Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
 
 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
OR
o
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. 001-36296



Sesen Bio, Inc.
(Exact name of registrant as specified in its charter)

 
DELAWARE
26-2025616
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
245 First Street, Suite 1800
Cambridge, MA
02142
(Address of principal executive offices)
(Zip code)
Registrant’s telephone number, including area code: (617) 444-8550
 
 


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.    x  Yes   o  No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
    x  Yes    o  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
 
Large Accelerated filer
o
Non-accelerated filer
o
Accelerated filer
o
Smaller reporting company
x
Emerging growth company
x
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. x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):    
o   Yes      x  No
Number of outstanding shares of Common Stock as of November 7, 2018: 77,456,180

 



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SESEN BIO, INC.
TABLE OF CONTENTS
 
 
 
Page
 
 
Item 1.
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
 
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.



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FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future product research or development, future financial position, future revenues, projected costs, prospects, plans and objectives of management, are forward-looking statements. The words “anticipate,” “believe,” “goals,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.
The forward-looking statements in this Quarterly Report on Form 10-Q include, among other things, statements about:
our expected future loss and accumulated deficit levels;
our projected financial position and estimated cash burn rate;
our estimates regarding expenses, future revenues, capital requirements and needs for, and ability to obtain, additional financing;
our need to raise substantial additional capital to fund our operations;
the potential impairment of our goodwill and our indefinite-lived intangible assets;
the effect of recent changes in our senior management team on our business;
the success, cost and timing of our pre-clinical studies and clinical trials in the United States, Canada and other foreign jurisdictions;
the potential that results of pre-clinical studies and clinical trials indicate our product candidates are unsafe or ineffective;
our dependence on third parties, including contract research organizations, in the conduct of our pre-clinical studies and clinical trials;
the difficulties and expenses associated with obtaining and maintaining regulatory approval of our product candidates and companion diagnostics, if any, in the United States, Canada and in other foreign jurisdictions, and the labeling under any approval we may obtain;
our plans and ability to develop and commercialize our product candidates;
our ability to achieve certain future regulatory, development and commercialization milestones under our license agreement, which we refer to as the License Agreement, with F. Hoffmann-La Roche Ltd and Hoffmann-La Roche Inc., or collectively, Roche;
the timing and costs associated with our manufacturing process and technology transfer to FUJIFILM Diosynth Biotechnologies U.S.A., Inc., or Fujifilm, and our reliance on Fujifilm to perform under our agreement with Fujifilm;
market acceptance of our product candidates, the size and growth of the potential markets for our product candidates, and our ability to serve those markets;
obtaining and maintaining intellectual property protection for our product candidates and our proprietary technology;
the successful development of our commercialization capabilities, including sales and marketing capabilities; and
the success of competing therapies and products that are or become available.
Our product candidates are investigational biologics undergoing clinical development and have not been approved by or submitted for approval to the U.S. Food and Drug Administration, or FDA, Health Canada, or the European Commission. Our product candidates have not been, nor may they ever be, approved by any regulatory agency or competent authorities nor marketed anywhere in the world.
We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and our stockholders should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Quarterly Report on Form 10-Q, particularly in the “Risk Factors” section, that could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.
You should read this Quarterly Report on Form 10-Q and the documents that we have filed as exhibits to this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements contained in this Quarterly Report on Form 10-Q are made as of the date of this

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Quarterly Report on Form 10-Q, and we do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

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PART I—FINANCIAL INFORMATION
 
Item 1.         Financial Statements
SESEN BIO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except share and per share data)
 
 
September 30,
2018
 
December 31, 2017
Assets

 

Current assets:

 

Cash and cash equivalents
$
57,856

 
$
14,680

Prepaid expenses and other current assets
1,529

 
301

Total current assets
59,385

 
14,981

Property and equipment, net
365

 
522

Restricted cash
20

 
10

Intangible assets
46,400

 
46,400

Goodwill
13,064

 
13,064

Other assets
61

 
120

Total assets
$
119,295

 
$
75,097

Liabilities and stockholders’ equity

 

Current liabilities:

 

Accounts payable
$
1,391

 
$
907

Accrued expenses
5,170

 
3,813

Total current liabilities
6,561

 
4,720

Other liabilities
311

 
215

Deferred tax liability
12,528

 
12,528

Contingent consideration
49,500

 
39,600

Commitments and contingencies

 

Stockholders’ equity:

 

Preferred stock, $0.001 par value per share; 5,000,000 shares authorized at September 30, 2018 and December 31, 2017 and no shares issued and outstanding at September 30, 2018 and December 31, 2017

 

Common stock, $0.001 par value per share; 200,000,000 shares authorized at September 30, 2018 and December 31, 2017 and 77,088,570 and 34,702,565 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively
77

 
35

Additional paid-in capital
229,585

 
170,330

Accumulated deficit
(179,267
)
 
(152,331
)
Total stockholders’ equity
50,395

 
18,034

Total liabilities and stockholders’ equity
$
119,295

 
$
75,097

See accompanying notes.

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SESEN BIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(unaudited)
(in thousands, except per share data)
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2018
 
2017
 
2018
 
2017
Revenue:
 
 
 
 
 
 
 
License revenue



 

 
425

Total revenue

 

 

 
425

Operating expenses:
 
 
 
 
 
 
 
Research and development
3,372


3,619

 
9,406

 
9,402

General and administrative
3,825


1,631

 
8,128

 
6,085

Loss from change in fair value of contingent consideration
7,200


3,900

 
9,900

 
7,600

Total operating expenses
14,397

 
9,150

 
27,434

 
23,087

Loss from operations
(14,397
)
 
(9,150
)
 
(27,434
)
 
(22,662
)
Other income:
 
 
 
 
 
 
 
Other income, net
382


45

 
498

 
180

Total other income, net
382

 
45

 
498

 
180

Net loss and comprehensive loss
$
(14,015
)
 
$
(9,105
)
 
$
(26,936
)
 
$
(22,482
)
Net loss per share — basic and diluted
$
(0.18
)

$
(0.37
)
 
$
(0.48
)
 
$
(0.91
)
Weighted-average number of common shares used in net loss per share — basic and diluted
77,030


24,691

 
56,526

 
24,663

See accompanying notes.


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SESEN BIO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
 
Nine Months Ended
September 30,
 
2018
 
2017
Operating activities
 
 
 
Net loss
$
(26,936
)
 
$
(22,482
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation and amortization
156

 
221

Stock-based compensation expense
935

 
819

Change in fair value of warrant liability

 
(5
)
Loss from change in fair value of contingent consideration
9,900

 
7,600

Gain on sale of equipment
(5
)
 
(94
)
Changes in operating assets and liabilities:
 
 
 
Prepaid expenses and other assets
(1,169
)
 
(285
)
Accounts payable
484

 
(301
)
Accrued expenses and other liabilities
1,453

 
803

Deferred revenue

 
(425
)
Due to related party

 
9

Net cash used in operating activities
(15,182
)
 
(14,140
)
Investing activities
 
 
 
Sales of equipment
5

 
84

Net cash provided by investing activities
5

 
84

Financing activities
 
 
 
Proceeds from exercise of common stock options
56

 
40

Proceeds from issuance of common stock and the issuance and exercise of common stock warrants, net of issuance costs
58,286

 

Proceeds from sale of common stock pursuant to ESPP
21

 
12

Net cash provided by financing activities
58,363

 
52

Net increase (decrease) in cash, cash equivalents and restricted cash
43,186

 
(14,004
)
Cash, cash equivalents and restricted cash at beginning of period
14,690

 
25,352

Cash, cash equivalents and restricted cash at end of period
$
57,876

 
$
11,348

Supplemental non-cash investing and financing activities
 
 
 
See accompanying notes.

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SESEN BIO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Organization and Basis of Presentation
Sesen Bio, Inc. (the “Company”), formerly Eleven Biotherapeutics, Inc., a Delaware corporation, is a late-stage clinical company developing targeted fusion proteins composed of an anti-cancer antibody fragment tethered to a protein toxin for the treatment of cancer. The Company genetically fuses the cancer-targeting antibody fragment and the cytotoxic protein payload into a single molecule which is produced through the Company's proprietary one-step manufacturing process. The Company targets tumor cell surface antigens that allow for rapid internalization into the targeted cancer cell while also having limited expression on normal cells. The Company has designed its targeted fusion proteins to overcome the fundamental efficacy and safety challenges inherent in existing antibody-drug conjugates ("ADCs"), where a payload is chemically attached to a targeting antibody.
Basis of presentation
The condensed consolidated financial statements as of September 30, 2018 and December 31, 2017 and for the three and nine months ended September 30, 2018 and 2017 and the related information contained within the notes to the condensed consolidated financial statements are unaudited. The unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting standards applicable to interim financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s consolidated financial position as of September 30, 2018, its results of operations for the three and nine months ended September 30, 2018 and 2017 and its cash flows for the nine months ended September 30, 2018 and 2017. The financial data and the other financial information disclosed in these notes to the condensed consolidated financial statements related to the three and nine month periods are also unaudited. The results of operations for the three and nine months ended September 30, 2018 are not necessarily indicative of the results to be expected for the year ending December 31, 2018 or for any other future annual or interim period. The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 that was filed with the Securities and Exchange Commission (“SEC”) on April 2, 2018 (the "2017 Form 10-K").
The condensed consolidated financial statements include the accounts of Sesen Bio, Inc., its wholly owned subsidiary, Viventia Bio Inc. ("Viventia"), and its indirect subsidiaries, Viventia Bio USA Inc. and Viventia Biotech (EU) Limited. All inter-company transactions and balances have been eliminated in consolidation. The condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles.
The functional currency of Viventia Bio Inc., Viventia Bio USA Inc. and Viventia Biotech (EU) Limited is the U.S. dollar.
Liquidity
The Company has financed its operations to date primarily through debt and equity offerings and collaboration and licensing arrangements. As of September 30, 2018, the Company had cash and cash equivalents totaling $57.9 million, net working capital of $52.8 million and an accumulated deficit of $179.3 million.
During the nine months ended September 30, 2018, the Company raised approximately $50.9 million of net proceeds from the sale of its common stock and common stock purchase warrants and received an additional $7.3 million of proceeds upon the cash exercise of certain of its outstanding common stock purchase warrants. See note 5 to these unaudited condensed consolidated financial statements for additional information regarding the Company’s equity financing activities during the nine months ended September 30, 2018.
The future success of the Company is dependent on its ability to develop its product candidates and ultimately upon its ability to attain profitable operations. In order to commercialize its product candidates, the Company needs to complete clinical development and comply with comprehensive regulatory requirements. The Company is subject to a number of risks similar to other late-stage clinical companies, including, but not limited to, successful discovery and development of its product candidates, raising additional capital with favorable terms, development by its competitors of new technological innovations, protection of proprietary technology and market acceptance of the Company’s products. The successful discovery and development of product candidates requires substantial working capital which may not be available to the Company on favorable terms or at all.
To date, the Company has no revenue from product sales and management expects continuing operating losses in the future. As of September 30, 2018, the Company had available cash and cash equivalents of $57.9 million, which it believes is sufficient to fund the Company’s current operating plan for at least the next twelve months from the date of this Form 10-Q filing. There can

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be no assurance, however, that the current operating plan will be achieved in the timeframe anticipated by the Company, or that its cash resources will fund the Company’s operating plan for the period anticipated by the Company. Management expects to seek additional funds through equity or debt financings or through additional collaboration, licensing transactions or other sources. The Company may be unable to obtain equity or debt financings or enter into additional collaboration or licensing transactions and, if necessary, the Company will be required to implement cost reduction strategies.

2. Significant Accounting Policies and Recent Accounting Pronouncements
Recently adopted accounting standards
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, codified as Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers ("ASC 606"), which supersedes all existing revenue recognition requirements, including most industry-specific guidance. The new standard requires a company to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. The new standard was effective on January 1, 2018 and the Company adopted this standard using the modified retrospective approach. As a result of this adoption, no amounts were recorded as a cumulative effect adjustment to accumulated deficit as of January 1, 2018.
In May 2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting ("ASU 2017-09"). This update clarifies the changes to terms or conditions of a share-based payment award that require an entity to apply modification accounting. ASU 2017-09 is effective as of January 1, 2018. The adoption of this guidance did not have an impact on the Company's financial position, results of operations or cash flows.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash.  ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 was effective for annual and interim periods beginning after December 15, 2017, with early adoption permitted.  The Company adopted this standard effective January 1, 2018.  Upon adoption of ASU 2016-18, the Company applied the retrospective transition method for each period presented and included $10,000 and $20,000 of restricted cash in the beginning-of-period and end-of-period cash, cash equivalents and restricted cash balance, respectively, in the condensed consolidated statement of cash flows for the nine months ended September 30, 2018.  A reconciliation of cash, cash equivalents and restricted cash for each period presented is provided in note 10 to these unaudited condensed consolidated financial statements.
On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was enacted in the United States. The Act reduces the U.S. federal corporate tax rate from 34% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. In December 2017, the SEC issued guidance under Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act directing taxpayers to consider the impact of the U.S. legislation as “provisional” when it does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the change in tax law. As of September 30, 2018, the Company had not yet completed its accounting for all of the tax effects of the enactment of the Act.
Recently issued accounting pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"). ASU 2016-02 addresses the financial reporting of leasing transactions. Under current guidance for lessees, leases are only included on the balance sheet if certain criteria, classifying the agreement as a capital lease, are met. This update will require the recognition of a right-of-use asset and a corresponding lease liability, discounted to the present value, for all leases that extend beyond 12 months. For operating leases, the asset and liability will be expensed over the lease term on a straight-line basis, with all cash flows included in the operating section of the statement of cash flows. For finance leases, interest on the lease liability will be recognized separately from the amortization of the right-of-use asset in the statement of operations and the repayment of the principal portion of the lease liability will be classified as a financing activity while the interest component will be included in the operating section of the statement of cash flows. This guidance is effective for annual and interim reporting periods beginning after December 15, 2018. Early adoption is permitted. The Company is in the process of implementing a plan for the adoption of FASB ASU No. 2016-02. Through these implementation efforts, the Company has determined that it intends to elect to apply the package of practical expedients, the practical expedient to not apply the recognition requirements of FASB ASU No. 2016-02 to short-term leases, and the practical expedient allowing for an accounting policy election to choose not to separate

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non-lease components from lease components for certain classes of assets, and instead to account for each non-lease component with its associated lease component as a single lease component. The Company does not intend to elect to apply the hindsight practical expedient and plans on adopting FASB ASU No. 2016-02 on January 1, 2019 using the transition expedient. The Company expects that adoption of this standard will result in the recognition of a lease liability and right-of-use asset for certain operating leases that are currently not recorded on the condensed consolidated balance sheets.

Critical accounting policies
There have been no material changes to the critical accounting polices recently disclosed in the 2017 Form 10-K other than the adoption of ASU 2014-09 and related updates which are codified as ASC 606.
The Company enters into collaboration agreements with strategic partners for the development and commercialization of product candidates which are within the scope of ASC 606. Under these agreements, the Company license rights to certain of the Company’s product candidates and may complete other performance obligations, such as the deliver of drug product or research and development services. The terms of these arrangements typically include payment of non-refundable upfront fees, milestone payments, and royalties on net sales of licensed products and may also contain additional payment provisions.
Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine the appropriate amount of revenue to be recognized for arrangements determined to be within the scope of ASC 606, the Company performs the following five steps: (i) identification of the promised goods or services in the contract, (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contact, (iii) measurement of the transaction price, including the constraint on variable consideration, (iv) allocation of the transaction price to the performance obligations, and (v) recognition of revenue when the Company satisfies each performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect consideration it is entitled to in exchange for the goods or services it transfers to the customer.
The Company estimates the transaction price based on the amount expected to be received for transferring the promised goods or services in the contract. The consideration may include fixed consideration or variable consideration. At the inception of each arrangement that includes variable consideration, the Company evaluates the amount of potential payments and the likelihood that the payments will be received. The Company utilizes either the most likely amount method or expected amount method to estimate the amount expected to be received based on which method best predicts the amount expected to be received. The amount of variable consideration which is included in the transaction price may be constrained, and is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period.
The Company’s contracts include development and regulatory milestone payments which are assessed under the most likely amount method and constrained if it is probable that a significant revenue reversal would occur. At the end of each reporting period, the Company re-evaluates the probability of achievement of 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 revenue in the period of adjustment.
For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, the Company has not recognized any consideration related to sales-based royalty revenue resulting from any of the Company’s collaboration arrangements.
The Company allocates the transaction price based on the estimated stand-alone selling price of each of the performance obligations. The Company must develop assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified in the contract.
The consideration allocated to each performance obligation is recognized as revenue when control is transferred for the related goods or services.
3. Fair Value of Financial Instruments
The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels as follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly;

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and Level 3 inputs are unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
The following table presents information about the Company’s financial assets and liabilities that have been measured at fair value, and indicates the fair value hierarchy of the valuation inputs utilized to determine such fair value. The Company determines the fair value of the common stock warrants and contingent consideration using Level 3 inputs.
The following table summarizes the assets and liabilities measured at fair value on a recurring basis at September 30, 2018 (in thousands):
Description
September 30,
2018
 
Active
Markets
(Level 1)
 
Observable
Inputs
(Level 2)
 
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
57,856

 
$
57,856

 
$

 
$

Restricted cash
20

 
20

 

 

Total assets
$
57,876

 
$
57,876


$


$

Liabilities:
 
 
 
 
 
 
 
Contingent consideration
49,500

 

 

 
49,500

Total liabilities
$
49,500

 
$

 
$

 
$
49,500

The following table summarizes the assets and liabilities measured at fair value on a recurring basis at December 31, 2017 (in thousands):
Description
December 31, 2017
 
Active
Markets
(Level 1)
 
Observable
Inputs
(Level 2)
 
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
14,680

 
$
14,680

 
$

 
$

Restricted cash
10

 
10

 

 

Total assets
$
14,690

 
$
14,690

 
$

 
$

Liabilities:
 
 
 
 
 
 
 
Contingent consideration
39,600

 

 

 
39,600

Total liabilities
$
39,600

 
$

 
$

 
$
39,600

Contingent consideration
In 2016, the Company acquired Viventia Bio, Inc. ("Viventia") through the issuance of common stock and contingent consideration (the "Acquisition"), pursuant to the terms of a share purchase agreement (the "Share Purchase Agreement"). The Company has valued the acquired assets and liabilities based on their estimated fair values as of September 20, 2016 and finalized its purchase accounting for the Acquisition during the third quarter of 2017. The contingent consideration relates to amounts potentially payable to Viventia's shareholders pursuant to the terms of the Share Purchase Agreement. Contingent consideration is measured at fair value and is based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The valuation of contingent consideration uses assumptions the Company believes would be made by a market participant. The Company assesses these estimates on an on-going basis as additional data impacting the assumptions is obtained. Future changes in the fair value of contingent consideration related to updated assumptions and estimates are recognized within the condensed consolidated statements of operations and comprehensive loss.
Contingent consideration may change significantly as development progresses and additional data are obtained, impacting the Company’s assumptions regarding probabilities of successful achievement of related milestones used to estimate the fair value of the liability and the timing in which they are expected to be achieved. In evaluating the fair value information, considerable judgment is required to interpret the market data used to develop the estimates. The estimates of fair value may not be indicative of the amounts that could be realized in a current market exchange. Accordingly, the use of different market

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assumptions and/or different valuation techniques could result in materially different fair value estimates. The following table sets forth a summary of changes in the fair value of the Company's contingent consideration liability (in thousands):
Beginning balance, December 31, 2017
$
39,600

Loss from change in fair value of contingent consideration
9,900

Ending balance, September 30, 2018
$
49,500

The fair value of the Company’s contingent consideration was determined using probabilities of successful achievement of regulatory milestones and commercial sales, the period in which these milestones and sales are expected to be achieved ranging from 2021 to 2033, the level of commercial sales of Vicinium®, and discount rates ranging from 8.3% to 10.5% as of December 31, 2017 and 6.3% to 9.7% as of September 30, 2018. Significant changes in any of these assumptions would result in a significantly higher or lower fair value measurement.
There have been no changes to the valuation methods utilized during the three and nine months ended September 30, 2018. The Company evaluates transfers between levels at the end of each reporting period. There were no transfers of assets or liabilities between levels during the three and nine months ended September 30, 2018.
4. License Agreement with Roche

On June 10, 2016, the Company entered into the License Agreement with F. Hoffmann-La Roche and Hoffmann La-Roche Inc. (collectively, "Roche"), which became effective on August 16, 2016 (the "License Agreement"). Under the License Agreement, the Company granted Roche an exclusive, worldwide license, including the right to sublicense, to its patent rights and know-how related to the Company’s monoclonal antibody EBI-031 or any other IL-6 antagonist anti-IL-6 monoclonal antibody, to make, have made, use, have used, register, have registered, sell, have sold, offer for sale, import and export any product containing such an antibody or any companion diagnostic used to predict or monitor response to treatment with such a product (collectively, the “Licensed Intellectual Property”).
During 2016, the Company received an upfront license fee of $7.5 million and a milestone payment of $22.5 million. The Company is entitled to receive up to $240.0 million in additional consideration upon the achievement of specified regulatory, development and commercial milestones. Specifically, an aggregate amount of up to $175.0 million is payable to the Company for the achievement of specified milestones with respect to the first indication: $50.0 million in development milestones, $50.0 million in regulatory milestones and $75.0 million in commercialization milestones. Additional amounts of up to $65.0 million are payable upon the achievement of specified development and regulatory milestones in a second indication. In addition, the Company is entitled to receive royalty payments in accordance with a tiered royalty rate scale, with rates ranging from 7.5% to 15% for net sales of potential future products containing EBI-031 and up to 50% of these rates for net sales of potential future products containing other IL-6 compounds, with each of the royalties subject to reduction under certain circumstances and to buy-out options.
The License Agreement is subject to the provisions of ASC 606, which was adopted effective January 1, 2018 utilizing a modified retrospective method. The Company concluded that all performance obligations had been achieved as of the adoption date and therefore the full transaction price was considered earned. The transaction price was determined to be the $30.0 million received in 2016. Additional consideration to be paid to the Company upon the achievement of certain milestones will be included if it is expected that the amounts will be received and the amounts would not be subject to a constraint. As of the date of the adoption, no amounts were expected to be received from the achievement of any milestones due to the nature of the milestones and the development status of the product candidates at the time of the adoption. As a result, there were no amounts required to be recorded as a cumulative adoption adjustment as the consideration recognized under ASC 606 was consistent with the amounts recognized under the previous accounting literature.
As of September 30, 2018, the Company concluded that there would be no adjustments to the transaction price as the Company continued to not expect any amounts to be received from any milestones within the License Agreement. This is due to the nature of the milestones and the development status of the product candidates at the time of the adoption. As a result, no revenue was recognized during the nine month period ended September 30, 2018 as all performance obligations had been previously achieved and there was no change in the transaction price during the period. No revenue would have been recognized under the previous accounting literature during the nine months ended September 30, 2018 as no milestones were achieved in the period, which was the revenue recognition criteria under the previous accounting literature.
5. Accrued Expenses

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Accrued expenses consisted of the following (in thousands):
 
September 30,
2018
 
December 31, 2017
Development costs
$
3,036

 
$
2,581

Employee compensation (including reduction in workforce)
623

 
735

Severance to former CEO
660

 

Professional fees
725

 
463

Other
126

 
34

 
$
5,170

 
$
3,813


Stephen A. Hurly departed as the President and Chief Executive of the Company, effective as of August 7, 2018. In connection with his departure, Mr. Hurly and the Company entered into a separation agreement and general release, dated September 28, 2018 (the “Separation Agreement”), which sets forth the terms of Mr. Hurly’s separation from the Company. Pursuant to the Separation Agreement, subject to Mr. Hurly agreeing to a release of claims and complying with certain other continuing obligations contained therein, the Company will pay Mr. Hurly the total amount of $637,500, less applicable withholdings and deductions, which consists of the equivalent of twelve months of Mr. Hurly’s base salary ($425,000) immediately prior to his departure and Mr. Hurly’s annual target bonus for 2018 ($212,500). In addition, the Company, to the extent allowed by applicable law and the applicable plan documents, will continue to provide Mr. Hurly and certain of his dependents with group health and dental insurance for a period of up to twelve months after the effective date of the Separation Agreement.

On August 7, 2018, the Company’s board of directors (the “Board”) appointed Thomas R. Cannell, D.V.M., as the Company’s President and Chief Executive Officer. In connection with his appointment, the Company entered into an employment agreement ("Employment Agreement") with Dr. Cannell, which provides for a one-time relocation payment in the amount of $280,000. If, prior to the two-year anniversary of August 7, 2018, Dr. Cannell resigns without “Good Reason” (as such term is defined in the Employment Agreement) or is terminated with “Cause” (as such term is defined in the Employment Agreement), Dr. Cannell is required to repay the Company the total sum of relocation benefits paid to Dr. Cannell pursuant to the Employment Agreement. As of September 30, 2018, the one-time relocation payment has been paid.

6. Equity Financings

On March 23, 2018, the Company raised approximately $9.0 million of net proceeds from the sale of 7,968,128 shares of common stock at a price of $1.13 per share in a registered direct offering and the sale of common stock purchase warrants to purchase 7,968,128 shares of common stock at a price of $0.125 for each warrant to purchase one share of common stock in a concurrent private placement (collectively, the “March 2018 Financing”). Subject to certain ownership limitations, the common stock purchase warrants issued in the March 2018 Financing were exercisable immediately upon issuance at an exercise price equal to $1.20 per share of common stock, subject to adjustments as provided under the terms of such common stock purchase warrants. The common stock purchase warrants are exercisable for five years from March 23, 2018.

On June 4, 2018, the Company raised approximately $41.9 million of net proceeds from the sale of 25,555,556 shares of its common stock at a price of $1.80 per share in an underwritten public offering (the “June 2018 Financing”).

In addition, the Company received proceeds of $7.3 million from the issuance of 8,765,496 shares of its common stock upon the cash exercise of common stock purchase warrants issued in connection with (i) its underwritten public offering in November 2017 and (ii) its private placement of common stock purchase warrants in the March 2018 Financing during the nine months ended September 30, 2018.
7. Share-Based Payments
Pursuant to the terms of the Company's 2014 Stock Incentive Plan (the "2014 Plan"), the number of shares authorized for issuance automatically increases on the first day of each fiscal year. On January 1, 2018, the number of shares reserved for issuance under the 2014 Plan increased by 1,102,362 shares. As of September 30, 2018, the total number of shares of common stock available for issuance under the 2014 Plan was 1,470,267.
The Company also maintains the Company's 2009 Stock Incentive Plan, as amended and restated, and the Company's 2014 Employee Stock Purchase Plan ("2014 ESPP").

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Stock-Based Compensation Expense
Stock-based compensation expense by award type was as follows (in thousands): 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2018
 
2017
 
2018
 
2017
Stock options
$
246

 
$
201

 
$
905


$
656

Restricted stock

 
50

 
$
23


152

Restricted stock units

 

 
$


3

Employee stock purchase plan
2

 
2

 
7


8

 
$
248

 
$
253

 
$
935

 
$
819

The Company allocated stock-based compensation expense as follows in the condensed consolidated statements of operations and comprehensive loss (in thousands):
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2018
 
2017
 
2018
 
2017
Research and development expense
$
99

 
$
56

 
$
387


$
179

General and administrative expense
149

 
197

 
$
548


$
640

 
$
248

 
$
253

 
$
935

 
$
819

At September 30, 2018, there was $2.9 million of total unrecognized compensation expense related to unvested stock options and shares issued pursuant to the 2014 ESPP. This unrecognized compensation expense is expected to be recognized over a weighted-average period of 3.18 years.
Stock Options
A summary of the stock option activity is presented below:
 
Shares
 
Weighted-Average
Exercise Price
Outstanding at December 31, 2017
2,695,796

 
$
3.16

Granted
3,055,900

 
1.72

Exercised
(71,403
)
 
0.79

Cancelled or forfeited
(1,111,941
)
 
2.40

Outstanding at September 30, 2018
4,568,352

 
$
2.42

Exercisable at September 30, 2018
1,868,379

 
$
3.35


On August 7, 2018, in connection with the appointment of Dr. Cannell, the Company granted Dr. Cannell a non-statutory stock option to purchase 1,350,000 shares of the Company's common stock. This grant was made in the form of inducement equity award outside the 2014 Plan in accordance with Nasdaq Listing Rule 5635(c)(4). This stock option was granted with an effective grant date of August 7, 2018 and an exercise price of $1.60 per share (the closing price per share of the Company's common stock on August 7, 2018). The stock option has a ten-year term and vests over a four-year period, with 25% percent of the shares underlying the stock option award vesting on the first anniversary of the date of grant and an additional 6.25% percent of the shares underlying the stock option vesting at the end of each successive three-month period following the one-year anniversary of the date of grant of the stock option, subject to Dr. Cannell’s continued service with the Company through the applicable vesting dates. The inducement equity award was approved by the Company's Compensation Committee and was made as an inducement material to Dr. Cannell’s entering into employment with the Company in accordance with Nasdaq Listing Rule 5635(c)(4).

Effective as of August 7, 2018, in connection with Mr. Hurly's departure from the Company, a total of 536,250 options previously granted to Mr. Hurly were cancelled.


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During the fourth quarter of 2017, the Company issued stock option awards to certain employees which contained performance vesting conditions. Certain of the vesting milestones were achieved during the fourth quarter 2017 and the expense related to these awards was recognized in full during the period. Certain other performance conditions had previously not been considered probable of vesting and therefore no expense was recognized. During the first, second and third quarter of 2018, these conditions were deemed probable of occurring and the expense for these awards has been recognized over the estimated vesting period.
Restricted Stock
From time to time, upon approval by the Board, certain employees, directors and advisors have been granted restricted shares of common stock. A summary of the restricted stock is presented below:
 
Restricted
Stock
 
Weighted-Average
Grant Date
Fair Value
Unvested at December 31, 2017
4,430

 
$
11.43

Vested
(4,430
)
 
11.43

Unvested at September 30, 2018

 


Employee Stock Purchase Plan
On March 14, 2018, the Company issued and sold 9,565 shares of its common stock pursuant to the 2014 ESPP at a purchase price of $0.98 per share. On September 14, 2018, the Company issued and sold 11,427 shares of its common stock pursuant to the 2014 ESPP at a purchase price of $0.95 per share. The Company has estimated the number of shares to be issued at the end of the current offering period and recognizes expense over the requisite service period.
8. Net (Loss) Income Per Share
Basic net (loss) income per share is calculated by dividing net (loss) income by the weighted-average shares outstanding during the period, without consideration for common stock equivalents. Diluted net (loss) income per share is calculated by adjusting weighted-average shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury-stock method. For purposes of the diluted net (loss) income per share calculation, stock options, unvested restricted stock, and common stock warrants are considered to be common stock equivalents. Warrants to purchase the Company’s common stock participate in any dividends declared by the Company and are therefore considered to be participating securities. Participating securities have the effect of diluting both basic and diluted earnings per share during periods of income. During periods of loss, no loss is allocated to the participating securities since they have no contractual obligation to share in the losses of the Company.
The following common stock equivalents were excluded from the calculation of diluted net (loss) income per share for the periods indicated because including them would have had an anti-dilutive effect or the exercise prices were greater than the average market price of the common shares.
 
Three Months Ended September 30,
 
Nine Months Ended
September 30,
 
2018
 
2017
 
2018
 
2017
Stock options
4,568,352

 
1,965,206

 
4,568,352


1,965,206

Unvested restricted stock

 
8,860

 


8,860

Common stock warrants
9,257,632

 
926,840

 
9,257,632


926,840

 
13,825,984

 
2,900,906

 
13,825,984

 
2,900,906

9. Reduction in Workforce
In 2017, the Board approved a strategic restructuring of the Company to eliminate a portion of the Company’s workforce and recorded restructuring costs, including severance and benefits in accordance with the Company's severance benefit plan, and recorded an accrued liability of $0.1 million as of December 31, 2017. The Company paid $0.1 million in severance costs during the nine months ending September 30, 2018.

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The table below provides a roll-forward of the reduction in workforce liability (in thousands):
Balance as of January 1, 2018
$
111

Payments
(111
)
Balance as of September 30, 2018
$


10. Cash, cash equivalents and restricted cash
 
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statements of cash flows (in thousands):

 
September 30,
 
December 31,
 
2018
 
2017
Cash and cash equivalents
57,856

 
$
14,680

Restricted cash
20

 
10

Total cash, cash equivalents and restricted cash
57,876

 
14,690


Amounts included in restricted cash represent cash held to collateralize a credit limit with Silicon Valley Bank of $20,000 and $10,000 as of September 30, 2018 and December 31, 2017, respectively.


11. Related Party Transactions

The Company leases a manufacturing, laboratory, and office facility in Winnipeg, Manitoba, from an affiliate of Leslie L. Dan, a director of the Company, under a five-year renewable lease through September 2020 with a right to renew the lease for one subsequent five-year term. Rent expense was $78,000 and $219,000 for the three and nine month periods ended September 30, 2018, respectively, and $83,000 and $237,000 for the three and nine month periods ended September 30, 2017, respectively.

The Company leases an office facility in Toronto, Ontario from an affiliate of Mr. Dan. The lease is on a month-to-month basis unless terminated by either party by giving the requisite notice. Rent expense for this facility was $4,500 and $13,800 for the three and nine month periods ended September 30, 2018, respectively, and $4,100 and $13,000 for the three and nine month periods ended September 30, 2017, respectively.

The Company pays fees, under an intellectual property license agreement, to Protoden Technologies, Inc. (“Protoden”), a company owned by Clairmark Investments Ltd. (“Clairmark”), an affiliate of Mr. Dan, under an intellectual property licensing agreement. Pursuant to the agreement, the Company has an exclusive, perpetual, irrevocable and non-royalty bearing license, with the right to sublicense, under certain patents and technology to make, use and sell products that utilize such patents and technology. The annual fee is $100,000. Upon expiration of the term, the licenses granted to the Company will require no further payments to Protoden. During each of the three and nine-month periods ended September 30, 2018 and September 30, 2017, $25,000 and $75,000 was paid, respectively, to Clairmark under the license agreement.

12. Subsequent Events

On October 4, 2018, the Company entered into a Master Bioprocessing Services Agreement (the “Fujifilm MSA”) with FUJIFILM Diosynth Biotechnologies U.S.A., Inc. (“Fujifilm”). The Fujifilm MSA provides the terms and conditions under which Fujifilm will provide certain manufacturing and supply services related to the Company’s most advanced product candidate, VB4-845, also known as Vicinium, for the treatment of high-grade non-muscle invasive bladder cancer. The Fujifilm MSA is designed to facilitate a transfer of the bulk drug substance form of Vicinium manufacturing technology from the Company to Fujifilm.


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The Company will be required to pay certain fees to Fujifilm based upon a payment schedule to be agreed upon by the parties for each stage of the technology transfer process. The Company will also pay costs and, under applicable circumstances, certain other fees to Fujifilm for raw materials and consumables used by Fujifilm in connection with certain of Fujifilm’s manufacturing activities under the Fujifilm MSA.

Unless earlier terminated by the parties pursuant to the terms of the Fujifilm MSA, the Fujifilm MSA will continue in effect until the later of ten (10) years from October 4, 2018 or the date on which all services under the Fujifilm MSA have been completed. The Fujifilm MSA may be terminated earlier by a party if the other party is in default of its material obligations under the Fujifilm MSA and has not cured them after a notice and cure period. The Fujifilm MSA includes standard and customary provisions regarding, among other things, compliance with laws and regulations, confidentiality, intellectual property, representations and warranties, liability, indemnification, insurance, remedies, dispute resolution and assignability.




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Item 2.         Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the notes to those financial statements appearing elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto and management's discussion and analysis of financial condition and results of operations for the year ended December 31, 2017 included in our Annual Report on Form 10-K. This discussion and analysis contains forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in Part II, Item 1A, "Risk Factors" of this Quarterly Report on Form 10-Q and in Part I, Item IA, “Risk Factors” of our Annual Report on Form 10-K which are incorporated herein by reference, our actual results could differ materially from the results described in or implied by the forward-looking statements.
Overview
We are a late-stage clinical company developing targeted fusion proteins composed of an anti-cancer antibody fragment tethered to a protein toxin for the treatment of cancer. We genetically fuse the cancer-targeting antibody fragment and the cytotoxic protein payload into a single molecule which is produced through our proprietary one-step manufacturing process. We target tumor cell surface antigens that allow for rapid internalization into the targeted cancer cell while having limited expression on normal cells. We have designed our targeted proteins to overcome the fundamental efficacy and safety challenges inherent in existing antibody-drug conjugates, or ADCs, where a payload is chemically attached to a targeting antibody.
Our most advanced product candidate VB4-845, also known as Vicinium®, is a locally-administered targeted fusion protein composed of an anti-EPCAM, or epithelial cell adhesion molecule, antibody fragment tethered to a truncated form of Pseudomonas exotoxin for the treatment of high-grade non-muscle invasive bladder cancer, or NMIBC. Preliminary three-month data from an ongoing single-arm, multi-center, open-label Phase 3 clinical trial of Vicinium as a monotherapy in patients with high-grade, bacillus Calmette-Guérin, or BCG, unresponsive NMIBC, called the VISTA Trial, were presented on May 21, 2018 at the American Urological Association Annual Meeting. The primary endpoint of the trial is the complete response rate in patients with carcinoma in situ (CIS), or cancer found on the inner lining of the bladder that has not spread into muscle or other tissue beyond the bladder, with or without papillary disease, or cancer that has grown from the bladder lining out into the bladder but has not spread into muscle or other tissue. The preliminary efficacy data reported were based on three-month follow-ups from 111 evaluable patients. As of the data cut-off date of April 20, 2018, patients treated with Vicinium demonstrated a three-month complete response rate of 39% in 72 evaluable patients with CIS with or without papillary disease whose cancer recurred within six months of their last course of BCG treatment and a three-month complete response rate of 80% in five patients with CIS with or without papillary disease whose cancer recurred after six months, but before 11 months, after their last course of BCG treatment. In an analysis assessing such 77 CIS patients, based upon the U.S. Food and Drug Administration, or FDA, document "BCG-Unresponsive Nonmuscle Invasive Bladder Cancer: Developing Drugs and Biologics for Treatment Guidance for Industry" published in February 2018 which defines BCG-unresponsive CIS NMIBC patients as those with recurrent CIS within 12 months of adequate BCG therapy, patients treated with Vicinium demonstrated a complete response rate of 42% at three months. In addition, in 34 evaluable patients with papillary only tumors, patients treated with Vicinium demonstrated a 68% recurrence-free rate at three months.
Preliminary safety data as of May 21, 2018 indicated that Vicinium has been well-tolerated in the VISTA Trial. In 129 treated patients across cohorts, 72% of all adverse events, or AEs, were Grade 1 or 2. The most commonly reported treatment-emergent AEs (all grades) were urinary tract infection (29%), dysuria (19%), hematuria (16%), pollakiuria (12%), diarrhea (10%), fatigue (10%), micronutrition urgency (9%), nausea (8%) and increased lipase (8%, all asymptomatic). Of the treatment-related AEs, 4% were Grade 3 or 4, with no Grade 5 treatment-related AEs. Four treatment-related serious AEs were reported, including three cases of acute kidney injury or renal failure and one case of cholestatic hepatitis.
The preliminary three-month Phase 3 data are consistent with findings on Vicinium from a completed Phase 2 clinical trial in NMIBC. In 45 evaluable patients, 40% achieved a complete response or no evidence of disease at three months while 16% remained disease-free for at least 18 months.
The Phase 3 VISTA Trial completed recruitment in March 2018 with a total of 133 enrolled patients with NMIBC. We expect to report 12-month data from the VISTA Trial by mid-2019.
On August 8, 2018, we received Fast Track designation from the FDA for Vicinium for the treatment of patients with high-grade NMIBC who have previously received two courses of BCG and whose disease is now BCG-unresponsive.

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On October 4, 2018, we entered into a Master Bioprocessing Services Agreement, or the Fujifilm MSA, with Fujifilm, pursuant to which Fujifilm will provide certain manufacturing services related to Vicinium. The Fujifilm MSA is designed to facilitate a transfer of certain of our manufacturing processes and technologies from us to Fujifilm to determine if Fujifilm can develop the bulk drug substance form of Vicinium for commercial purposes if we receive regulatory approval to market Vicinium for the treatment of high-grade NMIBC.
In June 2017, we entered into a Cooperative Research and Development Agreement, or CRADA, with the National Cancer Institute, or NCI, for the development of Vicinium in combination with AstraZeneca’s immune checkpoint inhibitor, durvalumab, for the treatment of NMIBC. Under the terms of the CRADA, the NCI will conduct a Phase 1 clinical trial in patients with high-grade NMIBC to evaluate the safety, efficacy and biological correlates of Vicinium in combination with durvalumab. This Phase 1 clinical trial is open and is actively recruiting patients.
Vicinium has also been evaluated as a locally-administered, targeted fusion protein composed of an anti-cancer antibody fragment tethered to a protein toxin for the treatment of squamous cell carcinoma of the head and neck, or SCCHN. Vicinium, for the treatment of SCCHN had been previously designated as ProxiniumTM to indicate its different fill volume and vial size as well as its different route for local administration via intratumoral injection. In the two Phase 1 clinical trials, 53% (16/30) of EpCAM positive evaluable patients treated with Vicinium demonstrated antitumor activity as assessed by the investigators’ clinical measurements, the investigators’ overall assessment including qualitative changes, and assessment of available radiological data. None of the eight evaluable patients with EpCAM negative tumors demonstrated antitumor activity. Antitumor activity in the injected tumor lesions was based upon: (i) the investigators' measurements of tumors, (ii) the investigators' overall assessment of tumor (including qualitative changes), (iii) an independent third-party assessment of radiological data, and (iv) a review committee composed of all investigators, medical monitor, an independent third-party expert and a Company representative. The most commonly reported AEs in the Phase 1 clinical trials were cancer pain, 59% (26/44), injection site pain, 48% (21/44), and tumor hemorrhage, 18% (8/44). Elevated liver enzymes levels were determined to be the dose limiting toxicity in both studies, though the finding of elevated liver enzymes was transient and was not associated with any overt signs of liver damage or toxicity, were asymptomatic, and, in general, as values resolved to baseline without incident.
In addition, three out of the four patients with complete responses of injected tumors had regression or complete resolution of adjacent non-injected lesions. In a Phase 2 clinical trial, we observed tumor shrinkage in 10 of the 14 evaluable patients (71.4%). We intend to initiate a Phase 1/2a clinical trial that will explore the potential of Vicinium in combination with a checkpoint inhibitor for the treatment of SCCHN and are actively seeking partners for a combination program.
Our pipeline also includes systemically-administered targeted fusion proteins in development that are built around our proprietary de-immunized variant of the plant-derived cytotoxin bouganin, or deBouganin. Our lead systemically-administered product candidate, VB6-845d, is being developed for the treatment of multiple types of EpCAM-positive solid tumors. VB6-845d is administered by intravenous infusion. A Phase 1 clinical trial conducted with VB6-845, the prior version of VB6-845d, revealed significantly reduced immunogenicity of the deBouganin payload compared to the immungenicity that would be expected for the native form of Bouganin.
In April 2018, we presented preclinical data from our deBouganin program at the 2018 American Association for Cancer Research Annual meeting. The data presented suggest that VB6-845d mediates tumor cell killing by an immunogenic cell death pathway. The potential cross-priming effect initiated by deBouganin-mediated killing suggests that deBouganin-induced tumor cell death induces host anti-tumor immune responses that may enhance the effectiveness of immune checkpoint inhibitors. Additionally, in collaboration with Crescendo Biologics, Ltd., or Crescendo, we presented data demonstrating that a potent fusion protein comprised of our deBouganin payload and Crescendo’s HumaBody® is expressible as a soluble protein in E. coli supernatant and capable of potent killing of cancer cell lines.
We have deferred further development of VB6-845d and of Vicinium for the treatment of SCCHN in order to focus our efforts and our resources on our ongoing development of Vicinium for the treatment of high-grade NMIBC. We are also exploring collaborations for Vicinium for the treatment of SCCHN and VB6-845d, and plan on submitting an Investigational New Drug application, or IND, with VB6-845d once funding or a partner is secured for this program.

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We maintain global development, marketing and commercialization rights for all of our targeted fusion protein-based product candidates. We intend to explore various commercialization strategies to market our approved products. If we obtain regulatory approval for Vicinium for the treatment of high-grade NMIBC, we may build a North American specialty urology sales force to market the product or seek commercialization partners. If we obtain regulatory approval for Vicinium for the treatment of SCCHN or for our other product candidates, including VB6-845d, we may seek partners with oncology expertise in order to maximize the commercial value of each asset or a portfolio of assets. We also own or exclusively license worldwide intellectual property rights for all of our targeted fusion protein-based product candidates, covering our key patents with protection ranging from 2018 to 2036.
Our lead locally-administered targeted fusion protein is composed of an anti-EpCAM antibody fragment tethered to a truncated form of Pseudomonas exotoxin. This product candidate is designed to bind to EpCAM on the surface of cancer cells. The targeted fusion protein-EpCAM complex is subsequently internalized into the cell and, once inside the cell, the targeted fusion protein is cleaved by a cellular enzyme to release the cytotoxic protein payload, thus enabling cancer cell-killing. We believe that our targeted fusion proteins may not only directly kill cancer cells through a targeted delivery of a cytotoxic protein payload, but also potentiate an anti-cancer therapeutic immune response in cancer cells. This immune response is believed to be triggered by both the immunogenic cell death of the cancer cells due to our payload's mechanism of action and the subsequent release of tumor antigens and the inhibition of immune regulatory molecules active in the development of immune suppression.
Our early pipeline product candidate, VB6-845d, was being developed for systemic administration as a treatment for multiple types of EpCAM-positive solid tumors. VB6-845d is a targeted fusion protein consisting of an EpCAM targeting Fab genetically linked to deBouganin, a novel plant derived cytotoxic payload that we have optimized for minimal immunogenic potential.
On June 10, 2016, we entered into a License Agreement, or the License Agreement, with F. Hoffmann-La Roche Ltd and Hoffmann-La Roche Inc., or collectively, Roche, pursuant to which we licensed our monoclonal antibody EBI-031 and all other IL-6 antagonist antibody technology owned by us. Under the License Agreement, Roche is required to continue developing EBI-031 and pursue ongoing patent prosecution at its cost. At the time of the License Agreement, EBI-031, which was derived using our previous AMP-Rx platform, was in pre-clinical development as an intravitreal injection for diabetic macular edema and uveitis. We have received $30.0 million in payments from Roche pursuant to the License Agreement, including a $7.5 million upfront payment and a $22.5 million milestone payment as a result of the investigational new drug application for EBI-031 becoming effective. We are also entitled to receive up to an additional $240.0 million upon the achievement of other specified regulatory, development and commercial milestones, as well as royalties based on net sales of potential future products containing EBI-031 or any other potential future products containing other IL-6 compounds.
We also previously invested a significant portion of our efforts and financial resources in the development of our product candidate isunakinra (EBI-005) for the treatment of patients with dry eye disease and allergic conjunctivitis. Based on negative results from our completed Phase 3 clinical trials in dry eye disease and allergic conjunctivitis, we do not plan to pursue further development of isunakinra.
Our operations to date have been limited to organizing and staffing our company, acquiring rights to intellectual property, business planning, raising capital, developing our technology, identifying potential product candidates, undertaking pre-clinical studies and conducting clinical trials. To date, we have financed our operations primarily through debt and equity offerings and collaboration and licensing arrangements. We have devoted substantially all of our financial resources and efforts to research and development activities. We have not completed development of any of our product candidates. We expect to continue to incur significant expenses and operating losses over the next several years. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year.
Liquidity
Since inception, we have incurred significant operating losses and expect to continue to incur operating losses for the foreseeable future. We had a net loss of $26.9 million for the nine months ended September 30, 2018. As of September 30, 2018, we had an accumulated deficit of $179.3 million.
During the nine months ended September 30, 2018, we raised approximately $50.9 million of net proceeds from the sale of our common stock and common stock purchase warrants and received an additional $7.3 million of proceeds upon the cash exercise of certain of our outstanding common stock purchase warrants.
We do not know when, or if, we will generate any revenue from the sale of our product candidates as we seek regulatory approval for, and potentially begin to commercialize, any of our product candidates. We anticipate that we will continue to incur losses for the next several years and we expect the losses to increase as we continue the development of, and seek regulatory approvals for, our product candidates, and begin to commercialize any approved products. We are subject to all of

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the risks common to the development of new products and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. Until we can generate substantial revenue from commercial sales, if ever, we expect to seek additional capital through a combination of private and public equity offerings, debt financings, strategic collaborations and alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of existing shareholders will be diluted and the terms may include liquidation or other preferences that adversely affect the rights of existing shareholders. Debt financing, if available, may involve agreements that include liens or other restrictive covenants limiting our ability to take important actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through strategic collaborations and alliances or licensing arrangements with third parties we may have to relinquish valuable rights to our technologies or grant licenses on terms that are not favorable to us. If we are unable to raise additional funds when needed we may be required to further delay, limit, reduce or terminate our development or commercialization efforts or grant rights to develop and market our technologies that we would otherwise prefer to develop and market ourselves.
Our future capital requirements will depend on many factors, including:
the scope, initiation, progress, timing, costs and results of pre-clinical development and laboratory testing and clinical trials for our product candidates;
the cost and timing of any new clinical trials or studies of our product candidates;
our ability to establish collaborations on favorable terms, if at all, particularly manufacturing, marketing and distribution arrangements for our product candidates;
the costs and timing of the implementation of commercial-scale manufacturing activities, including those related to any manufacturing process and technology transfer we make to third-party manufacturers;
the costs and timing of establishing sales, marketing and distribution capabilities for any product candidates for which we may receive regulatory approval;
the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims;
our obligation to make milestone, royalty and other payments to third party licensors under our licensing agreements;
the extent to which we in-license or acquire rights to other products, product candidates or technologies;
the outcome, timing and cost of regulatory review by the FDA and comparable foreign regulatory authorities, including the potential for the FDA or comparable foreign regulatory authorities, including Health Canada, to require that we perform more studies or clinical trials than those that we currently expect;
our ability to achieve certain future regulatory, development and commercialization milestones under the License Agreement with Roche;
the effect of competing technological and market developments; and
the revenue, if any, received from commercial sales of any product candidates for which we receive regulatory approval.
Accordingly, until such time that we can generate substantial revenue from product sales, if ever, we expect to finance our operations through public or private equity or debt financings, collaboration or licensing arrangements, or other sources. However, we may be unable to raise additional funds or enter into such arrangements when needed on favorable terms, or at all, which would have a negative impact on our financial condition and could force us to delay, limit, reduce or terminate our development programs or commercialization efforts or grant to others rights to develop or market product candidates that we would otherwise prefer to develop and market ourselves. Failure to receive additional funding could cause us to cease operations, in part or in full. Furthermore, even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital due to favorable market conditions or strategic considerations.
We believe that our cash and cash equivalents of $57.9 million as of September 30, 2018 will be sufficient to fund our current operating plan into 2020, however, we have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect.
Financial Operations Overview
Revenue

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To date, we have not generated any revenue from the sale of products. Substantially all of our revenue to date has been derived from the License Agreement with Roche and, to a lesser extent, from our former collaboration with ThromboGenics N.V., or ThromboGenics. We do not expect to generate significant product revenue unless and until we obtain marketing approval for and commercialize our product candidates.
On June 10, 2016, we entered into the License Agreement with Roche, which became effective on August 16, 2016. Under the License Agreement, we granted Roche an exclusive, worldwide license, including the right to sublicense, to its patent rights and know-how related to our monoclonal antibody EBI-031 or any other IL-6 antagonist anti-IL-6 monoclonal antibody, to make, have made, use, have used, register, have registered, sell, have sold, offer for sale, import and export any product containing such an antibody or any companion diagnostic used to predict or monitor response to treatment with such a product, which we collectively refer to as the Licensed Intellectual Property.

During 2016, we received an upfront license fee of $7.5 million and a milestone payment of $22.5 million. We are entitled to receive up to $240.0 million in additional consideration upon the achievement of specified regulatory, development and commercial milestones. Specifically, an aggregate amount of up to $175.0 million is payable to us for the achievement of specified milestones with respect to the first indication: $50.0 million in development milestones, $50.0 million in regulatory milestones and $75.0 million in commercialization milestones. Additional amounts of up to $65.0 million are payable upon the achievement of specified development and regulatory milestones in a second indication. In addition, we are entitled to receive royalty payments in accordance with a tiered royalty rate scale, with rates ranging from 7.5% to 15% for net sales of potential future products containing EBI-031 and up to 50% of these rates for net sales of potential future products containing other IL-6 compounds, with each of the royalties subject to reduction under certain circumstances and to buy-out options.
The License Agreement is subject to the provisions of ASC 606, which was adopted effective January 1, 2018 utilizing a modified retrospective method. We concluded that all performance obligations had been achieved as of the adoption date and therefore the full transaction price was considered earned. The transaction price was determined to be the $30.0 million received in 2016. Additional consideration to be paid to us upon the achievement of certain milestones will be included if it is expected that the amounts will be received and the amounts would not be subject to a constraint. As of the date of the adoption, no amounts were expected to be received from the achievement of any milestones due to the nature of the milestones and the development status of the product candidates at the time of the adoption. As a result, there were no amounts required to be recorded as a cumulative adoption adjustment as the consideration recognized under ASC 606 was consistent with the amounts recognized under the previous accounting literature.
As of September 30, 2018, we concluded that there would be no adjustments to the transaction price as we continue to not expect any amounts to be received from any milestones within the License Agreement. This is due to the nature of the milestones and the development status of the product candidates at the time of the adoption. As a result, no revenue was recognized during the nine month period ended September 30, 2018 as all performance obligations had been previously achieved and there was no change in the transaction price during the period. No revenue would have been recognized under the previous accounting literature during the nine month period ended September 30, 2018 as no milestones were achieved in the period, which was the revenue recognition criteria under the previous accounting literature.

Research and Development Expenses
Research and development expenses consist primarily of costs incurred for the development of our product candidates, which include: 
employee-related expenses, including salaries, benefits, travel and stock-based compensation expense;
expenses incurred under agreements with contract research organizations, or CROs, and investigative sites that conduct our clinical trials;
expenses associated with developing manufacturing capabilities, including costs related to any manufacturing process and technology transfer to third-party manufacturers, and manufacturing clinical study materials;
facilities, depreciation, and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance, and other supplies; and
expenses associated with pre-clinical and regulatory activities.
We expense research and development costs as incurred. We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and our clinical sites.

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The successful development and commercialization of any product candidate is highly uncertain. This is due to the numerous risks and uncertainties associated with product development and commercialization, including the uncertainty of:
the scope, progress, outcome and costs of our clinical trials and other research and development activities;
the efficacy and potential advantages of our product candidates compared to alternative treatments, including any standard of care;
the market acceptance of our product candidates;
the cost and timing of the implementation of commercial-scale manufacturing of our product candidates, including those associated with the manufacturing process and technology transfer to third party manufacturers to facilitate such commercial-scale manufacturing;
obtaining, maintaining, defending and enforcing patent claims and other intellectual property rights;
significant and changing government regulation; and
the timing, receipt and terms of any marketing approvals.
A change in the outcome of any of these variables with respect to the development of any product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials or other testing beyond those that we currently contemplate will be required for the completion of clinical development of any product candidate, we could be required to expend significant additional financial resources and time on the completion of clinical development of that product candidate.
We allocate direct research and development expenses, consisting principally of external costs, such as fees paid to investigators, consultants, central laboratories and CROs in connection with our clinical trials, and costs related to manufacturing or purchasing clinical trial materials and technology transfer, to specific product programs. We do not allocate employee and contractor-related costs, costs associated with our platform and facility expenses, including depreciation or other indirect costs, to specific product programs because these costs may be deployed across multiple product programs under research and development and, as such, are separately classified. The table below provides research and development expenses incurred for Vicinium for the treatment of high-grade NMIBC, Vicinium for the treatment of SCCHN, and VB6-845d product programs and other expenses by category. We have deferred further development of Vicinium for the treatment of SCCHN and VB6-845d in order to focus our efforts and our resources on our ongoing development of Vicinium for the treatment of NMIBC. Since our acquisition of Viventia Bio Inc., or Viventia, in September 2016, our research and development expenses have been related primarily to the development of Vicinium for the treatment of high-grade NMIBC. We expect our research and development expenses for Vicinium for the treatment of NMIBC will continue to increase during subsequent periods. We did not allocate research and development expenses to any other specific product program during the periods presented:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2018
 
2017
 
2018
 
2017
 
(in thousands)
 
 
 
 
Programs:
 
 
 
 
 
 
 
Vicinium, for the treatment of high-grade NMIBC (1)
$
1,688

 
$
2,133

 
5,259


5,252

Vicinium, for the treatment of SCCHN (2)

 

 


27

VB6-845d (2)

 

 


88

Total direct program expenses
1,688


2,133

 
5,259

 
5,367

Personnel and other expenses:



 
 
 
 
Employee and contractor-related expenses
879


1,005

 
2,723


2,821

Platform-related lab expenses
53


111

 
153


402

Facility expenses
94


103

 
263


297

Other expenses
658


267

 
1,008


515

Total personnel and other expenses
1,684

 
1,486

 
4,147

 
4,035

Total research and development expenses
$
3,372

 
$
3,619

 
$
9,406

 
$
9,402

(1) We expect our development activities for Vicinium for the treatment of high-grade NMIBC will increase significantly during subsequent periods, as we expect to increase our costs related to commercial-scale manufacturing and technology transfer.

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(2) We have deferred further development of Vicinium for the treatment of SCCHN and of VB6-845d in order to focus our efforts and our resources on our ongoing development of Vicinium for the treatment of high-grade NMIBC.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related costs for personnel, including stock-based compensation, in executive, operational, finance, business development and human resource functions. Other general and administrative expenses include facility-related costs and professional fees for legal, patent, consulting and accounting services.
Changes in Fair Value of Contingent Consideration
In connection with the acquisition of Viventia Bio, Inc., or Viventia, in September 2016, we recorded contingent consideration pertaining to the amounts potentially payable to Viventia's shareholders pursuant to the terms of the share purchase agreement between us, Viventia, and the other signatories thereto. The fair value of contingent consideration is assessed at each balance sheet date and changes, if any, to the fair value are recognized within the condensed consolidated statements of operations and comprehensive income (loss).
Other Income (Expense), Net
Other income (expense), net consists primarily of interest income earned on cash and cash equivalents.
Critical Accounting Policies and Significant Judgments and Estimates
Our critical accounting policies are those policies which require the most significant judgments and estimates in the preparation of our condensed consolidated financial statements. Management has determined that our most critical accounting policies are those relating to revenue recognition, accrued research and development expenses, stock-based compensation, fair value of warrants to purchase common stock, fair value of intangible assets and goodwill, income taxes including the valuation allowance for deferred tax assets, contingent consideration and going concern considerations.
Recently adopted accounting standards
In May 2014, the FASB issued ASU No. 2014-09, codified as ASC-606, Revenue from Contracts with Customers, or ASC-606, which supersedes all existing revenue recognition requirements, including most industry-specific guidance. The new standard requires a company to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. The new standard was effective on January 1, 2018 and we adopted this standard using the modified retrospective approach. All of the revenue generated in the nine months ended September 30, 2017 is from our license arrangement with Roche. We did not record any revenue for the nine months ended September 30, 2018. We evaluated variable consideration, and in particular, milestone payments from Roche to assess the timing of when to include them in the transaction price. This assessment did not result in earlier revenue recognition under ASC 606 compared to the current guidance and did not result in any revenue being recorded for the nine months ended September 30, 2018. As such, the adoption of ASC 606 did not have material impact on its financial position and results of operations or cash flows.
In May 2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting, or ASU 2017-09. This update clarifies the changes to terms or conditions of a share-based payment award that require an entity to apply modification accounting. ASU 2017-09 is effective as of January 1, 2018. The adoption of this guidance did not have a significant impact on our financial position, results of operations or cash flows.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash.  ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 was effective for annual and interim periods beginning after December 15, 2017, with early adoption permitted.  We adopted this standard effective January 1, 2018.  Upon adoption of ASU 2016-18, we applied the retrospective transition method for each period presented and included $10,000 of restricted cash in the beginning-of-period and end-of-period cash, cash equivalents and restricted cash balance reflected in the condensed consolidated statement of cash flows for the nine months ended September 30, 2017.  A reconciliation of cash, cash equivalents and restricted cash for each period presented is provided in note 10 to the condensed consolidated financial statements.

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On December 22, 2017, the Tax Cuts and Jobs Act, or the Act, was enacted in the United States. The Act reduces the U.S. federal corporate tax rate from 34% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. In December 2017, the SEC issued guidance under SAB No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act directing taxpayers to consider the impact of the U.S. legislation as “provisional” when it does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the change in tax law. As of September 30, 2018, we had not yet completed our accounting for all of the tax effects of the enactment of the Act.
Recently issued accounting pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), or ASU 2016-02. ASU 2016-02 addresses the financial reporting of leasing transactions. Under current guidance for lessees, leases are only included on the balance sheet if certain criteria, classifying the agreement as a capital lease, are met. This update will require the recognition of a right-of-use asset and a corresponding lease liability, discounted to the present value, for all leases that extend beyond 12 months. For operating leases, the asset and liability will be expensed over the lease term on a straight-line basis, with all cash flows included in the operating section of the statement of cash flows. For finance leases, interest on the lease liability will be recognized separately from the amortization of the right-of-use asset in the statement of operations and the repayment of the principal portion of the lease liability will be classified as a financing activity while the interest component will be included in the operating section of the statement of cash flows. This guidance is effective for annual and interim reporting periods beginning after December 15, 2018. Early adoption is permitted. We are in the process of implementing a plan for the adoption of FASB ASU No. 2016-02. Through our implementation efforts, we have determined that we intend to elect to apply the package of practical expedients, the practical expedient to not apply the recognition requirements of FASB ASU No. 2016-02 to short-term leases, and the practical expedient allowing for an accounting policy election to choose not to separate non-lease components from lease components for certain classes of assets, and instead to account for each non-lease component with its associated lease component as a single lease component. We do not intend to elect to apply the hindsight practical expedient and plan on adopting FASB ASU No. 2016-02 on January 1, 2019 using the transition expedient. We expect that adoption of this standard will result in the recognition of a lease liability and right-of-use asset for certain operating leases that are currently not recorded on the condensed consolidated balance sheets.
There have been no significant changes to our critical accounting policies discussed in our Annual Report on Form 10-K for the year ended December 31, 2017, which we refer to as our 2017 Form 10-K, other than the adoption of ASC 606.
Results of Operations
Comparison of the Three Months Ended September 30, 2018 and 2017
 
Three Months Ended
September 30,
 
 
 
2018
 
2017
 
Change
 
(in thousands)
Revenue:
 
 
 
 
 
License revenue
$

 
$

 
$

Total revenue

 

 

Operating expenses:
 
 
 
 
 
Research and development
3,372


3,619

 
(247
)
General and administrative
3,825


1,631

 
2,194

Loss from change in fair value of contingent consideration

7,200


3,900

 
3,300

Total operating expenses
14,397

 
9,150

 
5,247

Loss from operations
(14,397
)
 
(9,150
)
 
(5,247
)
Other income, net
382


45

 
337

Net loss and comprehensive loss
$
(14,015
)
 
$
(9,105
)
 
$
(4,910
)
Revenue. We recorded no revenue for the three months ended September 30, 2018 and September 30, 2017, respectively.
Research and development expenses. Research and development expenses were $3.4 million for the three months ended September 30, 2018 compared to $3.6 million for the three months ended September 30, 2017. The decrease of $0.2 million

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was due primarily to decreases in Vicinium for the treatment of high-grade NMIBC related development expenses of $0.6 million, offset by increases of $0.4 million in technology transfer and manufacturing costs associated with the Fujifilm MSA.
General and administrative expenses. General and administrative expenses were $3.8 million for the three months ended September 30, 2018 compared to $1.6 million for the three months ended September 30, 2017. The increase of $2.1 million was primarily due to a increase in severance costs related to the departure of our former President and Chief Executive Officer of $0.7 million, relocation and stock-based compensation related to the appointment of our new President and Chief Executive Officer of $0.4 million, increases in commercial market research of $0.2 million, increases in professional fees and legal costs of $0.8 million.
Loss from change in fair value of contingent consideration. The change in fair value of contingent consideration was a $7.2 million loss for the three months ended September 30, 2018 compared to a $3.9 million loss for the three months ended September 30, 2017. The change of $3.3 million was due primarily to changes in the discount rates and assumptions related to development and commercialization timelines and estimated sales projections.
Other income (expense), net. Other income, net was $382,000 for the three months ended September 30, 2018 compared to other income, net of $45,000 for the three months ended September 30, 2017. The change of $337,000 was due primarily to the increase in interest income on higher cash balances due to recent equity financings.
Comparison of the Nine Months Ended September 30, 2018 and 2017
 
Nine Months Ended
September 30,
 
 
 
2018
 
2017
 
Change
 
(in thousands)
Revenue:
 
 
 
 
 
License revenue

 
425

 
(425
)
Total revenue

 
425

 
(425
)
Operating expenses:
 
 
 
 
 
Research and development
9,406

 
9,402

 
4

General and administrative
8,128

 
6,085

 
2,043

Loss from change in fair value of contingent consideration

9,900

 
7,600

 
2,300

Total operating expenses
27,434

 
23,087

 
4,347

Loss from operations
(27,434
)
 
(22,662
)
 
(4,772
)
Other income, net
498

 
180

 
318

Net loss and comprehensive loss
$
(26,936
)
 
$
(22,482
)
 
$
(4,454
)
Revenue. We recorded no revenue for the nine months ended September 30, 2018 compared to $0.4 million for the nine months ended September 30, 2017. The decrease was due to a decrease in license revenue recognized pursuant to our License Agreement with Roche.
Research and development expenses. Research and development expenses were $9.4 million for the nine months ended September 30, 2018 compared to $9.4 million for the nine months ended September 30, 2017. Decreases in development expenses related to Vicinium for the treatment of high-grade NMIBC of $0.4 million were offset by increases of $0.4 million in technology transfer and manufacturing costs associated with the Fujifilm MSA.
General and administrative expenses. General and administrative expenses were $8.1 million for the nine months ended September 30, 2018 compared to $6.1 million for the nine months ended September 30, 2017. The increase of $1.9 million was primarily due to a increase in severance costs related to the departure of our former President and Chief Executive Officer of $0.7 million, relocation and stock-based compensation related to our new President and Chief Executive Officer of $0.4 million, increases in commercial market research of $0.2 million, and increases in professional fees and legal costs of $0.6 million.
Loss from change in fair value of contingent consideration. The change in fair value of contingent consideration was a $9.9 million loss for the nine months ended September 30, 2018 compared to a $7.6 million loss for the nine months ended

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September 30, 2017. The change of $2.3 million was due primarily to changes in the discount rates and assumptions related to development and commercialization timelines and estimated sales projections.
Other income (expense), net. Other income, net was $498,000 for the nine months ended September 30, 2018 compared to other income, net of $180,000 for the nine months ended September 30, 2017. The change of $318,000 was due to the increase in interest income on higher cash balances due to recent equity financings.
Liquidity and Capital Resources
Sources of Liquidity
Since inception, we have incurred significant operating losses and expect to continue to incur operating losses for the foreseeable future. To date, we have financed our operations primarily through debt and equity offerings and collaboration and licensing arrangements.
In June 2016, we entered into the License Agreement with Roche and received an up-front license fee of $7.5 million and up to an additional $262.5 million upon the achievement of specified regulatory, development and commercial milestones with respect to up to two unrelated indications. Specifically, an aggregate amount of up to $197.5 million is payable to us for the achievement of specified milestones with respect to the first indication: consisting of $72.5 million in development milestones, $50.0 million in regulatory milestones and $75.0 million in commercialization milestones. We received the first development milestone payment of $22.5 million as a result of the IND for EBI-031 becoming effective. In addition, we are entitled to receive royalty payments in accordance with a tiered royalty rate scale, with rates ranging from 7.5% to 15% for net sales of potential future products containing EBI-031 and at up to 50% of these rates for net sales of potential future products containing other IL-6 compounds, with each of the royalties subject to reduction under certain circumstances and to the buy-out options of Roche.
During the nine months ended September 30, 2018, we raised approximately $50.9 million of net proceeds from the sale of our common stock and common stock purchase warrants and received an additional $7.3 million of proceeds upon the cash exercise of certain of our outstanding common stock purchase warrants.
Cash Flows
As of September 30, 2018, we had cash and cash equivalents of $57.9 million. Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation.
The following table sets forth the primary sources and uses of cash for each of the periods set forth below: 
 
Nine Months Ended
September 30,
 
2018
 
2017
 
(in thousands)
Net cash (used in) provided by :
 
 
 
Operating activities
$
(15,182
)
 
$
(14,140
)
Investing activities
5

 
84

Financing activities
58,363

 
52

Net decrease in cash and cash equivalents
$
43,186

 
$
(14,004
)
Operating activities. Net cash used in operating activities was $15.2 million for the nine months ended September 30, 2018 and consisted primarily of net loss of $26.9 million, adjusted for non-cash items, including stock-based compensation expense of $0.9 million, a change in fair value of contingent consideration of $9.9 million, and a net change in operating assets and liabilities of $0.8 million.
Net cash provided by operating activities was $14.1 million for the nine months ended September 30, 2017, and consisted primarily of net loss of $22.5 million resulting from the License Agreement with Roche, adjusted for non-cash items, including stock-based compensation expense of $0.8 million, depreciation expense of $0.2 million, change in fair value of contingent consideration of $7.6 million, gain on sale of property and equipment of $0.1 million and a net increase in operating assets and liabilities of $(0.2) million.

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Investing activities. Net cash provided by investing activities consisted of sales of property and equipment. We had cash proceeds from the sale of property and equipment of approximately $5,000 and $84,000 for the nine months ended September 30, 2018 and 2017, respectively.
Financing activities. Net cash provided by financing activities for the nine months ended September 30, 2018 consisted of (i) net proceeds of $8.7 million from the sale, on March 23, 2018, of 7,968,128 shares of our common stock in a registered direct offering, (ii) net proceeds of $0.3 million from the sale of common stock purchase warrants to purchase 7,968,128 shares of our common stock, or the March 2018 Private Placement, (iii) net proceeds of $41.9 million from the sale of 25,555,556 shares of our common stock in an underwritten public offering, and (iv) proceeds of $7.3 million upon the cash exercise of common stock purchase warrants issued in connection with our underwritten public offering in November 2017 and our March 2018 Private Placement.
Funding Requirements
We will incur substantial expenses if and as we:
continue our Phase 3 clinical trial for Vicinium for the treatment of high-grade NMIBC;
incur research and pre-clinical and clinical development of our other product candidates;
seek to discover and develop additional product candidates;
in-license or acquire the rights to other products, product candidates or technologies;
seek marketing approvals for any product candidates that successfully complete clinical trials;
establish sales, marketing and distribution capabilities and scale up and validate external manufacturing capabilities (including initiating and completing the manufacturing process and technology transfer to any third-party manufacturers) to commercialize any products for which we may obtain marketing approval;
maintain, expand and protect our intellectual property portfolio;
add equipment and physical infrastructure to support our research and development;
hire additional clinical, regulatory, quality control, scientific and management personnel; and
expand our operational, financial and management systems and personnel.
We believe that our cash and cash equivalents of $57.9 million as of September 30, 2018 will be sufficient to fund our current operating plan into 2020; however, we have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect.
Our future capital requirements will depend on many factors, including:
the scope, initiation, progress, timing, costs and results of pre-clinical development and laboratory testing of our pre-clinical product candidates;
the cost and timing of any new clinical trials or studies of our product candidates;
our ability to establish collaborations on favorable terms, if at all, particularly manufacturing, marketing and distribution arrangements for our product candidates;
the costs and timing of the implementation of commercial-scale manufacturing activities, including those associated with the manufacturing process and technology transfer to third party manufacturers to facilitate such commercial-scale manufacturing;
the costs and timing of establishing sales, marketing and distribution capabilities for any product candidates for which we may receive regulatory approval;
the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims;
our obligation to make milestone, royalty and other payments to third party licensors under our licensing agreements;
the extent to which we in-license or acquire rights to other products, product candidates or technologies;

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the outcome, timing and cost of regulatory review by the FDA and comparable foreign regulatory authorities, including the potential for the FDA or comparable foreign regulatory authorities, including Health Canada, to require that we perform more studies than those that we currently expect;
our ability to achieve certain future regulatory, development and commercialization milestones under the License Agreement with Roche;
the effect of competing technological and market developments; and
the revenue, if any, received from commercial sales of any product candidates for which we receive regulatory approval.
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, government or other third-party funding, collaborations, strategic alliances, licensing arrangements and marketing and distribution arrangements. We do not have any committed external source of funds other than the amounts payable under the License Agreement with Roche. To the extent that we raise additional capital through the sale of equity or debt securities, such as the financings we completed in November 2017, March 2018 and June 2018, our stockholders' ownership interest will be diluted and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights as holders of our common stock. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through government or other third-party funding, collaborations, strategic alliances, licensing arrangements or marketing and distribution arrangements, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market products or product candidates that we would otherwise prefer to develop and market ourselves.
Contractual Obligations and Commitments
The disclosure of our contractual obligations and commitments is set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Contractual Obligations and Commitments” in our 2017 Form 10-K. These disclosures are updated as of September 30, 2018 as noted below:
The following table summarized our contractual obligations at September 30, 2018:
 
Total
 
Less than 1 Year
 
1 to 3 Years
 
3 to 5 Years
 
More than 5 Years
 
(in thousands)
Operating lease obligations (1)
$
808

 
$
472

 
$
336

 
$

 
$

License maintenance fees (2)
1,110

 
260

 
555

 
295

 

Total fixed contractual obligations
$
1,918

 
$
732

 
$
891

 
$
295

 
$

(1) We lease our manufacturing facility located in Winnipeg, Manitoba, Canada, which consists of an approximately 31,400 square foot manufacturing, laboratory, warehouse and office facility, under a five-year renewable lease through September 2020. The monthly rent for this office space is approximately $28,000 per month. We entered into a six-month lease for office space in Philadelphia, Pennsylvania, that was executed in September 2018 and has a monthly rent of approximately $14,800 per month. We entered into a fourth-month lease for office space in Cambridge, Massachusetts, that was executed in September 2018 and has a monthly rent of approximately $12,000 per month.
(2) We have entered into various license agreements that, upon successful clinical development, contingently trigger payments upon achievement of certain milestones, royalties and other such payments. See ‘‘License Agreements’’ below. Because the achievement of these milestones are uncertain, the amounts have not been included.
We enter into agreements in the normal course of business with CROs for clinical trials and with vendors for pre-clinical studies, license agreements and other services and products for operating purposes which are cancelable by us, upon prior written notice. We have an agreement with a CRO that may be terminated at any time with 30 days’ notice; however, upon termination, we would be required to pay all costs incurred by the CRO up to the termination date, plus an additional fee, which is calculated as an amount equal to either (a) 5% of the unearned fees for services as provided in the budget if we have paid 50% or more of the total fees for services as specified in the work order or (b) 3% of the amount of fees we have paid for

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services as of the date of termination if we have paid less than 50% of the total fees for services as specified in the work order. As of September 30, 2018, we have been invoiced $6.7 million in fees for services from this CRO, which is more than 50% of the total fees for services as specified in the current work order with this CRO. Therefore, as of September 30, 2018, we would have been required to pay a termination fee of 5% of the amount of fees as of the date of termination of this agreement, which would have equaled $135,000 as of September 30, 2018. Amounts owed to such CRO were not included in the ‘‘Contractual Obligations and Commitments’’ table above as it was considered a contingent payment as of September 30, 2018.
We also occupy office space in Toronto, Ontario, Canada with rent of approximately $2,000 per month, on a month-to-month lease, which can be terminated by either party by giving 30 days written notice. These payments are not included in the ‘‘Contractual Obligations and Commitments’’ table above.
In connection with the acquisition of Viventia, we are obligated to pay to the sellers certain post-closing contingent cash payments upon the achievement of specified milestones and based upon net sales, in each case subject to the terms and conditions set forth in the acquisition agreement, including: (i) a one-time milestone payment of $12.5 million payable upon the first sale of Vicinium for the treatment of NMIBC or any variant or derivative thereof, other than Vicinium for the treatment of SCCHN, in the United States, or the Purchased Product; (ii) a one-time milestone payment of $7.0 million payable upon the first sale of the Purchased Product in any one of certain specified European countries; (iii) a one-time milestone payment of $3.0 million payable upon the first sale of the Purchased Product in Japan; and (iv) and quarterly earn-out payments equal to two percent (2%) of net sales of the Purchased Product during specified earn-out periods. Such earn-out payments are payable with respect to net sales in a country beginning on the date of the first sale in such country and ending on the earlier of (i) December 31, 2033 and (ii) fifteen years after the date of such sale, subject to early termination in certain circumstances if a biosimilar product is on the market in the applicable country. Because the achievement of these milestones is uncertain, the amounts have not been included in the ‘‘Contractual Obligations and Commitments’’ table above.
License Agreements

License Agreement with the University of Zurich

Overview and Exclusivity. We have a license agreement with the University of Zurich, or Zurich, which grants us exclusive license rights, with the right to sublicense, to make, have made, use and sell under certain patents primarily directed to our targeting agent, including an EpCAM chimera and related immunoconjugates and methods of use and manufacture of the same. These patents cover some key aspects of our product candidate Vicinium.

Under the terms of the agreement, we may be obligated to pay $750,000 in milestone payments, for the first product candidate that achieves applicable clinical development milestones. Based on current clinical status, we anticipate that these milestones may be triggered by Vicinium’s clinical development pathway. As part of the consideration, we will also be obligated to pay up to a 4% royalty on the net product sales for products covered by or manufactured using a method covered by a valid claim in the Zurich patent rights. Royalties owed to Zurich will be reduced if the total royalty rate owed by us to Zurich and any other third party is 10% or greater, provided that the royalty rate to Zurich may not be less than 2% of net sales. The obligation to pay royalties in a particular country expires upon the expiration or termination of the last of the Zurich patent rights that covers the manufacture, use or sale of a product. There is no obligation to pay royalties in a country if there is no valid claim that covers the product or a method of manufacturing the product. As of the date of this Quarterly Report on Form 10-Q, aggregate license fees of $300,000 have been paid to Zurich since the inception of the license agreement. There were no payments made for the quarter ended September 30, 2018.

Patent rights. We are responsible for the patent filing, prosecution and maintenance activities pertaining to the patent rights, at our sole expense, while Zurich is afforded reasonable opportunities to review and comment on such activities. If appropriate, we shall apply for an extension of the term of any licensed patent where available, for example, in at least the United States, Europe and Japan. In the event of any substantial infringement of the patent rights, we may request Zurich to take action to enforce the licensed patents against third parties. If the infringing activity is not abated within 90 days and Zurich has elected not to take legal action, we may bring suit in our own name (and in Zurich’s name, if necessary). Such action will be at our own expense and Zurich will have the opportunity to join at its own expense. Recoveries from any action shall generally belong to the party bringing the suit, but (a) in the event that we bring the action and an acceptable settlement or monetary damages are awarded, then Zurich will be reimbursed for any amount that would have been due to Zurich if the products sold by the infringer actually had been sold by us, or (b) in the event a joint legal action is brought, then the parties shall share the expense and recoveries shall be shared in proportion to the share of expense paid by the respective party. Each party is required to cooperate with the other in litigation proceedings at the expense of the party bringing the action.


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Term and termination. The term of the agreement expires as of the expiration date of the last patent to expire within the Zurich patent rights. We are currently projecting an expiration date for the U.S. licensed patents in June 2025, subject to any applicable patent term extension that may be available on a jurisdictional basis. Zurich has the right to terminate the agreement if we breach any obligation of the agreement and fail to cure such breach within the applicable cure periods. We have the right to terminate the agreement at any time and for any reason by giving 90 days written notice to Zurich.

License Agreement with Micromet

Overview. We have a license agreement with Micromet AG, or Micromet, now part of Amgen, Inc., which grants us nonexclusive rights, with certain sublicense rights, for know-how and patents allowing exploitation of certain single chain antibody products. These patents cover some key aspects of Vicinium. Under the terms of the agreement, an initial license fee of €450,000 was paid to Micromet by Viventia prior to our acquisition of Viventia and we may be obligated to pay up to €3.6 million in milestone payments, for the first product candidate that achieves applicable clinical development milestones. Based on current clinical status, we anticipate that certain of these milestones may be triggered by Vicinium’s clinical development pathway. We are also required to pay up to a 3.5% royalty on the net sales for products covered by the agreement, which includes Vicinium. The royalty rate owed to Micromet in a particular country will be reduced to 1.5% if there are no valid claims covering the product in that country. The obligation to pay royalties in a particular country expires upon the later of the expiration date of the last valid claim covering the product and the tenth anniversary of the first commercial sale of the product in such country. Finally, we are required to pay to Micromet an annual license maintenance fee of €50,000, which can be credited towards any royalty payment we owe to Micromet. As of the date of this Quarterly Report on Form 10-Q, aggregate license fees of €1.75 million have been paid to Micromet. There were no payments made for the quarter ended September 30, 2018.

Patent rights. Micromet, at its sole expense, is responsible for the patent filing, prosecution and maintenance activities pertaining to the patent rights. In any patent enforcement action initiated by Micromet, we may be required, upon the request of Micromet and at Micromet’s expense, to provide reasonable assistance to Micromet with respect to such enforcement action.

Term and termination. The term of the license agreement expires as of the expiration of any royalty obligations under the license agreement. Either party has the right to terminate the agreement if the other party fails to comply with any of its material obligations under the license agreement and fails to cure such non-compliance within the applicable cure periods.

License Agreement with XOMA

Overview. We have a license agreement with XOMA Ireland Limited, or XOMA, which grants us non-exclusive rights to certain XOMA patent rights and know-how related to certain expression technology, including plasmids, expression strains, plasmid maps and production systems. These patents and related know-how cover some key aspects of Vicinium. Under the terms of the agreement, an initial access fee of $250,000 was paid to XOMA by Viventia prior to our acquisition of Viventia and we are required to pay up to $250,000 in milestone payments for a product candidate that incorporates know-how under the license and achieves applicable clinical development milestones. Based on current clinical status, we anticipate that these milestones may be triggered by Vicinium’s clinical development pathway. We are also required to pay a 2.5% royalty on the net sales for products incorporating XOMA’s technology, which includes Vicinium. We have the right to reduce the amount of royalties owed to XOMA on a country-by-country basis by the amount of royalties paid to other third parties, provided that the royalty rate to XOMA may not be less than 1.75% of net sales. In addition, the foregoing royalty rates are reduced by 50% with respect to products that are not covered by a valid patent claim in the country of sale. The obligation to pay royalties in a particular country expires upon the later of the expiration date of the last valid claim covering the product and the tenth anniversary of the first commercial sale of the product in such country. As of the date of this Quarterly Report on Form 10-Q, aggregate license fees of $$400,000 have been paid to XOMA since the inception of the license agreement. There were no payments made for the quarter ended September 30, 2018.

Patent rights. XOMA, at its sole expense, is responsible for the patent filing, prosecution and maintenance activities pertaining to the patent rights. In any patent enforcement action initiated by XOMA, we may be required, upon the request of XOMA and at XOMA’s expense, to provide reasonable assistance to XOMA with respect to such enforcement action.
Term and termination. The term of the agreement expires as of the expiration of any royalty obligations under the license agreement. Either party has the right to terminate the agreement if the other party fails to comply with any of its material obligations under the license agreement and fails to cure such non-compliance within the applicable cure periods.

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Other than as set forth above, during the three and nine months ended September 30, 2018, there were no material changes to our obligations under our license agreements as previously disclosed in our 2017 Form 10-K as set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations — License Agreements”.
Off-balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the Securities and Exchange Commission, or SEC.

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Item 3.         Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk
We are exposed to market risk related to changes in interest rates. As of September 30, 2018, we had cash and cash equivalents of $57.9 million, primarily money market mutual funds consisting of U.S. government-backed securities. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because our investments are in short-term securities. Due to the short-term duration of our investment portfolio and the low risk profile of our investments, an immediate 100 basis point (1.0%) change in interest rates would not have a material effect on the fair market value of our portfolio.
Foreign Currency Risk
As our functional currency is in U.S. Dollars, we face foreign exchange rate risk as a result of entering into transactions denominated in Canadian dollars. As a result, our primary foreign currency exposure is to fluctuations in the Canadian dollar relative to the U.S. dollar. A hypothetical 10% change in average foreign currency exchange rates during any of the preceding periods presented would not have a material effect on our net loss. Foreign exchange rates may continue to be a factor in the future periods as we continue to expand and grow our business.
Item 4.         Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2018. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e)) under Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2018, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Notwithstanding our assessment that, as noted below, our internal control over financial reporting was not effective as of December 31, 2017 related to accounting for business combinations, our management concluded that our disclosure controls and procedures were effective at the reasonable assurance level. The material weakness in our internal control over financial reporting was attributable primarily to our lack of expertise in our finance and accounting group related to the accounting for business combinations.
As more fully discussed in our 2017 Form 10-K, to remediate the material weakness referenced above, we have implemented or have plans to implement the remediation initiatives described in Part II, Item 9A of our 2017 Form 10-K and will continue to evaluate the remediation and plan to implement additional measures in the future.
Previously Identified Material Weakness
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control system was designed to provide reasonable assurance to our management and our board of directors regarding the preparation and fair presentation of published financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2017. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway

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Commission in Internal Control-Integrated Framework (2013). Based on this evaluation, our management concluded that our internal control over financial reporting was not effective as of December 31, 2017.
As of December 31, 2017, there was a material weakness in our controls over the financial reporting process related to business combinations. As a result of a lack of expertise in our finance and accounting group related to the accounting for business combinations, we lacked sufficient review of assumptions used and conclusions reached from the perspective of a typical market participant used in the acquisition valuation model. As a result, our management concluded that our internal control over financial reporting was not effective as of December 31, 2017.
Remediation Status
As more fully discussed in our 2017 Form 10-K, to remediate the material weaknesses referenced above, we have implemented or have plans to implement the remediation initiatives described in Part II, Item 9A of our 2017 Form 10-K and will continue to evaluate the remediation and plan to implement additional measures in the future. Effective as of October 20, 2017, John McCabe resigned as our Chief Financial Officer and Richard Fitzgerald was appointed as our Interim Chief Financial Officer and on January 23, 2018, Mr. Fitzgerald was appointed as our Chief Financial Officer. In order to stabilize our remediation efforts in light of this transition, we also retained consultants to assist with the review of assumptions used and conclusions reached from the perspective of a typical market participant used in the acquisition valuation model for the final purchase price allocation. In connection with our remediation plan, in early 2018 we added an employee to our financial and accounting group and may add additional employees during 2018 to broaden capacity. We also continue to engage independent consultants to aid in the review of our financial reporting process and continue to evaluate steps to address the material weakness.
Changes in Internal Control Over Financial Reporting
During the three and nine months ended September 30, 2018, management continued to implement certain remediation initiatives discussed in Part II, Item 9A of our 2017 Form 10-K. However, there were no material changes to our internal control over financial reporting during the period covered by this Quarterly Report on Form 10-Q 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
We are not currently subject to any material legal proceedings.
Item 1A.
Risk Factors

We depend on our license agreements with the University of Zurich, Micromet, XOMA and Merck KGaA and if we cannot meet the requirements under the agreements we could lose important rights to Vicinium for the treatment of high-grade NMIBC, Vicinium for the treatment of SCCHN or VB6-845d, which could have material adverse effect on our business.

We have an exclusive license agreement with Zurich. Pursuant to the agreement, we were granted an exclusive license, with the right to sublicense, under certain patents primarily relating, in part, to our targeting agents, EpCAM chimera and immunoconjugates (including aspects of Vicinium for the treatment of high-grade NMIBC and Vicinium for the treatment of SCCHN) and methods of use, to make, use, sell and import products that would otherwise infringe such patents in the field of the treatment, stasis and palliation of disease in humans. If we fail to meet our obligations under the license agreement, Zurich may have the right to terminate our license, and upon the effective date of such termination, our right to use the licensed Zurich patent rights would end. To the extent such licensed technology or patent rights relate to our product candidates, we would expect to exercise all rights and remedies available to us, including attempting to cure any breach by us, and otherwise seek to preserve our rights under the patent rights licensed to us, but we may not be able to do so in a timely manner, at an acceptable cost to us or at all. Any uncured, material breach under the license agreement could result in our loss of rights to practice the patent rights licensed to us under the license agreement, and to the extent such patent rights and other technology relate to our product candidates or other of our compounds, it could have a material adverse effect on our commercialization efforts for our product candidates, including Vicinium for the treatment of high-grade NMIBC and Vicinium for the treatment of SCCHN.

We also have a license agreement with Micromet, which grants us non-exclusive rights, with certain sublicense rights, for know-how and patents allowing exploitation of certain single chain antibody products. If we fail to meet our obligations under the license agreement, Micromet may have the right to terminate our license, and upon the effective date of such termination, our right to use the licensed Micromet patent rights would end. To the extent such licensed technology or patent rights relate to our product candidates, we would expect to exercise all rights and remedies available to us, including attempting to cure any breach by us, and otherwise seek to preserve our rights under the patent rights licensed to us, but we may not be able to do so in a timely manner, at an acceptable cost to us or at all. Any uncured, material breach under the license agreement could result in our loss of rights to practice the patent rights licensed to us under the license agreement, and to the extent such patent rights and other technology relate to our product candidates or other of our compounds, it could have a material adverse effect on our commercialization efforts for our product candidates, including Vicinium for the treatment of high-grade NMIBC and Vicinium for the treatment of SCCHN.

We also have a license agreement with XOMA, which grants us non-exclusive rights to certain XOMA patent rights and know-how related to certain expression technology, including plasmids, expression strains, plasmid maps and production systems. If we fail to meet our obligations under the license agreement, XOMA may have the right to terminate our license, and upon the effective date of such termination, our right to use the licensed XOMA patent rights and related know-how would end. To the extent such licensed technology or patent rights relate to our product candidates, we would expect to exercise all rights and remedies available to us, including attempting to cure any breach by us, and otherwise seek to preserve our rights under the patent rights licensed to us, but we may not be able to do so in a timely manner, at an acceptable cost to us or at all. Any uncured, material breach under the license agreement could result in our loss of rights to practice the patent rights licensed to us under the license agreement, and to the extent such patent rights and other technology relate to our product candidates or other of our compounds, it could have a material adverse effect on our commercialization efforts for our product candidates, including Vicinium for the treatment of high-grade NMIBC and Vicinium for the treatment of SCCHN.

We also have a license agreement with Merck KGaA, or Merck, which grants us an exclusive license, with the right to sublicense, under certain patents and technology relating to the de-immunization of our cytotoxin Bouganin for therapeutic and in vivo diagnostic purposes in humans. If we fail to meet our obligations under this license agreement, Merck may have the right to terminate our license, and upon the effective date of such termination, our right to use the licensed Merck patent rights and technology would end. To the extent such licensed technology or patent rights relate to our product candidates, we would expect to exercise all rights and remedies available to us, including attempting to cure any breach by us, and otherwise seek to

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preserve our rights under the patent rights and technology licensed to us, but we may not be able to do so in a timely manner, at an acceptable cost to us or at all. Any uncured, material breach under the license agreement could result in our loss of rights to practice the patent and technology rights licensed to us under the license agreement, and to the extent such patent rights and other technology relate to our product candidates, it could have a material adverse effect on our commercialization efforts for product candidates.

Failure to obtain, or any delay in obtaining, FDA approval regarding the comparability of the bulk drug substance form of Vicinium previously manufactured in our internal manufacturing facilities and the bulk drug substance form of Vicinium manufactured following our technology transfer may have an adverse effect on our business, operating results and prospects.

We have initiated a technology transfer of our manufacturing process for the bulk drug substance form of Vicinium to Fujifilm. This technology transfer will determine if Fujifilm can manufacture the bulk drug substance form of Vicinium for commercial purposes if we receive regulatory approval to market Vicinium for the treatment of high-grade NMIBC.

We do not anticipate changes to the raw materials, formulations or properties nor do we anticipate changes to the Vicinium manufacturing process or finished product specifications as a result of this transfer. Nonetheless, Fujifilm will be required to demonstrate to the FDA that the bulk drug substance form of Vicinium they manufacture is comparable to that previously manufactured in our internal manufacturing facilities. Demonstrating comparability requires evidence that the product is consistent with that produced for our clinical trials to assure that the technology transfer does not affect safety, identity, purity or efficacy of the bulk drug substance form of Vicinium produced by Fujifilm.

In addition, the FDA may require that we provide additional preclinical or clinical data to provide evidence to support the comparability of the bulk drug substance form of Vicinium. The size, scope, length and costs of any new or supplemental clinical trials that may be required by the FDA to provide such data are not known at this time. Failure or delay in obtaining FDA approval of the comparability of the bulk drug substance form of Vicinium or the FDA requiring us to provide clinical data may result in delays to our current projected timelines and could have an adverse effect on our business, operating results and prospects.

The manufacturing facilities used by Fujifilm to manufacture the bulk drug substance form of Vicinium will be subject to inspections by the FDA, and we will depend on Fujifilm’s ability to comply with current Good Manufacturing Practices or other applicable regulatory standards. If they cannot successfully manufacture material in compliance with these strict regulatory requirements, we and they will not be able to secure or maintain regulatory approval for their manufacturing facilities. If the FDA does not approve the manufacturing facilities of Fujifilm with respect to the manufacture of the materials covered under the Fujifilm MSA, Fujifilm’s ability to produce the bulk drug substance form of Vicinium on a commercial-scale could be delayed which could adversely affect our ability to commercialize Vicinium for the treatment of high-grade NMIBC. We and Fujifilm also may be subject to penalties and sanctions from the FDA and other regulatory authorities for any violations of applicable regulatory requirements.

Recent changes in our senior management team and the lack of shared experience among the current members of our senior management team could harm our business.

We have recently experienced significant changes in our senior management. Stephen A. Hurly departed as our Chief Executive Officer effective as of August 7, 2018 and resigned as a member of our Board effective as of August 16, 2018. Effective as of August 7, 2018 our Board appointed Thomas R. Cannell, D.V.M., as our Chief Executive Officer and a member of our Board.
Dr. Cannell has not worked with our existing senior management team prior to his appointment as our President and Chief Executive Officer. This lack of shared experience could negatively impact our senior management team’s ability to quickly and efficiently respond to problems and effectively manage our business and we may experience disruption or have difficulty in maintaining or developing our business during this transition. If Dr. Cannell is unable work with our existing management team to implement our strategies, manage our operations and accomplish our objectives, our business, operations and financial results could be impaired.

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Item 2.        Unregistered Sales of Equity Securities and Use of Proceeds
Other than as previously disclosed on our Current Reports on Form 8-K filed with the SEC, we did not issue any unregistered equity securities during the three months ended September 30, 2018.
Item 3.         Defaults Upon Senior Securities.
Not applicable.
Item 4.         Mine Safety Disclosures.
Not applicable.
Item 5.         Other Information.
Not applicable.
Item 6.        Exhibits

The exhibits filed as part of this Quarterly Report on Form 10-Q are set forth on the Exhibit Index, which Exhibit Index is incorporated herein by reference.


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EXHIBIT INDEX
 
Exhibit
No.
  
Description
10.1*†
 
10.2*†
 
10.3
 
10.4
 
10.5
 
31.1*
  
31.2*
  
32.1*
  
101.INS*
  
XBRL Instance Document
101.SCH*
  
XBRL Taxonomy Extension Schema Document
101.CAL*
  
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
  
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*
  
XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
  
XBRL Taxonomy Extension Presentation Linkbase Document
*
Filed herewith.
Confidential treatment requested as to portions of the exhibit. Confidential materials omitted and filed separately with the Securities and Exchange Commission.

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
 
SESEN BIO, INC.
 
 
By:
 
/s/  Thomas R. Cannell, D.V.M.
 
 
Thomas R. Cannell, D.V.M.
 
 
President and Chief Executive Officer
 
 
(Principal Executive Officer and Duly Authorized Officer)
November 9, 2018

34
sesnexhibit101micrometli
Exhibit 10.1 [***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. NON-EXCLUSIVE PRODUCT LICENSE AGREEMENT THIS NON-EXCLUSIVE PRODUCT LICENSE AGREEMENT (“Agreement”) is made and entered into effective as of October 18, 2005 (the “Effective Date”), by and between MICROMET AG, having its principal offices at Staffelseestrasse 2, 81477 Munich, Germany (“MICROMET”), and VIVENTIA BIOTECH (BARBADOS) INC., having its principal offices at Chancery House, High Street, Bridgetown, Barbados, West Indies (“Viventia”), a wholly-owned subsidiary of Viventia Biotech Inc., having its principal offices at 10 Four Seasons Place, Suite 501, Toronto, Ontario, Canada (“Viventia Biotech”). Micromet and Viventia each may be referred to herein individually as a “Party”, or collectively as the “Parties.” RECITALS WHEREAS, Micromet owns or controls the Micromet Patents (as defined below); and WHEREAS, Micromet and Enzon have entered into a certain Cross-License Agreement (the “Micromet/Enzon Cross-License Agreement”) and Exclusive IP Marketing Agreement (the “Micromet/Enzon Marketing Agreement”) each dated as of April 9, 2002, as amended, pursuant to which Micromet and Enzon granted to each other certain rights to intellectual property relating to Single Chain Antibody (as defined below) technology and pursuant to which Micromet is authorized to grant the licenses and other rights to Viventia pursuant to the terms of this Agreement; and WHEREAS, Viventia has elected to receive such a license for the purpose of developing, commercializing, manufacturing, using, and distributing an SCA Product (as defined below) towards the EpCAM Target (as defined below); and WHEREAS, Micromet desires to grant a license to Viventia on a non-exclusive basis of the right to use the Consolidated Patents (as defined below) for the purpose of developing and commercializing such product in respect of such target on the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein contained, the Parties agree as follows: AGREEMENT 1. DEFINITIONS When used in this Agreement, capitalized terms will have the meanings as defined below and throughout the Agreement. 1.1 “Affiliate” means a legal entity that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with a Party. For purposes of this definition only, “control” and, with correlative meanings, the terms “controlled by” and \\PH - 037750/000002 - 398853 v1


 
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. “under common control with” means (a) the possession, directly or indirectly, of the power to direct the management or policies of a legal entity, whether through the ownership of voting securities or by contract relating to voting rights or corporate governance, or (b) the ownership, directly or indirectly, of more than 50% of the voting securities or other ownership interest of a legal entity. 1.2 “Antibody” means a molecule or gene encoding such a molecule comprising or containing at least one immunoglobulin variable domain or parts of such domain or any existing or future fragments, variants, modifications or derivatives thereof. 1.3 “Antigen” means any structure, including an entire protein, post-translational modifications, lipids, or glyco-lipids, for which Antibody variable domains have binding affinity. 1.4 “BiTE Product” means any composition or formulation containing or comprising a bi-specific Antibody, wherein one arm of the Antibody binds to T-cells. 1.5 “Business Day” means any day (other than a Saturday or Sunday) upon which major commercial banks are open for business in the cities of Toronto and Munich. 1.6 “Combination Product” means any product, which contains a Licensed Product and one or more other active ingredients or active components. 1.7 “Commercial Sale” means the sale to a Third Party of the Licensed Product in a given country after granting of regulatory approval for the Licensed Product by the Regulatory Authorities of that country. 1.8 “Confidential Information” has the meaning assigned to it in Section 5.1. 1.9 “Consolidated Know-How” means the Know-How Controlled by Micromet or Enzon relating to the Consolidated Patents. 1.10 “Consolidated Patents” means the Micromet Patents and Enzon Patents identified in Schedule I to which Micromet may grant a license under the Micromet/Enzon Marketing Agreement. 1.11 “Controlled” or “Controls” means, with respect to any Know-How, Patent, or other intellectual property right, possession of the right, whether directly or indirectly, and whether by ownership, license or otherwise, to assign, or grant a license, sublicense or other right to or under, such Know-How, Patent or right as provided for herein without violating the terms of any agreement or other arrangements with any Third Party. 1.12 “Disclosing Party” has the meaning assigned to it in Section 5.1. 1.13 “Dispute” has the meaning assigned to it in Section 12.3.2. 1.14 “Dossier” means a written summary setting forth (a) a brief description of the proposed use, application or clinical indication of a particular product composition or formulation 2 \\PH - 037750/000002 - 398853 v1


 
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. of the Licensed Product and its origin, amino acid sequence, nucleotide sequence and Genbank or other accession number (if available), and (b) an update on the current status of the research and development regarding the Licensed Product described in previous reports, which will include an update on matters relating to the Licensed Product including expected timelines for development milestones for which payments are due hereunder and a brief and updated description of any collaborations, business transactions, changes of control, publications, conference presentations and intellectual property or legal matters relating to the Licensed Product. 1.15 “Enzon” means Enzon Pharmaceuticals, Inc., a corporation having a place of business at 20 Kingsbridge Road, Piscataway, New Jersey. 1.16 “Enzon Patents” means any Patents listed in Schedule I (A), excluding any patents relating to Pegylation. 1.17 “EpCAM Target” means the whole or part of the human epithelial cell adhesion molecule EpCAM identified by the SWISS-PROT entry name TTD1_HUMAN and accession number P16422 with the amino acid sequence as set out in Schedule II which is specifically recognized by an Antibody binding to the foregoing. 1.18 “Equity Financing” means the sale and issuance after the Effective Date of shares of any series of common or preferred stock of Viventia or Viventia Biotech to a Third Party for cash consideration, discharge of indebtedness, or any combination thereof. 1.19 “Europe” means Albania, Andorra, Austria, Belgium, Belarus, Bosnia- Herzegovina, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Georgia, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Macedonia, Malta, Moldova, Monaco, Netherlands, Norway, Poland, Portugal, Romania, Russian Federation, San Marino, Serbia/Montenegro, Kosovo, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey, Ukraine, United Kingdom, and Vatican City, and any successor states on their respective territories. 1.20 “Excluded Field” means the products and areas set out in Schedule III. 1.21 “Exploit” means to make, have made, import, export, use, sell, offer for sale, or otherwise dispose of a product, including all discovery, research, development, registration, modification, enhancement, improvement, manufacture, storage, formulation, exportation, transportation, distribution, promotion and marketing activities related thereto. 1.22 “FDA” means the United States Food and Drug Administration, or any successor agency thereto having the administrative authority to regulate the marketing of human pharmaceutical products or biological therapeutic products, delivery systems and devices in the United States of America. 1.23 “Field” means the treatment of cancer by regional administration of the Licensed Product at the site of the tumor (e.g., intratumoral, intravesical, intrahepatic, etc.); provided, however, that the foregoing will exclude the Excluded Field. 3 \\PH - 037750/000002 - 398853 v1


 
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 1.24 “Gross-Up Amount” has the meaning assigned to it in Section 4.10. 1.25 “Improvement” means any invention developed by or on behalf of Viventia, its licensees, sublicensees or its Affiliates during the Term that: (a) is an improvement, modification or adaptation of any technology, process or methodology claimed in or covered by either of the Consolidated Patents or Consolidated Know-How, as applicable; or (b) relates to the manufacture, development, testing, composition or use of any SCA, including, by way of example, improvements to expression, purification, solubility, or stability of Single Chain Antibodies, and improvements to peptide linkers within a Single Chain Antibody, peptide linkers between Single Chain Antibodies and other peptides or proteins, or control over the oligomerization state of Single Chain Antibodies. 1.26 “Indemnification Claim Notice” has the meaning assigned to it in Section 9.3.1. 1.27 “Indemnifying Party” has the meaning assigned to it in Section 9.3.1. 1.28 “Indemnitee” has the meaning assigned to it in Section 9.3.1. 1.29 “Intellectual Property Rights” means any and all rights licensed to a Party by any Third Party or any and all proprietary rights provided in any jurisdiction worldwide under (a) patent law, (b) copyright law (including moral rights), (c) trade secret law, (d) design patent or industrial design law, or (e) any other statutory or common law principles which may provide a right in intellectual property, including any and all applications, registrations, licenses, sub- licenses, franchises, agreements or any other evidence of a right in the foregoing. 1.30 “Know-How” means all non-public inventions, data, information, methods, procedures, processes and materials, including but not limited to, biological, chemical, biochemical, toxicological, pharmacological, metabolic, formulation, clinical, analytical and stability information and data (other than such Know-How which is or becomes the subject of a patent or of a provisional or filed patent application or which otherwise becomes public). 1.31 “License Maintenance Fee” has the meaning assigned to it in Section 4.2. 1.32 “Licensed Product” means the SCA Product with the amino acid sequence as set out in Schedule IV comprising (a) an SCA binding to the EpCAM Target, (b) Pseudomonas Exotoxin, and (c) a peptide linker linking those polypeptides into a single chain polypeptide. 1.33 “Licensed Technology” means the Consolidated Patents and the Consolidated Know-How. 1.34 “Losses” has the meaning assigned to it in Section 9.1. 1.35 “MAA” means a marketing approval application filed with the European Medicines Evaluation Agency or a New Drug Application filed with the FDA, and any corresponding applications in other countries or territories. 4 \\PH - 037750/000002 - 398853 v1


 
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 1.36 “Major Market Country” means the United States of America, the United Kingdom, Canada, France, Germany, Italy, or Spain. 1.37 “Micromet/Enzon Cross-License Agreement” has the meaning assigned to it in the recitals of this Agreement. 1.38 “Micromet/Enzon Marketing Agreement” has the meaning assigned to it in the recitals of this Agreement. 1.39 “Micromet Patents” means any Patents listed in Schedule I(B). 1.40 “Net Sales” means the gross amount received by Viventia, its Affiliates, licensees or sublicensees for Commercial Sales of the Licensed Product to any Third Party in any country in the world, less any (a) normal trade, cash and quantity discounts actually allowed, including charge backs; (b) amounts allowed for returned or defective Licensed Products; (c) insurance and transportation charges to the extent included in the invoiced amount; and (d) custom duties, VAT, sales taxes or other governmental charges paid other than Withholdings (defined below) in connection with such sales (but excluding taxes on Viventia’s income). Any of the deductions listed above that involves a payment by Viventia, its Affiliates, licensees or sublicensees will be taken as a deduction in the calendar quarter in which the payment is actually made by such entity. Any amounts received on account of transfers of Licensed Products between Viventia, its Affiliates, licensees or sublicensees of Licensed Products hereunder will be excluded from the calculation of Net Sales, and Net Sales will be calculated based on the final sale of such Licensed Product by Viventia, its Affiliates, licensees or sublicensees to any Third Party. If a Licensed Product is sold in the form of a Combination Product, Net Sales for purposes of royalty payments on the Combination Product will be calculated by multiplying the Net Sales of the Combination Product by the fraction A/(A+B), where A is the invoice price of the Licensed Product if sold separately (i.e., without the other active ingredients or active components) by Viventia, its Affiliates, licensees or sublicensees; and B is the aggregate invoice price of the other active ingredients or components in the Combination Product, if sold separately by Viventia, its Affiliate, licensees or sublicensees. If no such separate sales are made by Viventia, its Affiliates, licensees or sublicensees, then Net Sales for purposes of royalty payments on the Combination Product will be calculated by multiplying the Net Sales of the Combination Product by the fraction C/(C+D) where C is the fully allocated cost of the Licensed Product taken separately from the Combination Product (i.e., not including the other active ingredients or active components); and D is the aggregate fully allocated cost of the other active ingredients or active components; in each case, such costs being determined using generally accepted accounting procedures consistently applied by Viventia, its Affiliates, licensees or sublicensees, as applicable. 1.41 “Patents” means (a) all patents and patent applications in any country or supranational jurisdiction, and (b) any substitutions, divisions, continuations, continuations-in-part (to the extent directed to subject matter described in such patent or patent application), reissues, renewals, registrations, confirmations, re-examinations, extensions, supplementary protection 5 \\PH - 037750/000002 - 398853 v1


 
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. certificates and the like, and any provisional applications, of any such patents or patent applications. 1.42 “Pegylation,” with a correlative meaning for “Pegylated,” means the conjugation (covalent chemical bonding) of PEG (including but not limited to conjugation through linking groups) with or to other materials, including but not limited to Single Chain Antibodies. “Pegylation” will include the synthesis, derivatization, characterization, and modification of PEG for such purposes, together with the synthesis, derivatization, characterization, and modification of the raw materials and intermediates for the manufacture of PEG reagents or products incorporating such PEG reagents by means of conjugation, and all methods of making and using each and all of the foregoing. As used in this definition, “PEG” means polyethylene glycol and derivatives thereof, including methoxy-polyethylene glycol. 1.43 “Phase II Clinical Trial” means, as to the specific Licensed Product, a controlled and lawful study conducted anywhere in the world in diseased humans of the feasibility, safety, dose ranging and efficacy of such product, that is prospectively designed to generate sufficient data (if successful) to commence a Pivotal Trial (or foreign equivalent) of such product, as further defined with respect to the United States of America in United States Federal Regulation 21 C.F.R. 312.21, as may be amended. For the avoidance of doubt, a Phase II Clinical Trial requires enrollment of patients with the applicable disease or condition and is aimed to provide a measure of efficacy in addition to short-term tolerability. A combined phase I/II clinical trial will also be regarded to fall under the definition of a Phase II Clinical Trial. 1.44 “Pivotal Trial” means, as to the specific Licensed Product, a controlled and lawful study conducted anywhere in the world in humans of the efficacy and safety of such product, that is prospectively designed to demonstrate with statistical significance that such product is effective and safe for use in a particular indication in a manner sufficient to file an MAA to market and sell that product in the United States or another country for the indication being investigated by the study, as further defined with respect to the United States of America in United States Federal Regulation 21 C.F.R. 312.21, as may be amended. 1.45 “Receiving Party” has the meaning assigned to it in Section 5.1. 1.46 “Records” has the meaning assigned to it in Section 4.7. 1.47 “Regulatory Authorities” means the European Medicines Agency, the FDA, any successor agencies thereto, and any equivalent health regulatory authorities in any applicable country or territory. 1.48 “SCA Product” means any composition or formulation containing or comprising one or more Single Chain Antibodies in any format for the prognosis, diagnosis, prophylaxis or treatment of human or non-human diseases or conditions, in each case excluding any BiTE Product. 1.49 “Single Chain Antibody” or “SCA” means an Antibody having binding affinity for an Antigen whereby such Antibody comprises (a) a polypeptide segment having a light chain 6 \\PH - 037750/000002 - 398853 v1


 
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. variable region, (b) a polypeptide having a heavy chain variable region, and (c) at least one peptide linker linking those polypeptides into a single chain polypeptide. 1.50 “Tax Refund” has the meaning assigned to it in Section 4.10. 1.51 “Term” has the meaning assigned to it in Section 8.1. 1.52 “Third Party” means any party other than Micromet, Enzon, Viventia or their respective Affiliates. 1.53 “Third Party Claims” has the meaning assigned to it in Section 9.1. 1.54 “Valid Claim” means (a) any claim of an issued and unexpired patent within the Consolidated Patents which has not been revoked or held unenforceable or invalid by a court or other governmental agency of competent jurisdiction in a decision that is not appealed or cannot be appealed, and which has not been disclaimed or admitted to be invalid or unenforceable through reissue or otherwise, or (b) a pending claim in a pending patent application within the Consolidated Patents which has not been pending for more than five (5) years. 2. GRANT OF LICENSES 2.1 License. Subject to the terms and conditions of this Agreement, Micromet hereby grants to Viventia a nonexclusive, worldwide, royalty-bearing license under the Licensed Technology to Exploit Licensed Products in the Field. Subject to the terms and conditions of this Agreement, Viventia may grant and authorize the grant of further sublicenses under the foregoing license to any of its Affiliates or to a Third Party; provided, however, that any such sublicense will be consistent with the terms and conditions of this Agreement, and will impose on the sublicensee the obligations of Viventia and grant Micromet the rights contained in Sections 4.7, 5, 6.3, 7.1 and 7.2 of this Agreement. Viventia will provide Micromet with a complete copy of any sublicense agreement granting a sublicense under this Agreement within 30 days of execution of such agreement, except that the financial terms of such agreement may be redacted. Viventia hereby covenants and agrees not to use or sublicense any of its rights under the foregoing license except as expressly permitted in this Agreement. 2.2 Reservations. Except for the rights specifically granted herein, Micromet reserves all rights to the Consolidated Patents and Consolidated Know-How Controlled by it and reserves the right to utilize or allow Third Parties to utilize the Consolidated Patents and Consolidated Know-How consistent with the terms of this Agreement. No implied licenses are granted under this Agreement. 2.3 Exclusions. Notwithstanding anything in this Agreement to the contrary, Micromet grants no rights to Viventia under this Agreement to research, develop, manufacture, use, or sell (a) any BiTE Product, (b) any Licensed Product in the Excluded Field, or (c) any pharmaceutical product containing any full Antibody of any subtype. 7 \\PH - 037750/000002 - 398853 v1


 
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 3. LICENSED PRODUCT; REPORTING; DILIGENCE 3.1 Licensed Product. 3.1.1 General. Viventia will provide to Micromet a Dossier in respect of the Licensed Product that Viventia desires to Exploit under this Agreement. Viventia will submit a Dossier to Micromet in respect of the Licensed Product within sixty (60) days following the Effective Date. 3.1.2 Dossier Updates. During the Term, within ten (10) days after each anniversary of the Effective Date Viventia will prepare and provide to Micromet a Dossier (or update thereto) with respect to the Licensed Product. 3.1.3 Confidentiality. Micromet will treat all information contained in any Dossier (or update thereto) provided to Micromet under this Section 3.1 as Viventia’s Confidential Information in accordance with the confidentiality provisions of Section 5. 3.1.4 Diligence. Viventia will use its Diligent Efforts to develop and obtain regulatory approval of a Licensed Product in all Major Market Countries. As used in this Section 3.1.4, “Diligent Efforts” means those diligent efforts consistent with the exercise of prudent scientific and business judgment, that a company within the pharmaceutical industry would reasonably devote to a product of similar market potential or profit potential resulting from its own research efforts, based on conditions then prevailing, including by: (a) promptly assigning responsibility for development and commercialization activities to specific employees who are held accountable for progress and monitoring such progress on an on-going basis, (b) setting and consistently seeking to achieve specific and meaningful objectives and timelines for carrying out such development and commercialization activities, and (c) consistently making and implementing decisions and allocating resources designed to advance progress with respect to such objectives and timelines. 4. PAYMENTS Micromet has offered to Viventia three different payment options as set forth in Schedule V and Viventia has chosen payment option C of Schedule V, which is described in detail in this Section 4. 4.1 Initial License Fee. Viventia will pay to Micromet a non-refundable, non- creditable license fee of €450,000. The first installment of the initial license fee in the amount of €300,000 is due and payable within 10 days after the Effective Date. The remaining €150,000 of the initial license fee is due and payable within 10 days after the earlier of: (a) any Equity Financing, (b) any merger of Viventia or Viventia Biotech with a Third Party, any acquisition of Viventia or Viventia Biotech by a Third Party, any sale of all or substantially all assets of Viventia or Viventia Biotech to a Third Party, any acquisition of a Third Party by Viventia or Viventia Biotech, or any sale of all or substantially all assets of a Third Party to Viventia or Viventia Biotech, in each case, except with or into an Affiliate (including, without limitation, Viventia or Viventia Biotech), (c) any bankruptcy or insolvency of Viventia or Viventia Biotech, (d) any assignment of this Agreement by Viventia pursuant to Section 12.1 (except to the extent excluded 8 \\PH - 037750/000002 - 398853 v1


 
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. pursuant to clause (b) above or an assignment to Viventia Biotech), (e) the grant of a sublicense to a Third Party for a Licensed Product in accordance with Section 2.1 or any signing by or on behalf of Viventia or Viventia Biotech of a collaboration agreement for the development and/or commercialization of a Licensed Product, except for sublicense or collaboration agreement between Viventia and Viventia Biotech and/or their Affiliates, (f) any termination of this agreement according to Section 8 (except for a termination by Viventia following the final judicial determination of a material breach of Micromet or if the Parties otherwise agree in writing regarding such material breach), and (g) at the first anniversary of the Effective Date. The Parties agree that €400,000 of such license fee is attributable to Viventia’s and/or its Affiliates’ use of the SCA Technology for the research and development of Licensed Products within the Field prior to the Effective Date and the remaining €50,000 is attributable to the maintenance of the license during the 12-month period following the Effective Date. 4.2 License Maintenance Fee. Viventia will pay to Micromet an annual fee (the “License Maintenance Fee”) of €50,000 within ten (10) days after each anniversary of the Effective Date. Viventia may credit the amount of any License Maintenance Fee paid by Viventia to Micromet within ten (10) days after each anniversary of the Effective Date against any royalty payments to the extent payable pursuant to Section 4.4 during the 12-month period following such anniversary, 4.3 Milestones. Viventia will pay to Micromet in accordance with Section 4.6 the following non-refundable, non-creditable milestone payments for the Licensed Product Exploited by Viventia, its Affiliates (including, without limitation, Viventia Biotech), licensees or sublicensees. For greater certainty, each milestone payment will be made only once and the occurrence of a milestone event in a second country or subsequent countries will not trigger any additional milestone payments. Milestone Event Milestone Payment (1) Initiation of first Phase II Clinical Trial for the Licensed €200,000 Product in any country (2) Initiation of the first Pivotal Trial for the Licensed Product in €500,000 any country (3) Filing of the first MAA for the Licensed Product in the U.S.A. €700,000 (4) Filing of the first MAA for the Licensed Product in any €500,000 country in Europe (5) First Sale of a Licensed Product in the U.S.A. €1,400,000 (6) First Sale of a Licensed Product in any country in Europe €1,000,000 9 \\PH - 037750/000002 - 398853 v1


 
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 4.4 Royalties. 4.4.1 Subject to the terms and conditions of this Agreement, Viventia will pay to Micromet a royalty payment equal to: (a) 2.5% of Net Sales of Licensed Product calculated on that amount of Net Sales that are less than or equal to US$100,000,000 during a calendar year; (b) 3.0% of Net Sales of Licensed Product calculated on that amount of Net Sales that are greater than US$100,000,000 and less than or equal to US$300,000,000 during a calendar year; and (c) 3.5% of Net Sales of Licensed Product calculated on that amount of Net Sales that are greater than US$300,000,000 during a calendar year. Notwithstanding the foregoing and subject to the provisions of Section 4.4.2, the royalty rate applicable to such Licensed Product for sales in a particular country will be reduced to 1.5% of Net Sales of such Licensed Product in such country upon expiration, revocation or invalidation of the last to expire Valid Claim of the Consolidated Patents which, but for the license granted in this Agreement, would be infringed by the development, manufacture, importation, use or sale of a Licensed Product in that country. In the event of any reduction in accordance with the foregoing resulting from the revocation or invalidation of the last Patent in a particular country (which but for the license granted in this Agreement, was infringed by the development, manufacture, importation, use or sale of a Licensed Product prior to such invalidation), then Micromet shall refund to Viventia (on a country-by-country basis) the difference between (i) royalties actually paid by Viventia to Micromet under Section 4.4.1 (a)-(c) prior to the date of the invalidation of the last such Patent for such Licensed Product in such country and (ii) royalties that would have been payable on Net Sales of such Licensed Product in such country applying a royalty rate of 1.5% as described above in this subsection. 4.4.2 The royalty payment obligation of Viventia under this Section 4.4 will expire on a country-by-country basis upon the later of: (a) expiration of the last Valid Claim of the Consolidated Patents which, but for the license granted in this Agreement, would be infringed by the development, manufacture, importation, use or sale of the Licensed Product in such country; and (b) ten (10) years from first Commercial Sale for use or consumption by the general public of such Licensed Product by or on behalf of Viventia in such country. The Parties acknowledge and agree that by selecting payment option C in Schedule V, Viventia has agreed for its own convenience to the payment of royalties over a period going beyond the date of expiration of the Valid Claims, and that such payments are for the value and in consideration of the use of the Licensed Technology prior to the expiration of the Valid Claims. 4.5 Acceleration of Milestones. If milestone event (2) as listed in Section 4.3 is achieved without the achievement of milestone event (1) as listed in Section 4.3, then the milestone payments for milestone events (1) and (2) as set forth in Section 4.3 will be payable as if the relevant milestone event (1) had occurred as of the date of the achieved milestone event (2). 4.6 Payment. 10 \\PH - 037750/000002 - 398853 v1


 
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 4.6.1 Payment of Milestones. Upon Viventia achieving a development milestone that triggers a milestone payment obligation pursuant to Section 4.3, Viventia will give notice to Micromet within ten (10) days after achieving such milestone, and will make the corresponding milestone payment within thirty (30) days after the achievement of the corresponding milestone event. 4.6.2 Payment of Royalties. For any quarterly period for which royalties are payable by Viventia to Micromet under Section 4.4, Viventia will provide notice to Micromet within twenty-one (21) days after the end of each such calendar quarter and a written report with Viventia’s good faith estimate of Net Sales accrued in the preceding calendar quarter and the royalties payable thereon. Viventia will make royalty payments to Micromet for Licensed Products sold during a calendar quarter within forty-five (45) days after the last day of that calendar quarter. Each royalty payment will be accompanied by a written report for that calendar quarter showing the cumulative Net Sales of the applicable product sold by Viventia, its Affiliates, licensees and sublicensees on a country-by-country basis worldwide during the quarterly reporting period and the corresponding royalties payable under this Agreement. 4.6.3 Payment Method. All amounts due hereunder will be paid in EURO by wire transfer in immediately available funds to [***] or such other bank account as Micromet may from time to time notify Viventia. Any payments or portions thereof due hereunder which are not paid on the date such payments are due will bear interest from the due date until the date of payment at the rate which is the lower of (i) the overnight EURIBOR rate in effect on the due date and (ii) the highest rate permitted by applicable law. 4.6.4 Currency Conversion for Milestone Payments and Calculation of Net Sales. For any currency conversion required in connection with any payment hereunder, or in determining the amount of royalties due, such conversion will be made at the prevailing commercial rate of exchange for purchasing the currency into which an amount is to be converted as publicly announced as the spot rate quoted by Deutsche Bank AG (or its successor) in Frankfurt on (i) the day which is fifteen (15) Business Days following the date of the achievement of any milestone made pursuant to Section 4.3 and (ii) the day which is the last Business Day of the applicable quarterly period for any royalty payments made pursuant to Section 4.4. For purposes of determining the amount of royalties due, the amount of Net Sales in any foreign currency will be computed by converting such amount into EURO as provided in this Section. All payments due under this Agreement will be paid exclusive of value added tax. 4.7 Records; Audits. Viventia will keep or cause or procure to be kept and for at least four (4) years retain accurate data, accounts and supporting documentation in respect of all Licensed Products produced and/or sold, used or disposed of by or on behalf of Viventia and the Net Sales thereof solely for the purposes of and to the extent such Records are reasonably required for the computation and verification of royalties and all other sums payable under this Agreement (collectively, “Records”). Viventia will give to or procure for Micromet’s nominated representative, which shall be an independent accounting firm reasonably acceptable to Viventia (the “Accounting Firm”), upon reasonable request in writing (provided that such request will provide Viventia with not less than five (5) Business Days’ notice) and no more than once in any twelve (12)-month period, access to Viventia’s facilities during normal business hours to inspect 11 \\PH - 037750/000002 - 398853 v1


 
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. (but not make copies of) Records kept in accordance with this Section 4.7 but only to the extent they relate to computation and verification of royalties and other sums payable under this Agreement; provided that such representative is subject to confidentiality obligations similar to those set out in this Agreement. Micromet’s nominated representative will not disclose to Micromet or any Third Party any Confidential Information belonging to Viventia but will merely report on any under or over payment discovered as a result of his inspection and Micromet will be liable for any breach of such requirement by its nominated representative. The parties will use reasonable commercial efforts to ensure that any such audit will be completed within fifteen (15) Business Days after the written request of Micromet. Micromet will bear all costs of such audit, unless the audit reveals an underpayment of more than 5% from payments otherwise due and payable hereunder, in which case Viventia will bear the cost of the audit. 4.8 Payment of Additional Amounts. If, based on the results of any audit, additional payments are owed to Micromet under this Agreement, Viventia will make such additional payments promptly after the Accounting Firm’s written report is delivered to both Parties. If, based on the results of any audit, payments made by Viventia pursuant to Sections 4.4 exceeded payments indicated by the audit as being due thereunder, such excess will be promptly refunded to Viventia. 4.9 Confidentiality. Micromet will treat all information provided to it pursuant to any audit performed under Section 4.7 in accordance with the confidentiality provisions of Section 5 and will cause the Accounting Firm to enter into a reasonably acceptable confidentiality agreement with Viventia obligating such firm or representative to maintain all such financial information in confidence pursuant to such confidentiality agreement. 4.10 Withholdings. Viventia shall be responsible for all taxes, duties, assessments or other charges of any kind that may be imposed on any and all payments to Micromet under this Agreement, including all royalties, by any government, or subdivision of such government, other than taxes on Micromet’s income (a “Withholding”). All payments made by Viventia under this Agreement shall be made free and clear of, and without deduction or withholding for or on account of, any present or future taxes, duties or other governmental charges now or hereafter imposed, levied, collected, withheld or assessed by any governmental authority, other than taxes on account of Micromet’s income. The amounts payable by Viventia hereunder will be increased by the amount necessary (the “Gross-Up Amount”) so that after making all required deductions (including deductions applicable to additional sums payable under this Section 4.10), Micromet will receive an amount equal to the sum it would have received had no such deductions been made. Viventia will provide to Micromet such information as it may reasonably require to enable it to receive a refund of taxes or realize the benefit of any credit, offset or deduction for tax purposes on account of such withholding or Gross-Up Amount (collectively, the “Tax Refund”) and Micromet will, in its next filing with the appropriate tax regulatory authorities, claim such Tax Refund. If Micromet receives any Tax Refund, Micromet shall forthwith pay to Viventia the amount of such refund or the cash value of such other tax benefit. 12 \\PH - 037750/000002 - 398853 v1


 
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 5. CONFIDENTIALITY 5.1 Definition. During the Term and subject to the terms and conditions of this Agreement, a Party (the “Disclosing Party”) may communicate to another Party (the “Receiving Party”) confidential information in connection with this Agreement or the performance of its obligations hereunder, including, without limitation, any Dossier or update thereto, any Know- How, any information regarding Improvements or Intellectual Property Rights, any reports provided pursuant to this Agreement, any scientific and manufacturing information and plans, marketing and business plans, and financial and personnel matters relating to a Party or its present or future products, sales, suppliers, customers, employees, investors or business (collectively, “Confidential Information”). 5.2 Exclusions. 5.2.1 Notwithstanding the foregoing, information of a Disclosing Party will not be deemed Confidential Information with respect to a Receiving Party for purposes of this Agreement if such information: (a) was already known to the Receiving Party or its Affiliates, other than under an obligation of confidentiality or non-use, at the time of disclosure to the Receiving Party; (b) was generally available or known to parties reasonably skilled in the field to which such information or Know-How pertains, or was otherwise part of the public domain, at the time of its disclosure to the Receiving Party; (c) became generally available or known to parties reasonably skilled in the field to which such information or Know-How pertains, or otherwise became part of the public domain, after its disclosure to the Receiving Party through no fault of or breach of its obligations under this Section 5 by the Receiving Party; (d) was disclosed to the Receiving Party other than under an obligation of confidentiality or non-use, by a party other than the Disclosing Party who had no obligation to the Disclosing Party not to disclose such information or Know-How to others; or (e) was independently discovered or developed by the Receiving Party or its Affiliates, as evidenced by contemporaneous written records, without the use of or reference to, and by personnel who had no knowledge of or access to, any Confidential Information of the Disclosing Party. 5.2.2 Specific aspects or details of Confidential Information will not be deemed to be within the public domain or in the possession of a person or entity merely because the Confidential Information is embraced by more general information in the public domain or in the possession of such person or entity. Further, any combination of Confidential Information will not be considered in the public domain or in the possession of a person or entity merely because individual elements of such Confidential Information are in the public domain or in the possession 13 \\PH - 037750/000002 - 398853 v1


 
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. of such person or entity unless the combination and its principles are in the public domain or in the possession of such person or entity. 5.3 Disclosure and Use Restriction. Except as expressly provided herein, the Parties agree that, during the Term and for seven (7) years thereafter (unless one or more of the exceptions described in 5.2.1 apply), a Receiving Party and its Affiliates, licensees and sublicensees will keep completely confidential and will not publish or otherwise disclose and will not use for any purpose except for the purposes contemplated by this Agreement any Confidential Information of the Disclosing Party, its Affiliates, licensees or sublicensees. Nothing in this Section 5 shall be construed as granting any rights to any Party in any patent, trademark, copyright or design of the other party. 5.4 Authorized Disclosure. A Receiving Party may disclose Confidential Information of a Disclosing Party to the extent that such disclosure is: 5.4.1 made in response to a valid order of a court of competent jurisdiction or other governmental or regulatory body of competent jurisdiction; provided, however, that the Receiving Party will first have given notice to the Disclosing Party and given the Disclosing Party a reasonable opportunity to quash such order and to obtain a protective order requiring that the Confidential Information and documents that are the subject of such order be held in confidence by such court or governmental or regulatory body or, if disclosed, be used only for the purposes for which the order was issued; and provided, further, that if a disclosure order is not quashed or a protective order is not obtained, the Confidential Information disclosed in response to such court or governmental order will be limited to that information which is legally required to be disclosed in response to such court or governmental order; 5.4.2 otherwise required by law or mandatory regulation; provided, however, that the Disclosing Party will provide the Receiving Party with reasonable notice of such disclosure in advance thereof to the extent practicable; and provided, further, that the Confidential Information disclosed will be limited to that information which is legally required to be so disclosed by such law or mandatory regulation; 5.4.3 made by the Receiving Party to the regulatory authorities as required in connection with any application, filing, or similar requests for regulatory approvals; provided, however, that reasonable measures will be taken to assure confidential treatment of such information; and provided, further, that the Confidential Information disclosed will be limited to that information required in connection with such application, filing, or similar request for regulatory approval; 5.4.4 made by the Receiving Party, in connection with the performance of this Agreement, to Affiliates, permitted sublicensees, employees, consultants, representatives or agents, each of whom prior to disclosure must be bound by obligations of confidentiality and non- use at least equivalent in scope to those set forth in this Section 5, provided that the Receiving Party will be liable for and indemnify the Disclosing Party for any breach of such persons or entities; 14 \\PH - 037750/000002 - 398853 v1


 
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 5.4.5 made by the Receiving Party to existing or potential acquirers or merger candidates, potential collaborators (to the extent contemplated hereunder), investment bankers, existing or potential investors, venture capital firms or other financial institutions or investors for purposes of obtaining financing, each of whom prior to disclosure must be bound by obligations of confidentiality and non-use at least equivalent in scope to those set forth in this Section 5; 5.4.6 a disclosure of the terms of this Agreement made in accordance with Section 5.6; or 5.4.7 made by Micromet (as a Receiving Party) to Enzon, pursuant to the Micromet/Enzon Marketing Agreement or any other agreement relating thereto; provided that Enzon agrees, prior to such disclosure to be bound by obligations of confidentiality and non-use at least equivalent in scope to those set forth in this Section 5. 5.5 Use of Name. Neither Party will make public use of the other Party’s name except (i) in connection with permitted disclosures relating to this Agreement and the activities contemplated hereby, (ii) as required by applicable law, and (iii) otherwise as agreed in writing by such other Party. 5.6 Existence and Terms of Agreement to be Maintained in Confidence. Subject to the other provisions of this Section 5 (including the exception for any public disclosures made in compliance with the terms of this Section 5.6), the Parties agree that the existence and the terms of this Agreement are confidential and will not be disclosed by either Party to any Third Party (except to a Party’s professional advisors) without advance written permission of the other Party; provided, however, that either Party may make any filings of this Agreement required by law or regulation in any country so long as such Party uses its reasonable efforts to obtain confidential treatment for portions of this Agreement as available, consults with the other Party, and permits the other Party to participate, to the extent practicable, in seeking a protective order or other confidential treatment; and provided, further, that either Party may disclose the terms of this Agreement to a Third Party (and its professional advisors) when such disclosure is reasonably necessary in connection with (i) the grant of a license or sublicense of the Patents within the Licensed Technology to such Third Party, (ii) a merger, acquisition, placement, investment, or other such transaction with such Third Party, or (iii) the sale of securities to or other financing from such Third Party or a financing underwritten by such Third Party, in which case disclosure may be made to any person or entity to whom such Third Party sells such securities (and its professional advisors). Advance written permission for disclosure will not be required when a Party is ordered to disclose information concerning the Agreement by a competent tribunal or such disclosures are required by law, regulation, or stock exchange rules, except that such Party will make all reasonable efforts to limit any disclosure as may be required in the course of legal proceedings by entry of an appropriate protective and confidentiality order, and will provide the other Party with as much advance notice of such circumstances as is practicable. 5.7 Press Releases. Following the execution of this Agreement, the Parties may make a press release regarding the execution of this Agreement, the final form of which will be subject to approval of both Parties prior to its release to the public. 15 \\PH - 037750/000002 - 398853 v1


 
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 6. FILING, PROSECUTION AND MAINTENANCE OF PATENT RIGHTS 6.1 Prosecution and Maintenance. As between the Parties, Micromet will be solely responsible and will bear all costs for, the preparation, filing, prosecution and maintenance of the Consolidated Patents, subject to the terms and conditions of this Agreement. 6.2 Costs. As between the Parties, Micromet will be solely responsible and bear all costs for (and enjoy all recovery from) any actions concerning the Consolidated Patents, including but not limited to reexaminations, oppositions, interferences, and infringement and impeachment actions, all in its sole and absolute discretion. 6.3 Consequences of Patent Challenge. 6.3.1 Micromet will be permitted to terminate this Agreement if Viventia or its Affiliates challenge, or intentionally direct or intentionally assist (other than under compulsion of a legal process) a third party to challenge, the validity or enforceability of any of the Patents within the Consolidated Patents. If a licensee or sublicensee of Viventia or its Affiliates (or an Affiliate of such licensee or sublicensee) challenges the validity or enforceability of or otherwise opposes any such Patent under which such person is licensed, then Viventia upon notice by Micromet will terminate such license or sublicense. 6.3.2 Unless prohibited by applicable law, Viventia and its Affiliates will include provisions in all agreements that grant license or sublicense rights under the Patents within the Licensed Technology providing that if the licensee or sublicensee or Affiliates thereof challenge the validity or enforceability of or otherwise opposes any such Patents under which the person is licensed, Viventia may terminate the license or sublicense. 6.4 Notice. Each Party will notify the other of any infringement in respect of any Licensed Product by a Third Party of any Patent in the Consolidated Patents of which such Party (or in the case of Viventia, its Affiliates) becomes aware and will provide the other Party with the available evidence, if any, of such infringement. 6.5 Enforcement. As between the Parties, Micromet will have the exclusive right and sole discretion during the Term to stop infringement of the Consolidated Patents, including by bringing suit or other proceeding against the infringer in its own name. Upon request by Micromet, Viventia will provide reasonable assistance to Micromet as a party to the lawsuit or other proceeding, at Micromet’s expense; provided, however, that Micromet will retain control of the prosecution of such suit or proceeding. Micromet will bear all its costs incurred in connection with such lawsuit or other proceeding, and, consequently, will be entitled to collect and retain for its own account such damages and profits as may be accrued as a result of such lawsuit or other proceeding. 7. IMPROVEMENTS; OWNERSHIP 7.1 Disclosure of Improvements. Promptly after conception or discovery by or on behalf of Viventia, its Affiliates, licensee or sublicensees of any Improvements, but in any event within 30 days of such conception or discovery by Viventia or its Affiliates (or promptly following 16 \\PH - 037750/000002 - 398853 v1


 
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. notification by a licensee or sublicense), Viventia will provide Micromet with notice of such Improvements. 7.2 Ownership. Subject to the licenses granted in Section 7.3, Viventia will retain all right, title and interest in and to any and all Improvements developed by or on behalf of Viventia or its Affiliates. Viventia will ensure that to the extent permitted by law, any Third Party, including Viventia’s licensees or sublicensees, performing work related to any inventions claimed in or covered by the Consolidated Patents is under an obligation: (a) to assign all inventions, Patents, and Know-How relating to any Improvements to Viventia, or where this obligation is not permitted, (b) to exclusively license all such inventions, Patents, and Know-How to Viventia, with the right to sublicense, or where this obligation is not permitted, (c) to non-exclusively license all such inventions, Patents, and Know-How to Viventia, with the right to sublicense. 7.3 License to Micromet. Subject to the terms and conditions of this Agreement, Viventia hereby grants to Micromet a perpetual, irrevocable, non-exclusive, worldwide, royalty- free, fully paid license, with the right to grant and authorize the grant of sublicenses, under any Patents claiming or covering the Improvements to use and practice any inventions claimed therein for any purpose. Except as provided in the preceding sentence, Viventia does not grant any right and/or license to Micromet under any Viventia proprietary information (including, without limitation, Viventia Confidential Information or Know-How). 7.4 Further Assurances. Viventia agrees to take all necessary and proper acts, and will cause its employees, Affiliates, contractors, sublicensees, and consultants to take such necessary and proper acts, to effectuate the ownership provisions set forth in this Section 7. 8. TERM AND TERMINATION 8.1 Term. This Agreement is effective as of the Effective Date and will expire upon the last date upon which the royalties payable by Viventia to Micromet under Section 4.4 expire unless terminated earlier as expressly provided otherwise in this Agreement (the “Term”). 8.2 Termination for Material Breach. 8.2.1 Any failure by a Party to comply with any of its material obligations contained in this Agreement will entitle the Party not in default to give to the Party in default written notice specifying the nature of the default and requiring the defaulting Party to make good or otherwise cure such default. 8.2.2 If, after a Party’s receipt of notice pursuant to Section 8.2.1 above, such default is not cured within 60 days, then the Party not in default will be entitled, on written notice to the other Party and without prejudice to any other rights available to it by law or in equity, to terminate this Agreement by written notice to the other Party effective immediately upon receipt. 8.2.3 This Agreement is specifically made on the basis that in the event of any breach of any term of this Agreement by Viventia (unless otherwise waived in writing by Micromet) (i) as provided in Section 8.2.1 (after giving effect to the notice and cure provisions in Section 8.2.2) or (ii) in the event of the dissolution, receivership, insolvency or bankruptcy of 17 \\PH - 037750/000002 - 398853 v1


 
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. Viventia, this Agreement shall be deemed to have automatically terminated immediately before such event, and without further act or instrument shall revert to Micromet, and Viventia shall thereupon have no property interest in the license or in the rights thereunder as provided for in this Agreement. Such automatic termination shall apply equally and automatically to any sublicense granted by Viventia pursuant to this Agreement, and this provision shall be incorporated into any sublicense agreement granted by Viventia as permitted under this Agreement. It is the intent of the Parties that all business activities with respect to the license provided for in this Agreement shall be carried out by Viventia or its Affiliates, and that no other entity shall have any interest in the license except by way of sublicense as permitted under this Agreement. 8.3 Termination at Will. In the event that Viventia (either directly or through an Affiliate or Third Party) permanently ceases the manufacture, use or sale of all Licensed Products and no amounts are otherwise payable to Micromet under this Agreement, Viventia will have the right to terminate this Agreement at any time upon 60 days’ prior written notice to Micromet. Upon such termination, Viventia shall provide Micromet written certification that the foregoing conditions have been satisfied. 8.4 Termination of Enzon Agreements. Upon termination of the Micromet/Enzon Marketing Agreement granting Micromet rights to grant licenses to the Consolidated Patents, the licenses granted to Viventia in this Agreement under the Consolidated Patents will continue in full force and effect; provided, however, that Viventia’s acts or omissions under this Agreement did not cause such termination; and provided, further, that Viventia is not in breach of this Agreement and continues to perform its obligations under this Agreement. 8.5 Consequences of Expiration and Termination. 8.5.1 Material Breach. Upon termination of this Agreement by a Party pursuant to Section 8.2, (i) all licenses granted by the terminating Party to the defaulting Party will terminate (except for the licenses granted under Section 7.3 and as provided otherwise in Section 8.5.3); (ii) the licenses granted by the defaulting Party will survive (subject to continued performance by the terminating Party of its royalty obligations, if any, and any other provision of this Agreement applicable to such license); and (iii) the milestone and royalty obligations set forth in Section 4 with respect to the surviving licenses will continue. 8.5.2 Termination at Will. Upon any termination of this Agreement pursuant to Section 8.3, all licenses granted to Viventia pursuant to this Agreement will terminate entirely and immediately. 8.5.3 Survival of Certain Sublicenses. Sublicenses granted by a defaulting Party to a Third Party will survive termination of the defaulting Party’s license under Section 8.5.1(i); provided, however, that (x) such Third Party is not the cause of the default, (y) such Third Party is not in breach of, and continues to fully perform all obligations under, its sublicense agreement and any surviving provisions in this Agreement applicable to such sublicensee, and (z) the terminating Party continues to receive from such Third Party all royalty and milestone payments set forth in Section 4. 18 \\PH - 037750/000002 - 398853 v1


 
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 8.5.4 Return of Confidential Information. Upon any expiration or termination of this Agreement, each Party will, at the other Party’s option, promptly return or destroy any of such other Party’s Confidential Information (including all Know-How) in its possession or control; provided, however, that each Party may retain: (a) a single archival copy of the Confidential Information of the other Party solely for the availing itself of the rights accorded to it, or to perform its obligations, under the surviving provisions of this Agreement (including, without limitation any and all license or sublicense rights expressly made to survive termination or expiration hereof); and (b) any portion of the Confidential Information of the other Party which a Party is required by applicable law to retain. 8.6 Survival. Expiration or termination of this Agreement for any reason will not relieve the Parties of any obligation accruing prior to such expiration or termination, including without limitation Viventia’s obligation to pay royalties under Section 4 above on the sale of Licensed Products prior to the effective date of such expiration or termination. The provisions of Sections 2.2, 3.1.3, 4 (solely as to accrued and unpaid amounts and Sections 4.7 and 4.9), 5, 7.2, 7.3, 8.5, 8.6, 9, 11, and 12 together with any definitions used or schedules referenced therein, will survive termination or expiration of this Agreement. 9. INDEMNIFICATION AND INSURANCE 9.1 Indemnification By Viventia. Viventia will indemnify Micromet, its Affiliates and their respective directors, officers, employees, and agents and defend and save each of them harmless, from and against any and all losses, damages, liabilities, costs and expenses (including reasonable attorneys’ fees and expenses) (collectively, “Losses”) in connection with any and all liability suits, investigations, claims or demands by Third Parties (“Third Party Claims”) to the extent arising from or occurring as a result of or in connection with: (i) the research, development, manufacture, use, sale, offer for sale, distribution, or importation of the Licensed Product by or on behalf of Viventia or its Affiliates, (ii) the breach of Viventia’s representations, warranties and covenants set forth in Section 10, or (iii) the gross negligence or willful misconduct by Viventia, its Affiliates and their respective directors, officers, employees, agents, and sublicensees, except in each case to the extent that such Losses arise out of or result from (a) the gross negligence or willful misconduct of a party seeking indemnification under this Agreement; or (b) a breach by a party seeking indemnification under this Agreement of any provision of this Agreement. 9.2 Indemnification By Micromet. Micromet will indemnify Viventia, its Affiliates and their respective directors, officers, employees, and agents and defend and save each of them harmless, from and against any and all Losses in connection with any and all Third Party Claims to the extent arising from or occurring as a result of or in connection with the breach of Micromet’s representations, warranties and covenants set forth in Section 10, except in each case to the extent that such Losses arise out of or result from (a) the gross negligence or willful misconduct of a party seeking indemnification under this Agreement; or (b) a breach by a party seeking indemnification under this Agreement of any provision of this Agreement. 9.3 Indemnification Procedure. 19 \\PH - 037750/000002 - 398853 v1


 
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 9.3.1 Notice of Claim. A person or entity seeking indemnification pursuant to Section 9.1 or 9.2 (each, an “Indemnitee”) will give the Party against whom such claim is made (each, an “Indemnifying Party”) written notice (an “Indemnification Claim Notice”) of any Losses or discovery of fact upon which such Indemnitee intends to base a request for indemnification under Section 9.1 or Section 9.2, as the case may be, but in no event will an Indemnifying Party be liable for any Losses that result from any delay in providing such notice. Each Indemnification Claim Notice must contain a description of the claim and the nature and amount of such Loss (to the extent that the nature and amount of such Loss are known at such time). The Indemnitee will furnish promptly to the Indemnifying Party copies of all papers and official documents received in respect of any Losses. 9.3.2 Prosecution of Claims. The obligations of an Indemnifying Party under this Section 9 will be governed by and be contingent upon the following additional terms and conditions: (a) Control of Defense. At its option, the Indemnifying Party may assume the defense of any Third Party Claim by giving written notice to the Indemnitee within 30 days after the Indemnifying Party’s receipt of an Indemnification Claim Notice. Upon assuming the defense of a Third Party Claim, the Indemnifying Party may appoint as lead counsel in the defense of the Third Party Claim any legal counsel selected by the Indemnifying Party. In the event the Indemnifying Party assumes the defense of a Third Party Claim, the Indemnitee will immediately deliver to the Indemnifying Party copies of all original notices and documents (including court papers) received by such Indemnitee in connection with the Third Party Claim. Should the Indemnifying Party assume the defense of a Third Party Claim, the Indemnifying Party will not be liable to the Indemnitee for any legal expenses subsequently incurred such Indemnitee in connection with the analysis, defense or settlement of the Third Party Claim except as contemplated in clause (b) below or as requested by Indemnified Party. (b) Right to Participate in Defense. Any Indemnitee will be entitled to participate in, but not control, the defense of such Third Party Claim and to employ counsel of its choice for such purpose; provided, however, that such employment will be at the Indemnitee’s own expense unless (i) the employment thereof has been specifically authorized by the Indemnifying Party in writing, or (ii) the Indemnifying Party’s has failed to assume the defense and employ counsel in accordance with Section 9.3.2(a) (in which case the Indemnitee will control the defense). (c) Settlement. With respect to any Losses relating solely to the payment of money damages in connection with a Third Party Claim and that will not result in an Indemnitee’s becoming subject to injunctive or other relief or otherwise adversely affect the business of the Indemnitee in any manner, and as to which the Indemnifying Party will have acknowledged in writing the obligation to indemnify the Indemnitee under this Agreement, the Indemnifying Party will have the sole right to consent to the entry of any judgment, enter into any settlement or otherwise dispose of such Loss, on such terms as the Indemnifying Party, in its sole discretion, will deem appropriate, and will transfer to the Indemnitee all amounts that such Indemnitee will be liable to pay prior to the time prior to the entry of judgment. With respect to all other Losses in connection with Third Party Claims, where the Indemnifying Party has assumed 20 \\PH - 037750/000002 - 398853 v1


 
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. the defense of the Third Party Claim in accordance with Section 9.3.2(a), the Indemnifying Party will have- authority to consent to the entry of any judgment, enter into any settlement or otherwise dispose of such Loss provided it obtains the prior written consent of the Indemnitee (which consent will be at the Indemnitee’s sole and absolute discretion). The Indemnifying Party will not be liable for any settlement or other disposition of a Loss by an Indemnitee that is reached without the written consent of the Indemnifying Party. Regardless of whether the Indemnifying Party chooses to defend or prosecute any Third Party Claim, no Indemnitee will admit any liability with respect to, or settle, compromise or discharge, any Third Party Claim without the prior written consent of the Indemnifying Party. (d) Cooperation. Regardless of whether the Indemnifying Party chooses to defend or prosecute any Third Party Claim, the Indemnitee will, and will cause each other Indemnitee’s Affiliates, officers, directors, employees and agents to, cooperate in the defense or prosecution thereof and will furnish such records, information and testimony, provide such witnesses and attend such conferences, discovery proceedings, hearings, trials and appeals as may be reasonably requested in connection therewith. Such cooperation will include access during normal business hours afforded to the Indemnifying Party to, and reasonable retention by the Indemnitee of, records and information that are reasonably relevant to such Third Party Claim, and making Indemnitee’s and other employees and agents available on a mutually convenient basis to provide additional information and explanation of any material provided under this Agreement, and the Indemnifying Party will reimburse the Indemnitee for all its reasonable out-of-pocket expenses in connection therewith. 9.4 Expenses. Except as provided above, the reasonable and verifiable costs and expenses, including fees and disbursements of counsel, incurred by the Indemnitee in connection with any claim will be reimbursed on a calendar quarter basis by the Indemnifying Party, without prejudice to the Indemnifying Party right to contest the other party’s right to indemnification and subject to refund in the event the Indemnifying Party is ultimately held not to be obligated to indemnify the Indemnitee. 9.5 Insurance. During the Term, each Party will have and maintain such types and amounts of liability insurance as is normal and customary in the industry generally for parties similarly situated, and each Party will, upon reasonable request of the other Party, provide such other Party with a copy of its policies of insurance in that regard, along with any amendments and revisions thereto. 10. REPRESENTATION AND WARRANTIES, COVENANTS 10.1 Micromet Representations and Warranties. Micromet represents and warrants to Viventia that, as of the Effective Date: 10.1.1 the Micromet/Enzon Cross License Agreement and the Micromet/Enzon Marketing Agreement has been duly executed and delivered by it and Enzon and constitutes a legal, valid and binding obligation enforceable against it and Enzon in accordance with its terms; 21 \\PH - 037750/000002 - 398853 v1


 
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 10.1.2 this Agreement has been duly executed and delivered by it and constitutes a legal, valid, and binding obligation enforceable against it in accordance with its terms; 10.1.3 no approval, authorization, consent, or other order or action of or filing with any court, administrative agency, governmental authority or other third party (including, without limitation, Enzon) is required for the execution and delivery by it of this Agreement or the consummation by it of the transactions contemplated hereby; 10.1.4 it has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby; 10.1.5 neither it nor Enzon has previously assigned, transferred, conveyed or otherwise encumbered its right, title or interest in the Licensed Technology or entered into any contract or agreement with any Third Party which prevents the grant of the rights granted to Viventia pursuant to this Agreement; 10.1.6 no Third Party has asserted, claimed or, to Micromet’s knowledge, threatened to claim any right, title or interest in or to the Licensed Technology and there are no claims, judgments or settlements against or owed by Micromet or pending or threatened claims or litigation against Micromet relating to the Licensed Technology nor is there a reasonable basis for any such claim; 10.1.7 to Micromet’s knowledge, there are no claims, judgments or settlements against or owed by Enzon or pending or threatened claims or litigation against Enzon relating to the Licensed Technology; 10.1.8 Micromet has the authority to grant to Viventia the license rights granted in this Agreement; 10.1.9 it Controls the Licensed Technology; 10.1.10 to Micromet’s knowledge, Micromet has complied in all material respects with applicable laws and regulations in connection with its execution and delivery of this Agreement; 10.1.11 all official fees, maintenance fees and annuities for the Micromet Patents have been timely paid through the Effective Date; and 10.1.12 no opposition, reexamination or interference proceeding is pending as of the Effective Date in respect of any issued or granted patent within the Micromet Patents. 10.2 Micromet Covenants. Micromet covenants to Viventia that throughout the Term Micromet will Control the Consolidated Patents and Know-How, provided that in no event shall the foregoing be deemed a covenant applicable to the enforceability, validity or non-infringement of any of the Consolidated Patents and Know-How. 22 \\PH - 037750/000002 - 398853 v1


 
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 10.3 Viventia Representations and Warranties. Viventia represents and warrants to Micromet that, as of the Effective Date: 10.3.1 this Agreement has been duly executed and delivered by it and constitutes legal, valid, and binding obligations enforceable against it in accordance with its terms; 10.3.2 it has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby; and 10.3.3 no approval, authorization, consent, or other order or action of or filing with any court, administrative agency or other governmental authority is required in the jurisdiction of Viventia’s place of business for the execution and delivery by it of this Agreement or the consummation by it of the transactions contemplated hereby. 10.4 Enzon Representations and Warranties. Enzon represents and warrants to Viventia that, as of the Effective Date: 10.4.1 all official fees, maintenance fees and annuities for the Enzon Patents have been timely paid through the Effective Date; and 10.4.2 no opposition, reexamination or interference proceeding is pending as of the Effective Date in respect of any issued or granted patent within the Enzon Patents. 11. DISCLAIMER; LIMITATION OF LIABILITY 11.1 DISCLAIMER OF WARRANTY. EXCEPT FOR THE EXPRESS WARRANTIES SET FORTH IN SECTION 10 ABOVE, EACH PARTY MAKES NO CONDITIONS OR REPRESENTATIONS AND GRANTS NO WARRANTIES, EXPRESS OR IMPLIED, EITHER IN FACT OR BY OPERATION OF LAW, BY STATUTE OR OTHERWISE, AND EACH PARTY SPECIFICALLY DISCLAIMS ANY OTHER WARRANTIES, WHETHER WRITTEN OR ORAL, OR EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF QUALITY, OR ANY WARRANTY AS TO THE VALIDITY OF ANY PATENTS OR THE NON-INFRINGEMENT OF ANY INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES. 11.2 LIMITATION OF LIABILITY. IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR LOST PROFITS, LOSS OF DATA, OR FOR ANY SPECIAL, INDIRECT, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES, HOWEVER CAUSED, ON ANY THEORY OF LIABILITY AND WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, ARISING UNDER ANY CAUSE OF ACTION AND ARISING IN ANY WAY OUT OF THIS AGREEMENT. THE FOREGOING LIMITATIONS WILL NOT APPLY TO DAMAGES ARISING FROM A BREACH OF SECTION 5 OR INDEMNIFICATION UNDER SECTION 9.1 OR 9.2 OR AN AWARD OF ENHANCED DAMAGES AVAILABLE UNDER THE PATENT LAWS FOR WILLFUL PATENT INFRINGEMENT AND WILL NOT, FOR GREATER CERTAINTY, LIMIT VIVENTIA’S OR MICROMET’S INDEMNITY OBLIGATIONS UNDER THIS AGREEMENT. 23 \\PH - 037750/000002 - 398853 v1


 
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 12. MISCELLANEOUS 12.1 Assignment. Neither Party will sell, transfer, assign, delegate, pledge or otherwise dispose of, whether voluntarily, involuntarily, by operation of law or otherwise, this Agreement or any of its rights or duties under this Agreement without the prior written consent of the other Party (which such consent may be granted, withheld or conditioned at the other Party’s sole and absolute discretion); provided, however, that a Party may assign or transfer this Agreement or any of its rights or obligations under this Agreement without such consent (a) to any Affiliate of such Party; or (b) to any Third Party with which it merges or consolidates, or to which it transfers all or substantially all of its assets to which this Agreement relates; and provided, further, that the relevant Affiliate assignee, Third Party assignee or surviving entity assumes in writing all of the assigning Party’s obligations under this Agreement. The assigning Party (except if it is not the surviving entity) will remain jointly and severally liable with the relevant Affiliate or Third Party assignee under this Agreement. Notwithstanding the foregoing, any assignment or purported assignment of this Agreement by Micromet will be void ab initio and of no force or effect to the extent that such assignment would violate the provisions or otherwise terminate the Micromet/Enzon Cross-License Agreement or the Micromet/Enzon Marketing Agreement. Any purported assignment or transfer in violation of this Section 12.1 will be void ab initio and of no force or effect. 12.2 Severability. If any provision of this Agreement is held to be illegal, invalid or unenforceable under any present or future law, then (a) such provision will be fully severable, (b) this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof, (c) the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance from this Agreement, and (d) the Parties will use good faith efforts to promptly replace such illegal, invalid or unenforceable provision with a valid and enforceable provision having similar terms such that the objectives contemplated by the Parties when entering this Agreement may be realized. To the fullest extent permitted by applicable law, each Party hereby waives any provision of law that would render any provision prohibited or unenforceable in any respect. 12.3 Governing Law; Dispute Resolution. 12.3.1 This Agreement, all disputes between the Parties related to or arising out of this Agreement, the Parties’ relationship created hereby, and/or the negotiations for and entry into this Agreement, including any dispute concerning its conclusion, binding effect, amendment, coverage, or termination, will be governed by the laws of New York, U.S.A. without reference to any choice of law principles that would cause the application of the laws of a different jurisdiction, and (subject to Section 12.3.2 below) shall be subject to the exclusive jurisdiction of the courts of competent jurisdiction located in New York, New York, U.S.A. 12.3.2 The Parties will try to settle their differences amicably between themselves. In the event of any controversy or claim arising out of or relating to any provision of this Agreement or the performance or alleged non-performance of a Party of its obligations under this Agreement (“Dispute”), a Party may notify the other Party in writing of such Dispute. If the Parties 24 \\PH - 037750/000002 - 398853 v1


 
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. are unable to resolve the Dispute within twenty (20) days after receipt of the written notice by the other Party, such dispute will be referred to the Chief Executive Officers of each of the Parties (or their respective designees) who will use their good faith efforts to resolve the Dispute within thirty (30) days after it was referred to the Chief Executive Officers. If the Chief Executive Officers fail to resolve the Dispute, each Party may pursue its rights and remedies as described in Section 12.3.1 above. Notwithstanding the foregoing, no Dispute relating to Section 5 will be subject to this Section 12.3.2. In addition, nothing in this Section 12.3.2 will limit either Party’s right to seek immediate injunctive or other equitable relief whenever the facts or circumstances would permit a Party to seek such relief in a court of competent jurisdiction. 12.4 Notices. All notices or other communications that are required or permitted hereunder will be in writing and delivered personally, sent by facsimile (and promptly confirmed by personal delivery or overnight courier as provided herein), or sent by internationally-recognized overnight courier addressed as follows: If to Micromet, to: Micromet AG Staffelseestrasse 2 D-81477 Munich, Germany Attention: Chief Executive Officer Facsimile: +49 (0) 89 895-277 205 with a copy to: Cooley Godward LLP One Freedom Square Reston Town Center 11951 Freedom Drive Reston, Virginia 20190-5656 Attention: Matthias Alder, Esq. Facsimile: + 1 (703) 456-8100 If to Viventia, to: Viventia Biotech, Inc. 10 Four Seasons Place, suite 501 Toronto, Ontario Canada M9B 6117 Attention: President and CEO Facsimile: +1 (416) 3359306 25 \\PH - 037750/000002 - 398853 v1


 
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. with a copy to: Torys LLP 79 Wellington Street West Suite 3000, TD Centre P.O. Box 270 Toronto, Ontario M5K 1N2 Attention: Cheryl V. Reicin Facsimile: +1 (416) 865-7373 or to such other address as the Party to whom notice is to be given may have furnished to the other Party in writing in accordance herewith. Any such communication will be deemed to have been given (i) when delivered, if personally delivered or sent by facsimile on a Business Day, and (ii) on the second Business Day after dispatch, if sent by internationally-recognized overnight courier. Except where notice is required to be given under this Agreement, it is understood and agreed that this Section 12.4 is not intended to govern the day-to-day business communications necessary between the Parties in performing their duties, in due course, under the terms of this Agreement. 12.5 Entire Agreement; Modifications. This Agreement, together with any schedules attached hereto (each of which is hereby incorporated herein by reference), sets forth and constitutes the entire agreement and understanding between the Parties with respect to the subject matter hereof and all agreements, understanding, promises and representations made prior to the date hereof, whether written or oral, with respect thereto are hereby superseded and of no further force and effect. Each Party confirms that it is not relying on any representations or warranties of the other Party except as specifically set forth herein or as may be agreed otherwise in writing by the parties. No amendment or modification of this Agreement will be binding upon the Parties unless made in writing and duly executed by authorized representatives of both Parties. 12.6 Relationship of the Parties. It is expressly agreed that the Parties’ relationship under this Agreement is strictly one of licensor-licensee, and that this Agreement does not create or constitute a partnership, joint venture, or agency. Neither Party will have the authority to make any statements, representations or commitments of any kind, or to take any action, which will be binding (or purport to be binding) on the other. All persons employed by a Party will be employees of such Party and not of the other Party and all costs and obligations incurred by reason of any such employment will be for the account and expense of such Party. 12.7 Waiver. Any term or condition of this Agreement may be waived at any time by the Party that is entitled to the benefit thereof, but no such waiver will be effective unless set forth in a written instrument duly executed by or on behalf of the Party waiving such term or condition. The waiver by either Party of any right hereunder or of claims based on the failure to perform or a breach by the other Party will not be deemed a waiver of any other right hereunder or of any other breach or failure by said other Party whether of a similar nature or otherwise. 26 \\PH - 037750/000002 - 398853 v1


 
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 12.8 Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. 12.9 No Benefit to Third Parties. The representations, warranties, covenants and agreements set forth in this Agreement are for the sole benefit of the Parties hereto and their successors and permitted assigns, and they will not be construed as conferring any rights on any other parties. 12.10 Further Assurance. Each Party will duly execute and deliver, or cause to be duly executed and delivered, such further instruments and do and cause to be done such further acts and things, including the filing of such assignments, agreements, documents and instruments, as may be necessary or as the other Party may reasonably request in connection with this Agreement or to carry out more effectively the provisions and purposes, or to better assure and confirm unto such other Party its rights and remedies under this Agreement. 12.11 English Language. This Agreement has been written and executed in the English language. Any translation into any other language will not be an official version thereof, and in the event of any conflict in interpretation between the English version and such translation, the English version will control. 12.12 Force Majeure. Neither Party will be deemed to be in breach of this Agreement as a result of default, delay or failure to perform by such Party that results from any cause beyond the reasonable control of such Party that could not reasonably be foreseen by such Party, including without limitation, fire, earthquake, acts of God, acts of war, terrorism, strikes, lockouts, or other labor disputes, riots, civil disturbances, actions or inactions of governmental authorities (except actions in response to a breach of applicable laws by such Party), or epidemics. This Section 12.12 will not operate to excuse payment by a Party of any amounts due to any other Party under this Agreement, except to the extent that a payment is delayed due to one of the causes described in the preceding sentence. In the event of any such force majeure, the Party affected will promptly notify the other Party, will use commercially reasonable efforts to overcome such force majeure, and will keep the other Party informed with respect thereto. 12.13 Construction. Except where the context otherwise requires, wherever used, the singular will include the plural, the plural the singular, the use of any gender will be applicable to all genders and the word “or” is used in the inclusive sense (and/or). The captions of this Agreement are for convenience of reference only and in no way define, describe, extend or limit the scope or intent of this Agreement or the intent of any provision contained in this Agreement. The term “including” as used herein means including, without limiting the generality of any description preceding such term. No rule of strict construction will be applied against either Party. [Remainder of this page is left blank intentionally. Signature page follows.] 27 \\PH - 037750/000002 - 398853 v1


 
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. IN WITNESS WHEREOF, the Parties have executed this Agreement by their respective authorized representatives as of the date first written above. MICROMET AG By: /s/ Christian Itin, Ph.D. Name: Christian Itin, Ph.D. Title: Chief Executive Officer VIVENTIA BIOTECH (BARBADOS) INC. By: /s/ Nick Glover, Ph.D. Name: Nick Glover, Ph.D. Title: Director By: /s/ Robert J. Reid Name: Robert J. Reid Title: President By: /s/ Trevor A. Carmichael Name: Trevor A. Carmichael Title: Director For purposes of Section 8.4 and 10.5 hereof: ENZON, INC. By: /s/ Lawrence R. Miller Name: Lawrence R. Miller Title: VP and General Counsel \\PH - 037750/000002 - 398853 v1


 
Exhibit 10.1 [***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. SCHEDULE I (A) ENZON PATENTS [***] \\PH - 037750/000002 - 398853 v1


 
Exhibit 10.1 [***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. SCHEDULE I (B) MICROMET PATENTS [***] \\PH - 037750/000002 - 398853 v1


 
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. [***] 2 \\PH - 037750/000002 - 398853 v1


 
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. [***] 3 \\PH - 037750/000002 - 398853 v1


 
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. [***] 4 \\PH - 037750/000002 - 398853 v1


 
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. [***] 5 \\PH - 037750/000002 - 398853 v1


 
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. SCHEDULE II EpCAM Target The EpCAM Target sequences are: [***] \\PH - 037750/000002 - 398853 v1


 
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. SCHEDULE III Excluded Field The licenses granted by Micromet to Viventia will not include the right to Exploit the following products: [***] \\PH - 037750/000002 - 398853 v1


 
Exhibit 10.1 [***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. SCHEDULE IV Amino Acid Sequence of Licensed Product [***] \\PH - 037750/000002 - 398853 v1


 
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. SCHEDULE V Payment Options Payment Option A: One-time license fee: Upon signing: E 3,000,000 Payment Option B: Fully paid-up license with payments in three installments: Upon signing: € 500,000 1st anniversary: € 1,000,000 2nd anniversary: € 2,000,000 Payment Option C: License with milestone and royalty payments: Upon signing: €450,000, of which € 150,000 are deferrable to not later than the first anniversary of the Effective Date Annual maintenance fee starting with 1st anniversary; annual maintenance fees may be credited against royalty payments): €50,000 Start of 1st Phase II study: € 200,000 Start of 1st Pivotal study: € 500,000 1st MAA filing in US: € 700,000 1st MAA filing in Europe: € 500,000 1st sale in US: € 1,400,000 1st sale in Europe: € 1,000,000 Royalties on Net Sales shall be paid until the later of (i) the end of patent life or (ii) 10 years after 1st commercial sale. Royalty rate during patent life: 2.5% for Net Sales below US$ 100,000,000 Net Sales 3.0% for Net Sales between US$ 100,000,000 and US$ 300,000,000 Net Sales 3.5% for Net Sales above US$ 300,000,000 Net Sales Royalty rate after end of patent life: 1.5% \\PH - 037750/000002 - 398853 v1


 
sesnexhibit102xomanonexc
Exhibit 10.2 [***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. NON-EXCLUSIVE LICENSE AGREEMENT This Non-exclusive License Agreement (the "Agreement"), effective as of November 30, 2001 (the "Effective Date"), is entered into by and between XOMA Ireland Limited ("XOMA"), an Irish company having offices located at Shannon Airport House, Shannon, County Clare, Ireland, and Viventia Biotech Inc. ("VIVENTIA"), a Canadian corporation having offices located at 10 Four Seasons Place, Suite 510, Toronto, Ontario, Canada M9B 6117. BACKGROUND. A. XOMA is the owner of certain Patent Rights and Know-How (as such terms are defined below) and VIVENTIA wishes to acquire a non-exclusive license under the Patent Rights and Know-How; and B. XOMA is willing to grant VIVENTIA such a non-exclusive license, on the terms and conditions set forth below. NOW, THEREFORE, in consideration of the promises and the mutual covenants hereinafter recited, the parties agree as follows: ARTICLE 1 – DEFINITIONS In this Agreement, the following terms shall have the meanings set forth in this Article. 1.1 "Affiliate" means any corporation or other entity which is directly or indirectly controlling, controlled by or under common control with a party hereto. For the purpose of this Agreement, "control" shall mean the direct or indirect ownership of at least fifty percent (50%) of the outstanding shares or other voting rights of the subject entity to elect directors. 1.2 "BLA" means a Biologics License Application (or, if applicable, a Product License Application), as defined in the U.S. Food, Drug and Cosmetic Act and the regulations promulgated thereunder, and any corresponding U.S. or foreign application, registration or certification. 1.3 "Confidential Information" shall mean (i) any proprietary or confidential information or material in tangible form disclosed hereunder that is designated as "Confidential" at the time it is delivered to the receiving party, or (ii) proprietary or confidential information disclosed orally hereunder which is identified as confidential or proprietary when disclosed and such disclosure of confidential information is confirmed in writing within thirty (30) days by the disclosing party. 1.4 "Field" shall mean the treatment or prophylaxis of a human or animal disease state or condition and shall exclude Phage Display. \\PH - 037750/000002 - 398852 v1


 
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 1.5 "Immunoglobulin" means any molecule that has an amino acid sequence by virtue of which it specifically interacts with an antigen and wherein any chains of the molecule contain a functionally operating region of an antibody variable region including, without limitation, any naturally occurring or recombinant form of such a molecule. 1.6 "IND" shall mean an Investigational New Drug application, as defined in the U.S. Food, Drug and Cosmetic Act and the regulations promulgated thereunder for initiating clinical trials in the United States, or any corresponding foreign application, registration or certification. 1.7 "Know-How" means unpatented and/or unpatentable technical information, including ideas, concepts, inventions, discoveries, data, designs, formulas, specifications, procedures for experiments and tests and other protocols, results of experimentation and testing, fermentation and purification techniques, and assay protocols owned by XOMA as of the Effective Date which may be necessary for the practice of the Patent Rights, which XOMA has the right to license, and which have been transmitted to VIVENTIA. Know-How shall not include the Patent Rights. All Know-How shall be Confidential Information of XOMA. 1.8 "Licensed Product" will mean any product within the scope of a Valid Claim or produced using any method within the scope of a Valid Claim, or which incorporates or is made using any Know-How, provided however, that the term Licensed Product shall not include Phage Display Materials or any Product which is discovered, isolated, characterized or produced by the use of Phage Display. 1.9 "Licensed Technology" means the Patent Rights and Know-How. 1.10 "NDA" shall mean a New Drug Application, as defined in the U.S. Food, Drug and Cosmetic Act and the regulations promulgated thereunder, or any corresponding U.S. or foreign application, registration or certification. 1.11 "Net Sales" shall mean revenues received by VIVENTIA or its Affiliates as follows: the invoice price of Licensed Products sold by VIVENTIA or its marketing partner(s) to third parties, less, to the extent included in such invoice price the total of: (1) ordinary and customary trade discounts actually allowed; (2) credits, rebates and returns (including, but not limited to, wholesaler and retailer returns); (3) freight, postage, insurance and duties paid for and separately identified on the invoice or other documentation maintained in the ordinary course of business, and (4) excise taxes, other consumption taxes, customs duties and compulsory payments to governmental authorities actually paid and separately identified on the invoice or other documentation maintained in the ordinary course of business. Net Sales shall also include the fair market value of all other consideration received by VIVENTIA or its marketing partner(s) in respect of Licensed Products, whether such consideration is in cash, payment in kind, exchange or another form, but shall not include any payments received for reimbursement of research expenses, including but not limited to the conduct of clinical trials, 'or for the purchase of debt or equity of VIVENTIA. In the case of pharmacy incentive programs, hospital performance incentive program chargebacks and/or similar programs or discounts on "bundles" of products, VIVENTIA may, with notice to XOMA, discount the bona fide list price of a 2 \\PH - 037750/000002 - 398852 v1


 
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. Licensed Product by the average percentage discount of all VIVENTIA products in a particular "bundle," calculated as follows: 3 \\PH - 037750/000002 - 398852 v1


 
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. Average percentage A discount = B x 100 on a particular "bundle" where A equals the total discounted price of a particular "bundle" of products, and B equals the sum of the undiscounted bona fide list prices of each unit of every product in such "bundle." VIVENTIA shall provide XOMA documentation, reasonably acceptable to XOMA, establishing such average discount with respect to each "bundle." If a Licensed Product is not sold separately and no bona fide list price exists for such Licensed Product, the parties shall negotiate in good faith an imputed bona fide list price for such Licensed Product. 1.12 "Patent Rights" shall mean the patent applications and patents listed on Exhibit A hereto and all divisions, continuations, continuations-in-part, and substitutions thereof; all foreign patent applications corresponding to the preceding applications or directly or indirectly claiming priority to or from any of the forgoing; and all U.S. and foreign patents issuing on any of the preceding applications, including extensions, reissues, and re-examinations. 1.13 "Phage Display" means the use of Phage Display Materials. 1.14 "Phage Display Materials" means (i) any collection or library of polynucleotide sequences which encodes at least one polypeptide and which is contained in filamentous bacteriophage and/or bacteriophage or phagmid cloning vectors capable of propagation in bacteria; or (ii) any collection of library of bacteriophage wherein a polypeptide is expressed as a fusion protein comprising the polypeptide and an outer surface polypeptide of a bacteriophage. For the avoidance of doubt, Phage Display Materials shall include any such materials wherein the polypeptide in an Immunoglobulin. 1.15 "Phase II" or "Phase III" shall mean a Phase II or Phase III clinical trial as prescribed by applicable FDA regulations, or corresponding regulations of any comparable entity. 1.16 "Product" means any composition of matter or article of manufacture, including, without limitation any diagnostic, prophylactic or therapeutic product, which was discovered or created by or arose out of or is related to use of Licensed Materials, and is made or sold under conditions which, if unlicensed, would constitute infringement of the XOMA Patent Rights. 1.17 "Third Party" means any person or entity other than VIVENTIA or XOMA. 1.18 "Valid Claim" means (i) a claim of an issued and unexpired patent included within the Patent Rights which claim has not been held invalid in a final decision of a court of competent jurisdiction from which no appeal may be taken, and which has not been disclaimed or admitted to be invalid or unenforceable through reissue or otherwise, or (ii) a claim of a published patent application within the Patent Rights. ARTICLE 2 – LICENSE 4 \\PH - 037750/000002 - 398852 v1


 
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 2.1 Grant. Subject to the terms and conditions of this Agreement, XOMA hereby grants to VIVENTIA a non-exclusive, non-transferable, worldwide license under the Licensed Technology, without the right to grant sublicenses, to make, have made, use, import, offer for sale and sell Licensed Products for use in the Field, provided that VIVENTIA shall have the right to enter into one agreement in each country with a marketing partner for sale of Licensed Products for use in the Field. 2.2 No Implied Rights. Only the rights and licenses granted pursuant to the express terms of this Agreement shall be of any legal force or effect. No license or other rights shall be deemed to have been granted to VIVENTIA other than as expressly provided for in this Agreement. For the avoidance of doubt, the license grants pursuant to Section 2.1 do not include, and expressly exclude, the-following: (a) any right or license to engage in or cause any Third Party to engage in Phage Display or to use any Phage Display Materials to identify, select, characterize, study or test a polypeptide, including but not limited to an Immunoglobulin; (b) any right or license to engage in any Phage Display activities on behalf of or in collaboration with any Third Party; (c) any right or license under the XOMA Patent Rights to commercialize any Product based upon or derived from use of Phage Display Materials or Phage Display; (d) any right or license under the XOMA Patent Rights to sell, lease, license, transfer or dispose of the ownership or possession of any Phage Display Materials; and (e) any right to release any Third Party from any claim of infringement under the XOMA Patent Rights. 2.3 Delivery of Know-How. Within thirty (30) days following receipt by XOMA of VIVENTIA's payment of the access fee under Section 3.1 of this Agreement, XOMA shall deliver to VIVENTIA the Know-How listed on Exhibit B hereto. 2.4 Ownership; Enforcement. At all times XOMA will retain ownership of the XOMA Patent Rights and may use and commercialize the XOMA Patent Rights itself or with any Third Party for any purpose whatsoever. XOMA retains the right, at its sole discretion, to enforce, maintain and otherwise protect the XOMA Patent Rights. Within thirty (30) days of the Effective Date, and at all times thereafter during the term of this Agreement, VIVENTIA shall give XOMA prompt notice in writing of all information or facts in its possession which identify or are reasonably likely to lead to the identification of any unauthorized use of the XOMA Patent Rights, including without limitation the conduct of any activities outside of the scope of the license grants pursuant to Section 2.1. VIVENT1A, at X0MA's expense; shall cooperate with XOMA's reasonable written demands to VIVENTIA with respect to any actions XOMA may choose to take related to the enforcement, maintenance or protection of the XOMA Patent Rights. 5 \\PH - 037750/000002 - 398852 v1


 
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 2.5 Oppositions and/or Appeals. VIVENTIA hereby agrees not to enter into any opposition to and/or appeal from any decision by the patent authorities of any country on the XOMA Patent Rights, and shall not assist or otherwise cooperate with another party in any such opposition or appeal. ARTICLE 3 – CONSIDERATION 3.1 Access Fee. VIVENTIA shall pay XOMA by wire transfer a technology access fee of Two Hundred Fifty Thousand United States Dollars (US $250,000.00) in two (2) payments as follows: One Hundred Fifty Thousand United States Dollars (US $150,000) will be paid to XOMA within ten (10) days after the receipt by VIVENTIA of one fully executed copy of this Agreement, and One Hundred Thousand United States Dollars (US $100,000) will be paid to XOMA on or before the first anniversary of the receipt by VIVENTIA of the copy of the Agreement. Technology transfer is included in the access fee and includes up to two person- days of XOMA scientific staff time during the first twelve months of the term of this Agreement. Thereafter, VIVENTIA will be able to consult with XOMA scientific staff at 52,500/person-day (based on an eight hour day) beyond the two person-days. The cost of all reasonable travel- related expenses, including travel-related expenses for the first two person-days, will be fully reimbursed to XOMA by VIVENTIA. 3.2 Milestone Payments. Within thirty (30) days following the achievement by VIVENTIA of the following milestones with respect to each Licensed Product, VIVENTIA shall pay to XOMA the applicable payments below: Event Payment Initiation of a first Phase II clinical trial US $ 50,000.00 Initiation of a first Phase III or other pivotal trial US $ 100,000.00 Regulatory approval (NDA or BLA) for marketing US $ 250,000.00 3.3 Royalties. (a) VIVENTIA shall pay to XOMA a royalty of two and one-half percent (2½%) on all Net Sales of Licensed Products. (b) VIVENTIA shall receive a credit for royalties it pays to third parties on account of Licensed Products on a country-by-country basis against royalties due to XOMA pursuant to this Agreement; provided, however, that in no event shall royalties due to XOMA with respect to Licensed Products be reduced to less than one and three-fourths percent (1¾%) in any country. (c) The foregoing royalty rates shall be reduced by fifty percent (50%) with respect to Licensed Products which are not within the scope of a Valid Claim in the country of sale. 3.4 One Royalty. No more than one royalty payment shall be due hereunder with respect to a sale of a particular Licensed Product. No multiple royalties shall be payable because any Licensed Product or its manufacture, sale or use is covered by more than one Valid Claim. 6 \\PH - 037750/000002 - 398852 v1


 
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 3.5 Royalty Term. Royalties due under this Article 3 shall be payable on a country- by-country and Licensed Product-by-Licensed Product basis from the first commercial sale of such Licensed Product until the expiration of the last-to-expire Patent Right in such country with respect to which a Valid Claim covers the manufacture, use, sale, offer for sale, import or export of such Licensed Product, or until the tenth anniversary of the first commercial sale of a particular Licensed Product in such country, whichever is later. ARTICLE 4 – PAYMENTS; REPORTS AND RECORDS 4.1 Payments; Currency. All payments due hereunder shall be paid by wire transfer in United States dollars in immediately available funds to an account designated by XOMA. If any currency conversion shall be required in connection with the payment of any royalties hereunder, such conversion shall be made by using the exchange rate for the purchase of U.S. dollars quoted in the U.S. version of the Wall Street Journal on the last business day of the calendar quarter to which such royalty payments relate. 4.2 Royalty Reports and Payments. After the first commercial sale of a Licensed Product on which royalties are required to be paid hereunder, VIVENTIA shall make quarterly written reports to XOMA within sixty (60) days after the end of each calendar quarter, stating in each such report, by country, the number, description, and aggregate Net Sales of each Licensed Product sold during the calendar quarter. XOMA shall treat all such reports as Confidential Information of VIVENTIA. Concurrently with the making of such reports, VIVENTIA shall pay XOMA the royalties specified in Section 3.3 hereof. 4.3 Records; Inspection. VIVENTIA shall keep complete, true and accurate books of account and records for the purpose of determining the royalty amounts payable under this Agreement. Such books and records shall be kept at the principal place of business of VIVENTIA for at least three (3) years following the end of the calendar quarter to which they pertain and will be available for inspection during such period by a representative of XOMA for the purpose of verifying the royalty reports and payments. Such inspections shall be made during ordinary business hours. The representative may be obliged to execute a reasonable confidentiality agreement prior to commencing any such inspection. Inspections conducted under this Section 4.3 shall be at the expense of XOMA, unless an underpayment exceeding five percent (5%) of the amount stated for the full period covered by the inspection is identified, in which case all out-of-pocket costs relating to the inspection will be paid immediately by VIVENTIA. Any underpayments or unpaid amounts discovered by such inspections or otherwise will be paid immediately by VIVENTIA, with interest from the date(s) such amount(s) were due at the prime rate reported by the Bank of America plus two percent (2%). ARTICLE 5 – DILIGENCE 5.1 Reasonable Efforts. VIVENTIA agrees to use reasonable efforts consistent with its prudent business judgment to diligently develop and commercialize the Patent Rights and obtain such approvals as may be necessary for the sale of the Licensed Products in the United States and such other worldwide markets as VIVENTIA elects to commercialize the Licensed Products. 7 \\PH - 037750/000002 - 398852 v1


 
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 5.2 Reports to XOMA. During the term of this Agreement, VIVENTIA shall keep XOMA reasonably informed of its activities subject to this Agreement, including without limitation, the achievement of the milestones set forth in Section 3.2 for the commercialization of each Licensed Product, and within thirty (30) days following November 30 of each year shall provide XOMA with a written report indicating the current status of each program involving a Licensed Product. When the registration package requesting approval for commercial sale of each Licensed Product is first filed in each of the U.S., Europe and Japan, and in each case when approval is received therefor, VIVENTIA will promptly notify XOMA. VIVENTIA shall notify XOMA within thirty (30) days after the first commercial sale of each Licensed Product. ARTICLE 6 – CONFIDENTIALITY 6.1 Confidential Information. Except as expressly provided herein, the parties agree that, for the term of this Agreement and for five (5) years thereafter, the receiving party shall keep completely confidential and shall not publish or otherwise disclose and shall not use for any purpose except for the purposes contemplated by this Agreement any Confidential Information furnished to it by the disclosing party hereto, except that to the extent that it can be established by the receiving party by written proof that such Confidential Information: (a) was already known to the receiving party, other than under an obligation of confidentiality, at the time of disclosure; (b) was generally available to the public or otherwise part of the public domain at the time of its disclosure to the receiving party; (c) became generally available to the public or otherwise part of the public domain after its disclosure and other than through any act or omission of the receiving party in breach of this Agreement; or (d) was subsequently lawfully disclosed to the receiving party by a person other than a party hereto. 6.2 Permitted Use and Disclosures. Each party hereto may use or disclose information disclosed to it by the other party to the extent such use or disclosure is reasonably necessary in complying with applicable law or governmental regulations or conducting clinical trials; provided that if a party is required to make any such disclosure of another party's Confidential Information, other than pursuant to a confidentiality agreement, it will give reasonable advance notice to the latter party of such disclosure and will use its reasonable best efforts to secure confidential treatment of such information prior to its disclosure (whether through protective orders or otherwise). 6.3 Confidential Terms. Except as expressly provided herein, each party agrees not to disclose any terms of this Agreement to any third party without the consent of the other party; provided, disclosures may be made as required by securities or other applicable laws, or to actual or prospective corporate partners, or to a party's accountants, attorneys and other professional advisors. 8 \\PH - 037750/000002 - 398852 v1


 
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 6.4 Agreement Announcement. The parties hereby agree that the consummation of this Agreement shall be deemed to be in the public domain and may be announced or otherwise referred to by the parties as they deem appropriate. ARTICLE 7 – REPRESENTATIONS AND WARRANTIES 7.1 Representations and Warranties. XOMA represents and warrants that: (a) it is the sole and exclusive owner of all right, title and interest in the Patent Rights; and (b) it has the right to grant the license granted herein. 7.2 Disclaimer. Nothing in this Agreement is or shall be construed as: (a) A warranty or representation by XOMA as to the validity or scope of any claim or patent within the Patent Rights; (b) A warranty or representation that anything made, used, sold, or otherwise disposed of under any license granted in this Agreement is or will be free from infringement of any patent rights or other intellectual property right of any third party; (c) An obligation to bring or prosecute actions or suits against third parties for infringement of any of the Patent Rights or misappropriation of any Know-How; or (d) Granting by implication, estoppel, or otherwise (except as expressly set forth herein) any licenses or rights under patents or other rights of XOMA or third parties, regardless of whether such patents or other rights are dominant or subordinate to any patent within the Patent Rights. 7.3 No Warranties. EXCEPT AS PROVIDED TN SECTION 7.1 ABOVE, XOMA GRANTS NO WARRANTIES WITH RESPECT TO THE LICENSED TECHNOLOGY, EXPRESS OR IMPLIED, EITHER IN FACT OR BY OPERATION OF LAW, BY STATUTE OR OTHERWISE, AND XOMA SPECIFICALLY DISCLAIMS ANY EXPRESS OR IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, VALIDITY OF THE PATENT RIGHTS OR NON-INFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF ANY THIRD PARTY. ARTICLE 8 – INDEMNIFICATION VIVENTIA agrees to indemnify, defend and hold XOMA and its directors, officers, employees and agents harmless from and against any and all third party liabilities, claims, demands, expenses (including, without limitation, attorneys and professional fees and other costs of litigation), losses or causes of action (each, a "Liability") arising out of or relating in any way to (i) the possession, manufacture, use, sale or other disposition of Licensed Products, whether based on breach of warranty, negligence, product liability or otherwise, (ii) the exercise of any right granted to VIVENTIA pursuant to this Agreement, or (iii) any breach of this Agreement by VIVENTIA, except to the extent, in each case, that such Liability is caused by the negligence or willful misconduct of XOMA, or (b) breach by XOMA as determined by a court of competent jurisdiction. 9 \\PH - 037750/000002 - 398852 v1


 
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. ARTICLE 9 – TERM AND TERMINATION 9.1 Term. The term of this Agreement will commence on the Effective Date and remain in full force and effect until the expiration of the last patent within the Patent Rights, or the tenth anniversary of the first commercial sale of a Licensed Product, whichever is later, unless earlier terminated in accordance with this Article 9. 9.2 Termination for Cause. Either party may terminate this Agreement in the event the other party has materially breached or defaulted in the performance of any of its obligations hereunder, and such default has continued for sixty (60) days after written notice thereof was provided to the breaching party by the nonbreaching party. The parties hereby agree that a breach of Section 2.5 is considered to be a material breach of this Agreement. Any termination shall become effective at the end of such sixty (60) day period-unless the breaching party has cured any such breach or default prior to the expiration of such period. Notwithstanding the above, in the case of a failure to pay any amount due hereunder the period for cure of any such default following notice thereof shall be ten (10) days and, unless payment is made within such period, the termination shall become effective at the end of such period. 9.3 Termination for Insolvency. If voluntary or involuntary proceedings by or against a party are instituted in bankruptcy under any insolvency law, or a receiver or custodian is appointed for such party, or proceedings are instituted by or against such party for corporate reorganization or the dissolution of such party, which proceedings, if involuntary, shall not have been dismissed within sixty (60) days after the date of filing, or if such party makes an assignment for the benefit of creditors, or substantially all of the assets of such party are seized or attached and not released within sixty (60) days thereafter, the other party may immediately terminate this Agreement effective upon notice of such termination. 9.4 Effect of Termination. (a) Accrued Rights and Obligations. Termination of this Agreement for any reason shall not release any party hereto from any liability which, at the time of such termination, has already accrued to the other party or which is attributable to a period prior to such termination nor preclude either party from pursuing any rights and remedies it may have hereunder or at law or in equity with respect to any breach of this Agreement. It is understood and agreed that monetary damages may not be a sufficient remedy for any breach of this Agreement and that the non-breaching party may be entitled to injunctive relief as a remedy for any such breach. Such remedy shall not be deemed to be the exclusive remedy for any such breach of this Agreement, but shall be in addition to all other remedies available at law or in equity. (b) Return of Confidential Information. Upon any termination of this Agreement, VIVENTIA and XOMA shall promptly return to the other party all Confidential Information, including without limitation, any Know-How received from the other party (except XOMA may retain copies of any reports or records referred to in Article 4 or 5). (c) Stock on Hand. In the event this Agreement is terminated for any reason, VIVENTIA shall have the right to sell or otherwise dispose of the stock of any Licensed Product 10 \\PH - 037750/000002 - 398852 v1


 
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. then on hand until six (6) months after such termination, subject to Articles 3 and 4 and the other applicable terms of this Agreement. (d) Licenses. All licenses granted hereunder shall terminate upon the termination of this Agreement. 9.5 Survival. Sections 9.4 and 9.5, and Articles 4, 6, 7, 8 and 10 of this Agreement shall survive the expiration or termination of this Agreement for any reason. 9.6 Contested Validity. If VIVENTIA or any of its Affiliates attacks, contests or otherwise disparages or assists another in attacking, contesting or otherwise disparaging the validity of any of the Patent Rights licensed hereunder in any proceeding in any court of competent jurisdiction, including any patent opposition or appeal proceeding involving or relating to the Patent Rights, XOMA shall have the right to terminate this Agreement by written notice. ARTICLE 10 – MISCELLANEOUS PROVISIONS 10.1 Governing Law. This Agreement shall be construed in accordance with the laws of Canada, the State of California and/or the United States of America which are applicable to contracts negotiated, executed and performed within the State of California in the United States of America. In addition, the parties agree to comply with all applicable laws, rules and regulations of Canada, California and the United States of America, including all export and import laws, and to do nothing to cause XOMA or VIVENTIA to violate any such laws, rules and/or regulations. 10.2 Assignment. VIVENTIA may not transfer or assign this Agreement or any of VIVENTIA's rights hereunder without the prior written consent of XOMA, but VIVENTIA may assign this Agreement to an Affiliate or a purchaser of VIVENTIA or the business unit of VIVENTIA to which this Agreement pertains with the prior written consent of XOMA, which consent will not be unreasonably withheld. Any such attempted transfer or assignment shall be void. This Agreement shall be binding upon and inure to the benefit of the parties and their permitted successors and assigns. 10.3 Waiver. No waiver of any rights shall be effective unless consented to in writing by the party to be charged and the waiver of any breach or default shall not constitute a waiver of any other right hereunder or any subsequent breach or default. 10.4 Severability. In the event that any provisions of this Agreement are determined to be invalid or unenforceable by a court of competent jurisdiction, the remainder of the Agreement shall remain in full force and effect without said provision. 10.5 Notices. All notices, requests and other communications hereunder shall be in writing and shall be personally delivered or sent by telecopy or other electronic facsimile transmission or by registered or certified mail, and shall be effective upon receipt at the respective address specified below, or such other address as may be specified in writing to the other parties hereto: 11 \\PH - 037750/000002 - 398852 v1


 
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. LICENSEE: Vice President, Corporate Development Viventia Biotech Inc. 10 Four Seasons Place, Suite 501 Toronto, Ontario Canada M9B 6H7 With a copy to: Chief Financial Officer XOMA: XOMA Ireland Limited Shannon Airport House Shannon, County Clare Ireland Attn: Company Secretary With a copy to: Christopher J. Margolin Vice President, General Counsel and Secretary XOMA (US) LLC 2910 Seventh Street Berkeley, CA 94710 10.6 Independent Contractors. Both parties are independent contractors under this Agreement. Nothing contained in this Agreement is intended nor is to be construed so as to constitute XOMA or VIVENTIA as partners or joint venturers with respect to this Agreement. Neither party shall have any express or implied right or authority to assume or create any obligations on behalf of or in the name of the other party or to bind the other party to any other contract, agreement, or undertaking with any third party. 10.7 Patent Marking. VIVENTIA agrees to mark all Licensed Products sold pursuant to this Agreement in accordance with the applicable statute or regulations relating to patent marking in the country or countries of manufacture and sale thereof. 10.8 Compliance with Laws. In exercising their rights under this license, the parties shall fully comply in all material respects with the requirements of any and all applicable laws, regulations, rules and orders of any governmental body having jurisdiction over the exercise of rights under this Agreement. VIVENTIA shall be responsible, at its expense, for making any required registrations or filings with respect to this Agreement and obtaining any necessary governmental approvals with respect hereto. 10.9 Use of Name. Except as provided in Section 6.4, neither party shall use the name or trademarks of the other party without the prior written consent of such other party. 10.10 Further Actions. Each party agrees to execute, acknowledge and deliver such further instruments, and do such other acts, as may be necessary and appropriate in order to carry out the purposes and intent of this Agreement. 12 \\PH - 037750/000002 - 398852 v1


 
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 10.11 Entire Agreement; Amendment. This Agreement constitutes the entire and exclusive Agreement between the parties with respect to the subject matter hereof and supersedes and cancels all previous discussions, agreements, commitments and writings in respect thereof. No amendment or addition to this Agreement shall be effective unless reduced to writing and executed by the authorized representatives of the parties. IN WITNESS WHEREOF, XOMA and VIVENTIA have executed this Agreement in duplicate originals by duly authorized officers. VIVENTIA BIOTECH INC. XOMA IRELAND LIMITED By: /s/ Anthony Schincariol, Ph.D. By: /s/ Alan Kane Anthony Schincariol, Ph.D. Alan Kane, Director President & CEO duly authorized on behalf of Viventia Biotech, Inc. XOMA Ireland Limited in the Presence of the following witness: Date: November 26, 2001 By: /s/ Nick Glover, Ph.D. /s/ Brian Coureen Nick Glover, Ph.D. Brian Coureen Vice President, Solicitor Corporate Development North West Quay Dublin 1 Date: November 26, 2001 Date: November 29, 2001 13 \\PH - 037750/000002 - 398852 v1


 
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. Exhibit A Patent Rights [***] 14 \\PH - 037750/000002 - 398852 v1


 
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. Exhibit B Delivery of Know-How (2.3) [***] 15 \\PH - 037750/000002 - 398852 v1


 
Exhibit


Exhibit 31.1
Rule 13a-14(a) CERTIFICATION
I, Thomas R. Cannell, D.V.M., certify that:
 
1.
I have reviewed this Quarterly Report on Form 10-Q of Sesen Bio, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
/s/    Thomas R. Cannell, D.V.M.     
Thomas R. Cannell, D.V.M.
President and Chief Executive Officer
(Principal Executive Officer)
Dated: November 9, 2018


Exhibit


Exhibit 31.2
Rule 13a-14(a) CERTIFICATION
I, Richard F. Fitzgerald, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Sesen Bio, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Richard F. Fitzgerald    
Richard F. Fitzgerald
Chief Financial Officer
(Principal Financial Officer)
Dated: November 9, 2018


Exhibit


Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. §1350
In connection with the Quarterly Report on Form 10-Q of Sesen Bio, Inc. (the “Company”) for the fiscal quarter ended September 30, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certify, pursuant to 18 U.S.C. Section 1350, that, to the best of their knowledge:
 
(1)
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/   Thomas R. Cannell, D.V.M.         
Thomas R. Cannell, D.V.M.
President and Chief Executive Officer
(Principal Executive Officer)
Dated: November 9, 2018
 
/s/ Richard F. Fitzgerald      
Richard F. Fitzgerald
Chief Financial Officer
(Principal Financial Officer)
Dated: November 9, 2018