stock |  |  |  |  |  |  |  |  |  |
| Number of shares |  | Amount |  | Number of shares |  | Amount |  | Additional paid-in capital |  | Accumulated deficit |  | Accumulated other comprehensive income (loss) |  |  |  | Total stockholders’ equity
Balance at December 31, 2021 | 9 |  |  | $ | — |  |  | 217,382,887 |  |  | $ | 217,382 |  |  | $ | 1,609,589,797 |  |  | $ | (1,209,855,522) |  |  | $ | (282,236) |  |  |  |  | $ | 399,669,421 |
Cumulative adjustment from adoption of ASU 2020-06 | — |  |  | — |  |  | — |  |  | — |  |  | (3,294,019) |  |  | 1,825,803 |  |  | — |  |  |  |  | (1,468,216) |
Issuance of common stock for cash, net of financing costs | — |  |  | — |  |  | 8,480,483 |  |  | 8,481 |  |  | 29,356,057 |  |  | — |  |  | — |  |  |  |  | 29,364,538 |
Exercise of stock options for cash and vesting of RSUs, net of tax payments | — |  |  | — |  |  | 647,350 |  |  | 646 |  |  | (943,167) |  |  | — |  |  | — |  |  |  |  | (942,521) |
Stock-based compensation | — |  |  | — |  |  | — |  |  | — |  |  | 7,711,151 |  |  | — |  |  | — |  |  |  |  | 7,711,151 |
Net loss | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (79,073,719) |  |  | — |  |  |  |  | (79,073,719) |
Unrealized loss on short-term investments, net of tax | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (169,097) |  |  |  |  | (169,097) |
Foreign currency translation | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (6,555) |  |  |  |  | (6,555) |
Balance at March 31, 2022 | 9 |  |  | $ | — |  |  | 226,510,720 |  |  | $ | 226,509 |  |  | $ | 1,642,419,819 |  |  | $ | (1,287,103,438) |  |  | $ | (457,888) |  |  |  |  | $ | 355,085,002 |

| Three Months Ended March 31, 2021
| Preferred stock |  | Common stock |  |  |  |  |  |  |  |  |  |
| Number of shares |  | Amount |  | Number of shares |  | Amount |  | Additional paid-in capital |  | Accumulated deficit |  | Accumulated other comprehensive income (loss) |  |  |  | Total stockholders’ equity
Balance at December 31, 2020 | 9 |  |  | $ | — |  |  | 186,851,493 |  |  | $ | 186,851 |  |  | $ | 1,367,406,869 |  |  | $ | (906,196,812) |  |  | $ | (256,150) |  |  |  |  | $ | 461,140,758 |
Issuance of common stock for cash, net of financing costs of $531,000 |  |  | — |  |  | 20,355,000 |  |  | 20,355 |  |  | 162,084,675 |  |  | — |  |  | — |  |  |  |  | 162,105,030 |
Conversion of December 2019 Bonds to common stock | — |  |  | — |  |  | 1,009,450 |  |  | 1,009 |  |  | 4,376,883 |  |  | — |  |  | — |  |  |  |  | 4,377,892 |
Exercise of stock options for cash and vesting of RSUs, net of tax payments | — |  |  | — |  |  | 1,118,093 |  |  | 1,118 |  |  | (1,202,907) |  |  | — |  |  | — |  |  |  |  | (1,201,789) |
Stock-based compensation | — |  |  | — |  |  | — |  |  | — |  |  | 9,595,947 |  |  | — |  |  | — |  |  |  |  | 9,595,947 |
Net loss | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (54,402,131) |  |  | — |  |  |  |  | (54,402,131) |
Unrealized gain on short-term investments | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 4,861 |  |  |  |  | 4,861 |
Foreign currency translation | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (14,419) |  |  |  |  | (14,419) |
Balance at March 31, 2021 | 9 |  |  | $ | — |  |  | 209,334,036 |  |  | $ | 209,333 |  |  | $ | 1,542,261,467 |  |  | $ | (960,598,943) |  |  | $ | (265,708) |  |  |  |  | $ | 581,606,149 |

See accompanying notes to unaudited condensed consolidated financial statements.
5

INOVIO PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
6

| Three Months Ended March 31, |  |
| 2022 |  | 2021 |  |
Cash flows from operating activities: |  |  |  |  |
Net loss | $ | (79,073,719) |  |  | $ | (54,402,131) |  |  |
Adjustments to reconcile net loss to net cash used in operating activities: |  |  |  |  |
Depreciation | 929,383 |  |  | 660,697 |  |  |
Amortization of intangible assets | 126,770 |  |  | 136,770 |  |  |
Amortization of operating lease right-of-use assets | 319,586 |  |  | 278,290 |  |  |
Stock-based compensation | 7,711,151 |  |  | 9,595,947 |  |  |
Non-cash interest expense | (219,999) |  |  | (31,281) |  |  |
Amortization of premiums on investments | 125,810 |  |  | — |  |  |
Loss on short-term investments | 318,684 |  |  | 10,151 |  |  |
Loss on disposal of fixed assets | 157,666 |  |  | — |  |  |
Gain on remeasurement of investment in Geneos | (165,215) |  |  | — |  |  |
Loss on equity investment in affiliated entities | 537,728 |  |  | 830,475 |  |  |
Share of net loss in Geneos | 2,165,213 |  |  | 434,387 |  |  |
Net unrealized loss on available-for-sale equity securities | 4,840,641 |  |  | 847,958 |  |  |
Unrealized transaction loss on foreign-currency denominated debt | — |  |  | (176,927) |  |  |
Changes in operating assets and liabilities: |  |  |  |  |
Accounts receivable, including from affiliated entities | 541,248 |  |  | 8,804,853 |  |  |
Prepaid expenses and other current assets, including from affiliated entities | 7,075,934 |  |  | (19,108,348) |  |  |
Other assets | 151,999 |  |  | 75,514 |  |  |
Accounts payable and accrued expenses | (9,859,913) |  |  | 4,735,352 |  |  |
Accrued clinical trial expenses | 1,501,489 |  |  | (2,579,476) |  |  |
Accounts payable and accrued expenses due to affiliated entities | 859,354 |  |  | 125,292 |  |  |
Deferred revenue, including from affiliated entity | (9,963) |  |  | (72,463) |  |  |
Operating lease right-of-use assets and liabilities, net | (624,673) |  |  | (558,140) |  |  |
Grant funding liability, including from affiliated entity | 723,550 |  |  | (2,480,826) |  |  |
Other liabilities | (14,826) |  |  | 6,478 |  |  |
Net cash used in operating activities | (61,882,102) |  |  | (52,867,428) |  |  |
Cash flows from investing activities: |  |  |  |  |
Purchases of investments | (99,722,697) |  |  | (275,408,976) |  |  |
Proceeds from sale or maturity of investments | 123,055,048 |  |  | 504,464 |  |  |
Purchases of capital assets | — |  |  | (210,824) |  |  |
Investment in Geneos | (1,999,998) |  |  | — |  |  |
Net cash provided by (used in) investing activities | 21,332,353 |  |  | (275,115,336) |  |  |
Cash flows from financing activities: |  |  |  |  |
Proceeds from issuance of common stock, net of issuance costs | 29,364,538 |  |  | 162,105,030 |  |  |
Proceeds from stock option exercises | 83,812 |  |  | 2,632,996 |  |  |
Taxes paid related to net share settlement of equity awards | (1,026,333) |  |  | (3,834,785) |  |  |
Net cash provided by financing activities | 28,422,017 |  |  | 160,903,241 |  |  |
Effect of exchange rate changes on cash and cash equivalents | (6,555) |  |  | (14,419) |  |  |
Decrease in cash and cash equivalents | (12,134,287) |  |  | (167,093,942) |  |  |
Cash and cash equivalents, beginning of period | 71,143,778 |  |  | 250,728,118 |  |  |
Cash and cash equivalents, end of period | $ | 59,009,491 |  |  | $ | 83,634,176 |  |  |
Supplemental disclosures: |  |  |  |  |
Amounts accrued for purchases of fixed assets | $ | 330,779 |  |  | $ | 35,370 |  |  |
Interest paid | $ | 533,487 |  |  | $ | 544,315 |  |  |

See accompanying notes to unaudited condensed consolidated financial statements.
7

INOVIO PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Organization and Operations
Inovio Pharmaceuticals, Inc. (the “Company” or “INOVIO”), is a biotechnology company focused on bringing to market precisely designed DNA medicines and vaccines to help protect people from infectious diseases, including COVID-19, and to help treat people with cancer and conditions associated with human papillomavirus ("HPV"). INOVIO has shown in clinical trials that its DNA vaccine candidates can be delivered into cells in the body via a proprietary smart device allowing the nucleic-acid delivered gene products to activate functional T cell and antibody responses against targeted pathogens and cancers.
The Company's DNA medicines pipeline is comprised of three types of product candidates: prophylactic DNA vaccines, therapeutic DNA immunotherapies, and DNA encoded monoclonal and bispecific antibodies ("dMAbs" and “dBTAs”), all of which utilize the two components of INOVIO's integrated platform, SynCon® and CELLECTRA®.
The Company's proprietary SynCon® technology creates optimized plasmids, which are circular strands of DNA that instruct a cell to produce proteins or antigens to help the person’s immune system respond with antibodies and immune cells which recognize and then help block viruses and destroy cancerous or pre-cancerous cells.
INOVIO's patented CELLECTRA® smart delivery devices facilitate uptake of its DNA medicines into the cell, which has been a key limitation of historical DNA-based technology approaches. Human clinical trial data from more than 15,000 CELLECTRA® smart device administrations across more than 5,000 participants to date have shown a tolerable safety profile.
INOVIO's corporate strategy is to develop, seek regulatory approval for and commercialize its novel DNA medicines to address unmet global health needs. The Company continues to advance and clinically validate an array of DNA medicine candidates that target infectious diseases, such as COVID-19, as well as HPV-associated diseases and cancer.
The Company's partners and collaborators include ApolloBio Corporation, AstraZeneca, Advaccine Biopharmaceuticals Suzhou Co., The Bill & Melinda Gates Foundation (Gates), Coalition for Epidemic Preparedness Innovations ("CEPI"), The U.S. Department of Defense ("DoD"), Defense Advanced Research Projects Agency ("DARPA"), HIV Vaccines Trial Network, the U.S. Defense Threat Reduction Agency’s Medical CBRN Defense Consortium ("MCDC"), International Vaccine Institute ("IVI"), Kaneka Eurogentec, National Cancer Institute, National Institutes of Health, National Institute of Allergy and Infectious Diseases, Ology Bioservices, the Parker Institute for Cancer Immunotherapy, Plumbline Life Sciences, Regeneron Pharmaceuticals, Inc., Richter-Helm BioLogics, Thermo Fisher Scientific, the University of Pennsylvania, the Walter Reed Army Institute of Research and The Wistar Institute.
The Company and its collaborators are currently evaluating the feasibility of, or conducting or planning clinical studies of, DNA medicines for COVID-19, including both homologous and heterologous booster vaccines; Middle East Respiratory Syndrome, or MERS; Lassa fever; Ebola; as well as HPV-associated precancers, including cervical, vulvar, and anal dysplasia; HPV-associated cancers, including head & neck, cervical, anal, penile, vulvar, and vaginal; other HPV-associated disorders, such as recurrent respiratory papillomatosis, or RRP; glioblastoma multiforme, or GBM; and prostate cancer.
INOVIO was incorporated in Delaware in June 2001 and has its principal executive offices in Plymouth Meeting, Pennsylvania.
2. Basis of Presentation, Liquidity and Risks and Uncertainties
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Inovio have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) as contained in the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") for interim financial information and with 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 U.S. GAAP for complete financial statements. The condensed consolidated balance sheet as of March 31, 2022, the condensed consolidated statements of operations, the condensed consolidated statements of comprehensive loss, the condensed consolidated statements of stockholders' equity and the condensed consolidated statements of cash flows for the three months ended March 31, 2022 and 2021 are unaudited, but include all adjustments (consisting of normal recurring adjustments) that the Company considers necessary for a fair presentation of the financial position, results of operations, cash flows and changes in stockholders' equity for the periods presented.
The results of operations for the three months ended March 31, 2022 shown herein are not necessarily indicative of the results that may be expected for the year ending December 31, 2022, or for any other period. These unaudited financial statements, and notes thereto, should be read in conjunction with the audited consolidated financial statements for the year
8

Table of Contents
ended December 31, 2021, included in the Company's Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on March 1, 2022. The balance sheet at December 31, 2021 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.
These unaudited condensed consolidated financial statements include the accounts of Inovio Pharmaceuticals, Inc. and its subsidiary. As of March 31, 2022 and December 31, 2021, the Company consolidated its wholly-owned subsidiary Inovio Asia LLC. All intercompany accounts and transactions were eliminated upon consolidation.
Liquidity
The Company incurred a net loss attributable to common stockholders of $79.1 million for the three months ended March 31, 2022. The Company had working capital of $340.5 million and an accumulated deficit of $1.3 billion as of March 31, 2022. The Company has incurred losses in each year since its inception and expects to continue to incur significant expenses and operating losses for the foreseeable future in connection with the research and preclinical and clinical development of its product candidates. The Company’s cash, cash equivalents and short-term investments of $360.4 million as of March 31, 2022 are sufficient to support the Company's planned operations for a period of at least 12 months from the date of issuance of these financial statements.
In order to continue to fund future research and development activit ies, the Company will need to seek additional capital. This may occur through strategic alliance and licensing arrangements, grant agreements and/or future public or private debt or equity financings including At-the-Market Equity Offering Sales Agreements (“Sales Agreements”). The Company has a history of conducting debt and equity financings, including the receipt of net proceeds of $29.4 million and $47.7 million under a Sales Agreement during the three months ended March 31, 2022 and year ended December 31, 2021, respectively, and $162.1 million from a January 2021 underwritten public offering of common stock. However, sufficient funding may not be available in the future, or if available, may be on terms that significantly dilute or otherwise adversely affect the rights of existing stockholders. If adequate funds are not available, the Company may need to delay, reduce the scope of or put on hold one or more of its clinical and/or preclinical programs.
The Company’s ability to continue its operations is dependent upon its ability to obtain additional capital in the future and achieve profitable operations. The Company expects to continue to rely on outside sources of financing to meet its capital needs and the Company may never achieve positive cash flow. These condensed consolidated financial statements do not include any adjustments to the specific amounts and classifications of assets and liabilities, which might be necessary should Inovio be unable to continue as a going concern. The Company's condensed consolidated financial statements as of and for the three months ended March 31, 2022 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business for the foreseeable future. The Company has evaluated subsequent events after the balance sheet date through the date it issued these condensed consolidated financial statements.
The Company is, and from time to time may in the future be, subject to various legal proceedings and claims arising in the ordinary course of business. The Company assesses contingencies to determine the degree of probability and range of possible loss for potential accrual in its consolidated financial statements. An estimated loss contingency is accrued in the consolidated financial statements if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Legal proceedings, including litigation, government investigations and enforcement actions, could result in material costs, occupy significant management resources and entail civil and criminal penalties, even if the Company ultimately prevails. Any of the foregoing consequences could result in serious harm to the Company’s business, results of operations and financial condition.
Risks and Uncertainties
The global pandemic resulting from COVID-19, caused by a novel strain of coronavirus, SARs-CoV-2, has caused national and global economic and financial market disruptions. The impact of this pandemic has been and will likely continue to be extensive in many aspects of society, which has resulted in and will continue to cause significant disruptions to the global economy, as well as businesses and capital markets around the world.
The Company continues to closely monitor the impact of the COVID-19 pandemic on its employees, collaborators and service providers. The extent to which the pandemic will continue to impact the Company's business and operations will depend on future developments, including travel restrictions to, from and within the United States and other countries, and the effectiveness of actions taken in the United States and other countries to contain and treat the disease, which remain uncertain.
3. Critical Accounting Policies
Collaboration Agreements and Revenue Recognition
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The Company assesses whether its collaboration agreements are subject to Accounting Standards Codification ("ASC") Topic 808: Collaborative Arrangements (“Topic 808”) based on whether they involve joint operating activities and whether both parties have active participation in the arrangement and are exposed to significant risks and rewards. To the extent that the arrangement falls within the scope of Topic 808 and the Company concludes that its collaboration partner is not a customer, the Company presents such payments as a reduction of research and development expense. If payments from the collaboration partner to the Company represent consideration from a customer, then the Company accounts for those payments within the scope of Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (“Topic 606”).
The Company enters into collaborative arrangements with partners that typically include payment of one or more of the following: (i) license fees; (ii) product supply services; (iii) milestone payments related to the achievement of developmental, regulatory, or commercial goals; and (iv) royalties on net sales of licensed products. At contract inception, the Company assesses the goods or services agreed upon within each contract and assess whether each good or service is distinct and determine those that are performance obligations. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
As part of the accounting for these arrangements, the Company must develop estimates and assumptions that require judgment of management to determine the underlying stand-alone selling price for each performance obligation which determines how the transaction price is allocated among the performance obligation. The standalone selling price may include items such as forecasted revenues, development timelines, discount rates and probabilities of technical and regulatory success. The Company evaluates each performance obligation to determine if it can be satisfied at a point in time or over time. In addition, variable consideration must be evaluated to determine if it is constrained and, therefore, excluded from the transaction price. Differences in the allocation of the transaction price between delivered and undelivered performance obligations can impact the timing of revenue recognition but do not change the total revenue recognized under any agreement.
For collaboration arrangements that include license fees, the Company recognizes revenues from non-refundable, upfront fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.
For collaboration arrangements that include milestone payments (variable consideration), the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. This assessment is based on the Company’s past experience with its collaboration partner, market insight and partner communication. Milestone payments that are not within the Company’s or the collaboration partner’s control, such as regulatory approvals, are generally not considered probable of being achieved until those approvals are received. At the end of each subsequent reporting period, the Company re-evaluates the probability of achieving such milestones and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect license, collaboration or other revenues and earnings in the period of adjustment and could be material.
For collaboration arrangements that include sales-based royalties, including milestone payments based on the level of sales, and for which the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue in the period the underlying sales occur. To date, the Company has not recognized any royalty revenue resulting from any of its collaborative arrangements.
Research and Development Expenses - Clinical Trial Accruals
The Company's activities have largely consisted of research and development efforts related to developing electroporation delivery technologies, DNA vaccines, DNA immunotherapies and dMAbs. For clinical trial expenses, judgements used in estimating accruals rely on estimates of total costs incurred based on participant enrollment, completion of studies and other events. Accrued clinical trial costs are subject to revisions as trials progress. Revisions are charged to expense in the period in which the facts that give rise to the revision become known. Historically, revisions have not resulted in material changes to research and development expense; however a modification in the protocol of a clinical trial or cancellation of a trial could result in a charge to the Company's results of operations.
4. Impact of Recently Issued Accounting Standards
The recent accounting pronouncements below may have a significant effect on the Company's financial statements. Recent accounting pronouncements that are not anticipated to have an impact on or are unrelated to the Company's financial condition, results of operations, or related disclosures are not discussed.
Accounting Standards Recently Adopted
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ASU No. 2020-06. In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the guidance on an issuer’s accounting for convertible instruments and contracts in its own equity. ASU 2020-06 is effective for public entities for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. The Company adopted ASU 2020-06 as of January 1, 2022 on a modified retrospective basis and recorded a net reduction in accumulated deficit of $1.8 million, a decrease in additional paid-in capital of $3.3 million, and an increase in convertible senior notes of $1.5 million to reflect the impact of the accounting change. The Company derecognized the related deferred tax liabilities of $1.5 million with a corresponding adjustment to the valuation allowance, resulting in no net impact to the cumulative adjustment to retained earnings (see Note 8, "Convertible Debt").
5. Revenue Recognition
During the three months ended March 31, 2022 and 2021, the Company recognized total revenue under collaborative research and development arrangements of $9,000 and $50,000, respectively, from its affiliated entity Plumbline Life Sciences, Inc. ("PLS") and $190,000 and $321,000, respectively, from various other contracts as a result of performance obligations being satisfied. Of the total revenue recognized during the three months ended March 31, 2022, $10,000 was in deferred revenue as of December 31, 2021.
6. Short-term Investments and Fair Value Measurements
The following is a summary of available-for-sale securities as of March 31, 2022 and December 31, 2021:

|  |  | As of March 31, 2022
| Contractual Maturity (in years) | Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Fair Market Value
Mutual funds | --- |  | $ | 178,648,717 |  |  | $ | — |  |  | $ | (6,367,983) |  |  | $ | 172,280,734 |
U.S. treasury securities | Less than 1 |  | 84,772,489 |  |  | 200 |  |  | (108,139) |  |  | 84,664,550 |
Commercial paper | Less than 1 |  | 39,986,103 |  |  | — |  |  | — |  |  | 39,986,103 |
Certificates of deposit | Less than 1 |  | 2,976,544 |  |  | 15,136 |  |  | (333) |  |  | 2,991,347 |
U.S. agency mortgage-backed securities | * |  | 1,551,716 |  |  | — |  |  | (90,093) |  |  | 1,461,623 |
|  |  | $ | 307,935,569 |  |  | $ | 15,336 |  |  | $ | (6,566,548) |  |  | $ | 301,384,357 |

|  |  | As of December 31, 2021
| Contractual Maturity (in years) | Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Fair Market Value
Mutual funds | --- |  | $ | 192,966,772 |  |  | $ | 87,069 |  |  | $ | (1,614,411) |  |  | $ | 191,439,430 |
U.S. treasury securities | Less than 1 |  | 94,193,441 |  |  | — |  |  | (9,921) |  |  | 94,183,520 |
Commercial paper | Less than 1 |  | 39,967,853 |  |  | — |  |  | — |  |  | 39,967,853 |
Certificates of deposit | Less than 1 |  | 2,976,210 |  |  | 15,618 |  |  | (338) |  |  | 2,991,490 |
U.S. agency mortgage-backed securities | * |  | 1,608,137 |  |  | 4,508 |  |  | (23,998) |  |  | 1,588,647 |
|  |  | $ | 331,712,413 |  |  | $ | 107,195 |  |  | $ | (1,648,668) |  |  | $ | 330,170,940 |

*No single maturity date.
During the three months ended March 31, 2022 and 2021, the Company recorded gross realized gain on investments of $20,000 and $0, respectively, and gross realized loss on investments of $339,000 and $10,000, respectively. During the three months ended March 31, 2022 and 2021, the Company recorded net unrealized loss on available-for-sale equity securities of $4.8 million and $848,000, respectively. No material balances were reclassified out of accumulated other comprehensive loss for the three months ended March 31, 2022 and 2021. Interest and dividends on investments classified as available-for-sale are included in interest income in the condensed consolidated statements of operations. As of March 31, 2022, the Company had 29 available-for-sale securities in an unrealized loss position, of which 13 with an aggregate total unrealized loss of $2.9 million were in such position for longer than 12 months.
The Company periodically reviews its portfolio of available-for-sale debt securities to determine if any investment is impaired due to credit loss or other potential valuation concerns. For the debt securities where the fair value of the investment is less than the amortized cost basis, the Company has assessed at the individual security level for various quantitative factors including, but not limited to, the nature of the investments, changes in credit ratings, interest rate fluctuations, industry analyst reports, and the severity of impairment. Unrealized losses on available-for-sale debt securities as of March 31, 2022 were
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primarily due to changes in interest rates, and not due to increased credit risks associated with specific securities. Based on the credit quality of the available-for-sale debt securities that are in an unrealized loss position, and the Company’s estimates of future cash flows to be collected from those securities, the Company believes the unrealized losses are not credit losses. Accordingly, at March 31, 2022, the Company has not recorded an allowance for credit losses related to its available-for-sale debt securities.
The following table presents the Company’s assets that were measured at fair value on a recurring basis, determined using the following inputs as of March 31, 2022:

| Fair Value Measurements at
| March 31, 2022
| Total |  | Quoted Prices in Active Markets (Level 1) |  | Significant Other Unobservable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Short-term investments |  |  |  |  |  |  |
Mutual funds | $ | 172,280,734 |  |  | $ | 172,280,734 |  |  | $ | — |  |  | $ | — |
U.S. treasury securities | 84,664,550 |  |  | 84,664,550 |  |  | — |  |  | — |
Commercial paper | 39,986,103 |  |  | — |  |  | 39,986,103 |  |  | — |
Certificates of deposit | 2,991,347 |  |  | — |  |  | 2,991,347 |  |  | — |
U.S. agency mortgage-backed securities | 1,461,623 |  |  | — |  |  | 1,461,623 |  |  | — |
Total short-term investments | 301,384,357 |  |  | 256,945,284 |  |  | 44,439,073 |  |  | — |
Investment in affiliated entity | 3,369,068 |  |  | 3,369,068 |  |  | — |  |  | — |
Total assets measured at fair value | $ | 304,753,425 |  |  | $ | 260,314,352 |  |  | $ | 44,439,073 |  |  | $ | — |

The following table presents the Company’s assets that were measured at fair value on a recurring basis, determined using the following inputs as of December 31, 2021:

| Fair Value Measurements at
| December 31, 2021
| Total |  | Quoted Prices in Active Markets (Level 1) |  | Significant Other Unobservable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Short-term investments |  |  |  |  |  |  |
Mutual funds | $ | 191,439,430 |  |  | $ | 191,439,430 |  |  | $ | — |  |  | $ | — |
U.S. treasury securities | 94,183,520 |  |  | 94,183,520 |  |  | — |  |  | — |
Commercial paper | 39,967,853 |  |  | — |  |  | 39,967,853 |  |  | — |
Certificates of deposit | 2,991,490 |  |  | — |  |  | 2,991,490 |  |  | — |
U.S. agency mortgage-backed securities | 1,588,647 |  |  | — |  |  | 1,588,647 |  |  | — |
Total short-term investments | 330,170,940 |  |  | 285,622,950 |  |  | 44,547,990 |  |  | — |
Investment in affiliated entity | 3,906,796 |  |  | 3,906,796 |  |  | — |  |  | — |
Total assets measured at fair value | $ | 334,077,736 |  |  | $ | 289,529,746 |  |  | $ | 44,547,990 |  |  | $ | — |

Level 1 assets at March 31, 2022 consisted of mutual funds and U.S. treasury securities held by the Company that are valued at quoted market prices, as well as the Company’s investment in its affiliated entity, PLS. The Company accounts for its investment in 597,808 common shares of PLS based on the closing price of the shares on the Korea New Exchange Market on the applicable balance sheet date. Unrealized gains and losses on the Company's equity securities are reported in the consolidated statement of ope rations as unrealized gain (loss) on available-for-sale equity securities or as a gain (loss) on investment in affiliated entity.
Level 2 assets at March 31, 2022 consisted of commercial paper, certificates of deposit and U.S. agency mortgage-backed securities held by the Company that are initially valued at the transaction price and subsequently valued, at the end of each reporting period, typically utilizing market observable data. The Company obtains the fair value of its Level 2 assets from a professional pricing service, which may use quoted market prices for identical or comparable instruments, or inputs other than quoted prices that are observable either directly or indirectly. The professional pricing service gathers quoted market prices and
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observable inputs from a variety of industry data providers. The valuation techniques used to measure the fair value of the Company's Level 2 financial instruments were derived from non-binding market consensus prices that are corroborated by observable market data, quoted market prices for similar instruments, or pricing models such as discounted cash flow techniques. The Company validates the quoted market prices provided by the primary pricing service by comparing the service's assessment of the fair values of the Company's investment portfolio balance against the fair values of the Company's investment portfolio balance obtained from an independent source.
There were no Level 3 assets held as of March 31, 2022.
7. Goodwill and Intangible Assets
The following sets forth the goodwill and intangible assets by major asset class:

|  |  | March 31, 2022 |  | December 31, 2021
| Weighted Average Useful Life (Yrs) | Gross |  | Accumulated Amortization |  | Net Book Value |  | Gross |  | Accumulated Amortization |  | Net Book Value
Indefinite lived: |  |  |  |  |  |  |  |  |  |  |  |  |
Goodwill |  |  | $ | 10,513,371 |  |  | $ | — |  |  | $ | 10,513,371 |  |  | $ | 10,513,371 |  |  | $ | — |  |  | $ | 10,513,371 |
Definite lived: |  |  |  |  |  |  |  |  |  |  |  |  |
Licenses | 10 |  | 1,323,761 |  |  | (1,312,787) |  |  | 10,974 |  |  | 1,323,761 |  |  | (1,305,600) |  |  | 18,161 |
Bioject(a) | 12 |  | 5,100,000 |  |  | (2,798,889) |  |  | 2,301,111 |  |  | 5,100,000 |  |  | (2,735,556) |  |  | 2,364,444 |
Other(b) | 18 |  | 4,050,000 |  |  | (3,862,500) |  |  | 187,500 |  |  | 4,050,000 |  |  | (3,806,250) |  |  | 243,750 |
Total intangible assets | 11 |  | 10,473,761 |  |  | (7,974,176) |  |  | 2,499,585 |  |  | 10,473,761 |  |  | (7,847,406) |  |  | 2,626,355 |
Total goodwill and intangible assets |  |  | $ | 20,987,132 |  |  | $ | (7,974,176) |  |  | $ | 13,012,956 |  |  | $ | 20,987,132 |  |  | $ | (7,847,406) |  |  | $ | 13,139,726 |

(a)Bioject intangible assets represent the estimated fair value of developed technology and intellectual property which were recorded from an asset acquisition.
(b)Other intangible assets represent the estimated fair value of acquired intellectual property.
Aggregate amortization expense on intangible assets for the three months ended March 31, 2022 and 2021 was $127,000 and $137,000, respectively. Estimated aggregate amortization expense is $366,000 for the remainder of fiscal year 2022, $276,000 for 2023, $253,000 for 2024, $253,000 for 2025, $253,000 for 2026 and $1.1 million for 2027 and subsequent years combined.
8. Convertible Debt
Convertible Senior Notes
On February 19, 2019 and March 1, 2019, the Company completed a private placement of $78.5 million aggregate principal amount of its 6.50% convertible senior notes due 2024 (the “Notes”). The Notes were sold in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. Net proceeds from the offering were $75.7 million.
The Notes are senior unsecured obligations of the Company and accrue interest payable in cash semi-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2019, at a rate of 6.50% per annum. The Notes will mature on March 1, 2024, unless earlier converted, redeemed or repurchased. Prior to the close of business on the business day immediately preceding November 1, 2023, the Notes will be convertible at the option of the holders only upon the satisfaction of certain circumstances. Thereafter, the Notes will be convertible at the option of the holders at any time until the close of business on the scheduled trading day immediately before the maturity date. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of its common stock or a combination of cash and shares of its common stock, at its election. The initial conversion rate was 185.8045 shares per $1,000 principal amount of Notes (equivalent to an initial conversion price of approximately $5.38 per share), subject to adjustment upon the occurrence of specified events.
The Company may redeem all, or any portion, of the Notes for cash if the last reported sale price per share of the Company's common stock exceeds 130% of the conversion price on (i) each of at least 20 trading days (whether or not
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consecutive) during the 30 consecutive trading days ending on, and including, the trading day immediately before the Company sends the related redemption notice; and (ii) the trading day immediately before the date the Company sends such redemption notice. The redemption price will be equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.
Initially, in accounting for the issuance of the Notes, the Company separated the Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of similar debt instruments, which do not have an associated convertible feature. The carrying amount of the equity component representing the conversion option for the Notes was $16.3 million and was recorded as a debt discount, which was being amortized to interest expense at an effective interest rate of 13.1%. In addition, the Company allocated $592,000 of debt issuance costs to the equity component and the remaining debt issuance costs of $2.2 million were allocated to the liability component, which were being amortized to interest expense under the effective interest rate method.
On January 1, 2022, the Company adopted ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which is intended to simplify the accounting for convertible instruments. The ASU eliminates the cash conversion feature models in ASC 470-20, Debt with Conversion and Other Options, which required an issuer of certain convertible debt to separately account for embedded conversion features as a component of equity. Instead, an issuer will account for these securities as a single unit of account, unless the conversion feature meets certain criteria. The Company adopted the new standard using the modified retrospective method, and recorded a net reduction to accumulated deficit of $1.8 million, a decrease to additional paid-in capital of $3.3 million, and an increase to convertible senior notes of $1.5 million to reflect the impact of the accounting change. The Notes are now accounted for as a single liability measured at amortized cost, as no other embedded features require bifurcation and recognition as derivatives.
The balance of the Notes at March 31, 2022 was as follows:

Original principal amount | $ | 78,500,000 |
Principal amount converted into common shares | (62,085,000) |
Unamortized debt issuance cost | (296,051) |
Accrued interest | 88,915 |
Net carrying amount | $ | 16,207,864 |

For the three months ended March 31, 2022 and 2021, the Company recognized $313,000 and $463,000, respectively, of interest expense related to the Notes, of which $267,000 and $267,000, respectively, related to the contractual interest coupon.
As of March 31, 2022, future minimum payments due under the Notes, representing contractual amounts due, including interest based on the fixed rate of 6.5% per annum, were as follows:

2022 |  | $ | 534,000 |  |  |  |  |  |  |
2023 |  | 1,067,000 |  |  |  |  |  |  |
2024 |  | 16,948,000 |  |  |  |  |  |  |
Total |  | $ | 18,549,000 |  |  |  |  |  |  |

December 2019 Convertible Bonds
On December 26, 2019, the Company closed a private placement of convertible promissory notes (the “December 2019 Bonds”) with an aggregate principal amount of 4.7 billion KRW (USD $4.1 million based on the exchange rate on the date of issuance) issued to a Korea-based institutional investor. Net proceeds from the offering were $4.0 million.
The December 2019 Bonds, which were unsecured obligations of the Company, were issued on December 31, 2019 and accrued interest at a coupon rate of 1.00% per annum, payable quarterly. The December 2019 Bonds were scheduled to mature on December 31, 2024, unless earlier converted or repurchased. On March 17, 2021, the December 2019 Bonds were converted in full into an aggregate of 1,009,450 shares of the Company's common stock, leaving no further December 2019 Bonds outstanding. Upon conversion, the $4.4 million carrying value of the December 2019 Bonds was reclassified to stockholders' equity.
The effective interest rate of the December 2019 Bonds was 6.2%. For the three months ended March 31, 2021, the Company recognized $59,000 of interest expense related to the December 2019 Bonds, of which $9,000 related to the contractual interest coupon.
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9. Stockholders’ Equity
The following is a summary of the Company's authorized and issued common and preferred stock as of March 31, 2022 and December 31, 2021:

|  |  |  |  | Outstanding as of
| Authorized |  | Issued |  | March 31, 2022 |  | December 31, 2021
Common Stock, par value $0.001 per share | 600,000,000 |  |  | 226,510,720 |  |  | 226,510,720 |  |  | 217,382,887 |
Series C Preferred Stock, par value $0.001 per share | 1,091 |  |  | 1,091 |  |  | 9 |  |  | 9 |

Common Stock
On November 9, 2021, the Company entered into an ATM Equity Offering SM Sales Agreement (the “2021 Sales Agreement”) with outside sales agents (collectively, the “Sales Agents”) for the offer and sale of its common stock for an aggregate offering price of up to $300.0 million. The 2021 Sales Agreement provides that the Sales Agents will be entitled to compensation in an amount equal to up to 3.0% of the gross sales proceeds of any common stock sold through the Sales Agents under the 2021 Sales Agreement. For the three months ended March 31, 2022, the Company sold 8,480,483 shares of its common stock under the 2021 Sales Agreement. The sales were made at a weighted average price of $3.52 per share, resulting in aggregate net proceeds of $29.4 million. As of March 31, 2022 there was $221.8 million of remaining capacity under the 2021 Sales Agreement.
On January 25, 2021, the Company closed an underwritten public offering of 20,355,000 shares of common stock at a public offering price of $8.50 per share. The net proceeds to the Company, after deducting the underwriters' discounts and commissions and other offering expenses, were $162.1 million.
Stock Options and Restricted Stock Units
The Company has a stock-based incentive plan, the 2016 Omnibus Incentive Plan (as amended to date, the "2016 Incentive Plan"), pursuant to which the Company may grant stock options, restricted stock awards, restricted stock units and other stock-based awards or short-term cash incentive awards to employees, directors and consultants.
The 2016 Incentive Plan was originally approved by the Company's stockholders on May 13, 2016, and an amendment to the plan to increase the number of shares available for issuance was approved by the stockholders on May 8, 2019. As of March 31, 2022, the maximum number of shares of the Company’s common stock available for issuance over the term of the 2016 Incentive Plan was 22,000,000 shares. On the first business day of each calendar year, such maximum number of shares shall be increased by 2,000,000 shares of common stock unless the Board determines, prior to January 1 for any such calendar year, to increase such maximum amount by a fewer number of shares or not to increase the maximum amount at all for such year. On January 1, 2022, the maximum number of shares increased by 2,000,000. At March 31, 2022, the Company had 838,641 shares of common stock available for future grant under the 2016 Incentive Plan, 3,491,330 shares underlying outstanding but unvested restricted stock units and options outstanding to purchase 11,701,340 shares of common stock under the 2016 Incentive Plan. The awards granted and available for future grant under the 2016 Incentive Plan generally vest over three years and have a maximum contractual term of ten years. The 2016 Incentive Plan terminates by its terms on March 9, 2026.
The Amended and Restated 2007 Omnibus Incentive Plan (the "2007 Incentive Plan") was adopted on March 31, 2007 and terminated by its terms on March 31, 2017. At March 31, 2022, the Company had options outstanding to purchase 2,395,723 shares of common stock under the 2007 Incentive Plan. The awards granted under the 2007 Incentive Plan generally vest over three years and have a maximum contractual term of ten years.
10. Net Loss Per Share
Basic net loss per share is computed by dividing the net loss for the period by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is calculated in accordance with the treasury stock method for the outstanding stock options and restricted stock units and refle cts the potential dilution that would occur if securities or other con tracts to issue common stock were exercised or converted to common stock. The dilutive impact of the outstanding Notes issued by the Company (discussed in Note 8) has been considered using the "if-converted" method. The calculation of diluted net loss per share requires that, to the extent the average market price of the underlying shares for the reporting period exceeds the exercise price of the options or other securities and the presumed exercise of such securities are dilutive to net loss per share for the period, an adjustment to the net loss used in the calculation is required to remove the change in fair value of such securities from the numerator for the period. Likewise, an adjustment to the denominator is required to reflect the related dilutive shares, if any. For the three months ended March 31, 2022 and 2021, basic and diluted net
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loss per share were the same, as the assumed exercise or settlement of stock options and restricted stock units and the potentially dilutive shares issuable upon conversion of the Notes would have been anti-dilutive.
The following table summarizes potential shares of common stock that were excluded from the diluted net loss per share calculation because of their anti-dilutive effect:

| Three Months Ended March 31, |  |
| 2022 |  | 2021 |  |
Options to purchase common stock | 14,097,063 |  |  | 10,826,472 |  |  |
Service-based restricted stock units | 3,491,330 |  |  | 2,610,130 |  |  |
Performance-based restricted stock units | 663,353 |  |  | 663,353 |  |  |
Convertible preferred stock | 3,309 |  |  | 3,309 |  |  |
Convertible notes | 3,049,980 |  |  | 3,049,980 |  |  |
Total | 21,305,035 |  |  | 17,153,244 |  |  |

11. Stock-Based Compensation
The Company incurs stock-based compensation expense related to restricted stock units ("RSUs") and stock options. The fair value of restricted stock is determined by the closing price of the Company's common stock reported on the Nasdaq Global Select Market on the date of grant. The Company estimates the fair value of stock options granted using the Black-Scholes option pricing model. The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of subjective assumptions, including the expected stock price volatility and expected option life. The Company amortizes the fair value of the awards on a straight-line basis over the requisite vesting period of the awards. Expected volatility is based on historical volatility. The expected life of options granted is based on historical expected life. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant. The dividend yield is based on the fact that no dividends have been paid historically and none are currently expected to be paid in the foreseeable future. The Company recognizes forfeitures as they occur.
The weighted average assumptions used in the Black-Scholes model for option grants to employees and directors are presented below:

| Three Months Ended March 31, |  |
| 2022 |  | 2021 |  |  |  |
Risk-free interest rate | 1.88% |  | 0.88% |  |  |  |
Expected volatility | 93% |  | 92% |  |  |  |
Expected life in years | 5.7 |  | 5.8 |  |  |  |
Dividend yield | — |  | — |  |  |  |

Total employee and director stock-based compensation expense recognized in the condensed consolidated statements of operations for the three months ended March 31, 2022 and 2021 was $7.2 million and $9.2 million, respectively, of which $3.7 million and $5.2 million, respectively, was included in research and development expenses, and $3.5 million and $4.0 million, respectively, was included in general and administrative expenses.
At March 31, 2022, there was $19.8 million of total unrecognized compensation expense related to unvested stock options, which is expected to be recognized over a weighted-average period of 2.2 years.
The weighted average grant date fair value per share, calculated using the Black-Scholes option pricing model, was $2.48 and $8.34 for employee and director stock options granted during the three months ended March 31, 2022 and 2021, respectively.
At March 31, 2022, there was $17.1 million of total unrecognized compensation expense related to unvested service-based RSUs, which is expected to be recognized over a weighted-average period of 2.1 years.
The weighted average grant date fair value per share was $3.33 and $11.42 for service-based RSUs granted during the three months ended March 31, 2022 and 2021, respectively.
The fair value of stock options granted to non-employees was estimated using the Black-Scholes pricing model. Total stock-based compensation expense for stock options and RSUs granted to non-employees for the three months ended March 31, 2022 and 2021 was $550,000 and $429,000, respectively.
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On August 28, 2020, the Company granted 663,353 performance-based RSUs to key employees under the 2016 Incentive Plan. The RSUs will vest in two tranches as follows: 50% of the shares in each tranche will vest upon achievement of the predetermined performance milestones and the remaining 50% of the shares in each tranche will vest upon subsequent completion of a one-year service period. The grant date fair value of the performance-based RSUs was $8.0 million based on the grant date closing price per share of $12.06. As of March 31, 2022, the underlying performance milestones of the RSUs were not probable of achievement, and no stock-based compensation expense was recognized for the performance-based RSUs for the three months then ended.
12. Related Party Transactions
Plumbline Life Sciences, Inc.
The Company owned 597,808 shares of common stock in PLS as of March 31, 2022, representing a 18.7% ownership interest, and one of the Company's directors, Dr. David B. Weiner, acts as a consultant to PLS.
Revenue recognized from PLS consists of milestone, license and patent fees. For the three months ended March 31, 2022 and 2021, the Company recognized revenue from PLS of $9,000 and $50,000, respectively. At March 31, 2022 and December 31, 2021, the Company had an accounts receivable balance of $34,000 and $25,000, respectively, related to PLS.
The Wistar Institute
The Company's director Dr. David B. Weiner is a director of the Vaccine Center of The Wistar Institute ("Wistar"). Dr. Weiner is also the Executive Vice President of Wistar.
In March 2016, the Company entered into collaborative research agreements with Wistar for preventive and therapeutic DNA-based immunotherapy applications and products developed by Dr. Weiner and Wistar for the treatment of cancers and infectious diseases. Under the terms of the agreement, the Company reimbursed Wistar for all direct and indirect costs incurred in the conduct of the collaborative research, not to exceed $3.1 million during the five-year term of the agreements. In March 2021, upon expiration of the March 2016 agreements, the Company entered into new collaborative research agreements with Wistar with the same terms. The Company will have the exclusive right to in-license new intellectual property developed under this agreement.
In 2021, the Company entered into collaborative research agreements with Wistar in support of the clinical development of INO-4800. Under the terms of these collaborative research agreements, the Company will reimburse Wistar for all direct and indirect costs incurred in the conduct of the collaborative research, not to exceed $1.9 million during the two-year term of the agreements.
In Novem ber 2016, the Company received a $6.1 million sub-grant through Wistar to develop a dMAb against the Zika infection, which was fully funded through December 2021.
The Company is also a collaborator with Wistar on an Integrated Preclinical/Clinical AIDS Vaccine Development grant from the NIAID, with funding through February 2023.
In 2020, the Company received a $10.7 million sub-grant through Wistar, which was amended in 2021 to $13.5 million, for the preclinical development and translational studies of dMAbs as countermeasures for COVID-19, with funding through November 2022. The sub-grant also includes an option for an additional $6.0 million in funding through March 2024, of which $3.3 million has been exercised as of March 31, 2022.
Deferred grant funding recognized from Wistar and recorded as contra-research and development expense is related to work performed by the Company on the research sub-contract agreements. For the three months ended March 31, 2022 and 2021, the Company recorded $1.5 million and $230,000, respectively, as contra-research and development expense from Wistar.
Research and development expenses recorded from Wistar relate primarily to the collaborative research agreements and sub-contract agreements related to Gates and CEPI (see Note 14). Research and development expenses recorded from Wistar for the three months ended March 31, 2022 and 2021 were $181,000 and $318,000, respectively. At March 31, 2022 and December 31, 2021, the Company had an accounts receivable balance of $3.5 million and $2.6 million, respectively, and an accounts payable and accrued liability balance of $1.4 million and $548,000, respectively, related to Wistar. As of March 31, 2022, the Company recorded $38,000 as deferred grant funding and $76,000 as prepaid expenses on the condensed consolidated balance sheet related to Wistar.
13. Commitments and Contingencies
Leases
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The Company leases approximately 82,200 square feet of office, laboratory, and manufacturing space in San Diego, California and 57,360 square feet of office space in Plymouth Meeting, Pennsylvania under various non-cancellable operating lease agreements with remaining lease terms as of March 31, 2022 of 1.7 to 7.8 ye ars, which represent the non-cancellable periods of the leases. The Company has excluded the extension options from its lease terms in the calculation of future lease payments as they are not reasonably certain to be exercised. The Company's lease payments consist primarily of fixed rental payments for the right to use the underlying leased assets over the lease terms as well as payments for common area maintenance and administrative services. The Company has received customary incentives from its landlords, such as reimbursements for tenant improvements and rent abatement periods, which effectively reduce the total lease payments owed for these leases.
The Company performed an evaluation of its contracts with customers and suppliers in accordance with ASC Topic 842 and determined that, except for the real estate leases described above and various copier leases, none of its other contracts contain a right-of-use asset.
Operating lease right-of-use assets and liabilities on the condensed consolidated balance sheet represents the present value of the remaining lease payments over the remaining lease terms. Payments for additional monthly fees to cover the Company's share of certain facility expenses are not included in operating lease right-of-use assets and liabilities. The Company uses its incremental borrowing rate to calculate the present value of its lease payments, as the implicit rates in the leases are not readily determinable.
As of March 31, 2022, the maturities of the Company's operating lease liabilities were as follows:

Remainder of 2022 | $ | 3,074,000 |
2023 | 4,089,000 |
2024 | 3,050,000 |
2025 | 3,063,000 |
2026 | 3,139,000 |
Thereafter | 6,749,000 |
Total remaining lease payments | 23,164,000 |
Less: present value adjustment | (5,725,000) |
Total operating lease liabilities | 17,439,000 |
Less: current portion | (2,673,000) |
Long-term operating lease liabilities | $ | 14,766,000 |
Weighted-average remaining lease term | 6.4 years
Weighted-average discount rate | 8.5%

Lease costs included in operating expenses in the condensed consolidated statements of operations for the three months ended March 31, 2022 and 2021 were $830,000 and $850,000, respectively. Operating lease costs consisting of the fixed lease payments included in operating lease liabilities are recorded on a straight-line basis over the lease terms. Variable lease costs are recorded as incurred.
In the fourth quarter of 2019, the Company entered into two agreements to sublease a total of approximately 13,500 square feet in its Plymouth Meeting headquarters through periods between December 31, 2022 and March 31, 2025.
In the normal course of business, the Company is a party to a variety of agreements pursuant to which it may be obligated to indemnify the other party. It is not possible to predict the maximum potential amount of future payments under these types of agreements due to the conditional nature of the Company's obligations and the unique facts and circumstances involved in each particular agreement. Historically, payments made by the Company under these types of agreements have not had a material effect on its business, consolidated results of operations or financial condition.
Legal Proceedings
Securities Litigation
On March 12, 2020, a purported shareholder class action complaint, McDermid v. Inovio Pharmaceuticals, Inc. and J. Joseph Kim, was filed in the United States District Court for the Eastern District of Pennsylvania, naming the Company and J. Joseph Kim, the Company’s Chief Executive Officer, as defendants. The lawsuit alleges that the Company made materially false and misleading statements regarding its development of a vaccine for COVID-19 in its public disclosures in violation of
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certain federal securities laws. The plaintiff seeks unspecified monetary damages on behalf of the putative class and an award of costs and expenses, including reasonable attorneys’ fees. On August 3, 2020, the lead plaintiff filed a consolidated complaint, naming the Company and three of its officers as defendants. On September 21, 2020, the lead plaintiff and another purported stockholder filed a first amended complaint, naming the Company and three of its officers as defendants. Defendants filed a motion to dismiss plaintiff’s first amended complaint on November 5, 2020. On February 16, 2021, the court issued an order granting in part, and denying in part, the defendants’ motion to dismiss. The court granted the defendants’ motion to dismiss, and dismissed with prejudice, the claims premised on certain of the Company’s statements. The court denied defendants’ motion to dismiss as to the remaining statements. On March 9, 2021, the defendants filed their answer to the complaint. The case is currently in discovery. On July 29, 2021, the plaintiffs moved to certify the class action. That motion is fully briefed and remains pending. On February 17, 2022, the court granted Plaintiffs’ motion for leave to amend their complaint, and further ordered that the amended complaint is deemed filed as of February 17. On March 21, 2022, Defendants moved to dismiss the new allegations in the amended complaint. The Company expects that motion to be fully briefed on May 10, 2022. No hearing date has been set.
On April 20, 2020, a purported shareholder derivative complaint, Behesti v. Kim, et al., was filed in the United States District Court for the Eastern District of Pennsylvania, naming eight current and former directors of the Company as defendants. The lawsuit asserts state and federal claims and is based on the same alleged misstatements as the shareholder class action complaint. The lawsuit accuses the Company’s board of directors of failing to exercise reasonable and prudent supervision over the Company’s management, policies, practices, and internal controls. The plaintiff seeks unspecified monetary damages on behalf of the Company as well as governance reforms. On June 5, 2020, the court stayed the Beheshti action pending resolution of a forthcoming motion to dismiss the McDermid securities class action or until any party provides notice that they no longer consent to the stay. On June 12, 2020 and June 15, 2020, two additional shareholder derivative complaints were filed in the United States District Court for the Eastern District of Pennsylvania, captioned Isman v. Benito, et al. and Devarakonda et al. v Kim, et. al. The complaints assert substantially similar claims as the Beheshti action and name the Company’s current directors as defendants. The Devarakonda complaint also names one of the Company’s former directors as a defendant. On July 21, 2020, the court consolidated the three derivative cases under the caption In re Inovio Pharmaceuticals, Inc. Derivative Litigation. The consolidated action is stayed.
On July 7, 2020, a fourth shareholder derivative complaint, Fettig v. Kim et al., was filed in the United States District Court for the Eastern District of Pennsylvania, naming eight current and former directors of the Company as defendants. The complaint asserts substantially similar claims as those in the consolidated derivative action. On August 27, 2020, the Fettig action was consolidated with the other derivative cases, which remain stayed as explained above.
On March 28, 2022, a fifth shareholder derivative complaint, Schumacher v. Benito et al., was filed in the Delaware Court of Chancery, naming eight current and former directors as defendants. The complaint asserts substantially similar claims as those in the consolidated derivative action. On May 4, 2022, the Delaware Court of Chancery entered a stay of the litigation.
The Company intends to defend these actions vigorously.
VGXI Litigation
On June 3, 2020, the Company filed a complaint in the Court of Common Pleas of Montgomery County, Pennsylvania against VGXI, Inc. and GeneOne Life Science, Inc., or GeneOne, and together with VGXI, Inc. collectively referred to as VGXI, alleging that VGXI had materially breached the Company’s supply agreement with them. The complaint seeks declaratory judgments, specific performance of the agreement, injunctive relief, an accounting, damages, attorneys’ fees, interest, costs and other relief from VGXI. On June 3, 2020, the Company filed a petition for preliminary injunction, which was denied on June 25, 2020. On June 26, 2020, the Company filed notice of appeal of the denial of the petition with the Pennsylvania Superior Court.
On July 7, 2020, VGXI filed an answer, new matter and counterclaims against the Company, alleging that the Company had breached the supply agreement, as well as misappropriation of trade secrets and unjust enrichment. The counterclaims seek injunctive relief, damages, attorneys’ fees, interest, costs and other relief from the Company. Also, on July 7, 2020, VGXI filed a third-party complaint against Ology Bioservices, Inc., a contract manufacturing organization that the Company had engaged to provide services similar to those that were being provided by VGXI. On July 27, 2020, the Company filed an answer to VGXI’s counterclaims, disputing the allegations and the claims raised in VGXI’s filing. On October 1, 2020, the Company filed a notice of discontinuance of appeal with the Pennsylvania Superior Court. A trial date for the litigation has not been set.
The Company intends to aggressively prosecute the claims set forth in its complaint against VGXI and to vigorously defend itself against VGXI’s counterclaims.
GeneOne Litigation
On December 7, 2020, GeneOne filed a complaint in the Court of Common Pleas of Montgomery County, Pennsylvania against the Company, alleging that the Company had breached the CELLECTRA® Device License Agreement, or the
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Agreement, between the Company and GeneOne. The Company terminated the Agreement on October 9, 2020. The complaint asserts claims for breach of contract, declaratory judgment, unfair competition, and unjust enrichment. The complaint seeks injunctive relief, an accounting, damages, disgorgement of profits, attorneys’ fees, interest, and other relief from the Company. On January 29, 2021, the Company filed preliminary objections to the complaint. On August 23, 2021, the court overruled the Company’s preliminary objections to the complaint. On September 13, 2021, the Company filed an answer to the complaint, new matter, and counterclaims. The Company’s counterclaims allege that GeneOne breached the Agreement and assert claims for breach of contract and declaratory judgment. The counterclaims seek damages, interest, expenses, attorney’s fees, and costs. On October 18, 2021, GeneOne filed its answer to the Company’s counterclaims and new matter. On November 8, 2021, we filed our answer to GeneOne’s new matter. A trial date for this litigation has not been set.
The Company intends to aggressively prosecute the claims set forth in its counterclaims against GeneOne and to vigorously defend itself against the claims in GeneOne’s complaint.
Other Matters
From time to time, the Company may be involved in disputes, including litigation, relating to claims arising out of operations in the normal course of our business. Any of these claims could subject the Company to costly legal expenses and, while the Company generally believes that it has adequate insurance to cover many different types of liabilities, its insurance carriers may deny coverage or its policy limits may be inadequate to fully satisfy any damage awards or settlements. If this were to happen, the payment of any such awards could have a material adverse effect on the Company's consolidated results of operations and financial position. Additionally, any such claims, whether or not successful, could damage the Company's reputation and business. Except as described above, the Company is not a party to any legal proceedings, the adverse outcome of which, in management’s opinion, individually or in the aggregate, would be reasonably expected to have a material adverse effect on the Company’s consolidated results of operations or financial position.
14. Collaborative Agreements
Advaccine Biopharmaceuticals Suzhou Co., Ltd.
On December 31, 2020, the Company entered into a Collaboration and License Agreement with Advaccine Biopharmaceuticals Suzhou Co., Ltd. (“Advaccine”), which was amended and restated on June 7, 2021 (as amended and restated, the “Advaccine Agreement”). Under the terms of the Advaccine Agreement, the Company granted to Advaccine the exclusive right to develop, manufacture and commercialize the Company’s vaccine candidate INO-4800 within the territories of China, Taiwan, Hong Kong and Macau (referred to collectively as “Greater China”) and 33 additional countries in Asia. Advaccine does not have the right to grant sublicenses, other than to affiliated entities, without the Company’s express prior written consent. As part of the collaboration, Advaccine also granted to the Company a non-exclusive license to certain DNA vaccine manufacturing processes.
The June 2021 amendment relates to the collaboration between the Company and Advaccine to jointly conduct the global Phase 3 segment of the Company’s ongoing Phase 2/3 trial of INO-4800 and expand the existing collaboration to include the planned global Phase 3 trial. The parties will jointly participate in the trial and will equally share the global development costs for the trial, including the Company’s manufacturing costs to supply INO-4800. In certain instances, the Company will have the right to convert the exclusive license to a non-exclusive license in the licensed territories, other than Greater China, unless Advaccine agrees to pay the Company its full share of development costs in excess of a specified maximum. Notwithstanding the foregoing, Advaccine will be fully responsible for conducting the trial in Greater China, including its costs and expenses incurred. The Company will be fully responsible for its costs and expenses, if any, incurred solely as a result of its activities in connection with the performance of the trial in the United States. The parties may continue to conduct clinical trials of INO-4800 outside of the territories covered by the Advaccine Agreement.
In the event that a global purchasing entity desires to enter into a purchase agreement for INO-4800 in both parties’ territories, the parties will enter into good faith negotiations for an arrangement to supply INO-4800 to such entity. In addition, the Company is permitted to enter into an agreement with a global purchasing entity to authorize the entity to conduct a portion of the global Phase 3 trial in the licensed territory outside of Greater China.
Under the Advaccine Agreement, Advaccine made an upfront payment to the Company of $3.0 million in January 2021. In addition to the upfront payment, the Company is entitled to receive up to an aggregate of $206.0 million upon the achievement of specified milestones related to the development, regulatory approval and commercialization of INO-4800, including the achievement of specified net sales thresholds for INO-4800 in Greater China and the additional covered territories, if approved. The Company will also be entitled to receive a royalty equal to a high single-digit percentage of annual net sales in each region within the licensed territory, subject to reduction in the event of competition from biosimilar products in a particular region and in other specified circumstances. Advaccine’s obligation to pay royalties will continue, on a licensed product-by-licensed product basis and region-by-region basis, for ten years after the first commercial sale in a particular region
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within Greater China or, if later, until the expiration of the last-to-expire patent covering a given licensed product in a given region.
Beginning in the first calendar year following the first commercial sale of INO-4800 in the licensed territory outside of Greater China, Advaccine will pay the Company an annual maintenance fee of $1.5 million for a period of five years, which fee will be creditable against any royalties payable by Advaccine with respect to sales outside of Greater China.
Under the Advaccine Agreement, the Company will supply Advaccine’s clinical requirements of INO-4800 and devices, although Advaccine may manufacture INO-4800 for its clinical use and may procure alternate suppliers. Advaccine is responsible for the manufacture and supply of INO-4800 itself or through a contract manufacturer for commercial use. Upon Advaccine’s reasonable request, the parties may negotiate a separate clinical and/or commercial supply agreement.
The Advaccine Agreement will continue in force on a region-by-region basis until Advaccine has no remaining royalty obligations in such region. Either party may terminate the Advaccine Agreement (i) in the event the other party shall have materially breached its obligations thereunder and such default shall have continued for a specified period after written notice thereof or (ii) upon the bankruptcy or insolvency of the other party. In addition, the Company may terminate the agreement, upon prior written notice, if Advaccine (i) ceases all development or commercialization activities for at least nine months, subject to certain exceptions, or (ii) challenges the validity, enforceability or scope of any of the patents licensed by the Company to Advaccine under the Advaccine Agreement, subject to certain conditions. Advaccine may terminate the Advaccine Agreement at any time for convenience upon nine months’ written notice to the Company, if such notice is provided before the first commercial sale of INO-4800 in the licensed territory, or 18 months’ written notice thereafter; provided that the Company may accelerate the effectiveness of such termination to the extent permitted by law.
The Company evaluated the terms of the Advaccine Agreement under ASC Topics 606 and 808 at inception and determined that the contract was with a customer and therefore should be accounted for under ASC Topic 606. The license to INO-4800 in the territories was identified as the only distinct performance obligation on a standalone basis as of the inception of the Advaccine Agreement. The Company concluded that the license was distinct from potential future manufacturing and supply obligations. The Company further determined that the transaction price under the Advaccine Agreement consisted of the $3.0 million upfront payment received in January 2021 plus a $2.0 million milestone payment which was achieved upon contract signing. The future potential milestone amounts were not included in the transaction price, as they were all determined to be fully constrained. As part of the evaluation of the development and regulatory milestones constraint, the Company determined that the achievement of such milestones is contingent upon success in future clinical trials and regulatory approvals, each of which is uncertain. Future potential milestone amounts may be recognized as revenue under the Advaccine Agreement, as well as under other collaborative research and development arrangements, if unconstrained. Reimbursable program costs will be recognized proportionately with the performance of the underlying services or delivery of drug supply and are excluded from the transaction price.
Under Topic 606, the entire transaction price of $5.0 million was allocated to the license performance obligation. The Company determined that as of December 31, 2020, the transfer of technology had occurred for the use and benefit of the license and accordingly, the performance obligation was fully satisfied. The Company accordingly recognized $5.0 million in revenue under collaborative research and development arrangements on the consolidated statement of operations during the year ended December 31, 2020. For the three months ended March 31, 2022, no revenue was recognized from Advaccine.
In connection with the June 2021 amendment, the Company determined that the global Phase 3 trial component of the agreement is a collaboration and not a contract with a customer and therefore concluded to account for the June 2021 amendment under ASC Topic 808. Reimbursements from Advaccine will be recognized as contra-research development expense on the condensed consolidated statement of operations once earned and collectibility is assured.
ApolloBio Corporation
On December 29, 2017, the Company entered into an Amended and Restated License and Collaboration Agreement (the "ApolloBio Agreement"), with ApolloBio Corporation ("ApolloBio"), with an effective date of March 20, 2018. Under the terms of the ApolloBio Agreement, the Company has granted to ApolloBio the exclusive right to develop and commercialize VGX-3100, its DNA immunotherapy product candidate designed to treat pre-cancers caused by HPV, within the agreed upon territories.
In addition to an upfront payment received in 2018, the Company is entitled to receive up to an aggregate of $20.0 million, less required income, withholding or other taxes, upon the achievement of specified milestones related to the regulatory approval of VGX-3100 in accordance with the ApolloBio Agreement. In the event that VGX-3100 is approved for marketing, the Company will be entitled to receive royalty payments based on a tiered percentage of annual net sales, with such percentage being in the low- to mid-teens, subject to reduction in the event of generic competition in a particular territory. ApolloBio’s obligation to pay royalties will continue for 10 years after the first commercial sale in a particular territory or, if later, until the expiration of the last-to-expire patent covering the licensed products in the specified territory.
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The ApolloBio Agreement will continue in force until ApolloBio has no remaining royalty obligations. Either party may terminate the ApolloBio Agreement in the event the other party shall materially breach or default in the performance of its material obligations thereunder and such default continues for a specified period after written notice thereof. In addition, ApolloBio may terminate the ApolloBio Agreement at any time beginning one year after the effective date for any reason upon 90 days written notice to the Company.
As of March 31, 2022 there have been no significant reimbursable program costs under the ApolloBio Agreement.
Coalition for Epidemic Preparedness Innovations
In April 2018, the Company entered into agreements with CEPI, pursuant to which the Company intends to develop vaccine candidates against Lassa fever and MERS. The goal of the collaboration between the Company and CEPI is to conduct research and development so that investigational stockpiles will be ready for clinical efficacy trial testing during potential disease outbreaks. The agreements with CEPI contemplate preclinical studies, as well as Phase 1 and Phase 2 clinical trials, occurring over multiple years. As part of the arrangement between the parties, CEPI has agreed to fund up to an aggregate of $56 million of costs over a five-year period for preclinical studies, as well as planned Phase 1 and Phase 2 clinical trials, to be conducted by the Company and collaborators, with funding from CEPI based on the achievement of identified milestones. During the three months ended March 31, 2022 and 2021, the Company received funding of $2.0 million and $2.4 million, respectively, related to these grants and recorded those payments as contra-research and development expense. As of March 31, 2022, the Company had an accounts receivable balance of $3.8 million on the condensed consolidated balance sheet related to these CEPI grants.
In January 2020, CEPI awarded the Company a grant of up to $9.0 million to support preclinical and clinical development of INO-4800 through Phase 1 human testing in the United States. In April 2020, CEPI awarded the Company a grant of $6.9 million to work with the International Vaccine Institute ("IVI") and the Korea National Institute of Health ("KNIH") to conduct clinical trials of INO-4800 in South Korea, a grant of $5.0 million to accelerate development of the Company's next-generation intradermal electroporation device, known as CELLECTRA® 3PSP, for the intradermal delivery of INO-4800, and a grant of $1.3 million to support large-scale manufacturing of INO-4800. During the three months ended March 31, 2022 and 2021, the Company received funding of $510,000 and $2.4 million, respectively, from CEPI related to these grants for INO-4800 and recorded such amounts as contra-research and development expense. As of March 31, 2022, the Company had $2.7 million recorded as deferred grant funding on the condensed consolidated balance sheet from the CEPI grants related to INO-4800.
Bill & Melinda Gates Foundation
In October 2018, Gates awarded and funded the Company a grant of $2.2 million to advance the development of dMAbs to address issues in infectious disease prevention and therapy. This technology has high relevance for the control of influenza and HIV. This next-generation approach to the delivery of monoclonal antibodies would make the technology accessible to low and middle-income countries. In August 2019, Gates funded an additional $1.1 million for the project. During the three months ended March 31, 2022 and 2021, the Company recorded $80,000 and $0, respectively, as contra-research and development expense related to the Gates dMAb grant. As of March 31, 2022, the Company had $304,000 recorded as deferred grant funding on the condensed consolidated balance sheet related to the grant.
In March 2020, Gates awarded and funded the Company a grant of $5.0 million to accelerate the development of the CELLECTRA® 3PSP device for the intradermal delivery of INO-4800. During the three months ended March 31, 2022 and 2021, the Company recorded $0 and $893,000, respectively, as contra-research and development expense related to this Gates grant.
Department of Defense (DoD)
In June 2020, the Company entered into an Other Transaction Authority for Prototype Agreement (the “OTA Agreement”) with the DoD to fund the Company’s efforts in developing the CELLECTRA® 3PSP device and associated arrays to be used for delivery of INO-4800 against COVID-19. Under the OTA Agreement, the Company intends to develop the CELLECTRA® 3PSP device and arrays for use in the U.S. military population and the U.S. population as a whole, subject to approval of the device by the U.S. Food and Drug Administration (the “FDA”). The OTA Agreement is also expected to support large-scale manufacturing of the CELLECTRA® 3PSP device, as well as large-scale DNA plasmid production for manufacture and supply of a specified number of doses of INO-4800 in support of FDA approval of the device. The total amount of funding being made available to the Company under the OTA Agreement is $54.5 million. The Company has determined that the OTA Agreement should be considered under Subtopic 958-605, Not-for-Profit Entities Revenue Recognition, which is outside the scope of Topic 606, as the government agency granting the Company funds is not receiving reciprocal value for their contributions. The Company will record contra-research development expense on the condensed consolidated statement of operations in the same period that the underlying expenses are incurred.
Additionally, in June 2020, the Company was awarded a fixed-price contract (the “Procurement Contract”) from the DoD for the purchase of the Company’s intradermal CELLECTRA® 2000 device and accessories. The CELLECTRA® 2000 devices will be used to inject INO-4800 in the Company’s planned later-stage clinical trials. The total purchase price under the
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Procurement Contract is expected to be approximately $10.7 million. The Company determined that the Procurement Contract falls under the scope of ASC Topic 606 as the contract is with a customer and the Company is able to satisfy its obligations under the arrangement as the Phase 3 clinical trials of INO-4800 are underway. Performance obligations under the Procurement Contract consist of the delivery of a specified number of CELLECTRA® 2000 devices and accessories. The total transaction price was allocated to the individual performance obligations based on the determined standalone selling price for the devices and accessories. The Company will recognize revenue on the condensed consolidated statement of operations upon shipment of the purchased devices and accessories. During the three months ended March 31, 2022 and 2021, the Company recorded no revenue from the Procurement Contract.
During the three months ended March 31, 2022 and 2021, the Company recorded $3.2 million and $7.8 million, respectively, as contra-research and development expense related to the OTA Agreement. As of March 31, 2022 and December 31, 2021, the Company had an accounts r eceivable balance of $0 and $3.6 million, respectively, on the condensed consolidated balance sheet from the DoD. As of March 31, 2022, the Company had $2.3 million recorded as deferred grant funding on the condensed consolidated balance sheet related to the Procurement Contract.
In April 2021, the Company announced that the DoD had notified the Company that it will discontinue funding f or the Phase 3 segment of the Company's clinical trial of INO-4800 in the United States, while continuing to fund the completion of the ongoing Phase 2 segment.
15. Income Taxes
The Company uses an estimated annual effective tax rate, which is based on expected annual income, statutory tax rates and tax planning opportunities available in the various jurisdictions in which the Company operates, to determine its quarterly provision for income taxes. Certain significant or unusual items are separately recognized in the quarter in which they occur and can be a source of variability in the effective tax rates from quarter to quarter. Due to the adoption of ASU 2019-12 which removes the exception under ASC 740-20-45-7 to consider all sources of income in order to determine the tax benefit resulting from a loss from continuing operations, ASC 740-20-45-7 no longer applies.
For the three months ended March 31, 2022 and 2021, the Company has not recorded any income tax provision/(benefit) due to the Company’s history of net operating losses generated and the maintenance of a full valuation allowance against its net deferred tax assets.
16. Geneos Therapeutics, Inc.
In 2016, the Company formed Geneos to develop and commercialize neoantigen-based personalized cancer therapies. Geneos was considered a variable interest entity (VIE) for which the Company was the primary beneficiary. In 2019, Geneos completed the initial closing of a Series A preferred stock financing. The Company invested $1.2 million in the Series A preferred stock financing, which was led by an outside investor. Following this transaction, the Company held 61% of the outstanding equity, on an as-converted to common stock basis, of Geneos and continued to consolidate its investment in Geneos under ASC 810, Consolidation.
In January 2020, Geneos completed the second closing of the Series A preferred stock financing, in which the Company invested $800,000. Following this transaction, the Company held 52% of the outstanding equity, on an as-converted to common stock basis, of Geneos and continued to consolidate its investment in Geneos.
In June 2020, Geneos closed an additional Series A preferred stock financing round, in which the Company invested $800,000. Following this transaction, the Company owned 47% of the outstanding equity of Geneos on an as-converted to common stock basis. This transaction triggered a VIE reconsideration, as the Company no longer held a controlling financial interest. Based on the Company’s assessment, Geneos continued to be a VIE as it did not have sufficient equity at risk to finance its activities without additional subordinated financial support. However, the Company was not the primary beneficiary of Geneos, as it did not have the power to direct the activities that most significantly impact Geneos’ economic performance. Accordingly, the Company deconsolidated its investment in Geneos as of June 1, 2020, resulting in a gain of $4.1 million, of which $2.4 million related to the remeasurement of the retained noncontrolling interest investment to fair value.
The Company applies the equity method to investments in common stock and to other investments in entities that have risk and reward characteristics that are substantially similar to an investment in the investee’s common stock. Since the Company’s Series A preferred stock investment in Geneos has a substantive liquidation preference, it is not substantially similar to the Company’s common stock investment and will therefore be recorded as an equity security under ASC 321.
Following the deconsolidation, the Company accounts for its common stock investment in Geneos, in which the Company lacks control but does have the ability to exercise significant influence over operating and financial policies, using the equity method. Generally, the ability to exercise significant influence is presumed when the investor possesses more than 20% of the voting interests of the investee. This presumption may be overcome based on specific facts and circumstances that demonstrate
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that the ability to exercise significant influence is restricted. In applying the equity method, the Company records the investment at cost unless the initial recognition is the result of the deconsolidation of a subsidiary, in which case it is recorded at fair value. The Company's proportionate share of net loss of Geneos is recorded in equity in net earnings of Geneos in the Company's condensed consolidated statements of operations. The Company's equity method investments are reviewed for indicators of impairment at each reporting period and are written down to fair value if there is evidence of a loss in value that is other-than-temporary. Any difference between the carrying amount of the Company’s investment and the amount of underlying equity in Geneos’ net assets is amortized into income or expense accordingly. There were no basis differences identified as of the deconsolidation date that would need to be amortized.
Upon deconsolidation, the Company recorded its Series A preferred stock investment at fair value based on the per share price paid by third party investors in connection with the preferred stock financing on June 1, 2020. The Company has determined that its Series A preferred stock investment in Geneos does not have a readily determinable fair value and has therefore elected the measurement alternative in ASC 321 to subsequently record the investment at cost, less any impairments, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. When fair value becomes determinable, from observable price changes in orderly transactions, the Company’s investment will be marked to fair value. There have been no observable price changes or impairments identified since the deconsolidation date.
In November 2020, Geneos completed the closing of a Series A-1 preferred stock financing. The Company invested $1.4 million in the Series A-1 preferred stock financing, which was led by outside investors. The closing date of this transaction was determined to be a VIE reconsideration event; based on the Company’s assessment, Geneos continued to be a VIE as it did not have sufficient equity at risk to finance its activities without additional subordinated financial support. The Company continued to not be the primary beneficiary of Geneos, as it did not have the power to direct the activities that most significantly impact Geneos’s economic performance and should not consolidate Geneos. Following this transaction, the Company held approximately 36% of the outstanding equity, on an as-converted to common stock basis. Accordingly, the Company continued to account for its common stock investment in Geneos as an equity method investment under ASC 323 and its preferred stock investments as equity securities under ASC 321.
The Company’s share of net losses of Geneos for the three months ended March 31, 2021 was $1.5 million; however, only $434,000 was recorded, reducing the Company's total investment in Geneos to $0. Of the total amount, $819,000 has been allocated to the equity method investment, thereby reducing the balance to $0 as of March 31, 2021. The remaining $4.2 million loss has been allocated to the Company’s Series A and Series A-1 preferred stock investment in Geneos, on a ratable basis, thereby reducing the balance to $0 as of March 31, 2021.
The Company will not reduce its investment below $0 and will not record its share of further net losses of Geneos as the Company has no obligation to fund Geneos.
In February 2021, Geneos completed a second closing of the Series A-1 preferred stock financing, in which the Company did not participate. Following this transaction, the Company held approximately 35% of the outstanding equity, on an as-converted to common stock basis.
In March 2022, Geneos completed the closing of a Series A-2 preferred stock financing. The Company invested $2.0 million in the Series A-2 preferred stock financing, which was led by outside investors. The closing date of this transaction was determined to be a VIE reconsideration event; based on the Company’s assessment, Geneos continues to be a VIE as it does not have sufficient equity at risk to finance its activities without additional subordinated financial support. The Company continues to not be the primary beneficiary of Geneos, as it does not have the power to direct the activities that most significantly impact Geneos’s economic performance and should not consolidate Geneos. Following this transaction, the Company held approximately 24% of the outstanding equity, on an as-converted to common stock basis. Accordingly, the Company continues to account for its common stock investment in Geneos as an equity method investment under ASC 323 and its preferred stock investments as equity securities under ASC 321.
The fair value of Geneos’s Series A-2 preferred stock was based on the per share price paid by third-party investors in connection with the closing on March 21, 2022. The Company has concluded that its Series A-2 preferred stock investment is a similar financial instrument as its Series A-1 preferred stock, and therefore remeasured the carrying value of the Series A-1 preferred stock investment at the Series A-2 preferred stock price, resulting in a gain on remeasurement of $165,000.
The Company recorded its current and accumulated share of net losses of Geneos of $2.2 million, which was allocated to the Series A-1 and Series A-2 preferred stock investment in Geneos, thereby reducing the balance to $0 as of March 31, 2022 as shown in the table below:
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Investment in Geneos Series A-2 preferred stock |  | $ | 1,999,998 |
Remeasurement of Geneos Series A-1 preferred stock |  | 165,215 |
Share in current and accumulated net loss of Geneos for the three months ended March 31, 2022 |  | (2,165,213) |
Investment in Geneos as of March 31, 2022 |  | $ | — |

The Company continues to exclusively license its SynCon® immunotherapy and CELLECTRA® technology platform to Geneos to be used in the field of personalized, neoantigen-based therapy for cancer. The license agreement provides for potential royalty payments to the Company in the event that Geneos commercializes any products using the licensed technology. The Company is not obligated to use any of its assets to fund the future operations of Geneos.
17. Subsequent Events
From April 1, 2022 through April 21, 2022, the Company sold 2,502,269 shares of common stock under the 2021 Sales Agreement for net proceeds of $8.7 million. The sales were made at a weighted average price of $3.52 per share.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report contains forward-looking statements, as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue,” the negative of such terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially.
Although we believe that the expectations reflected in the forward-looking statements are reasonable based on our current expectations and projections, we cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither we, nor any other person, assume responsibility for the accuracy and completeness of the forward-looking statements. We are under no obligation to update any of the forward-looking statements after the filing of this Quarterly Report to conform such statements to actual results or to changes in our expectations.
The following discussion of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes and other financial information appearing elsewhere in this Quarterly Report and our audited consolidated financial statements and related notes for the year ended December 31, 2021 included in our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission, or SEC, on March 1, 2022 (our 2021 Annual Report). Readers are also urged to carefully review and consider the various disclosures made by us that attempt to advise interested parties of the factors that affect our business, including without limitation the disclosures made in Item 1A of Part II of this Quarterly Report under the captions “Risk Factors” and “Management's Discussion and Analysis of Financial Condition and Results of Operations,” and the disclosures made in our 2021 Annual Report under the caption “Risk Factors” and in our audited consolidated financial statements and related notes.
Risk factors that could cause actual results to differ from those contained in the forward-looking statements include but are not limited to: our history of losses; our lack of products that have received regulatory approval; uncertainties inherent in clinical trials and product development programs, including but not limited to the fact that preclinical and clinical results may not be indicative of results achievable in other trials or for other indications, that the studies or trials may not be successful or achieve desired results, that preclinical studies and clinical trials may not commence, have sufficient enrollment or be completed in the time periods anticipated, that results from one study may not necessarily be reflected or supported by the results of other similar studies, that results from an animal study may not be indicative of results achievable in human studies, that clinical testing is expensive and can take many years to complete, that the outcome of any clinical trial is uncertain and failure can occur at any time during the clinical trial process, and that our electroporation technology and product candidates may fail to show the desired safety and efficacy traits in clinical trials; the availability of funding; the ability to manufacture our product candidates; the availability or potential availability of alternative therapies or treatments for the conditions targeted by us or our collaborators, including alternatives that may be more efficacious or cost-effective than any therapy or treatment that we and our collaborators hope to develop; our ability to receive development, regulatory and commercialization event-based payments under our collaborative agreements; whether our proprietary rights are enforceable or defensible or infringe or allegedly infringe on rights of others or can withstand claims of invalidity; the impact of government healthcare laws and proposals; and the impact of COVID-19 on us and our third-party contractors and suppliers.
Overview
We are a biotechnology company focused on bringing to market precisely designed DNA medicines and vaccines to help protect people from infectious diseases, including COVID-19, and to help treat people with cancer and conditions associated with human papillomavirus ("HPV"). We have shown in clinical trials that our DNA vaccine candidates can be delivered into cells in the body via a proprietary smart device allowing the nucleic-acid delivered gene products to activate functional T cell and antibody responses against targeted pathogens and cancers.
Our DNA medicines pipeline is comprised of three types of product candidates: prophylactic DNA vaccines, therapeutic DNA immunotherapies, and DNA encoded monoclonal and bispecific antibodies ("dMAbs" and “dBTAs”), all of which utilize the two components of our integrated platform, SynCon® and CELLECTRA®.
Our proprietary SynCon® technology creates optimized plasmids, which are circular strands of DNA that instruct a cell to produce proteins or antigens to help the person’s immune system respond with antibodies and immune cells which recognize and then help block viruses and destroy cancerous or pre-cancerous cells.
Our patented CELLECTRA® nucleic-acid delivered gene products smart delivery devices facilitate uptake of our DNA medicines into the cell, which has been a key limitation of historical DNA-based technology approaches. Human clinical trial
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data from more than 15,000 CELLECTRA® smart device administrations across more than 5,000 participants to date have shown a tolerable safety profile.
Our corporate strategy is to develop, seek regulatory approval for and commercialize our novel DNA medicines to address unmet global health needs. We continue to advance and clinically validate an array of DNA medicine candidates that target infectious diseases, such as COVID-19, as well as HPV-associated diseases and cancer.
Our partners and collaborators include ApolloBio Corporation, AstraZeneca, Advaccine Biopharmaceuticals Suzhou Co, The Bill & Melinda Gates Foundation (Gates), Coalition for Epidemic Preparedness Innovations ("CEPI"), Defense Advanced Research Projects Agency ("DARPA"), The U.S. Department of Defense ("DoD"), HIV Vaccines Trial Network, the U.S. Defense Threat Reduction Agency’s Medical CBRN Defense Consortium ("MCDC"), International Vaccine Institute ("IVI"), Kaneka Eurogentec, National Cancer Institute, National Institutes of Health, National Institute of Allergy and Infectious Diseases, Ology Bioservices, the Parker Institute for Cancer Immunotherapy, Plumbline Life Sciences, Regeneron Pharmaceuticals, Richter-Helm BioLogics, Thermo Fisher Scientific, the University of Pennsylvania, the Walter Reed Army Institute of Research, and The Wistar Institute.
We or our collaborators are currently evaluating the feasibility of, or conducting or planning clinical studies of, our DNA medicines for COVID-19, including both homologous and heterologous booster vaccines; Middle East Respiratory Syndrome, or MERS; Lassa fever; Ebola; as well as HPV-associated precancers, including cervical, vulvar, and anal dysplasia; HPV-associated cancers, including head & neck, cervical, anal, penile, vulvar, and vaginal; other HPV-associated disorders, such as recurrent respiratory papillomatosis, or RRP; glioblastoma multiforme, or GBM; and prostate cancer.
All of our product candidates are in the research and development phase. We have not generated any revenues from the sale of any products, and we do not expect to generate any such revenues for at least the next several years. We earn revenue from license fees and milestone revenue and collaborative research and development agreements. Our product candidates will require significant additional research and development efforts, including extensive preclinical and clinical testing. All product candidates that we advance to clinical testing will require regulatory approval prior to commercial use, and will require significant costs for commercialization. We may not be successful in our research and development efforts, and we may never generate sufficient product revenue to be profitable.
As of March 31, 2022, we had an accumulated deficit of $1.3 billion. We expect to continue to incur substantial operating losses in the future due to our commitment to our research and development programs, the funding of preclinical studies, clinical trials and regulatory activities and the costs of general and administrative activities.
Impacts of COVID-19 On Our Business
Operationally, we have experienced some disruptions as a result of the COVID-19 pandemic. For example, as a result of supply chain disruptions and global supply shortages, we have experienced delays in obtaining some clinical supplies, manufacturing supplies and components, and we have had to secure new vendors for certain supplies and components at higher prices. Some manufacturing supplies and components remain in limited supply with uncertain delivery dates.
In response to the pandemic we implemented a work from home policy allowing employees who can work from home to do so, while those needing to work in laboratory facilities work in shifts to reduce the number of people gathered together at one time. Starting in April 2022, employees have begun to return to the office on a modified schedule. We have also im plemented a mask-wearing mandate for all on-site activities. We have taken measures to secure our research and development project activities, while work in laboratories has been organized to reduce risk of COVID-19 transmission.
Our liquidity has not been negatively impacted to date by the pandemic. During the three months ended March 31, 2022, and year ending December 31, 2021, we raised $29.4 million and $47.7 million, respectively, in net proceeds from the sale of shares of our common stock through "at the market" equity sale programs, and in January 2021 we closed an underwritten public offering of our common stock, with net proceeds to us of $162.1 million. As of March 31, 2022, our cash and cash equivalents and short-term investments were $360.4 million in the aggregate. Subsequent to March 31, 2022, we raised an additional $8.7 million under our “at the market” equity sale program.
The extent to which the pandemic will continue to impact our business and operations will depend on future developments, including travel restrictions to, from and within the United States and other countries, and the effectiveness of actions taken in the United States and other countries to contain and treat the disease, which remain uncertain.
Recent Developments
INO-4800
We have decided to discontinue INNOVATE, the Phase 3 clinical trial of our COVID-19 vaccine candidate, INO-4800. The original primary endpoint of the INNOVATE trial was incidence of virologically confirmed COVID-19. As was the case with other COVID-19 vaccines, INO-4800 exhibited significantly decreased levels of both neutralizing and binding antibodies against the Omicron variant of the SARs-CoV-2 virus that causes COVID-19. Since the diminished neutralizing activity of
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INO-4800 suggests it is unlikely to prevent symptomatic COVID-19, the primary endpoint was revised to be incidence of virologically confirmed severe COVID-19. The maintenance of T cell responses observed suggests that the INO-4800 is likely to protect against severe disease. However, based on emerging epidemiological data, we believe that INNOVATE will not be able to achieve the required number of cases of severe disease, as the projected attack rate in the key countries in which INNOVATE is currently being conducted is now significantly less than the attack rate previously assumed when the trial was designed.
We are evaluating the reallocation of the resources previously committed to INNOVATE to pursuing a strategy for the development of INO-4800 as a potential heterologous booster vaccine, meaning that it could be a booster for a different primary vaccine. Our plans may include the conduct of non-inferiority clinical trials in countries whose populations have been vaccinated against COVID-19 using inactivated viral vaccines. We are also considering the initiation of a dose-finding clinical trial of INO-4800 combined with our DNA medicine INO-9112, which encodes the IL-12 plasmid, in the European Union to evaluate the non-inferiority of this combination against an mRNA vaccine regimen.
VGX-3100
In connection with our proposal to the FDA to amend the protocol for our REVEAL 2 (HPV-303) Phase 3 clinical trial of VGX-3100 in women with HPV-16/18 cervical high-grade dysplasia (HSIL), to reflect a biomarker-selected population as primary, the FDA has preliminarily advised us that while we may proceed with such an amendment, the revised trial would be viewed as an exploratory study to evaluate the biomarker-selected population, and unlikely be reviewable as the basis for a BLA. Given that the results observed in the intent-to-treat (ITT) population in our REVEAL 1 (HPV-301) Phase 3 clinical trial of VGX-3100 were not statistically significant, the REVEAL 1 and REVEAL 2 studies alone would unlikely be supportive of a marketing authorization for VGX-3100. The FDA indicated that the subsequent conduct of one or two adequate and well-controlled trials in this selected population would be more likely to provide sufficient evidence to support approval of a marketing application for VGX-3100. The FDA also noted that there was a higher incidence of cervical carcinoma reported in the treatment group of REVEAL 1 that while low, and likely due to the trial design and not the vaccine candidate, warranted further consideration with respect to the benefit-risk profile of VGX-3100 versus standard of care, and as such, FDA recommended additional modifications to the REVEAL 2 protocol to address the potential for progression during the trial.
In light of this guidance from the FDA, we plan to modify and continue the REVEAL 2 trial to completion and will assess the path forward for the VGX-3100 program following analysis of the REVEAL 2 results. Top-line efficacy and safety data are expected to be available in the fourth quarter of 2022 or the first quarter of 2023.
Critical Accounting Estimates
There have been no significant changes to our critical accounting estimates since December 31, 2021. For a description of our critical accounting estimates and significant judgments used in the preparation of our condensed consolidated financial statements, refer to Note 3 to our Condensed Consolidated Financial Statements included in this Quarterly Report, as well as Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2021 Annual Report and Note 2 to our audited Consolidated Financial Statements contained in our 2021 Annual Report.
Adoption of Recent Accounting Pronouncements
Information regarding recent accounting pronouncements is contained in Note 4 to the Condensed Consolidated Financial Statements, included in this Quarterly Report.
Results of Operations
Revenue. Total revenue was $199,000 and $371,000 for the three months ended March 31, 2022 and 2021, respectively. Revenue primarily consisted of revenues under collaborative research and development arrangements, including arrangements with affiliated entities.
Research and development expenses. Research and development expenses for the three months ended March 31, 2022 and 2021 were $56.0 million and $39.0 million, respectively. Increases for the three-month period year over year included:
•$10.8 million in drug manufacturing and clinical study expenses related to INO-4800;
•$2.4 million in employee compensation;
•$1.7 million in drug manufacturing expenses related to our COVID-19 variant studies; and
•$1.2 million in clinical study and drug manufacturing related to our RRP study.
The increase for the three-month period was also due to a decrease of $6.3 million in contra-research and development expense recorded from grant agreements. These increases were offset by lower engineering services and expensed equipment of
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Table of Contents
$3.9 million related to our CELLECTRA® 3PSP device array automation project and lower employee stock-based compensation of $1.5 million, among other variances.
Contributions received from current grant agreements and recorded as contra-research and development expense were $7.5 million and $13.8 million for the three months ended March 31, 2022 and 2021, respectively. The decrease for the three-month period year over year was primarily due to a decrease of $4.6 million earned under the DoD 3PSP device development grant, and decreases of $1.8 million and $893,000 earned under the grants from CEPI and Gates related to INO-4800 and device development activities, respectively. These decreases were offset by an increase of $1.3 million earned under sub-grants through Wistar, among other variances.
General and administrative expenses. General and administrative expenses, which include business development expenses, the amortization of intangible assets and patent expenses, were $16.0 million and $13.9 million for the three months ended March 31, 2022 and 2021, respectively. Increases for the three-month period year over year included:
•$1.5 million in employee compensation; and
•$869,000 in insurance expenses.
These increases were offset by a decrease of $490,000 in employee and consultant stock-based compensation, among other variances.
Stock-based compensation. Stock-based compensation expense is measured at the grant date, based on the fair value of the award, and is recognized as expense over the requisite vesting period. Total employee and director stock-based compensation expense for the three months ended March 31, 2022 and 2021 was $7.2 million and $9.2 million, respectively. Of these amounts, $3.7 million and $5.2 million, respectively, was included in research and development expenses, and $3.5 million and $4.0 million, respectively, was included in general and administrative expenses. The year over year decrease was primarily related to a lower weighted average grant date fair value for the awards granted in the first quarter of 2022.
Interest income. Interest income for the three months ended March 31, 2022 was $670,000, as compared to $769,000 for the three months ended March 31, 2021. The decrease was due to lower average cash balances.
Interest expense. Interest expense for the three months ended March 31, 2022 was $313,000, as compared to $513,000 for the three months ended March 31, 2021. The decrease for the three-month period year over year was due to lower non-cash interest expense related to the Notes as a result of the adoption of ASU-2020-06, and no interest expense recorded on the December 2019 Bonds due to their full conversion into shares of our common stock in March 2021.
Loss on investment in affiliated entities. The loss results from the change in the fair market value of our investment in PLS of $538,000 and $830,000 for the three months ended March 31, 2022 and 2021, respectively. We record our investment in PLS at its market value based on the closing price of the shares on the Korea New Exchange Market at each balance sheet date, with changes in fair value reflected in the condensed consolidated statements of operations.
Net unrealized loss on available-for-sale equity securities. The net unrealized loss on available-for-sale equity securities for the three months ended March 31, 2022 and 2021 of $4.8 million and $848,000, respectively, resulted from a change in the fair market value of the investments.
Share in net loss of Geneos. The share in net loss of Geneos represents our share of Geneos' losses during the period after deconsolidation in June 2020.
Liquidity and Capital Resources
Historically, our primary uses of cash have been to finance research and development activities including clinical trial activities in the oncology, DNA vaccines and other immunotherapy areas of our business. Since inception, we have satisfied our cash requirements principally from proceeds from the sale of equity securities, indebtedness and grants and government contracts.
Working Capital and Liquidity
As of March 31, 2022, we had cash and short-term investments of $360.4 million and working capital of $340.5 million, as compared to $401.3 million and $382.7 million, respectively, as of December 31, 2021.
Cash Flows
Operating Activities
Net cash used in operating activities was $61.9 million and $52.9 million for the three months ended March 31, 2022 and 2021, respectively. The variance was primarily due to increased research and development expenses offset by the timing and changes in working capital balances.
Investing Activities
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Net cash provided by (used in) investing activities was $21.3 million and $(275.1) million for the three months ended March 31, 2022 and 2021, respectively. The variance was primarily the result of timing differences in short-term investment purchases, sales and maturities.
Financing Activities
Net cash provided by financing activities was $28.4 million and $160.9 million for the three months ended March 31, 2022 and 2021, respectively. The variance was primarily due to the proceeds from the January 2021 underwritten public offering, with no such offering in 2022, partially offset by an increase in the proceeds from the sale of common stock under the Sales Agreement (defined below) in 2022 compared to 2021.
Issuances of Common Stock
On November 9, 2021, we entered into an ATM Equity Offering SM Sales Agreement (the “Sales Agreement”) with outside sales agents (collectively, the “Sales Agents”) under which we may offer and sell, from time to time at our sole discretion, shares of our common stock with aggregate gross proceeds of up to $300.0 million, through the Sales Agents.
Subject to the terms and conditions of the Sales Agreement, the Sales Agents may sell the common stock by any method permitted by law deemed to be an “at the market offering”. The Sales Agents will use commercially reasonable efforts to sell the common stock from time to time, based upon instructions from us, including any price, time or size limits or other customary parameters or conditions we may impose. We will pay the Sales Agents a commission of up to three percent (3.0%) of the gross sales proceeds of any common stock sold through the Sales Agents under the Sales Agreement, and we have provided the Sales Agents with certain indemnification rights. During the three months ended March 31, 2022, we sold 8,480,483 shares of common stock under the Sales Agreement for aggregate net proceeds of $29.4 million. Subsequent to March 31, 2022, we raised an additional $8.7 million under the Sales Agreement.
On January 25, 2021, we closed an underwritten public offering of 20,355,000 shares of our common stock at a public offering price of $8.50 per share. The net proceeds, after deducting the underwriters' discounts and commissions and other offering expenses payable by us, were $162.1 million.
During the three months ended March 31, 2022, stock options to purchase 26,069 shares of common stock were exercised for aggregate net proceeds to us of $84,000, which proceeds were offset by tax payments made related to net sh are settlement of RSU awards of $1.0 million. During the three months ended March 31, 2021, stock options to purchase 572,857 shares of common stock were exercised for aggregate net proceeds to us of $2.6 million, which proceeds were offset by tax payments made related to net share settlement of RSU awards of $3.8 million.
Funding Requirements
As of March 31, 2022, we had an accumulated deficit of $1.3 billion and we expect to continue to operate at a loss for some time. The amount of the accumulated deficit will continue to increase, as it will be expensive to continue research and development efforts. These activities will require additional financing. If these activities are successful and if we receive approval from the FDA to market our product candidates, then we will need to raise additional funding to market and sell the approved products and equipment. We cannot predict the outcome of the above matters at this time. We are evaluating potential collaborations as an additional way to fund operations. We believe that our current cash and short-term investments are sufficient to meet our planned working capital requirements for at least the next twelve months from the date of this report.
We have existing supply agreements with contract manufacturers to manufacture INO-4800 drug substance. At March 31, 2022, we had a $44.6 million minimum purchase obligation in connection with these agreements. We expect to satisfy these obligations from existing cash.
As a result of our decision to terminate the INNOVATE trial of INO-4800, we expect our research and development expenses to decrease in future periods.
During the three months ended March 31, 2022, t here have been no other significant changes to our contractual obligations and commitments described under Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2021.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We are exposed to market risk related to changes in interest rates. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates. Under our current policies, we do not use interest rate derivative instruments to manage exposure to interest rate changes. We attempt to increase the safety and
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preservation of our invested principal funds by limiting default risk, market risk and reinvestment risk. We mitigate default risk by investing in short-term investment-grade securities. During the three months ended March 31, 2022, there was a pronounced increase in prevailing interest rates in the United States, which contributed to a loss of $4.8 million in the market value of our investment portfolio during the period.
The interest rate on our indebtedness is fixed and not subject to fluctuations in interest rates.
Foreign Currency Risk
We have operated primarily in the United States and most transactions during the three months ended March 31, 2022 were made in United States dollars. Accordingly, we have not had any material exposure to foreign currency rate fluctuations, with the exception of certain cash and cash equivalents held in South Korea that are denominated in South Korean Won and the valuation of our equity investment in PLS, which is denominated in South Korean Won and then translated into United States dollars.
Certain transactions are denominated primarily in foreign currencies, including South Korean Won, Euros, British Pounds and Canadian Dollars. These transactions give rise to monetary assets and liabilities that are denominated in currencies other than the U.S. dollar. The value of these monetary assets and liabilities are subject to changes in currency exchange rates from the time the transactions are originated until settlement in cash. As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets where we conduct business.
We do not use derivative financial instruments for speculative purposes and do not engage in exchange rate hedging or hold or issue foreign exchange contracts for trading purposes.
Inflation Risk
Inflation generally affects us by increasing our cost of labor. Although inflation has increased generally in the United States in recent months, we do not believe that inflation has had a material effect on our business, financial condition or results of operations during the three months ended March 31, 2022.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, which are designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, as appropriate to allow timely decisions regarding required disclosures.
In designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a control system, misstatements due to error or fraud may occur and not be detected.
Based on an evaluation carried out as of the end of the period covered by this Quarterly Report, under the supervision and with the participation of our management, including our CEO and CFO, our CEO and CFO have concluded that, as of the end of such period, our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were effective as of March 31, 2022 at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There have not been any changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2022 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
Securities Litigation
On March 12, 2020, a purported shareholder class action complaint, McDermid v. Inovio Pharmaceuticals, Inc. and J. Joseph Kim, was filed in the United States District Court for the Eastern District of Pennsylvania, naming us and J. Joseph Kim, our Chief Executive Officer, as defendants. The lawsuit alleges that we made materially false and misleading statements regarding our development of a vaccine for COVID-19 in our public disclosures in violation of certain federal securities laws. The plaintiff seeks unspecified monetary damages on behalf of the putative class and an award of costs and expenses, including reasonable attorneys’ fees. On June 18, 2020, the court appointed Manuel Williams to serve as lead plaintiff. On August 3, 2020, Mr. Williams filed a consolidated complaint, naming us and three of our officers as defendants. On September 21, 2020, Mr. Williams and another purported stockholder, Andrew Zenoff filed a first amended complaint, naming us and three of our officers as defendants. Defendants filed a motion to dismiss plaintiff’s first amended complaint on November 5, 2020. On February 16, 2021, the court issued an order granting in part, and denying in part, Defendants’ motion to dismiss. The court granted Defendants’ motion to dismiss, and dismissed with prejudice, the claims premised on the April 30 and June 30, 2020 statements. The court denied Defendants’ motion to dismiss as to the remaining statements. On March 9, 2021, Defendants filed their answer to the complaint. The case is currently in discovery. On July 29, 2021, Plaintiffs moved to certify the class action. That motion is fully briefed and remains pending. On February 17, 2022, the court granted Plaintiffs’ motion for leave to amend their complaint, and further ordered that the amended complaint is deemed filed as of February 17. On March 21, 2022, Defendants moved to dismiss the new allegations in the amended complaint. We expect that motion to be fully briefed on May 10, 2022. No hearing date has been set.
On April 20, 2020, a purported shareholder derivative complaint, Behesti v. Kim, et al., was filed in the United States District Court for the Eastern District of Pennsylvania, naming eight current and former directors as defendants. The lawsuit asserts state and federal claims and is based on the same alleged misstatements as the shareholder class action complaint. The lawsuit accuses our board of directors of failing to exercise reasonable and prudent supervision over our management, policies, practices, and internal controls. The plaintiff seeks unspecified monetary damages on behalf of us as well as governance reforms. On June 5, 2020, the court stayed the Beheshti action pending resolution of a forthcoming motion to dismiss the McDermid securities class action or until any party provides notice that they no longer consent to the stay. On June 12 and June 15, 2020, two additional shareholder derivative complaints were filed in the United States District Court for the Eastern District of Pennsylvania, captioned Isman v. Benito, et al. and Devarakonda et al. v Kim, et. al. The complaints assert substantially similar claims as the Beheshti action and name our current directors as defendants. The Devarakonda complaint also names one of our former directors as a defendant. On July 21, 2020, the court consolidated the three derivative cases under the caption In re Inovio Pharmaceuticals, Inc. Derivative Litigation. The consolidated action is stayed.
On July 7, 2020, a fourth shareholder derivative complaint, Fettig v. Kim et al., was filed in the United States District Court for the Eastern District of Pennsylvania, naming eight current and former directors as defendants. The complaint asserts substantially similar claims as those in the consolidated derivative action. On August 27, 2020, the Fettig action was consolidated with the other derivative cases, which remain stayed as explained above.
On March 28, 2022, a fifth shareholder derivative complaint, Schumacher v. Benito et al., was filed in the Delaware Court of Chancery, naming eight current and former directors as defendants. The complaint asserts substantially similar claims as those in the consolidated derivative action. On May 4, 2022, the Delaware Court of Chancery entered a stay of the litigation.
We intend to defend these actions vigorously.
VGXI Litigation
On June 3, 2020, we filed a complaint in the Court of Common Pleas of Montgomery County, Pennsylvania against VGXI, Inc. and GeneOne Life Science, Inc., or GeneOne, and together with VGXI, Inc. collectively referred to as VGXI, alleging that VGXI had materially breached our supply agreement with them. The complaint seeks declaratory judgments, specific performance of the agreement, injunctive relief, an accounting, damages, attorneys’ fees, interest, costs and other relief from VGXI. On June 3, 2020, we filed a petition for preliminary injunction, which was denied on June 25, 2020. On June 26, 2020, we filed notice of appeal of the denial of the petition with the Pennsylvania Superior Court.
On July 7, 2020, VGXI filed an answer, new matter and counterclaims against us, alleging that we had breached the supply agreement, as well as misappropriation of trade secrets and unjust enrichment. The counterclaims seek injunctive relief, damages, attorneys’ fees, interest, costs and other relief from us. Also, on July 7, 2020, VGXI filed a third-party complaint against Ology Bioservices, Inc., a contract manufacturing organization that we had engaged to provide services similar to those that were being provided by VGXI. On July 27, 2020, we filed an answer to VGXI’s counterclaims, disputing the allegations and the claims raised in VGXI’s filing. On October 1, 2020, we filed a notice of discontinuance of appeal with the Pennsylvania Superior Court. A trial date for the litigation has not been set.
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Table of Contents
We intend to aggressively prosecute the claims set forth in our complaint against VGXI and to vigorously defend ourselves against VGXI’s counterclaims.
GeneOne Litigation
On December 7, 2020, GeneOne filed a complaint in the Court of Common Pleas of Montgomery County, Pennsylvania against us, alleging that we had breached the CELLECTRA® Device License Agreement, or the Agreement, between us and GeneOne. We terminated the Agreement on October 9, 2020. The complaint asserts claims for breach of contract, declaratory judgment, unfair competition, and unjust enrichment. The complaint seeks injunctive relief, an accounting, damages, disgorgement of profits, attorneys’ fees, interest, and other relief from us. On January 29, 2021, we filed preliminary objections to the complaint. On August 23, 2021, the Court overruled our preliminary objections to the complaint. On September 13, 2021, we filed an answer to the complaint, new matter, and counterclaims. The Company’s counterclaims allege that GeneOne breached the Agreement, and assert claims for breach of contract and declaratory judgment. The counterclaims seek damages, interest, expenses, attorney’s fees, and costs. On October 18, 2021, GeneOne filed its answer to our counterclaims and new matter. On November 8, 2021, we filed our answer to GeneOne’s new matter. A trial date for this litigation has not been set.
We intend to aggressively prosecute the claims set forth in our counterclaims against GeneOne and to vigorously defend ourselves against the claims in GeneOne’s complaint.
ITEM 1A. RISK FACTORS
Our business is subject to numerous risks. You should carefully consider and evaluate each of the following factors as well as the other information in this Quarterly Report on Form 10-Q, including our financial statements and the related notes, the risk factors discussed in our 2021 Annual Report, which we filed with the SEC on March 1, 2022, in evaluating our business and prospects. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently consider immaterial may also impair our business operations. If any of the following risks actually occur, our business and financial results could be harmed. In that case, the trading price of our common stock could decline. You should also consider the more detailed description of our business contained in our 2021 Annual Report.
Risks Related to Our Financial Position and Need for Additional Capital
We have incurred significant losses since inception, expect to incur significant net losses in the foreseeable future and may never become profitable.
We have experienced significant operating losses over the last several years. As of March 31, 2022, our accumulated deficit was $1.3 billion. We have generated limited revenues, primarily consisting of license revenue, grant funding and interest income. We expect to continue to incur substantial additional operating losses for at least the next several years as we advance our clinical trials and research and development activities. We may never successfully commercialize our DNA vaccine, DNA immunotherapy and dMAb product candidates or electroporation-based synthetic vaccine delivery technology and thus may never have any significant future revenues or achieve and sustain profitability.
We have limited sources of revenue and our success is dependent on our ability to develop our DNA vaccines, DNA immunotherapies, dMAbs and electroporation equipment.
We do not sell any products and may not have any other products commercially available for several years, if at all. Our ability to generate future revenues depends heavily on our success in:
•developing and securing United States and/or foreign regulatory approvals for our product candidates, including securing regulatory approval for conducting clinical trials with product candidates;
•developing our electroporation-based DNA delivery technology; and
•commercializing any products for which we receive approval from the FDA and foreign regulatory authorities.
Our electroporation equipment and product candidates will require extensive additional clinical study and evaluation, regulatory approval in multiple jurisdictions, substantial investment and significant marketing efforts before we generate any revenues from product sales. We are not permitted to market or promote our electroporation equipment and product candidates before we receive regulatory approval from the FDA or comparable foreign regulatory authorities. If we do not receive regulatory approval for and successfully commercialize any products, we will not generate any revenues from sales of electroporation equipment and products, and we may not be able to continue our operations.
A small number of licensing partners and government contracts currently account for a substantial portion of our revenue.
We currently derive, and in the past we have derived, a significant portion of our revenue from a limited number of licensing partners and government grants and contracts. Revenue can fluctuate significantly depending on the timing of upfront and event-based payments and work performed. If we fail to sign additional future contracts with major licensing partners and
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the government, if a contract is delayed or deferred, or if an existing contract expires or is canceled and we fail to replace the contract with new business, our revenue would be adversely affected.
We will need substantial additional capital to develop our DNA vaccines, DNA immunotherapies and dMAb programs and electroporation delivery technology.
Conducting the costly and time-consuming research, pre-clinical studies and clinical testing necessary to obtain regulatory approvals and bring our product candidates and delivery technology to market will require a commitment of substantial funds in excess of our current capital. Our future capital requirements will depend on many factors, including, among others:
•the progress of our current and new product development programs;
•the progress, scope and results of our pre-clinical and clinical testing;
•the time and cost involved in obtaining regulatory approvals;
•the cost of manufacturing our products and product candidates;
•the cost of prosecuting, enforcing and defending against patent infringement claims and other intellectual property rights;
•debt service obligations;
•competing technological and market developments; and
•our ability and the related costs to establish and maintain collaborative and other arrangements with third parties to assist in potentially bringing our products to market.
Additional financing may not be available on acceptable terms, or at all. Domestic and international capital markets have from time to time experienced heightened volatility, particularly in light of the COVID-19 pandemic and geopolitical turmoil, making it more difficult in many cases to raise capital through the issuance of equity securities. Volatility in the capital markets can also negatively impact the cost and availability of credit, creating illiquid credit markets and wider credit spreads. Concern about the stability of the markets generally and the strength of counterparties specifically has led many lenders and institutional investors to reduce, and in some cases cease to provide, funding to borrowers. To the extent we are able to raise additional capital through the sale of equity securities, or we issue securities in connection with another transaction in the future, the ownership position of existing stockholders could be substantially diluted. If additional funds are raised through the issuance of preferred stock or debt securities, these securities are likely to have rights, preferences and privileges senior to our common stock and may involve significant fees, interest expense, restrictive covenants and the granting of security interests in our assets. Fluctuating interest rates could also increase the costs of any debt financing we may obtain. Raising capital through a licensing or other transaction involving our intellectual property could require us to relinquish valuable intellectual property rights and thereby sacrifice long-term value for short-term liquidity.
Our failure to successfully address ongoing liquidity requirements would have a substantially negative impact on our business. If we are unable to obtain additional capital on acceptable terms when needed, we may need to take actions that adversely affect our business, our stock price and our ability to achieve cash flow in the future, including possibly surrendering our rights to some technologies or product opportunities, delaying our clinical trials or curtailing or ceasing operations.
Risks Related to Product Development, Manufacturing and Regulatory Approval
If we are unable to obtain FDA approval of our products, we will not be able to commercialize them in the United States.
We need FDA approval prior to marketing our electroporation equipment and product candidates in the United States. If we fail to obtain FDA approval to market our electroporation equipment and product candidates, we will be unable to sell our products in the United States, which will significantly impair our ability to generate any revenues.
This regulatory review and approval process, which includes evaluation of preclinical studies and clinical trials of our products as well as the evaluation of our manufacturing processes and our third-party contract manufacturers' facilities, is lengthy, expensive and uncertain. To receive approval, we must, among other things, demonstrate with substantial evidence from well-controlled clinical trials that our electroporation equipment and product candidates are both safe and effective for each indication for which approval is sought. To the extent that our product candidates are manufactured at multiple sites or using different processes, we will also need to demonstrate comparability across the manufacturing batches in order to obtain regulatory approval. Satisfaction of the approval requirements typically takes several years and the time needed to satisfy them may vary substantially, based on the type, complexity and novelty of the product. We do not know if or when we might receive regulatory approvals for our electroporation equipment and any of our product candidates currently under development. Moreover, any approvals that we obtain may not cover all of the clinical indications for which we are seeking approval, or could contain significant limitations in the form of narrow indications, warnings, precautions or contra-indications with respect to conditions of use. In such event, our ability to generate revenues from such products would be greatly reduced and our business would be harmed.
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The FDA has substantial discretion in the approval process and may either refuse to consider our application for substantive review or may form the opinion after review of our data that our application is insufficient to allow approval of our electroporation equipment and product candidates. If the FDA does not consider or approve our application, it may require that we conduct additional clinical, preclinical or manufacturing validation studies and submit that data before it will reconsider our application. Depending on the extent of these or any other studies, approval of any applications 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 successful or considered sufficient by the FDA for approval or even to make our applications approvable. If any of these outcomes occur, we may be forced to abandon one or more of our applications for approval, which might significantly harm our business and prospects.
It is possible that none of our products or any product we may seek to develop in the future will ever obtain the appropriate regulatory approvals necessary for us or our collaborators to commence product sales. Any delay in obtaining, or an inability to obtain, applicable regulatory approvals would prevent us from commercializing our products, generating revenues and achieving and sustaining profitability.
Clinical trials involve a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results.
Clinical testing is expensive and can take many years to complete, and its outcome is uncertain. Failure can occur at any time during the clinical trial process. The results of preclinical studies and early clinical trials of our products may not be predictive of the results of later-stage clinical trials. Results from one study may not be reflected or supported by the results of similar studies. Results of an animal study may not be indicative of results achievable in human studies. Human-use equipment and product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and initial clinical testing. The time required to obtain approval by the FDA and similar foreign authorities is unpredictable but typically takes many years following the commencement of clinical trials, depending upon numerous factors. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change. We have not obtained regulatory approval for any human-use products.
Our products could fail to complete the clinical trial process for many reasons, including the following:
•we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that our electroporation equipment or product candidate is safe and effective for any indication;
•the results of clinical trials may not meet the level of clinical or statistical significance required by the FDA or comparable foreign regulatory authorities for approval;
•the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;
•we may not be successful in enrolling a sufficient number of participants in clinical trials;
•we may be unable to demonstrate that our electroporation equipment or product candidates' clinical and other benefits outweigh their safety risks;
•we may be unable to demonstrate that our electroporation equipment or product candidate presents an advantage over existing therapies, or over placebo in any indications for which the FDA requires a placebo-controlled trial;
•the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials;
•the data collected from clinical trials of our product candidates may not be sufficient to support the submission of a new drug application or other submission or to obtain regulatory approval in the United States or elsewhere;
•the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of us or third-party manufacturers with which we or our collaborators contract for clinical and commercial supplies; and
•the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval.
In connection with our proposal to the FDA to amend the protocol for our REVEAL 2 (HPV-303) Phase 3 clinical trial of VGX-3100 in women with HPV-16/18 cervical high-grade dysplasia (HSIL), to reflect a biomarker-selected population as primary, the FDA has preliminarily advised us that while we may proceed with such an amendment, the revised trial would be viewed as an exploratory study to evaluate the biomarker-selected population, and unlikely be reviewable as the basis for a BLA. Given that the results observed in the intent-to-treat (ITT) population in our REVEAL 1 (HPV-301) Phase 3 clinical trial of VGX-3100 were not statistically significant, the REVEAL 1 and REVEAL 2 studies alone would unlikely be supportive of a marketing authorization for VGX-3100. The FDA indicated that the subsequent conduct of one or two adequate and well-controlled trials in this selected population would be more likely to provide sufficient evidence to support approval of a marketing application for VGX-3100. The FDA also noted that there was a higher incidence of cervical carcinoma reported in the treatment group of REVEAL 1 that while low, and likely due to the trial design and not the vaccine candidate, warranted
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further consideration with respect to the benefit-risk profile of VGX-3100 versus standard of care, and as such, FDA recommended additional modifications to the REVEAL 2 protocol to address the potential for progression during the trial.
In light of this guidance from the FDA, we plan to modify and continue the REVEAL 2 trial to completion and will assess the path forward for the VGX-3100 program following analysis of the REVEAL 2 results.
Our product candidates are combination products regulated under both the biologic and device regulations of the Public Health Service Act and Federal Food, Drug, and Cosmetic Act. Third-party manufacturers may not be able to comply with cGMP regulations, regulations applicable to biologic/device combination products, including applicable provisions of the FDA’s drug cGMP regulations, device cGMP requirements embodied in the QSR or similar regulatory requirements outside the United States. Our failure, or the failure of our third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including clinical holds, fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates, operating restrictions and criminal prosecutions, any of which could significantly affect supplies of our product candidates.
Clinical trials may also be delayed as a result of ambiguous or negative interim results. In addition, a clinical trial may be suspended or terminated by us, the FDA, the IRB overseeing the clinical trial at issue, any of our clinical trial sites with respect to that site, or other regulatory authorities due to a number of factors, including:
•failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols;
•inspection of the clinical trial operations or trial sites by the FDA or other regulatory authorities resulting in the imposition of a clinical hold;
•unforeseen safety issues; and
•lack of adequate funding to continue the clinical trial.
If we experience delays in completion of, or if we terminate, any of our clinical trials, the commercial prospects for our electroporation equipment and our product candidates may be harmed and our ability to generate product revenues will be delayed or eliminated altogether. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of a product candidate. Further, delays in the commencement, conduct or completion of clinical trials may adversely affect the trading price of our common stock.
Delays in the commencement, conduct or completion of clinical testing could result in increased costs to us and delay or limit our ability to generate revenues.
Delays in the commencement, conduct or completion of clinical testing could significantly affect our product development costs. We do not know whether planned clinical trials will begin on time or be completed on schedule, if at all. In addition, ongoing clinical trials may not be completed on schedule, or at all, and could be placed on a hold by the regulators for various reasons. The commencement and completion of clinical trials can be delayed for a number of reasons, including delays related to:
•obtaining regulatory approval to commence a clinical trial;
•adverse results from third party clinical trials involving gene-based therapies and the regulatory response thereto;
•reaching agreement on acceptable terms with prospective CROs and trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;
•future bans or stricter standards imposed on clinical trials of gene-based therapy;
•manufacturing sufficient quantities of our electroporation equipment and product candidates for use in clinical trials;
•obtaining institutional review board, or IRB, approval to conduct a clinical trial at a prospective site;
•slower than expected recruitment and enrollment of patients to participate in clinical trials for a variety of reasons, including competition from other clinical trial programs for similar indications;
•conducting clinical trials with sites internationally due to regulatory approvals and meeting international standards;
•retaining patients who have initiated a clinical trial but may be prone to withdraw due to side effects from the therapy, lack of efficacy or personal issues, or who are lost to further follow-up;
•collecting, reviewing and analyzing our clinical trial data; and
•global unrest, including geopolitical risks emanating from countries such as Russia and China, global pathogen outbreaks or pandemics, terrorist activities, and economic and other external factors beyond our control.
Clinical trials may also be delayed as a result of ambiguous or negative interim results. In addition, a clinical trial may be suspended or terminated by us, the FDA, the IRB overseeing the clinical trial at issue, any of our clinical trial sites with respect to that site, or other regulatory authorities due to a number of factors, including:
•failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols;
•inspection of the clinical trial operations or trial sites by the FDA or other regulatory authorities resulting in the imposition of a clinical hold;
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•unforeseen safety issues; and
•lack of adequate funding to continue the clinical trial.
If we experience delays in completion of, or if we terminate, any of our clinical trials, the commercial prospects for our electroporation equipment and our product candidates may be harmed and our ability to generate product revenues will be delayed or eliminated altogether. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of a product candidate. Further, delays in the commencement, conduct or completion of clinical trials may adversely affect the trading price of our common stock.
None of our human vaccine candidates or our immunotherapy and DNA encoded monoclonal antibody product candidates have been approved for sale, and we may never develop commercially successful vaccine, immunotherapy or DNA encoded monoclonal antibody products.
Our human vaccine programs, our immunotherapy programs and our DNA encoded monoclonal antibodies program are in various stages of research and development, and currently include product candidates in discovery, preclinical studies and Phase 1, 2 and 3 clinical trials. There are limited data regarding the efficacy of synthetic vaccine candidates and immunotherapy candidates compared with conventional vaccines, and we must conduct a substantial amount of additional research and development before the FDA or any comparable foreign regulatory authority will approve any of our vaccine product candidates. The success of our efforts to develop and commercialize our product candidates could be delayed or fail for a number of reasons. For example, we could experience delays in product development and clinical trials. Our product candidates could be found to be ineffective or unsafe, or otherwise fail to receive necessary regulatory clearances to proceed with further clinical development or to be approved for marketing. Our products, even if they are deemed to be safe and effective by regulatory authorities, could be difficult to manufacture on a large scale or uneconomical to market, or our competitors could develop superior products more quickly and efficiently or more effectively market their competing products. The ability to manufacture sufficient quantities of our COVID-19 vaccine candidate on a large scale is particularly challenging and will require substantial resources and the engagement of third parties, which we may not be able to obtain on a timely basis, or at all.
In addition, adverse events, or the perception of adverse events, relating to vaccine and immunotherapy candidates and delivery technologies may negatively impact our ability to develop commercially successful products. For example, pharmaceutical companies have been subject to claims that the use of some pediatric vaccines has caused personal injuries, including brain damage, central nervous system damage and autism. These and other claims may influence public perception of the use of vaccine and immunotherapy products and could result in greater governmental regulation, stricter labeling requirements and potential regulatory delays in the testing or approval of our potential products.
We have modified our COVID-19 vaccine strategy to develop our vaccine candidate as a potential heterologous booster for other available vaccines, which will result in new and added risks and may not be successful.
As described in this report, we have decided to discontinue our INNOVATE trial of INO-4800 and instead will pursue a strategy to develop our COVID-19 vaccine as a potential booster following administration of other primary vaccines. However, there can be no guarantee that this revised strategy will be successful. We have not yet completed clinical trials of our COVID-19 vaccine candidate as a heterologous booster, and the results of our planned trials may not indicate efficacy or may indicate adverse events that could preclude its clinical viability. In addition, we have not yet identified a clear regulatory pathway for the approval of our COVID-19 vaccine candidate as a heterologous booster and we may not be successful in doing so. Further, the prevalence and spread of new variants of the SARs-CoV-2 virus could reduce the efficacy of our vaccine candidate as a potential booster.
There can be no assurance that our COVID-19 vaccine candidate will ever be granted an Emergency Use Authorization by the FDA or similar authorization by regulatory authorities outside of the United States if we were to decide to apply for such an authorization. The option of seeking an Emergency Use Authorization may no longer exist for our primary COVID-19 vaccine candidates, and if we cannot obtain such authorization or, if granted, it is terminated, we will be unable to sell vaccine candidate and instead will be required to pursue the biologic licensure process, which is lengthy and expensive.
We may seek an Emergency Use Authorization, or EUA, from the FDA or similar authorization from regulatory authorities outside of the United States, for the use of our COVID-19 vaccine as a heterologous booster. If we apply for an EUA and it is granted, an EUA would authorize us to market and sell our COVID-19 vaccine under certain conditions of authorization as long as a public health emergency exists. The FDA expects that companies which receive an EUA for COVID-19 vaccines will proceed to licensure of their vaccine products under a full Biologics License Application. The FDA may issue an EUA during a Public Health Emergency if the agency determines that the potential benefits of a product outweigh the potential risks and if other regulatory criteria are met.
There is no guarantee that we will apply for an EUA or other similar authorization or, if we do apply, that we will be able to obtain such authorization. For example, we will only be able to seek an EUA for INO-4800 as a heterologous booster vaccine candidate, which strategy may not be successful. Even if an EUA or other authorization is ultimately granted, we will rely on the FDA or other applicable regulatory authority policies and guidance governing vaccines authorized in this manner in connection with the marketing and sale of our product. If these policies and guidance change unexpectedly and/or materially or
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if we misinterpret them, potential sales of our product could be adversely impacted. Regulatory authorities may also terminate an EUA if safety issues or other concerns about our product arise or if we fail to comply with the conditions of authorization. If we apply for an EUA or similar authorization from regulatory authorities outside of the United States, the failure to obtain such authorization or the termination of such an authorization, if obtained, would adversely impact our ability to market and sell our COVID-19 vaccine, which could adversely impact our business, financial condition and results of operations.
DNA medicines are a novel approach, and negative perception of the efficacy, safety, or tolerability of any investigational medicines that we develop could adversely affect our ability to conduct our business, advance our investigational medicines, or obtain regulatory approvals.
No DNA medicines have been granted EUA or have been approved to date by the FDA. Adverse events in clinical trials of our investigational medicines or in clinical trials of others developing similar products and the resulting publicity, as well as any other adverse events in the field of DNA medicine, or other products that are perceived to be similar to DNA medicines, such as those related to gene therapy or gene editing, could result in a decrease in the perceived benefit of one or more of our programs, increased regulatory scrutiny, decreased confidence by patients and clinical trial collaborators in our investigational medicines, and less demand for any product that we may develop. Our large pipeline of development candidates and investigational medicines could result in a greater quantity of reportable adverse events, including suspected unexpected serious adverse reactions, other reportable negative clinical outcomes, manufacturing reportable events or material clinical events that could lead to clinical delay or hold by the FDA or applicable regulatory authority or other clinical delays, any of which could negatively impact the perception of one or more of our programs, as well as our business as a whole. In addition, responses by U.S., state, or foreign governments to negative public perception may result in new legislation or regulations that could limit our ability to develop any investigational medicines or commercialize any approved products, obtain or maintain regulatory approval, or otherwise achieve profitability. More restrictive statutory regimes, government regulations, or negative public opinion would have an adverse effect on our business, financial condition, results of operations, and prospects and may delay or impair the development of our investigational medicines and commercialization of any approved products or demand for any products we may develop.
If we and the contract manufacturers upon whom we rely fail to produce our electroporation devices and product candidates in the volumes that we require on a timely basis, or at all, or fail to comply with their obligations to us or with stringent regulations, we may face delays in the development and commercialization of our electroporation equipment and product candidates.
We manufacture some components of our electroporation devices and utilize the services of contract manufacturers to manufacture the remaining components of these devices. We also rely on third party contract manufacturers to produce our product candidates for use in our clinical trials and potentially for commercial distribution, if any product candidate is approved by regulatory authorities. The manufacture of these devices and our product candidates requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. Manufacturers often encounter difficulties in production, particularly in scaling up for commercial production. These problems include difficulties with production costs and yields, quality control, including stability of the equipment and product candidates and quality assurance testing, shortages of qualified personnel, as well as compliance with strictly enforced federal, state and foreign regulations.
If we or our manufacturers were to encounter any of these difficulties or our manufacturers otherwise fail to comply with their obligations to us, our ability to provide our electroporation equipment to our partners and to supply product candidates for clinical trials or to commercially launch a product would be jeopardized. For example, we previously relied on VGXI to manufacture DNA plasmids for our product candidates, including INO-4800. In 2020, VGXI notified us that they would be unable to produce the necessary plasmids to meet this timeline due to a lack of manufacturing capacity. As a result, we have engaged several additional third-party contract manufacturers to support the planned large-scale manufacturing of INO-4800. However, there can be no assurance that we will be able to secure adequate additional manufacturing capacity on commercially reasonable terms. Our inability to secured sufficient manufacturing capacity, or our inability to transfer necessary manufacturing know-how to third parties, would adversely affect our commercialization plans and could also harm our reputation.
Furthermore, any delay or interruption in the supply of clinical trial supplies for our product candidates could delay the completion of our clinical trials, increase the costs associated with maintaining our clinical trial program and, depending upon the period of delay, require us to commence new trials at significant additional expense or terminate the trials completely.
In addition, all manufacturers of our products must comply with cGMP requirements enforced by the FDA through its facilities inspection program. These requirements include, among other things, quality control, quality assurance and the generation and maintenance of records and documentation. Manufacturers of our products may be unable to comply with these cGMP requirements and with other FDA, state and foreign regulatory requirements. We have little control over our manufacturers' compliance with these regulations and standards. A failure to comply with these requirements may result in fines and civil penalties, suspension of production, suspension or delay in product approval, product seizure or recall, or withdrawal
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of product approval. If the safety of any product is compromised due to our or our manufacturers' failure to adhere to applicable laws or for other reasons, we may not be able to obtain regulatory approval for or successfully commercialize our products, and we may be held liable for any injuries sustained as a result. Any of these factors could cause a delay of clinical trials, regulatory submissions, approvals or commercialization of our products, entail higher costs or result in our being unable to effectively commercialize our products. Furthermore, if our manufacturers fail to deliver the required commercial quantities on a timely basis, pursuant to provided specifications and at commercially reasonable prices, we may be unable to meet demand for our products and would lose potential revenues.
We are dependent on single-source suppliers for some of the components and materials used in, and the processes required to develop, our products, development candidates and investigational medicines.
We currently depend on single-source suppliers for some of the components and materials used in, and manufacturing processes required to develop and commercialize, our products, development candidates and investigational medicines. We cannot ensure that these suppliers or service providers will remain in business, have sufficient capacity or supply to meet our needs, or that they will not be purchased by one of our competitors or another company that is not interested in continuing to work with us. Our use of single-source suppliers of raw materials, components, key processes, and finished goods exposes us to several risks, including disruptions in supply, price increases, or late deliveries. There are, in general, relatively few alternative sources of supply for substitute components. These vendors may be unable or unwilling to meet our future demands for our clinical trials or commercial sale. Establishing additional or replacement suppliers for these components, materials, and processes could take a substantial amount of time and it may be difficult to establish replacement suppliers who meet regulatory requirements. Any disruption in supply from any single-source supplier or service provider could lead to supply delays or interruptions which would damage our business, financial condition, results of operations, and prospects.
If we have to switch to a replacement supplier, the manufacture and delivery of our products, development candidates or investigational medicines could be interrupted for an extended period, which could adversely affect our business. Establishing additional or replacement suppliers for any of the components or processes used in our products or investigational medicines, if required, may not be accomplished quickly. If we are able to find a replacement supplier, the replacement supplier would need to be qualified and may require additional regulatory authority approval, which could result in further delay. While we seek to maintain adequate inventory of the single-source components and materials used in our products, any interruption or delay in the supply of components or materials, or our inability to obtain components or materials from alternate sources at acceptable prices in a timely manner, could impair our ability to supply our investigational medicines.
Our reliance on these suppliers, service providers, and manufacturers subjects us to a number of risks that could harm our reputation, business, and financial condition, including, among other things:
•delays to the development timelines for our development candidates or investigational medicines;
•interruption of supply resulting from modifications to or discontinuation of a supplier’s operations;
•delays in product shipments resulting from uncorrected defects, reliability issues, or a supplier’s variation in a component;
•a lack of long-term supply arrangements for key components with our suppliers;
•inability to obtain adequate supply in a timely manner, or to obtain adequate supply on commercially reasonable terms;
•difficulty and cost associated with locating and qualifying alternative suppliers for our components in a timely manner;
•production delays related to the evaluation and testing of components from alternative suppliers, and corresponding regulatory qualifications;
•delay in delivery due to our suppliers’ prioritizing other customer orders over ours;
•damage to our reputation caused by defective components produced by our suppliers; and
•fluctuation in delivery by our suppliers due to changes in demand from us or their other customers.
If any of these risks materialize, costs could significantly increase and our ability to meet demand for our products could be impacted.
Even if our products receive regulatory approval, they may still face future development and regulatory difficulties.
Even if United States regulatory approval is obtained, the FDA may still impose significant restrictions on a product's indicated uses or marketing or impose ongoing requirements for potentially costly post-approval studies. This governmental oversight may be particularly strict with respect to gene-based therapies. Our products will also be subject to ongoing FDA requirements governing the labeling, packaging, storage, advertising, promotion, record keeping and submission of safety and other post-market information. For example, the FDA strictly regulates the promotional claims that may be made about medical products. In particular, a product may not be promoted for uses that are not approved by the FDA as reflected in the product’s approved labeling. Physicians, on the other hand, may prescribe products for off-label uses. Although the FDA and other regulatory agencies do not regulate a physician’s choice of drug treatment made in the physician’s independent medical
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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 in certain circumstances share truthful and not misleading information that is otherwise consistent with the product’s FDA approved labeling. In addition, manufacturers of drug products and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with current good manufacturing practices, or cGMP, regulations. If we or a regulatory agency discover previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions on that product, the manufacturer or us, including requiring withdrawal of the product from the market or suspension of manufacturing. If we, our product candidates, or the manufacturing facilities for our product candidates fail to comply with applicable regulatory requirements, a regulatory agency may:
•issue Warning Letters or untitled letters;
•impose civil or criminal penalties;
•suspend regulatory approvals;
•suspend any ongoing clinical trials;
•refuse to approve pending applications or supplements to applications filed by us;
•impose restrictions on operations, including costly new manufacturing requirements; or
•seize or detain products or require us to initiate a product recall.
Even if our products receive regulatory approval in the United States, we may never receive approval or commercialize our products outside of the United States (and the same risk applies for products approved outside the United States, with respect to regulatory approval in the United States).
In order to market any electroporation equipment and product candidates outside of the United States, we must establish and comply with numerous and varying regulatory requirements of other countries regarding safety and efficacy. Likewise, the same is the case for any regulatory approvals procured outside the United States, with respect to the approval by the FDA. Approval procedures vary among countries and can involve additional product testing and additional administrative review periods. The time required to obtain approval in other countries might differ from that required to obtain FDA approval, and the regulatory approval process in other countries may include all of the risks detailed above regarding FDA approval in the United States as well as other risks. Furthermore, regulatory approval in one country does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in others. Failure to obtain regulatory approval in other countries or any delay or setback in obtaining such approval could have the same adverse effects detailed above regarding FDA approval in the United States. Such effects include the risks that our product candidates may not be approved for all indications requested, which could limit the uses of our product candidates and have an adverse effect on their commercial potential or require costly, post-marketing follow-up studies.
Because we are developing some of our development candidates or investigational medicines for the treatment of diseases in which there is little clinical experience and, in some cases, using new endpoints or methodologies, the FDA or other regulatory authorities may not consider the endpoints of our clinical trials to provide clinically meaningful results.
There are no pharmacologic therapies approved to treat the underlying causes of many diseases that we currently attempt to address or may address in the future. There has been limited clinical trial experience for the development of pharmaceuticals to treat these rare diseases in general, and we are not aware of a registrational trial that led to approval of a drug to treat these diseases. There have been some historical trials with other agents which may have utilized clinical endpoints that are less applicable to our efforts that address the underlying defect. As a result, the design and conduct of clinical trials of investigational medicines for the treatment of these disorders and other disorders may take longer, be more costly, or be less effective as part of the novelty of development in these diseases.
Even if the FDA does find our success criteria to be sufficiently validated and clinically meaningful, we may not achieve the pre-specified endpoint to a degree of statistical significance in any pivotal or other clinical trials we or our strategic collaborators may conduct for our programs. Further, even if we do achieve the pre-specified criteria, our trials may produce results that are unpredictable or inconsistent with the results of the more traditional efficacy endpoints in the trial. The FDA also could give overriding weight to other efficacy endpoints over a primary endpoint, even if we achieve statistically significant results on that endpoint, if we do not do so on our secondary efficacy endpoints. The FDA also weighs the benefits of a product against its risks and the FDA may view the efficacy results in the context of safety as not being supportive of licensure. Other regulatory authorities in Europe and other countries may make similar findings with respect to these endpoints.
We have obtained Orphan Drug Designation for one of our product candidates. As part of our business strategy, we may continue to seek Orphan Drug Designation for additional product candidates, and we may be unsuccessful in obtaining new designations or may be unable to obtain or maintain the benefits associated with Orphan Drug Designation, including the potential for orphan drug exclusivity.
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We have obtained Orphan Drug Designation from the FDA for INO-3107 for the treatment of recurrent respiratory papillomatosis. We have sought and may continue to seek Orphan Drug Designation for one or more of our other product candidates, although we may be unsuccessful in doing so. Regulatory authorities in some jurisdictions, including the United States and Europe, may designate drugs for relatively small patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a drug as an orphan drug if it is a drug intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals in the United States, or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing the drug will be recovered from sales in the United States. In the United States, Orphan Drug Designation entitles a party to financial incentives such as tax advantages and user fee waivers. Opportunities for grant funding toward clinical trial costs may also be available for clinical trials of drugs for rare diseases, regardless of whether the drugs are designated for the orphan use. In addition, if a product that has Orphan Drug Designation subsequently receives the first FDA approval for the disease for which it has such designation, the product is entitled to orphan drug exclusivity, which means that the FDA may not approve any other applications to market the same product for the same indication for seven years, except in limited circumstances.
Although we have obtained Orphan Drug Designation for INO-3107 for the treatment of recurrent respiratory papillomatosis, and even if we obtain Orphan Drug Designation for our other product candidates in specific indications, we may not be the first to obtain marketing approval of these product candidates for the orphan-designated indication due to the uncertainties associated with developing pharmaceutical products. If a competitor with a product that is determined by the FDA to be the same as one of our product candidates obtains marketing approval before us for the same indication we are pursuing and obtains orphan drug exclusivity, our product candidate may not be approved until the period of exclusivity ends unless we are able to demonstrate that our product candidate is clinically superior. Even after obtaining approval, we may be limited in our ability to market our product. In addition, exclusive marketing rights in the United States may be limited if we seek approval for an indication broader than the orphan-designated indication or may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease or condition. Further, even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs with different principal molecular structural features can be approved for the same condition. Even after an orphan product is approved, the FDA can subsequently approve the same drug with the same principal molecular structural features for the same condition if the FDA concludes that the later drug is safer, more effective or makes a major contribution to patient care. Orphan Drug Designation neither shortens the development time or regulatory review time of a drug nor gives the drug any advantage in the regulatory review or approval process. In addition, while we may seek Orphan Drug Designation for some of our product candidates, we may never receive such designations.
Tax reform legislation enacted in 2017 reduced the amount of the qualified clinical research costs for a designated orphan product that a sponsor may claim as a credit from 50% to 25%. This reduction could further limit the advantage of, and may impact our future business strategy with respect to, seeking the Orphan Drug Designation.
A breakthrough therapy designation or fast track designation by the FDA for a drug may not lead to a faster development or regulatory review or approval process, and it would not increase the likelihood that the drug will receive marketing approval.
We may seek a breakthrough therapy designation for one or more of our investigational medicines. A breakthrough therapy is defined as a drug that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. For drugs that have been designated as breakthrough therapies, interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens. Drugs designated as breakthrough therapies by the FDA are also eligible for priority review if supported by clinical data at the time of the regulatory submission.
Designation as a breakthrough therapy is at the discretion of the FDA. Accordingly, even if we believe that one of our investigational medicines meets the criteria for designation as a breakthrough therapy, the FDA may disagree and instead determine not to make such designation. In any event, the receipt of a breakthrough therapy designation for a drug may not result in a faster development process, review, or approval compared to drugs considered for approval under conventional FDA procedures and it would not assure ultimate approval by the FDA. Even if we are successful in obtaining accelerated approval in the United States or under comparable pathways in other jurisdictions, we may face requirements and limitations that will adversely affect our prospects. For example, we may be approved only for a very limited indication, we may not successfully complete required post-approval trials, such trials may not confirm the clinical benefit of our drug, or approval of the drug may be withdrawn. In addition, even if one or more of our investigational medicines qualify as breakthrough therapies, the FDA may later decide that the investigational medicine no longer meets the conditions for qualification or it may decide that the time period for FDA review or approval will not be shortened.
Risks Related to Reliance on Third Parties
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If we lose or are unable to secure collaborators or partners, or if our collaborators or partners do not apply adequate resources to their relationships with us, our product development and potential for profitability will suffer.
We have entered into, and may continue to enter into, distribution, co-promotion, partnership, sponsored research and other arrangements for development, manufacturing, sales, marketing and other commercialization activities relating to our products. For example, in the past we have entered into license and collaboration agreements to develop, obtain regulatory approval for and commercialize our product candidates for specified indications, including in jurisdictions outside of the United States. The amount and timing of resources applied by our collaborators are largely outside of our control.
If any of our current or future collaborators breaches or terminates our agreements, or fails to conduct our collaborative activities in a timely manner, our commercialization of products could be diminished or blocked completely. We may not receive any event-based payments, milestone payments or royalty payments under our collaborative agreements if our collaborative partners fail to develop products in a timely manner or at all. It is possible that collaborators will change their strategic focus, pursue alternative technologies or develop alternative products, either on their own or in collaboration with others. Further, we may be forced to fund programs that were previously funded by our collaborators, and we may not have, or be able to access, the necessary funding. The effectiveness of our partners, if any, in marketing our products will also affect our revenues and earnings.
We desire to enter into new collaborative agreements. However, we may not be able to successfully negotiate any additional collaborative arrangements and, if established, these relationships may not be scientifically or commercially successful. Our success in the future depends in part on our ability to strategically enter into agreements with other organizations. This can be difficult due to internal and external constraints placed on these organizations. Some organizations may have insufficient administrative and related infrastructure to enable collaborations with many companies at once, which can extend the time it takes to develop, negotiate, implement and execute a collaboration. Once news of discussions regarding possible collaborations are known in the medical community, regardless of whether the news is accurate, failure to announce a collaborative agreement or the entity's announcement of a collaboration with another entity may result in adverse speculation about us, resulting in harm to our reputation and our business.
Disputes could also arise between us and our existing or future collaborators, as to a variety of matters, including financial and intellectual property matters or other obligations under our agreements. These disputes could be both expensive and time-consuming and may result in delays in the development and commercialization of our products or could damage our relationship with a collaborator.
We have agreements with government agencies, which are subject to termination and uncertain future funding.
We have entered into agreements with government agencies, such as the NIAID, DARPA and the DoD, and we intend to continue entering into these types of agreements in the future. Our business is partially dependent on the continued performance by these government agencies of their responsibilities under these agreements, including adequate continued funding of the agencies and their programs. We have no control over the resources and funding that government agencies may devote to these agreements, which may be subject to annual renewal and which generally may be terminated by the government agencies at any time. For example, in April 2021 we were notified by the DoD that they discontinued funding for the Phase 3 segment of our INNOVATE trial, which resulted in increased expenditures by us.
Government agencies may fail to perform their responsibilities under these agreements, which may cause them to be terminated by the government agencies. In addition, we may fail to perform our responsibilities under these agreements. Many of our government agreements are subject to audits, which may occur several years after the period to which the audit relates. If an audit identifies significant unallowable costs, we could incur a material charge to our earnings or reduction in our cash position. As a result, we may be unsuccessful entering, or ineligible to enter, into future government agreements.
We and our collaborators rely on third parties to conduct our clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we and our collaborators may not be able to obtain regulatory approval for or commercialize our product candidates.
We and our collaborators have entered into agreements with CROs to provide monitors for and to manage data for our on-going clinical programs. We and the CROs conducting clinical trials for our electroporation equipment and product candidates are required to comply with current good clinical practices, or GCPs, regulations and guidelines enforced by the FDA for all of our products in clinical development. The FDA enforces GCPs through periodic inspections of trial sponsors, principal investigators and trial sites. If we or the CROs conducting clinical trials of our product candidates fail to comply with applicable GCPs, the clinical data generated in the clinical trials may be deemed unreliable and the FDA may require additional clinical trials before approving any marketing applications.
If any relationships with CROs terminate, we or our collaborators may not be able to enter into arrangements with alternative CROs. In addition, these third-party CROs are not our employees, and we cannot control whether or not they devote sufficient time and resources to our on-going clinical programs or perform trials efficiently. These CROs may also have
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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. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements, or for other reasons, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. As a result, our financial results and the commercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate revenues could be delayed. Cost overruns by or disputes with our CROs may significantly increase our expenses.
We enter into various contracts in the normal course of our business in which we agree to indemnify the other party to the contract. In the event we have to perform under these indemnification provisions, it could have a material adverse effect on our business, financial condition and results of operations.
In the normal course of business, we periodically enter into academic, commercial, service, collaboration, licensing, consulting and other agreements that contain indemnification provisions. With respect to our academic and other research agreements, we typically agree to indemnify the institution and related parties from losses arising from claims relating to the products, processes or services made, used, sold or performed pursuant to the agreements for which we have secured licenses, and from claims arising from our or our sub licensees’ exercise of rights under the agreement. With respect to our commercial agreements, we have agreed to indemnify our vendors from any third-party product liability claims that could result from the production, use or consumption of the product, as well as for alleged infringements of any patent or other intellectual property right by a third party. With respect to consultants, we typically agree to indemnify them from claims arising from the good faith performance of their services.
Should our obligation under an indemnification provision exceed applicable insurance coverage or if we were denied insurance coverage or not covered by insurance, our business, financial condition and results of operations could be adversely affected. Similarly, if we are relying on a collaborator or other third party to indemnify us and the collaborator or other third party is denied insurance coverage or otherwise does not have assets available to indemnify us, our business, financial condition and results of operations could be adversely affected.
Risks Related to Commercialization of Our Product Candidates
We currently have a small marketing organization and no sales organization. If we are unable to establish marketing and sales capabilities or enter into agreements with third parties to market and sell our products, we may not be able to generate product revenues.
We currently have a small sales organization for the marketing, sales and distribution of our electroporation equipment and product candidates. In order to commercialize any products, we must build our marketing, sales, distribution, managerial and other non-technical capabilities or make arrangements with third parties to perform these services. We contemplate establishing our own sales force or seeking third-party partners to sell our products. The establishment and development of our own sales force to market any products we may develop will be expensive and time consuming and could delay any product launch, and we may not be able to successfully develop this capability. We will also have to compete with other pharmaceutical and biotechnology companies to recruit, hire, train and retain marketing and sales personnel. To the extent we rely on third parties to commercialize our approved products, if any, we will receive lower revenues than if we commercialized these products ourselves. In addition, we may have little or no control over the sales efforts of third parties involved in our commercialization efforts. In the event we are unable to develop our own marketing and sales force or collaborate with a third-party marketing and sales organization, we would not be able to commercialize our product candidates which would negatively impact our ability to generate product revenues.
If products for which we receive regulatory approval do not achieve broad market acceptance, the revenues that we generate from their sales will be limited.
The commercial success of our electroporation equipment and product candidates for which we obtain marketing approval from the FDA or other regulatory authorities will depend upon the acceptance of these products by both the medical community and patient population. Coverage and reimbursement of our product candidates by third-party payors, including government payors, generally is also necessary for optimal commercial success. The degree of market acceptance of any of our approved products will depend on a number of factors, including:
•our ability to provide acceptable evidence of safety and efficacy;
•the relative convenience and ease of administration, including the acceptance and usage of our electroporation equipment by the medical community;
•the prevalence and severity of any actual or perceived adverse side effects;
•limitations or warnings contained in a product's FDA-approved labeling, including, for example, potential “black box” warnings;
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•availability of alternative treatments;
•pricing and cost effectiveness;
•the effectiveness of our or any future collaborators' sales and marketing strategies;
•the public perception of new therapies and the reputational challenges that the vaccine industry is facing related to the growing momentum of the anti-vaccine movement, including with respect to COVID-19 vaccines;
•our ability to obtain sufficient third-party coverage and adequate reimbursement; and
•the willingness of patients to pay out of pocket in the absence of third-party coverage.
If our electroporation equipment and product candidates are approved but do not achieve an adequate level of acceptance by physicians, healthcare payors and patients, we may not generate sufficient revenue from these products, and we may not become or remain profitable. In addition, our efforts to educate the medical community and third-party payors on the benefits of our product candidates may require significant resources and may never be successful.
We are subject to uncertainty relating to coverage and reimbursement policies which, if not favorable to our product candidates, could hinder or prevent our products' commercial success.
Patients in the United States and elsewhere generally rely on third-party payors to reimburse part or all of the costs associated with their prescription drugs and medical treatments. Accordingly, our ability to commercialize our electroporation equipment and product candidates successfully will depend in part on the extent to which governmental authorities, including Medicare and Medicaid, private health insurers and other third-party payors establish appropriate coverage and reimbursement levels for our product candidates and related treatments. As a threshold for coverage and reimbursement, third-party payors in the United States generally require that drug products and vaccines have been approved for marketing by the FDA.
Significant uncertainty exists as to the coverage and reimbursement status of any products for which we may obtain regulatory approval. Coverage decisions may not favor new products when more established or lower cost therapeutic alternatives are already available. Even if we obtain coverage for a given product, the associated reimbursement rate may not be adequate to cover our costs, including research, development, intellectual property, manufacture, sale and distribution expenses, or may require co-payments that patients find unacceptably high. Patients are unlikely to use our products unless reimbursement is adequate to cover all or a significant portion of the cost of our drug products.
Additionally, some of our products, if approved, will be provided under the supervision of a physician. When used in connection with medical procedures, our product candidates may not be reimbursed separately but their cost may instead be bundled as part of the payment received by the provider for the procedure only. Separate reimbursement for the product itself or the treatment or procedure in which our product is used may not be available. A decision by a third-party payor not to cover or separately reimburse for our product candidates or procedures using our product candidates, could reduce physician utilization of our products once approved.
Coverage and reimbursement policies for products can differ significantly from payor to payor as there is no uniform policy of coverage and reimbursement for products among third-party payors in the United States. There may be significant delays in obtaining coverage and reimbursement as the process of determining coverage and reimbursement is often time consuming and costly which will require us to provide scientific and clinical support for the use of our products to each payor separately, with no assurance that coverage or adequate reimbursement will be obtained. It is difficult to predict at this time what government authorities and third-party payors will decide with respect to coverage and reimbursement for our products.
A significant trend in the U.S. healthcare industry and elsewhere is cost containment. Third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular products and services. Third-party payors are increasingly challenging the effectiveness of and prices charged for medical products and services. Moreover, the U.S. government, state legislatures and foreign governmental entities have shown significant interest in implementing cost containment programs to limit the growth of government paid healthcare costs, including price controls, restrictions on reimbursement and coverage and requirements for substitution of generic products for branded prescription drugs. We may not be able to obtain third-party payor coverage or reimbursement for our products in whole or in part.
Risks Related to Managing Our Growth and Employee and Operational Matters
We are currently subject to litigation and may become subject to additional litigation, which could harm our business, financial condition and reputation.
We may have actions brought against us by stockholders relating to past transactions, changes in our stock price or other matters. For example, numerous purported shareholder class action complaints have been filed against us, naming us and our directors and executive officers as defendants, and alleging that we made materially false and misleading statements regarding the development of INO-4800 in violation of certain federal securities laws. We may also become party to litigation with third parties as a result of our business activities. In 2020, we filed a lawsuit against one of our contract manufacturers, who then filed a counterclaim against us alleging that we had breached our contract with them, among other claims. These litigation
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matters, described in this report, are ongoing, and even though we intend to vigorously defend ourselves in these actions, there can be no assurance that we will ultimately prevail. These and any potential future actions against us could give rise to substantial damages, which could have a material adverse effect on our financial position, liquidity or results of operations. Even if an action is not resolved against us, the uncertainty and expense associated with litigation could harm our business, financial condition and reputation, as litigation is often costly, time-consuming and disruptive to business operations. The defense of our existing and potential future lawsuits could also result in diversion of our management's time and attention away from business operations, which could harm our business.
We have experienced recent changes to our leadership team, which creates uncertainty and could harm our business.
We have recently experienced changes to our leadership team. Our President and Chief Executive Officer, Dr. Joseph Kim, who served in those roles since 2009, announced his resignation effective upon the filing of this report. Our Board of Directors has appointed Dr. Jacqueline Shea, previously our Chief Operating Officer, as our new Chief Executive Officer following the filing of this report. Although Dr. Shea has served with our company since 2019, the management transition could create uncertainty and potentially disrupt our operations and relationships with employees, suppliers and partners and result in operational inefficiencies, decreased employee morale and productivity and increased turnover. Any departure at a senior level could be particularly disruptive given that we are already experiencing leadership transitions and, to the extent we experience additional turnover, competition for top management is high such that it may take some time to find a candidate that meets our requirements. In addition, our competitors may seek to use this management transition and the related potential disruptions to gain a competitive advantage over us. If we are unable to successfully navigate the transition of our chief executive officer, our business could suffer.
We depend upon key personnel who may terminate their employment with us at any time and we may need to hire additional qualified personnel in order to obtain financing, pursue collaborations or develop or market our product candidates.
The success of our business strategy will depend to a significant degree upon the continued services of key management, technical and scientific personnel and our ability to attract and retain additional qualified personnel and managers, including personnel with expertise in clinical trials, government regulation, manufacturing, marketing and other areas. Competition for qualified personnel is intense among companies, academic institutions and other organizations. If we are unable to attract and retain key personnel and advisors, it may negatively affect our ability to successfully develop, test, commercialize and market our products and product candidates.
Our business could be adversely affected by the effects of health epidemics, including the global COVID-19 pandemic.
In response to the COVID-19 pandemic, in 2020 a number of governmental orders and other public health guidance measures were implemented across much of the United States, including in the locations of our offices, laboratories, clinical trial sites and third parties on whom we rely. As a result, our expected clinical development timelines were negatively impacted. During the pandemic, we implemented and have continued a work from home policy allowing employees who can work from home to do so, while those needing to work in laboratory facilities work in shifts to reduce the number of people gathered together at one time. Starting in April 2022, employees have begun to return to the office on a modified schedule. We have also implemented a mask-wearing mandate for all on-site activities. We have taken measures to secure our research and development project activities, while work in laboratories has been organized to reduce risk of COVID-19 transmission. Our increased reliance on personnel working from home may negatively impact our productivity, or could disrupt, delay or otherwise adversely impact our business. For example, with our personnel working from home, some of our research activities that require our personnel to be in our laboratories could be delayed.
In addition, as local jurisdictions continue to put restrictions in place or reinstitute restrictions they had previously lifted, our ability to continue to conduct and enroll patients in our clinical trials, manufacture our product candidates and pursue collaborations may also be limited. Such events may result in business and manufacturing disruption, and in reduced operations, any of which could materially affect our business, financial condition and results of operations. The COVID-19 pandemic has also caused supply chain disruptions and supply shortages globally. As a result, we have experienced delays and disruptions in obtaining clinical supplies, manufacturing supplies and components, and have had to secure new vendors for certain supplies and components at higher prices. Some manufacturing supplies and components remain in limited supply with uncertain delivery dates.
The spread of COVID-19, which has caused a broad impact globally, could also affect us economically. While the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, it has resulted in significant disruption of global financial markets, which could reduce our ability to access capital. Although we have raised significant funds from the sale of our common stock in the public markets during the pandemic, there can be no guarantee that we will be able to continue to so, which could negatively affect our future liquidity.
The continued spread of COVID-19, including newly emerging SARs-CoV-2 variants globally, has affected and could continue to adversely affect our clinical trial operations, including our ability to initiate and conduct our planned trials on their
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expected timelines and to recruit and retain participants and principal investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19 if an outbreak occurs in their geography. Trial participants may not be able to or may not feel safe going into healthcare facilities, which is necessary for the collection and completion of data samples for our clinical trials. With respect to our VGX-3100 program, it has taken longer than anticipated to complete the data collection process, and we may continue to face delays in this and other trials. Further, the COVID-19 outbreak could also result in delays in our clinical trials due to prioritization of hospital resources toward the outbreak, restrictions in travel, potential unwillingness of participants to enroll in trials, participants withdrawing from trials following enrollment as a result of contracting COVID-19 or other health conditions, or the inability of participants to comply with clinical trial protocols as quarantines and travel restrictions impede participant movement or interrupt healthcare services. In addition, 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 preclinical studies and clinical trials, and the outbreak may affect their ability to devote sufficient time and resources to our programs or to travel to sites to perform work for us.
Additionally, COVID-19 may also result in delays in receiving approvals from local and foreign regulatory authorities, delays in necessary interactions with local and foreign regulators, ethics committees and other important agencies and contractors due to limitations in employee resources or forced furloughs of government employees, and refusals to accept data from clinical trials conducted in these affected geographies.
The extent to which COVID-19 may impact our business, operations and clinical trials will depend on future developments, including travel restrictions to, from and within the United States and other countries, the effectiveness of actions taken in the United States and other countries to contain and treat the disease, including mass vaccination efforts, and whether the United States and additional countries are required to move to complete lock-down status. The ultimate long-term impact of COVID-19 on our business is highly uncertain.
We face intense and increasing competition and steps taken by our competitors such as the introduction of a new, disruptive technology may impede our ability to successfully commercialize our DNA medicines.
If any of our competitors develop products with efficacy or safety profiles significantly better than our products and introduce new, disruptive technology, we may not be able to commercialize our products, and sales of any of our commercialized products could be harmed. Some of our competitors and potential competitors have substantially greater product development capabilities and financial, scientific, marketing and human resources than we do. Competitors may develop products earlier, obtain FDA approvals for products more rapidly, or develop products that are more effective than those under development by us. We will seek to expand our technological capabilities to remain competitive; however, research and development by others may render our technologies or products obsolete or noncompetitive, or result in treatments or cures superior to ours.
Many other companies are pursuing other forms of treatment or prevention for diseases that we target. For example, many of our competitors are working on developing and testing COVID-19 vaccines, cancer vaccines and immunotherapies, and several products such as the CAR-Ts developed by our competitors have been approved for human use. Some of our competitors have already received regulatory approval for their COVID-19 vaccines and have mass vaccination efforts underway in our target markets. For example, multiple COVID-19 vaccines and boosters have been approved by regulators in the United States and Europe and in August 2021 the world's first DNA vaccine against COVID-19 was approved for emergency use by India's regulators. In addition to widely distributed vaccines designed to stop the spread of COVID-19, several antiviral therapies are currently approved by the FDA for the treatment of COVID-19, and several antibody treatments have received EUA from the FDA. The earlier market entry of these other vaccines and drugs, and their actual or perceived efficacious or success relative to our own, has led to and may continue to lead to diversion of funding away from us, a declining market for COVID-19 vaccines, decreased demand for INO-4800, and difficulty in finding participants for our clinical trials. All of these factors could substantially impact our ability to complete the development of, commercialize and generate revenues from our COVID-19 vaccine candidate.
In addition, our competitors and potential competitors include large pharmaceutical and more established biotechnology companies. These companies have significantly greater financial and other resources and greater expertise than us in research and development, securing government contracts and grants to support research and development efforts, manufacturing, preclinical and clinical testing, obtaining regulatory approvals and marketing. This may make it easier for them to respond more quickly than us to new or changing opportunities, technologies or market needs. Many of these competitors operate large, well-funded research and development programs and have significant products approved or in development. Small companies may also prove to be significant competitors, particularly through collaborative arrangements with large pharmaceutical companies or through acquisition or development of intellectual property rights. Our potential competitors also include academic institutions, governmental agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for product and clinical development and marketing. Research and development by others may seek to render our technologies or products obsolete or noncompetitive.
Our failure to successfully acquire, develop and market additional product candidates or approved products would impair our ability to grow.
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We may acquire, in-license, develop and/or market additional products and product candidates. The success of these actions depends partly upon our ability to identify, select and acquire promising product candidates and products.
The process of proposing, negotiating and implementing a license or acquisition of a product candidate or approved product is lengthy and complex. Other companies, including some with substantially greater financial, marketing and sales resources, may compete with us for the license or acquisition of product candidates and approved products. We have limited resources to identify and execute the acquisition or in-licensing of third-party products, businesses and technologies and integrate them into our current infrastructure. Moreover, we may devote resources to potential acquisitions or in-licensing opportunities that are never completed, or we may fail to realize the anticipated benefits of such efforts. We may not be able to acquire the rights to additional product candidates on terms that we find acceptable, or at all.
In addition, future acquisitions may entail numerous operational and financial risks, including:
•exposure to unknown liabilities;
•disruption of our business and diversion of our management's time and attention to develop acquired products or technologies;
•incurrence of substantial debt or dilutive issuances of securities to pay for acquisitions;
•higher than expected acquisition and integration costs;
•increased amortization expenses;
•difficulty and cost in combining the operations and personnel of any acquired businesses with our operations and personnel;
•impairment of relationships with key suppliers or customers of any acquired businesses due to changes in management and ownership; and
•inability to retain key employees of any acquired businesses.
Further, any product candidate that we acquire may require additional development efforts prior to commercial sale, including extensive clinical testing and approval by the FDA and applicable foreign regulatory authorities. All product candidates are prone to risks of failure typical of product development, including the possibility that a product candidate will not be shown to be sufficiently safe and effective for approval by regulatory authorities.
Changes in funding for the FDA and other government agencies could prevent new products from being developed or commercialized in a timely manner, which could negatively impact our business.
The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory, and policy changes. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.
Disruptions at the FDA and other agencies may also slow the time necessary for new drugs to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years, including for 35 days from December 2018 to January 2019, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough critical FDA employees and stop critical activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business.
We are dependent on information technology and our systems and infrastructure face certain risks, including from cybersecurity breaches and data leakage.
We rely to a large extent upon sophisticated information technology systems to operate our businesses, some of which are managed, hosted provided and/or used for third-parties or their vendors. We collect, store and transmit large amounts of confidential information (including personal information and pseudonymized information), and we deploy and operate an array of technical and procedural controls to maintain the confidentiality and integrity of such confidential information. A significant breakdown, invasion, corruption, destruction, interruption, or unavailability of critical information technology systems or infrastructure, by our workforce, others with authorized access to our systems or unauthorized persons could negatively impact operations. Hardware, software, or applications we develop or obtain from third parties may contain defects in design or manufacture or other supply chain problems that could unexpectedly compromise our information and network security. The ever-increasing use and evolution of technology, including cloud-based computing, creates opportunities for the unintentional dissemination or intentional destruction of confidential information stored in our or our third-party providers' systems, portable media or storage devices. We could also experience a business interruption, theft of confidential information or reputational damage from industrial espionage attacks, malware or other cyber-attacks (including ransomware), which may compromise our system infrastructure or lead to data leakage, either internally or at our third-party providers. While we have invested in the
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protection of data and information technology, there can be no assurance that our efforts will prevent service interruptions or security breaches. Any such interruption or breach of our systems could adversely affect our business operations and/or result in the loss of critical or sensitive confidential information or intellectual property, and could result in financial, legal, business and reputational harm to us. In addition, as the regulatory environment related to information security, data collection and use, and privacy becomes increasingly rigorous, with new and constantly changing requirements applicable to our business, compliance with those requirements could also result in additional costs.
We face potential product liability exposure and, if successful claims are brought against us, we may incur substantial liability.
The use of our electroporation equipment and DNA vaccine, DNA immunotherapy and dMAb candidates in clinical trials and the sale of any products for which we obtain marketing approval expose us to the risk of product liability claims. Product liability claims might be brought against us by consumers, healthcare providers, pharmaceutical companies or others selling or otherwise coming into contact with our products. For example, pharmaceutical companies have been subject to claims that the use of some pediatric vaccines has caused personal injuries, including brain damage, central nervous system damage and autism, and these companies have incurred material costs to defend these claims. If we cannot successfully defend ourselves against product liability claims, we could incur substantial liabilities. In addition, regardless of merit or eventual outcome, product liability claims may result in:
•decreased demand for our product candidates;
•impairment of our business reputation;
•withdrawal of clinical trial participants;
•costs of related litigation;
•distraction of management's attention from our primary business;
•substantial monetary awards to patients or other claimants;
•loss of revenues; and
•inability to commercialize our products.
We have obtained product liability insurance coverage for our clinical trials, but our 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. On occasion, large judgments have been awarded in class action lawsuits based on products that had unanticipated side effects. 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 business.
Healthcare reform measures could hinder or prevent our products' commercial success.
In both the United States and certain foreign jurisdictions there have been, and we anticipate there will continue to be, a number of legislative and regulatory changes to the healthcare system that could impact our ability to sell any of our products profitably. In the United States, the federal government enacted healthcare reform legislation, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively, the ACA. Among the ACA’s provisions of importance to the pharmaceutical industry are that it:
•imposed an annual excise tax of 2.3% on any entity that manufactures or imports medical devices offered for sale in the United States, with limited exceptions, although the effective rate paid may be lower. However, the 2020 federal spending package permanently eliminated, effective January 1, 2020, this ACA-mandated medical device tax;
•created an annual, nondeductible fee on any entity that manufactures or imports certain specified branded prescription drugs and biologic agents apportioned among these entities according to their market share in some government healthcare programs;
•increased the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program, to 23.1% and 13% of the average manufacturer price for most branded and generic drugs, respectively and capped the total rebate amount for innovator drugs at 100% of the Average Manufacturer Price, or AMP;
•created new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for certain drugs and biologics that are inhaled, infused, instilled, implanted or injected;
•expanded eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals and by adding new mandatory eligibility categories for individuals with income at or below 133% of the federal poverty level, thereby potentially increasing manufacturers’ Medicaid rebate liability;
•expanded the entities eligible for discounts under the Public Health program;
•created a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research;
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•established a Center for Medicare & Medicaid Innovation at the Centers for Medicare & Medicaid Services, or CMS, to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending; and
•created a licensure framework for follow on biologic products.
There have been executive, judicial, and Congressional challenges to certain aspects of the ACA. While Congress has not passed comprehensive repeal legislation, it has enacted laws that modify certain provisions of the ACA such as removing penalties for not complying with the ACA’s individual mandate to carry qualifying health insurance coverage for all or part of a year. In addition, the ACA-mandated “Cadillac” tax on high-cost employer-sponsored health coverage was eliminated, along with the health insurer tax. 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 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 such challenges, and the healthcare reform measures of the Biden administration will impact the ACA and our business. Additionally, on March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 into law, which eliminates the statutory Medicaid drug rebate cap, currently set at 100% of a drug’s average manufacturer price, for single source and innovator multiple source drugs, beginning January 1, 2024. Further, Congress is considering additional health reform measures as part of the budget reconciliation process.
In addition, other legislative changes have been proposed and adopted since the ACA was enacted. The Budget Control Act of 2011 included reductions to Medicare payments to providers of 2% per fiscal year, which, due to subsequent legislative amendments to the statute will remain in effect through 2030. The American Taxpayer Relief Act of 2012 reduced Medicare payments to several providers, including hospitals, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.
There has also been heightened governmental scrutiny in the United States of pharmaceutical pricing practices in light of the rising cost of prescription drugs and biologics. Such scrutiny has resulted in several recent congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for products. In 2020, the FDA released a final rule and guidance providing pathways for states to build and submit importation plans for drugs from Canada, and the Department of Health and Human Services, or HHS, 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. In 2020, CMS issued an interim final rule implementing the Trump administration’s Most Favored Nation (MFN) executive order, which would have tied Medicare Part B payments for certain physician-administered drugs to the lowest price paid in other economically advanced countries. As a result of litigation challenging the MFN model, on December 27, 2021, CMS published a final rule that rescinded the MFN model interim final rule. In July 2021, the Biden administration released an executive order, “Promoting Competition in the American Economy,” with multiple provisions aimed at prescription drugs. In response to Biden’s executive order, on September 9, 2021, HHS 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 HHS can take to advance these principles. No legislation or administrative actions have been finalized to implement these principles. Further, 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. It is also possible that additional governmental action is taken in response to the COVID-19 pandemic.
The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to make and implement healthcare reforms may adversely affect:
•our ability to set a price we believe is fair for our products;
•our ability to generate revenues and achieve or maintain profitability;
•the availability of capital; and
•our ability to obtain timely approval of our products.
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If we fail to comply with applicable healthcare regulations, we could face substantial penalties and our business, operations and financial condition could be adversely affected.
Certain federal, state, local and foreign healthcare laws and regulations pertaining to fraud and abuse, transparency, patients' rights, and privacy are applicable to our business. The laws that may affect our ability to operate include:
•the federal healthcare program Anti-Kickback Statute, which prohibits, among other things, people from soliciting, receiving or providing remuneration, directly or indirectly, to induce or reward either the referral of an individual, or ordering, or leasing of an item, good, facility or service, for which payment may be made by a federal healthcare program such as Medicare or Medicaid. The intent standard under the federal healthcare program Anti-Kickback Statute was amended by the ACA to a stricter standard such that a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. Further, the ACA codified case law that a claim including items or services resulting from a violation of the federal healthcare program Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act;
•federal civil and criminal false claims laws, including the civil False Claims Act, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent;
•HIPAA, which prohibits, among other things, executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters. Similar to the federal healthcare program Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;
•HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and related regulations, which impose certain requirements relating to the privacy, security and transmission of individually identifiable health information on certain individuals and entities;
•the Physician Payments Sunshine Act, created under the ACA, which requires certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program, with certain exceptions, to report annually to CMS, information related to payments or other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists, and chiropractors), other healthcare professionals (such as physicians assistants and nurse practitioners) and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members;
•the FDCA, which among other things, strictly regulates drug product marketing, prohibits manufacturers from marketing drug products for off-label use and regulates the distribution of drug samples;
•the U.S. Foreign Corrupt Practices Act, which, among other things, prohibits companies issuing stock in the U.S. from bribing foreign officials for government contracts and other business;
•state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers, state and local laws requiring the registration of pharmaceutical sales and medical representatives, and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts; and
•additional state and local laws such as laws in California and Massachusetts, which mandate implementation of compliance programs, compliance with industry ethics codes, and spending limits, and other state and local laws, such as laws in Vermont, Maine, and Minnesota which require reporting to state governments of gifts, compensation, and other remuneration to physicians.
The shifting regulatory environment, along with the requirement to comply with multiple jurisdictions with different compliance and/or reporting requirements, increases the possibility that a company may run afoul of one or more laws.
We will be required to spend substantial time and money to ensure that our business arrangements with third parties comply with applicable healthcare laws and regulations. Because of the breadth of these laws and the narrowness of the statutory exceptions and regulatory safe harbors available, which require strict compliance in order to offer protection, it is possible that governmental authorities may conclude that our business practices do not comply with current or future statutes, regulations, agency guidance or case law involving applicable healthcare laws. If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to significant penalties, including administrative, civil and criminal penalties, damages, fines, disgorgement, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, imprisonment, integrity and/or other oversight obligations, contractual damages, reputational harm, and the curtailment or restructuring of our operations. Any such penalties 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 divert our management's attention from the operation of our business.
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Our business involves the use of hazardous materials and we and our third-party manufacturers must comply with environmental laws and regulations, which can be expensive and restrict how we do business.
Our and our third-party manufacturers' activities involve the controlled storage, use and disposal of hazardous materials, including the components of our product candidates and other hazardous compounds. We and our manufacturers are subject to federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials. In the event of an accident, state or federal authorities may curtail the use of these materials and interrupt our business operations. If we are subject to any liability as a result of our or our third-party manufacturers' activities involving hazardous materials, our business and financial condition may be adversely affected.
We have entered into collaborations with Chinese companies and conduct certain research and development activities in China. Uncertainties regarding the interpretation and enforcement of Chinese laws, rules and regulations, a trade war, political unrest or unstable economic conditions in China could materially adversely affect our business, financial condition and results of operations.
We conduct research and development activities in China through our collaboration with Advaccine, which is conducting and funding a clinical trial of INO-4800 in China. In addition, we are party to a license and collaboration agreement with China-based company ApolloBio, pursuant to which ApolloBio has the exclusive right to develop and commercialize VGX-3100 in China, Hong Kong, Macao and Taiwan. The Chinese legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions may be cited for reference but have limited precedential value. In addition, the Chinese legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all, and which may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until after the occurrence of the violation. Any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention. Because Chinese administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. Furthermore, we are exposed to the possibility of disruption of our research and development activities in the event of changes in the policies of the United States or Chinese governments, political unrest or unstable economic conditions in China. For example, a trade war could lead to increased costs for clinical materials that are manufactured in China. These interruptions or failures could also impede commercialization of our product candidates and impair our competitive position. Further, we may be exposed to fluctuations in the value of the local currency in China. These uncertainties may impede our ability to enforce the contracts we have entered into and our ability to continue our research and development activities and could materially and adversely affect our business, financial condition and results of operations.
Our employees, principal investigators, and consultants may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements and insider trading.
We are exposed to the risk of fraud or other misconduct by our employees, principal investigators, and consultants. Misconduct by these parties could include intentional failures to comply with FDA regulations or the regulations applicable in the EU and other jurisdictions; provide accurate information to the FDA, the EMA, and other regulatory authorities; comply with healthcare fraud and abuse laws and regulations in the United States and abroad; or report financial information or data accurately or disclose unauthorized activities to us. Such misconduct also could involve the improper use of information obtained in the course of clinical trials or interactions with the FDA or other regulatory authorities, which could result in regulatory sanctions and cause serious harm to our reputation. Sales, marketing, and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing, and other abusive practices. These laws and regulations restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs, and other business arrangements. We have adopted a code of conduct applicable to all of our employees, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from government investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, financial condition, results of operations, and prospects, including the imposition of significant fines or other sanctions.
Employee litigation and unfavorable publicity could negatively affect our future business.
Our employees may, from time to time, bring lawsuits against us regarding injury, creating a hostile work place, discrimination, wage and hour disputes, sexual harassment, or other employment issues. In recent years there has been an increase in the number of discrimination and harassment claims generally. Coupled with the expansion of social media platforms and similar devices that allow individuals access to a broad audience, these claims have had a significant negative impact on some businesses. Certain companies that have faced employment- or harassment-related lawsuits have had to terminate management or other key personnel, and have suffered reputational harm that has negatively impacted their business. If we were to face any employment-related claims, our business could be negatively affected.
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Risks Related to Our Intellectual Property
It is difficult and costly to generate and protect our intellectual property and our proprietary technologies, and we may not be able to ensure their protection.
Our commercial success will depend in part on obtaining and maintaining patent, trademark, trade secret, and other intellectual property protection relating to our electroporation equipment and product candidates, as well as successfully defending these intellectual property rights against third-party challenges.
The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. The laws and regulations regarding the breadth of claims allowed in biotechnology patents have evolved over recent years and continues to undergo review and revision, both in the United States and abroad. The biotechnology patent situation outside the United States can be even more uncertain depending on the country. Changes in either the patent laws or in interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property. Accordingly, we cannot predict the breadth of claims that may be allowed or enforced in our licensed patents, our patents or in third-party patents, nor can we predict the likelihood of our patents surviving a patent validity challenge.
The degree of future protection for our intellectual property rights is uncertain, because legal decision-making can be unpredictable, thereby often times resulting in limited protection, which may not adequately protect our rights or permit us to gain or keep our competitive advantage, or resulting in an invalid or unenforceable patent. For example:
•we, or the parties from whom we have acquired or licensed patent rights, may not have been the first to file the underlying patent applications or the first to make the inventions covered by such patents;
•the named inventors or co-inventors of patents or patent applications that we have licensed or acquired may be incorrect, which may give rise to inventorship and ownership challenges;
•others may develop similar or alternative technologies, or duplicate any of our products or technologies that may not be covered by our patents, including design-arounds;
•pending patent applications may not result in issued patents;
•the issued patents covering our products and technologies may not provide us with any competitive advantages or have any commercial value;
•the issued patents may be challenged and invalidated, or rendered unenforceable;
•given the nature of the COVID-19 pandemic, governments in the United States or abroad may prevent us from enforcing patents on our vaccines, which could prevent us from excluding competitors from those markets;
•the issued patents may be subject to reexamination, which could result in a narrowing of the scope of claims or cancellation of claims found unpatentable;
•we may not develop or acquire additional proprietary technologies that are patentable;
•our trademarks may be invalid or subject to a third party's prior use; or
•our ability to enforce our patent rights will depend on our ability to detect infringement, and litigation to enforce patent rights may not be pursued due to significant financial costs, diversion of resources, and unpredictability of a favorable result or ruling.
We depend, in part, on our licensors and collaborators to protect a portion of our intellectual property rights. In such cases, our licensors and collaborators may be primarily or wholly responsible for the maintenance of patents and prosecution of patent applications relating to important areas of our business. If any of these parties fail to adequately protect these products with issued patents, our business and prospects would be harmed significantly.
We also may rely on trade secrets to protect our technology, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. Although we use reasonable efforts to protect our trade secrets, our employees, consultants, contractors, outside scientific collaborators and other advisors may unintentionally or willfully disclose our trade secrets to competitors. Enforcing a claim that a third-party entity illegally obtained and is using any of our trade secrets is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how.
If we or our licensors fail to obtain or maintain patent protection or trade secret protection for our product candidates or our technologies, third parties could use our proprietary information, which could impair our ability to compete in the market and adversely affect our ability to generate revenues and attain profitability.
From time to time, U.S. and other policymakers have proposed reforming the patent laws and regulations of their countries. In September 2011 the America Invents Act (the Act) was signed into law. The Act changed the current “first-to-invent” system to a system that awards a patent to the “first-inventor-to-file” for an application for a patentable invention. The
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Act also created a procedure to challenge newly issued patents in the patent office via post-grant proceedings and new inter parties reexamination proceedings. These changes may make it easier for competitors to challenge our patents, which could result in increased competition and have a material adverse effect on our product sales, business and results of operations. The changes may also make it harder to challenge third-party patents and place greater importance on being the first inventor to file a patent application on an invention.
If we are sued for infringing intellectual property rights of third parties, it will be costly and time-consuming, and an unfavorable outcome in that litigation would have a material adverse effect on our business.
Other companies may have or may acquire intellectual property rights that could be enforced against us. If they do so, we may be required to alter our technologies, pay licensing fees or cease activities. If our products or technologies infringe the intellectual property rights of others, they could bring legal action against us or our licensors or collaborators claiming damages and seeking to enjoin any activities that they believe infringe their intellectual property rights.
Because patent applications can take many years to issue, and there is a period when the application remains undisclosed to the public, there may be currently pending applications unknown to us or reissue applications that may later result in issued patents upon which our products or technologies may infringe. There could also be existing patents of which we are unaware that our products or technologies may infringe. In addition, if third parties file patent applications or obtain patents claiming products or technologies also claimed by us in pending applications or issued patents, we may have to participate in interference or derivation proceedings in the United States Patent and Trademark Office to determine priority or derivation of the invention. If third parties file oppositions in foreign countries, we may also have to participate in opposition proceedings in foreign tribunals to defend the patentability of our filed foreign patent applications.
If a third party claims that we infringe its intellectual property rights, it could cause our business to suffer in a number of ways, including:
•we may become involved in time-consuming and expensive litigation, even if the claim is without merit, the third party's patent is invalid or we have not infringed;
•we may become liable for substantial damages for past infringement if a court decides that our technologies infringe upon a third party's patent;
•we may be enjoined by a court to stop making, selling or licensing our products or technologies without a license from a patent holder, which may not be available on commercially acceptable terms, if at all, or which may require us to pay substantial royalties or grant cross-licenses to our patents; and
•we may have to redesign our products so that they do not infringe upon others' patent rights, which may not be possible or could require substantial investment or time.
If any of these events occur, our business could suffer and the market price of our common stock may decline.
We have not yet registered our trademarks in all of our potential markets, and failure to secure those registrations could adversely affect our business.
Our trademark applications may not be allowed for registration, and our registered trademarks may not be maintained or enforced. During trademark registration proceedings, we may receive rejections. Although we are given an opportunity to respond to those rejections, we may be unable to overcome such rejections. In addition, in the USPTO and in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our trademarks, and our trademarks may not survive such proceedings. If we do not secure registrations for our trademarks, we may encounter more difficulty in enforcing them against third parties than we otherwise would.
Risks Related to an Investment in Our Common Stock
An active trading market for our common stock may not be sustained.
Although our common stock is listed on the Nasdaq Global Select Market, we cannot assure you that an active trading market for our shares will continue to be sustained. If an active market for our common stock is not sustained, it may be difficult for investors in our common stock to sell shares without depressing the market price for the shares or to sell the shares at all.
The price of our common stock has been and may continue to be volatile, and an investment in our common stock could decline substantially in value.
In light of our small size and limited resources, as well as the uncertainties and risks that can affect our business and industry, our stock price has been and may continue to be highly volatile and has been and may in the future be subject to substantial drops, with or even in the absence of news affecting our business. Period to period comparisons are not indicative of future performance. The following factors, which are not exhaustive, in addition to the other risk factors described in this
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report, and the potentially low volume of trades in our common stock, may have a significant impact on the market price of our common stock, some of which are beyond our control:
•developments concerning any research and development, clinical trials, manufacturing, and marketing efforts or collaborations, particularly developments concerning the prospects of our COVID-19 vaccine candidate;
•fluctuating public or scientific interest in the potential for our vaccines or other product candidates to address COVID-19 or other diseases;
•our announcement of significant acquisitions, strategic collaborations, joint ventures or capital commitments;
•fluctuations in our operating results;
•announcements of technological innovations;
•new products or services that we or our competitors offer;
•changes in the structure of healthcare payment systems;
•the initiation, conduct and/or outcome of intellectual property and/or litigation matters;
•changes in financial or other estimates by securities analysts or other reviewers or evaluators of our business;
•conditions or trends in bio-pharmaceutical or other healthcare industries;
•regulatory developments in the United States and other countries;
•perceptions of gene-based therapy;
•changes in the economic performance and/or market valuations of other biotechnology and medical device companies;
•additions or departures of key personnel;
•sales or other transactions involving our common stock;
•changes in our capital structure;
•sales or other transactions by executive officers or directors involving our common stock;
•changes in accounting principles;
•global unrest including geopolitical risks emanating from countries such as Russia and China, terrorist activities, and economic and other external factors; and
•catastrophic weather and/or global disease pandemics, including COVID-19.
The stock market in general has recently experienced relatively large price and volume fluctuations, particularly in response to the COVID-19 pandemic. In particular, the market prices of securities of smaller biotechnology and medical device companies have experienced dramatic fluctuations that often have been unrelated or disproportionate to the operating results of these companies. Continued market fluctuations could result in extreme volatility in the price of our common stock, which could cause a decline in the value of our common stock. In addition, price volatility may increase if the trading volume of our common stock remains limited or declines.
We have broad discretion in the use of our cash, cash equivalents, and investments, and may not use them effectively.
Our management has broad discretion in the application of our cash, cash equivalents, and investments, and could spend the proceeds in ways that do not improve our results of operations or enhance the value of our common stock. Furthermore, our operating expenses have significantly increased due to development and manufacturing activities for our COVID-19 vaccine program, and we may not deploy our expanded capital base effectively. The failure by our management to apply these funds effectively could result in financial losses that could have a material adverse impact on our business, cause the price of our common stock to decline, and delay the development of our investigational medicines. Pending their use, we may invest our cash, cash equivalents, and investments in a manner that does not produce income or that loses value.
Anti-takeover provisions under our charter documents and Delaware law could delay or prevent a change of control which could limit the market price of our common stock.
Our amended and restated certificate of incorporation contains provisions that could delay or prevent a change of control of our company or changes in our board of directors that our stockholders might consider favorable. Some of these provisions include:
•the authority of our board of directors to issue shares of undesignated preferred stock and to determine the rights, preferences and privileges of these shares, without stockholder approval;
•all stockholder actions must be effected at a duly called meeting of stockholders and not by written consent; and
•the elimination of cumulative voting.
In addition, we are governed by the provisions of Section 203 of the Delaware General Corporate Law, which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock. These and other provisions in our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law could make
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it more difficult for stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by the then-current board of directors, including to delay or impede a merger, tender offer or proxy contest involving our company. Any delay or prevention of a change of control transaction or changes in our board of directors could cause the market price of our common stock to decline.
We have never paid cash dividends on our common stock and we do not anticipate paying dividends in the foreseeable future.
We have paid no cash dividends on our common stock to date, and we currently intend to retain our future earnings, if any, to fund the development and growth of our business. In addition, the terms of any future debt or credit facility may preclude or limit our ability to pay any dividends. As a result, capital appreciation, if any, of our common stock will be the sole source of potential gain for the foreseeable future.
Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.
Under Sections 382 and 383 of the revised Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an “ownership change” (generally defined as a greater than 50 percentage point change (by value) in the ownership of its equity by certain significant shareholders over a rolling three year period), the corporation’s ability to use its pre-change net operating loss carryforwards and certain other pre-change tax attributes to offset its post-change income and taxes may be limited. We may have experienced such ownership changes in the past, and we may experience ownership changes in the future as a result of shifts in our share ownership, some of which would be outside our control. If our ability to use our net operating losses and other tax attributes is limited by ownership changes, we may be unable to utilize a material portion of our net operating losses and other tax attributes to offset our future taxable income. In addition, there is also a risk that due to changes in laws and regulations, including changes proposed or implemented by the current U.S. presidential administration, such as alternative minimum taxes or suspensions on the use of net operating losses, or other unforeseen reasons, our existing net operating losses could expire or otherwise become unavailable to offset future income tax liabilities.
General Risk Factors
Our quarterly operating results may fluctuate significantly.
We expect our operating results to be subject to quarterly fluctuations. Our net loss and other operating results will be affected by numerous factors, including:
•variations in the level of expenses related to our electroporation equipment, product candidates or future development programs;
•expenses related to corporate transactions, including ones not fully completed;
•addition or termination of clinical trials or funding support;
•any intellectual property infringement lawsuit in which we may become involved;
•any legal claims that may be asserted against us or any of our officers;
•regulatory developments affecting our electroporation equipment and product candidates or those of our competitors;
•debt service obligations;
•changes in the fair value of our investments, including investments in affiliated entities;
•our execution of any collaborative, licensing or similar arrangements, and the timing of payments we may make or receive under these arrangements; and
•if any of our products receives regulatory approval, the levels of underlying demand for our products.
If our quarterly operating results fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially. Furthermore, any quarterly fluctuations in our operating results may, in turn, cause the price of our stock to fluctuate substantially. We believe that quarterly comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of our future performance.
Our results of operations and liquidity needs could be materially affected by market fluctuations and general economic conditions.
Our results of operations could be materially affected by economic conditions generally, both in the United States and elsewhere around the world. Concerns over inflation, energy costs, geopolitical issues, global pathogen outbreaks or pandemics, including COVID-19, and the availability and cost of credit have in the past and may continue to contribute to increased volatility and diminished expectations for the economy and the markets going forward. Market upheavals may have an adverse effect on us. In the event of a market downturn, our results of operations could be adversely affected. Our future cost of equity or debt capital and access to the capital markets could be adversely affected, and our stock price could decline. There may be disruption or delay in the performance of our third-party contractors and suppliers. If our contractors, suppliers and partners are unable to satisfy their contractual commitments, our business could suffer. In addition, we maintain significant amounts of cash
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and cash equivalents at one or more financial institutions that are in excess of federally insured limits, and we may experience losses on these deposits.
If equity research analysts do not publish research or reports, or publish unfavorable research or reports, about us, our business or our market, our stock price and trading volume could decline.
The trading market for our common stock is influenced by the research and reports that equity research analysts publish about us and our business, and we have limited research coverage by equity research analysts. Equity research analysts may elect not to initiate or continue to provide research coverage of our common stock, and such lack of research coverage may adversely affect the market price of our common stock. Even if we have equity research analyst coverage, we will not have any control over the analysts or the content and opinions included in their reports. The price of our stock could decline if one or more equity research analysts downgrade our stock or issue other unfavorable commentary or research. If one or more equity research analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which in turn could cause our stock price or trading volume to decline.
The issuance of additional stock in connection with financings, acquisitions, investments, our stock incentive plans or otherwise will dilute all other stockholders.
Our certificate of incorporation authorizes us to issue up to 600,000,000 shares of common stock and up to 10,000,000 shares of preferred stock with such rights and preferences as may be determined by our board of directors. Subject to compliance with applicable rules and regulations, we may issue our shares of common stock or securities convertible into our common stock from time to time in connection with a financing, acquisition, investment, our stock incentive plans or otherwise. Any such issuance could result in substantial dilution to our existing stockholders and cause the trading price of our common stock to decline.
We incur significant costs and demands upon management as a result of being a public company.
As a public company listed in the United States, we incur significant legal, accounting and other costs that could negatively affect our financial results. In addition, changing laws, regulations and standards relating to corporate governance and public disclosure, including regulations implemented by the SEC and stock exchanges, may increase legal and financial compliance costs and make some activities more time-consuming. These laws, regulations and standards are subject to varying interpretations and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management's time and attention from revenue-generating activities to compliance activities. If notwithstanding our efforts to comply with new laws, regulations and standards, we fail to comply, regulatory authorities may initiate legal proceedings against us and our business may be harmed.
Failure to comply with these rules might also make it more difficult for us to obtain some types of insurance, including director and officer liability insurance, and we might be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, on committees of our board of directors or as members of senior management.
Changes in tax laws could adversely affect our business and financial condition.
The tax regimes to which we are subject or under which we operate are unsettled and may be subject to significant change. In December 2017, tax legislation commonly known as the Tax Cuts and Jobs Act was enacted, which significantly revised the Internal Revenue Code of 1986, as amended, or the Code. The Tax Cuts and Jobs Act, among other things, contains significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35 percent to a flat rate of 21 percent, limitation of the tax deduction for interest expense to 30 percent of adjusted earnings (except for certain small businesses), limitation of the deduction for net operating losses to 80 percent of current-year taxable income and elimination of net operating loss carrybacks, one time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many business deductions and credits (including reducing the business tax credit for certain clinical testing expenses incurred in the testing of certain drugs for rare diseases or conditions). Notwithstanding the reduction in the corporate income tax rate, the overall impact of the federal tax law is uncertain and our business and financial condition could be adversely affected. In addition, it is uncertain if and to what extent various states will conform to the federal tax law. The issuance of additional regulatory or accounting guidance related to the Tax Act, or changes proposed or implemented by the current U.S. presidential administration or otherwise, could materially affect our tax obligations and effective tax rate.
The increasing use of social media platforms presents new risks and challenges.
Social media is increasingly being used to communicate about our research, development candidates, investigational medicines, and the diseases our development candidates and investigational medicines are being developed to treat. Social media practices in the biopharmaceutical industry continue to evolve and regulations relating to such use are not always clear.
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This evolution creates uncertainty and risk of noncompliance with regulations applicable to our business, resulting in potential regulatory actions against us. For example, participants may use social media channels to comment on their experience in an ongoing blinded clinical trial or to report an alleged adverse event. When such disclosures occur, there is a risk that we fail to monitor and comply with applicable adverse event reporting obligations or we may not be able to defend our business or the public’s legitimate interests in the face of the political and market pressures generated by social media due to restrictions on what we may say about our development candidates and investigational medicines. There is also a risk of inappropriate disclosure of sensitive information or negative or inaccurate posts or comments about us on any social networking website. If any of these events were to occur or we otherwise fail to comply with applicable regulations, we could incur liability, face regulatory actions, or incur other harm to our business.
ITEM 6. EXHIBITS
(a) Exhibits

Exhibit Number |  | Description of Document
3.1 |  | Certificate of Incorporation with all amendments (incorporated by reference to Exhibit 3.1 of the registrant’s Form S-3 registration statement, filed on July 23, 2014).
3.2 |  | Amended and Restated Bylaws of Inovio Pharmaceuticals, Inc. dated August 10, 2011 (incorporated by reference to Exhibit 3.2 to the registrant’s Form 8-K current report filed on August 12, 2011).
31.1 |  | Certification of Chief Executive Officer Pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2 |  | Certification of Chief Financial Officer Pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1 * |  | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).*
101.INS |  | 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)

* | This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.

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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.

|  | Inovio Pharmaceuticals, Inc.
Date: | May 10, 2022 | By | /s/ J. JOSEPH KIM
|  |  | J. Joseph Kim President, Chief Executive Officer and Director (On Behalf of the Registrant)
Date: | May 10, 2022 | By | /s/ PETER KIES
|  |  | Peter Kies Chief Financial Officer (Principal Financial and Accounting Officer)

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