S-4/A
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As filed with the Securities and Exchange Commission on July 29, 2020

Registration No. 333-239372

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

AMENDMENT NO. 1

TO

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

resTORbio, Inc.

(Exact name of Registrant as specified in its charter)

 

 

 

Delaware   2834   81-3305277
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)

resTORbio, Inc.

500 Boylston Street, 13th Floor

Boston, MA 02116

(857) 315-5528

(Address including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

 

Chen Schor

President and Chief Executive Officer

resTORbio, Inc.

500 Boylston Street, 13th Floor

Boston, MA 02116

(857) 315-5528

(Name, address, including zip code, and telephone number, including area code of agent for service)

 

 

Copies to:

 

Mitchell S. Bloom, Esq.

Danielle M. Lauzon, Esq.

Andrew H. Goodman, Esq.

Goodwin Procter LLP

100 Northern Ave

Boston, Massachusetts 02210

Telephone: (617) 570-1000

 

James M. Krenn, Esq.

John A. de Groot, Esq.

Morrison & Foerster LLP

12531 High Bluff Drive, Suite 100

San Diego, California 92011

Telephone: (858) 720-5100

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effectiveness of this registration statement and the satisfaction or waiver of all other conditions under the merger agreement described herein.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, please check the following box.  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

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      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13(e)-4(i) (Cross-Border Issuer Tender Offer)  ☐

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)  ☐

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of

Security Being Registered

 

Amount

to be

Registered(1)

 

Proposed

Maximum

Offering Price

Per Share

 

Proposed

Maximum
Aggregate
Offering Price(2)

  Amount of
Registration Fee(3)

Common stock, $0.0001 par value per share

  28,141,955   N/A   $4,384.99   $1.00(4)

 

 

(1)

Relates to shares of common stock, $0.0001 par value per share, of resTORbio, Inc., a Delaware corporation (referred to as “resTORbio”), issuable to holders of common stock, $0.0001 par value per share, of Adicet Bio, Inc., a Delaware corporation (referred to as “Adicet”), holders of preferred stock, $0.0001 par value per share, of Adicet and warrants and options to purchase common stock or preferred stock of Adicet in the proposed merger of Project Oasis Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of resTORbio, with and into Adicet (referred to as the “merger”). The amount of resTORbio common stock to be registered is based on the estimated number of shares of resTORbio common stock that are expected to be issued pursuant to the merger, after taking into account the effect of a reverse stock split of resTORbio common stock, assuming an exchange ratio of 0.8555 shares of resTORbio common stock for each outstanding share of Adicet common stock or Adicet preferred stock and for each option and warrant exercisable for shares of Adicet common stock or Adicet preferred stock.

(2)

Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(f)(2) of the Securities Act of 1933, as amended. Adicet is a private company with no market for its securities and has an accumulated capital deficit. Therefore, the proposed maximum aggregate offering price is one-third of the aggregate par value of the Adicet securities expected to be exchanged in the proposed merger.

(3)

This fee has been calculated pursuant to Section 6(b) of the Securities Act of 1933, as amended.

(4)

The Registrant previously paid $1.00 of the total registration fee in connection with the previous filing of this registration statement on June 23, 2020 with respect to 28,141,955 shares of resTORbio common stock listed on the calculation fee table of such filing.

 

 

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment that specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this proxy statement/prospectus/information statement is not complete and may be changed. resTORbio may not sell its securities pursuant to the proposed transactions until the Registration Statement filed with the Securities and Exchange Commission is effective. This proxy statement/prospectus/information statement is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

PRELIMINARY—SUBJECT TO COMPLETION—DATED JULY 29, 2020

 

LOGO    LOGO

PROPOSED MERGER

YOUR VOTE IS VERY IMPORTANT

To the Stockholders of resTORbio, Inc. and Adicet Bio, Inc.:

resTORbio, Inc. (referred to as “resTORbio”) and Adicet Bio, Inc. (referred to as “Adicet”) have entered into an Agreement and Plan of Merger (referred to as the “merger agreement”) pursuant to which Project Oasis Merger Sub, Inc., a wholly owned subsidiary of resTORbio, will merge with and into Adicet, with Adicet surviving as a wholly owned subsidiary of resTORbio (referred to as the “merger”). Adicet and resTORbio believe that the merger will result in a combined company that will leverage Adicet’s scientific and product development expertise and pipeline of engineered immune cell therapeutics for cancer based on its proprietary gamma delta T cell therapy platform, provide the resources for the combined company to advance multiple programs into the clinic, including Adicet’s lead candidate, ADI-001, a gamma delta chimeric antigen receptor (“CAR”)-T cell therapy targeting CD20, and expand the combined company’s pipeline in oncology and other indications.

At the effective time of the merger, each share of (x) common stock of Adicet, $0.0001 par value per share (referred to as “Adicet common stock”), and (y) preferred stock of Adicet, $0.0001 par value per share (referred to as “Adicet preferred stock” and, together with the Adicet common stock, “Adicet capital stock”), outstanding immediately prior to the effective time, excluding any shares of Adicet capital stock held as treasury stock and shares held by Adicet stockholders who have exercised and perfected appraisal rights, will be converted into the right to receive approximately 0.8555 shares of resTORbio common stock (referred to as the “exchange ratio”), subject to adjustment to account for the effect of a reverse stock split of resTORbio common stock, at a ratio mutually agreed to by resTORbio and Adicet in the range of 1-for-4 to 1-for-12 shares outstanding (or any number in between) (referred to as the “reverse stock split”), to be implemented immediately prior to and contingent upon the consummation of the merger, as discussed in this proxy statement/prospectus/information statement. This exchange ratio is an estimate only and is based upon resTORbio’s and Adicet’s capitalization as of July 22, 2020. The final exchange ratio will be determined pursuant to a formula described in more detail in the merger agreement and in this proxy statement/prospectus/information statement.

At the effective time of the merger, each outstanding and unexercised option to purchase Adicet’s common stock (referred to as “Adicet options”), whether vested or unvested, issued pursuant to the Adicet 2015 Stock Incentive Plan (referred to as the “Adicet 2015 plan”) and a subset of options issued pursuant to the Adicet 2014 Share Option Plan (referred to as the “Adicet 2014 plan” and, together with the Adicet 2015 plan, referred to collectively as the “Adicet plans”) will be converted into options to purchase a number of shares of resTORbio common stock based on the exchange ratio, subject to the terms of and adjustments in the merger agreement. Adicet warrants with rights to acquire Adicet capital stock will be converted into rights to acquire a certain number of shares of resTORbio common stock based on the exchange ratio, subject to the terms of and adjustments in the merger agreement.

resTORbio’s stockholders will continue to own and hold their existing shares of resTORbio common stock, subject to adjustment for the reverse stock split. The vesting of all outstanding resTORbio options will be accelerated in full as of immediately prior to the effective time of the merger. All out-of-the-money resTORbio options will be cancelled for no consideration. All in-the-money resTORbio options will remain outstanding after the completion of the merger in accordance with their terms. In addition, all outstanding unvested resTORbio restricted stock units will be accelerated in full effective as of immediately prior to the effective time of the merger, and for each outstanding and unsettled resTORbio restricted stock unit, the holder thereof shall receive a number of shares of resTORbio common stock equal to the number of vested and unsettled shares underlying such resTORbio restricted stock units (reduced by the number of shares of resTORbio common stock necessary to satisfy applicable tax withholding obligations at the maximum statutory rate).

Immediately following the effective time of the merger, the former equityholders of Adicet are expected to hold approximately 75% of the outstanding shares of resTORbio common stock on a fully-diluted basis and the current equityholders of resTORbio are expected to hold approximately 25% of the outstanding shares of resTORbio common stock on a fully-diluted basis (in each case excluding equity incentives available for grant).

Shares of resTORbio common stock are currently listed on The Nasdaq Global Market (referred to as “Nasdaq”) under the symbol “TORC.” In connection with completion of the merger, resTORbio will be renamed “Adicet Bio, Inc.” and expects to trade on Nasdaq under the symbol “ACET.” On [●], 2020, the last trading day before the date of this proxy statement/prospectus/information statement, the closing sale price of resTORbio common stock on Nasdaq was $[●] per share.

resTORbio is holding a special meeting of its stockholders (referred to as the “special meeting”) in order to obtain the stockholder approvals necessary to complete the merger and related matters. The special meeting will be held at [●], Eastern Time, on [●], 2020, unless postponed or adjourned to a later date. In light of the novel coronavirus disease (referred to as “COVID-19”) pandemic and to support the well-being of resTORbio’s stockholders and partners, the special meeting will be completely virtual. You may attend the meeting and vote your shares electronically during the meeting via live webcast by visiting [●]. You will need the control number that is printed on your proxy card to enter the special meeting. resTORbio recommends that you log in at least 15 minutes before the meeting to ensure you are logged in when the special meeting starts. Please note that you will not be able to attend the special meeting in person.

At the special meeting, resTORbio will ask its stockholders:

 

  1)

To approve the issuance of resTORbio common stock pursuant to the merger agreement, which approval is necessary to complete the merger and the other transactions contemplated by the merger agreement (referred to as the “contemplated transactions”). Pursuant to the rules of The Nasdaq Stock Market LLC (referred to as the “Nasdaq rules”), the issuance of resTORbio common stock requires the approval of resTORbio’s stockholders because it exceeds 20% of the number of shares of resTORbio common stock outstanding prior to the issuance. Furthermore, the issuance of the shares requires resTORbio’s approval under the Nasdaq rules because it will result in a “change of control” of resTORbio (referred to as the “share issuance proposal” or “Proposal No. 1”);

 

  2)

To approve an amendment to resTORbio’s third amended and restated certificate of incorporation to effect a reverse stock split of resTORbio common stock (referred to as the “reverse stock split proposal” or “Proposal No. 2”);

 

  3)

To approve an amendment of the resTORbio 2018 Stock Option and Incentive Plan (referred to as the “resTORbio 2018 Plan”) to increase the total number of shares of resTORbio common stock currently available for issuance under the resTORbio 2018 Plan by 14,855,157 shares, prior to giving effect to the reverse stock split to be effected in connection with the merger (referred to as the “option pool increase proposal” or “Proposal No. 3”); and

 

  4)

To approve an adjournment or postponement of the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal No. 1, Proposal No. 2 and/or Proposal No. 3 (referred to as the “adjournment proposal” or “Proposal No. 4”).

As described in this proxy statement/prospectus/information statement, certain of Adicet’s stockholders who in the aggregate own approximately 98% of the outstanding shares of Adicet capital stock on an as-converted to common stock basis, and certain of resTORbio’s stockholders who in the aggregate own approximately 24% of the outstanding shares of resTORbio common stock, in each case, outstanding as of the date of the merger agreement, are parties to support agreements with Adicet and resTORbio, whereby such stockholders have agreed to vote their shares in favor of the adoption or approval, as applicable, of the merger agreement and the approval of the contemplated transactions, including the merger, in the case of Adicet capital stock holders, and the share issuance proposal and the reverse stock split proposal, in the case of resTORbio stockholders, subject to the terms of the support agreements.

In addition, following the registration statement on Form S-4, of which this proxy statement/prospectus/information statement is a part, being declared effective by the U.S. Securities and Exchange Commission (referred to as the “SEC”) and pursuant to the conditions of the merger agreement and the Adicet support agreement, Adicet’s stockholders who are party to the Adicet support agreement are each obligated to execute an action by written consent of Adicet’s stockholders (referred to as the “written consent”), adopting the merger agreement, thereby approving the contemplated transactions, including the merger, no later than five business days after the registration statement on Form S-4, of which this proxy statement/prospectus/information statement forms a part, is declared effective. Therefore, holders of a sufficient number of shares of Adicet capital stock required to adopt the merger agreement are expected to adopt the merger agreement, and no meeting of Adicet’s stockholders to adopt the merger agreement and approve the merger and contemplated transactions is expected to be held. Nevertheless, all of Adicet’s stockholders will have the opportunity to elect to adopt the merger agreement, thereby approving the merger and contemplated transactions, by signing and returning to Adicet a written consent.

After careful consideration, the board of directors of resTORbio (referred to as the “resTORbio Board”) has (i) determined that the contemplated transactions and the reverse stock split are fair to, advisable and in the best interests of resTORbio and its stockholders, (ii) approved and declared advisable the merger agreement and the contemplated transactions, including the issuance of resTORbio common stock to Adicet equityholders pursuant to the terms of the merger agreement, and the reverse stock split and (iii) determined to recommend, upon the terms and subject to the conditions set forth in the merger agreement, that its stockholders vote “FOR” Proposal No. 1, Proposal No. 2, Proposal No. 3 and, if necessary, Proposal No. 4.

After careful consideration, the Adicet board of directors (referred to as the “Adicet Board”) has (i) determined that the contemplated transactions are fair to, advisable and in the best interests of its stockholders, (ii) approved and declared advisable the merger agreement and the contemplated transactions and (iii) determined to recommend that the Adicet stockholders vote to adopt or approve the merger agreement and thereby approve the contemplated transactions. The Adicet Board recommends that the Adicet stockholders sign and return the written consent indicating their approval and adoption of the merger agreement and the contemplated transactions.

More information about resTORbio, Adicet and the merger is contained in this proxy statement/prospectus/information statement. resTORbio and Adicet urge you to read this proxy statement/prospectus/information statement carefully and in its entirety. IN PARTICULAR, YOU SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER THE SECTION ENTITLED “RISK FACTORS” BEGINNING ON PAGE 28 OF THIS PROXY STATEMENT/PROSPECTUS/INFORMATION STATEMENT.

resTORbio and Adicet are excited about the opportunities the merger brings to both resTORbio’s and Adicet’s stockholders, and thank you for your consideration and continued support.

 

Chen Schor
President and Chief Executive Officer
resTORbio, Inc.
   Anil Singhal, Ph.D.
President and Chief Executive Officer
Adicet Bio, Inc.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this proxy statement/prospectus/information statement. Any representation to the contrary is a criminal offense.

This proxy statement/prospectus/information statement is dated [●], 2020, and is first being mailed to resTORbio’s and Adicet’s stockholders on or about [●], 2020.


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PRELIMINARY—SUBJECT TO COMPLETION—DATED JULY 29, 2020

 

LOGO

resTORbio, Inc.

500 Boylston Street, 13th Floor

Boston, MA 02116

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON [], 2020

Dear Stockholders of resTORbio, Inc.:

On behalf of the board of directors of resTORbio, Inc. (referred to as the “resTORbio Board”), a Delaware corporation (referred to as “resTORbio”), resTORbio is pleased to deliver this proxy statement/prospectus/information statement for the proposed merger between resTORbio and Adicet Bio, Inc., a Delaware corporation (referred to as “Adicet”), pursuant to which Project Oasis Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of resTORbio (referred to as “merger subsidiary”), will merge with and into Adicet, with Adicet surviving as a wholly owned subsidiary of resTORbio. A special meeting of resTORbio’s stockholders will be held virtually, conducted via live audio webcast at [●], Eastern Time, on [●], 2020. You will need the control number that is printed on your proxy card to enter the special meeting. resTORbio recommends you log in at least 15 minutes before the special meeting to ensure you are logged in when the meeting starts. Please note that you will not be able to attend the special meeting in person. The special meeting will be held for the purpose of allowing stockholders of resTORbio to consider and vote upon the following matters:

(1)

To approve the issuance of resTORbio common stock pursuant to the Agreement and Plan of Merger, dated as of April 28, 2020 (referred to as the “merger agreement”), by and among resTORbio, merger subsidiary and Adicet and the resulting “change of control” of resTORbio under the rules of The Nasdaq Stock Market LLC (referred to as the “Nasdaq rules”) (referred to as the “share issuance proposal” or “Proposal No. 1”);

 

(2)

To approve an amendment to resTORbio’s third amended and restated certificate of incorporation to effect a reverse stock split of resTORbio common stock (referred to as the “reverse stock split proposal” or “Proposal No. 2”);

 

(3)

To approve an amendment of the resTORbio 2018 Stock Option and Incentive Plan (referred to as the “resTORbio 2018 Plan”) to increase the total number of shares of resTORbio common stock currently available for issuance under the resTORbio 2018 Plan by 14,855,157 shares, prior to giving effect to the reverse stock split to be effected in connection with the merger (referred to as the “option pool increase proposal” or “Proposal No. 3”); and

 

(4)

To approve an adjournment or postponement of the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal No. 1, Proposal No. 2 and/or Proposal No. 3 (referred to as the “adjournment proposal” or “Proposal No. 4”).

If resTORbio is to complete the merger with Adicet, stockholders must approve Proposal No. 1 and Proposal No. 2. The approval of Proposal No. 3 and Proposal No. 4 is not a condition to the completion of the merger with Adicet.

resTORbio common stock is the only type of security entitled to vote at the special meeting. The resTORbio Board has fixed [●], 2020, as the record date for the determination of stockholders entitled to notice of, and to vote at, the special meeting and any adjournment or postponement thereof. Only holders of record of shares of resTORbio common stock at the close of business on the record date are entitled to notice of, and to vote at, the


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special meeting. At the close of business on the record date, there were [●] shares of resTORbio common stock outstanding and entitled to vote. Each holder of record of shares of resTORbio common stock on the record date will be entitled to one vote for each share held on all matters to be voted upon at the special meeting.

Your vote is important. The affirmative vote of the holders of a majority of the votes properly cast on such matter at the special meeting is required for approval of Proposal No. 1, Proposal No. 3 and Proposal No. 4. The affirmative vote of holders of a majority of the outstanding shares of resTORbio common stock as of the record date for the special meeting is required for approval of Proposal No. 2. Each of Proposal No. 1 and Proposal No. 2 are conditioned upon each other. Therefore, the merger cannot be consummated without the approval of Proposal No. 1 and Proposal No. 2.

Whether or not you plan to attend the special meeting online, please submit your proxy promptly by telephone or via the internet in accordance with the instructions on the enclosed proxy card or complete, date, sign and promptly return the accompanying proxy card in the enclosed postage paid envelope to ensure that your shares of resTORbio common stock will be represented and voted at the special meeting. If you date, sign and return your proxy card without indicating how you wish to vote, your proxy will be counted as a vote in favor of Proposal No. 1, Proposal No. 2, Proposal No. 3 and Proposal No. 4.

By Order of resTORbio’s Board of Directors,

Chen Schor

President and Chief Executive Officer

Boston, Massachusetts

[●], 2020

THE RESTORBIO BOARD HAS DETERMINED AND BELIEVES THAT EACH OF THE PROPOSALS OUTLINED ABOVE IS ADVISABLE TO, AND IN THE BEST INTERESTS OF, RESTORBIO AND ITS STOCKHOLDERS AND HAS APPROVED EACH SUCH PROPOSAL. THE RESTORBIO BOARD RECOMMENDS THAT RESTORBIO’S STOCKHOLDERS VOTE “FOR” EACH SUCH PROPOSAL.


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REFERENCES TO ADDITIONAL INFORMATION

Additional business and financial information about resTORbio can be found in documents previously filed by resTORbio with the SEC. You may obtain this information without charge through the SEC website (www.sec.gov) or upon your written or oral request by contacting the Investor Relations Department, resTORbio, Inc., 500 Boylston Street, 13th Floor, Boston, Massachusetts 02116, or by calling (857) 315-5521.

You may also request additional copies from resTORbio’s proxy solicitor, The Proxy Advisory Group, LLC, using the following contact information:

18 East 41st Street, 20th Floor

New York, NY 10017-6219

(212) 616-2181

To ensure timely delivery of these documents, any request should be made no later than [], 2020 to receive them before the special meeting.

For additional details about where you can find information about resTORbio, please see the section entitled “Where You Can Find More Information” on page 440 of this proxy statement/prospectus/information statement.


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TABLE OF CONTENTS

 

QUESTIONS AND ANSWERS ABOUT THE MERGER

     1  

PROSPECTUS SUMMARY

     10  

The Companies

     10  

Adicet

     10  

Project Oasis Merger Sub, Inc.

     11  

The Merger

     11  

Reasons for the Merger

     12  

Opinion of the resTORbio Financial Advisor

     13  

Overview of the Merger Agreement

     14  

Conditions to the Completion of the Merger

     16  

No Solicitation

     16  

Termination of the Merger Agreement

     17  

resTORbio Support Agreement

     17  

Adicet Support Agreement

     17  

Lock-up Agreements

     18  

Funding Agreement

     18  

Contingent Value Rights Agreement

     18  

Management Following the Merger

     20  

Interests of Certain Directors, Officers and Affiliates of resTORbio and Adicet

     21  

COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA PER SHARE DATA

     25  

MARKET PRICE AND DIVIDEND INFORMATION

     27  

resTORbio Common Stock

     27  

Dividends

     27  

RISK FACTORS

     28  

Risks Related to the Merger

     28  

Risks Related to the Reverse Stock Split

     35  

Risks Related to resTORbio

     36  

Risks Related to resTORbio’s Financial Position and Need for Capital

     36  

Risks Related to the Discovery, Development and Commercialization of resTORbio’s Product Candidates

     40  

Risks Related to Regulatory Approval and Marketing of resTORbio’s Product Candidates and Other Legal Compliance Matters

     59  

Risks Related to resTORbio’s Intellectual Property

     70  

Risks Related to resTORbio’s Dependence on Third Parties

     82  

Risks Related to Employee Matters and Managing Growth

     89  

Risks Related to resTORbio’s Common Stock

     94  

Risks Related to Adicet

     100  

Risks Related to Adicet’s Business and Industry

     100  

 

i


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Risks Related to Adicet’s Reliance on Third Parties

     123  

Risks Related to Government Regulation

     128  

Risks Related to Adicet Intellectual Property

     140  

Risks Related to the Combined Company

     147  

FORWARD-LOOKING STATEMENTS

     155  

THE SPECIAL MEETING

     157  

Date, Time and Place

     157  

Purpose of the Special Meeting

     157  

Record Date; Shares Outstanding and Entitled to Vote

     157  

How to Vote Your Shares

     157  

How to Change Your Vote

     158  

Proxies; Counting Your Vote

     158  

Appraisal Rights

     159  

Voting by resTORbio’s Directors, Executive Officers and Certain Stockholders

     159  

Solicitation of Proxies

     159  

THE MERGER

     160  

Background of the Merger

     160  

resTORbio Reasons for the Merger

     177  

Adicet Reasons for the Merger

     179  

Unaudited Prospective Financial Information

     181  

Opinion of the resTORbio Financial Advisor

     185  

Interests of the resTORbio Directors and Executive Officers in the Merger

     192  

Interests of the Adicet Directors and Executive Officers in the Merger

     195  

Limitations of Liability and Indemnification

     197  

Adicet Stock Options and Warrants

     198  

Form of the Merger

     198  

Merger Consideration

     199  

Effective Time of the Merger

     200  

Regulatory Approvals

     200  

Material U.S. Federal Income Tax Considerations of the Merger

     200  

Nasdaq Stock Market Listing

     202  

Anticipated Accounting Treatment

     203  

Appraisal Rights

     203  

THE MERGER AGREEMENT

     207  

Form of the Merger

     207  

Effective Time of the Merger

     207  

Merger Consideration and Exchange Ratio

     207  

Equity Awards

     209  

Employees

     211  

 

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Regulatory Approvals

     211  

Nasdaq Listing

     211  

Amendment to the resTORbio Certificate of Incorporation; Certificate of Incorporation of the Surviving Corporation

     212  

Conditions to the Completion of the Merger

     212  

Representations and Warranties

     215  

No Solicitation

     215  

Meeting of resTORbio’s Stockholders

     218  

Written Consent of Adicet Stockholders

     218  

Directors and Officers Following the Merger

     218  

Indemnification of Officers and Directors

     218  

Covenants; Conduct of Business Pending the Merger

     219  

Other Agreements

     223  

Termination

     223  

Termination Fee

     225  

Amendment

     228  

AGREEMENTS RELATED TO THE MERGER

     229  

Funding Agreement

     229  

Adicet Support Agreement

     230  

resTORbio Support Agreement

     231  

Lock-up Agreements

     232  

Contingent Value Rights Agreement

     232  

MATTERS BEING SUBMITTED TO A VOTE OF RESTORBIO STOCKHOLDERS

     238  

Proposal No. 1: The Share Issuance Proposal: Approval of the Issuance of Common Stock in the Merger

     238  

Proposal No. 2: The Reverse Stock Split Proposal: Approval of an Amendment to the Amended and Restated Certificate of Incorporation of resTORbio Effecting the Reverse Stock Split

     238  

Material U.S. Federal Income Tax Consequences of the Reverse Stock Split

     242  

Proposal No. 3: Option Pool Increase Proposal: Approval Of The First Amendment To The resTORbio, Inc. 2018 Stock Option And Incentive Plan

     244  

Proposal No. 4: The Adjournment Proposal: Approval of Possible Adjournment of the Special Meeting

     250  

RESTORBIO BUSINESS

     252  

ADICET BUSINESS

     285  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF RESTORBIO

     334  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF ADICET

     347  

MANAGEMENT FOLLOWING THE MERGER

     372  

RESTORBIO EXECUTIVE COMPENSATION

     382  

ADICET EXECUTIVE COMPENSATION

     387  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     392  

resTORbio Related Party Transactions

     392  

Adicet Related Party Transactions

     395  

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

     398  

DESCRIPTION OF RESTORBIO’S CAPITAL STOCK

     412  

General

     412  

 

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Common Stock

     412  

Undesignated Preferred Stock

     412  

Registration Rights

     412  

Anti-Takeover Effects of the resTORbio Certificate of Incorporation and Bylaws and Delaware Law

     413  

Choice of Forum

     414  

Section 203 of the Delaware General Corporation Law

     414  

COMPARISON OF RIGHTS OF HOLDERS OF RESTORBIO STOCK AND ADICET STOCK

     416  

PRINCIPAL STOCKHOLDERS OF RESTORBIO

     432  

PRINCIPAL STOCKHOLDERS OF ADICET

     434  

PRINCIPAL STOCKHOLDERS OF COMBINED COMPANY

     437  

OTHER BUSINESS AT THE SPECIAL MEETING

     440  

LEGAL MATTERS

     440  

EXPERTS

     440  

WHERE YOU CAN FIND MORE INFORMATION

     440  

TRADEMARK NOTICE

     442  

OTHER MATTERS

     442  

Householding

     442  

Stockholder Proposals

     442  

Communication with resTORbio’s Board of Directors

     442  

RESTORBIO, INC. INDEX TO FINANCIAL STATEMENTS

     F-1  

ADICET BIO, INC. INDEX TO FINANCIAL STATEMENTS

     F2-1  

Annex A AGREEMENT AND PLAN OF MERGER

     A-1  

Annex B OPINION OF JMP SECURITIES LLC

     B-1  

Annex C SECTION  262 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE

     C-1  

Annex D PROPOSED AMENDMENT TO CERTIFICATE OF INCORPORATION OF RESTORBIO, INC.

     D-1  

Annex E PROPOSED AMENDMENT TO THE 2018 STOCK OPTION AND INCENTIVE PLAN OF RESTORBIO

     E-1  

 

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QUESTIONS AND ANSWERS ABOUT THE MERGER

Except where specifically noted, the following information and all other information contained in this proxy statement/prospectus/information statement does not give effect to the proposed reverse stock split described in the section entitled “Matters Being Submitted to a Vote of resTORbio Stockholders—Proposal No. 2: The Reverse Stock Split Proposal” beginning on page 238 in this proxy statement/prospectus/information statement (referred to as the “reverse stock split”).

The following section provides answers to frequently asked questions about the merger. This section, however, provides only summary information. For a more complete response to these questions and for additional information, please refer to the cross-referenced sections.

 

Q:

What is the merger?

 

A:

resTORbio, Adicet and the merger subsidiary have entered into an Agreement and Plan of Merger, dated as of April 28, 2020, as may be amended from time to time (referred to as the “merger agreement”), that contains the terms and conditions of the proposed business combination of resTORbio and Adicet. Under the merger agreement, at the effective time of the merger, the merger subsidiary will merge with and into Adicet, with Adicet surviving as a wholly owned subsidiary of resTORbio (referred to as the “merger”).

At the effective time of the merger, each share of Adicet capital stock outstanding immediately prior to the effective time, excluding any shares of Adicet capital stock held as treasury stock and shares held by Adicet stockholders who have exercised and perfected appraisal rights, will be converted into the right to receive approximately 0.8555 shares of resTORbio common stock, subject to adjustment to account for the reverse stock split of within the range between 1-for-4 and 1-for-12. This exchange ratio is an estimate only and is based upon resTORbio’s and Adicet’s capitalization as of July 22, 2020. The final exchange ratio will be determined pursuant to a formula described in more detail in the merger agreement and in the section entitled “The Merger Agreement—Merger Consideration and Exchange Ratio” beginning on page 207 of this proxy statement/prospectus/information statement, and is generally calculated by dividing (a) (i) the Adicet valuation per the merger agreement of $220,000,000 divided by (ii) the number of Adicet’s outstanding shares immediately prior to the effective time on a fully diluted basis (excluding equity incentives available for grant) by (b) (i) the resTORbio valuation per the merger agreement of $73,333,333 divided by (ii) the number of resTORbio’s outstanding shares immediately prior to the effective time on a fully diluted basis (excluding equity incentives available for grant).

Immediately following the effective time of the merger, the former equityholders of Adicet are expected to hold approximately 75% of the outstanding shares of resTORbio common stock on a fully diluted basis, and the current equityholders of resTORbio are expected to hold approximately 25% of the outstanding shares of resTORbio common stock on a fully diluted basis (in each case excluding equity incentives available for grant).

After the completion of the merger, resTORbio will change its corporate name from “resTORbio, Inc.” to “Adicet Bio, Inc.” as contemplated by the merger agreement.

 

Q:

What will happen to resTORbio if, for any reason, the merger does not close?

 

A:

resTORbio has invested significant time and incurred, and expects to continue to incur, significant expenses related to the merger. In the event the merger does not close, resTORbio will have a limited ability to continue its current operations without obtaining additional financing. Although the resTORbio Board may elect, among other things, to attempt to complete another strategic transaction if the merger with Adicet does not close, the resTORbio Board may instead divest all or a portion of resTORbio’s business or take steps necessary to liquidate or dissolve resTORbio’s business and assets if a viable alternative strategic transaction is not available. If resTORbio decides to dissolve and liquidate its assets, resTORbio would be

 

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  required to pay all of its contractual obligations, and to set aside certain reserves for potential future claims, and there can be no assurance as to the amount or the timing of such a liquidation and distribution of available cash left to distribute to stockholders after paying the obligations of resTORbio and setting aside funds for reserves. Under certain circumstances, Adicet and resTORbio may be obligated to pay the other party a termination fee of up to $6,100,000 or reimburse certain expenses of the other party up to $1,000,000, as more fully described in the section entitled “The Merger Agreement—Termination” beginning on page 223 and the section entitled “The Merger Agreement—Termination Fee” beginning on page 225 of this proxy statement/prospectus/information statement.

 

Q:

Why are the two companies proposing to merge?

 

A:

Adicet and resTORbio believe that the merger will result in a combined company that will leverage Adicet’s scientific and product development expertise and pipeline of engineered immune cell therapeutics for cancer based on its proprietary gamma delta T cell therapy platform, provide the resources for the combined company to advance multiple programs into the clinic, including Adicet’s lead candidate, ADI-001, a gamma delta chimeric antigen receptor (CAR)-modified T cell therapy targeting CD20, and expand the combined company’s pipeline in oncology and other indications.

The resTORbio Board and the Adicet Board considered a number of factors that supported their respective decisions to approve the merger agreement. In the course of its deliberations, the resTORbio Board and the Adicet Board also considered a variety of risks and other countervailing factors related to entering into the merger agreement.

For a more complete discussion of resTORbio’s and Adicet’s reasons for the merger, please see the section entitled “The Merger—resTORbio Reasons for the Merger” beginning on page 177 of this proxy statement/prospectus/information statement and the section entitled “The Merger—Adicet Reasons for the Merger;” beginning on page 179 of this proxy statement/prospectus/information statement.

 

Q:

Why am I receiving this proxy statement/prospectus/information statement?

 

A:

You are receiving this proxy statement/prospectus/information statement because you have been identified as a stockholder of resTORbio as of the record date or a stockholder of Adicet eligible to execute the Adicet written consent. If you are a stockholder of resTORbio, you are entitled to vote at resTORbio’s special stockholder meeting (referred to as the “special meeting”) to approve the issuance of shares of resTORbio common stock pursuant to the merger agreement and the reverse stock split. If you are a stockholder of Adicet, you are entitled to sign and return the Adicet written consent to adopt the merger agreement and approve the transactions contemplated in the merger agreement (referred to as the “contemplated transactions”), including the merger. This document serves as:

 

   

a proxy statement of resTORbio used to solicit proxies for the special meeting;

 

   

a prospectus of resTORbio used to offer shares of resTORbio common stock in exchange for shares of Adicet capital stock in the merger and issuable upon exercise of Adicet warrants and options, as applicable; and

 

   

an information statement of Adicet used to solicit the written consent of its stockholders for the adoption of the merger agreement and the approval of the merger and the contemplated transactions.

 

Q:

What is required to consummate the merger?

 

A:

The consummation of the merger is subject to a number of closing conditions, including the condition that resTORbio’s stockholders approve the issuance of shares of resTORbio common stock in the merger and the resulting “change of control” of resTORbio under the Nasdaq rules, which requires the affirmative vote of a majority of the votes properly cast on such matter at the special meeting, and the reverse stock split, which requires the affirmative vote of the holders of a majority of the outstanding shares of resTORbio common stock entitled to vote on such matter, and the condition that the requisite Adicet stockholders adopt the merger agreement and, thereby, approve the contemplated transactions.

 

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The adoption of the merger agreement and the approval of the contemplated transactions by Adicet’s stockholders requires the affirmative vote (or written consent) of the holders of a majority of (a) the outstanding shares of Adicet capital stock (on an as-converted to Adicet common stock basis), (b) the outstanding shares of Adicet preferred stock, voting together as one class (on an as-converted to Adicet common stock basis) and (c) the outstanding shares of Adicet Series B Preferred Stock, par value $0.0001 per share (referred to as “Adicet Series B preferred stock”), voting together as one class, in each case, outstanding on the record date for the Adicet written consent and entitled to vote thereon (referred to as the “Required Adicet Stockholder Vote”).

In addition, following the registration statement on Form S-4, of which this proxy statement/prospectus/information statement is a part, being declared effective by SEC and pursuant to the conditions of the merger agreement and the support agreement entered into by and among Adicet, resTORbio and certain holders of Adicet capital stock (referred to as the “Adicet support agreement”), Adicet’s stockholders who are party to the Adicet support agreement are each obligated to execute the written consent adopting the merger agreement, thereby approving the contemplated transactions, including the merger, no later than five business days after the registration statement on Form S-4, of which this proxy statement/prospectus/information statement forms a part, is declared effective. Therefore, holders of a sufficient number of shares of Adicet capital stock required to adopt the merger agreement are expected to adopt the merger agreement, and no meeting of Adicet’s stockholders to adopt the merger agreement and approve the merger and contemplated transactions is expected to be held.

For a more complete description of the closing conditions under the merger agreement, please see the section entitled “The Merger Agreement—Conditions to the Completion of the Merger” beginning on page 212 of this proxy statement/prospectus/information statement.

 

Q:

What will Adicet’s stockholders, warrantholders and optionholders receive in the merger?

 

A:

At the effective time of the merger, and subject to the terms of the merger agreement, each share of Adicet capital stock outstanding immediately prior to the effective time of the merger, excluding any shares of Adicet capital stock held as treasury stock and shares held by Adicet stockholders who have exercised and perfected appraisal rights, will be converted into the right to receive approximately 0.8555 shares of resTORbio common stock, subject to adjustment to account for the reverse stock split. This exchange ratio is an estimate only and is based upon resTORbio’s and Adicet’s capitalization as of July 22, 2020. The final exchange ratio will be determined pursuant to a formula described in more detail in the merger agreement and in the section entitled “The Merger Agreement—Merger Consideration and Exchange Ratio” beginning on page 207 of this proxy statement/prospectus/information statement.

Upon the effective time of the merger, each Adicet option, whether vested or unvested, issued pursuant to the Adicet 2015 Stock Incentive Plan (referred to as the “Adicet 2015 plan”) and a subset of options pursuant to the Adicet 2014 Share Option Plan (referred to as the “Adicet 2014 plan”) will be converted into options to purchase a number of shares of resTORbio common stock based on the exchange ratio, subject to the terms of and adjustments in the merger agreement. The assumed options will remain subject to the terms of the Adicet plans under which they were issued, accordingly, and applicable stock option agreements. Adicet warrants with rights to acquire Adicet capital stock will be converted into rights to acquire a certain number of shares of resTORbio common stock based on the exchange ratio, subject to the terms of and adjustments in the merger agreement and the applicable warrant.

For a more complete description of what Adicet’s stockholders, warrantholders and option holders will receive in the merger, please see the section entitled “The Merger Agreement—Merger Consideration and Exchange Ratio” beginning on page 207 of this proxy statement/prospectus/information statement.

 

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Q:

What will resTORbio’s stockholders, restricted stock unit holders, and optionholders receive in the merger?

 

A:

resTORbio’s stockholders will continue to own and hold their existing shares of resTORbio common stock, subject to adjustment for the reverse stock split. The vesting of all outstanding resTORbio options will be accelerated in full as of immediately prior to the effective time of the merger. All out-of-the-money resTORbio options will be cancelled for no consideration. All in-the-money resTORbio options will remain outstanding after the completion of the merger in accordance with their terms. In addition, all outstanding unvested resTORbio restricted stock units will be accelerated in full effective as of immediately prior to the effective time of the merger, and for each outstanding and unsettled resTORbio restricted stock unit, the holder thereof shall receive a number of shares of resTORbio common stock equal to the number of vested and unsettled shares underlying such resTORbio restricted stock units less the number of resTORbio shares withheld for purposes of tax withholding obligations.

In addition, the merger agreement contemplates that at or prior to completion of the merger, resTORbio, the Holders’ Representative (as defined therein) and the Rights Agent (as defined therein) will execute and deliver a contingent value rights agreement (referred to as the “CVR agreement”), pursuant to which each holder of resTORbio common stock as of immediately prior to the completion of the merger shall be entitled to one contractual contingent value right (referred to as a “CVR”) issued by resTORbio, subject to and in accordance with the terms and conditions of the CVR agreement, for each share of resTORbio common stock held by such holder. Each CVR shall entitle the holder thereof to receive net proceeds of the commercialization, if any, received from a third party commercial partner of RTB101, resTORbio’s small molecule product candidate that is a potent inhibitor of target of rapamycin complex 1 (TORC1), for a COVID-19 related indication, with clinical data expected by the first quarter of 2021. The CVRs are not transferable, except in certain limited circumstances as will be provided in the CVR agreement, will not be certificated or evidenced by any instrument and will not be registered with the SEC or listed for trading on any exchange.

For a more complete description of what resTORbio’s stockholders, restricted stock unit holders and option holders will receive in the merger, please see the section entitled “The Merger Agreement—Merger Consideration and Exchange Ratio” beginning on page 207 of this proxy statement/prospectus/information statement.

 

Q:

Who will be the directors of the combined company following the merger?

 

A:

In connection with the merger, the combined company is anticipated to initially have a seven member board of directors, which will include five designated from Adicet, one designated from resTORbio and Chen Schor, the current President and Chief Executive Officer of resTORbio (until each of their respective successors are duly elected or appointed and qualified or their earlier death, resignation or removal). Anil Singhal, the current President and Chief Executive Officer of Adicet, will serve as a senior advisor to Adicet. It is anticipated that, following the completion of the merger, the combined company’s board of directors will be constituted as follows:

 

Name

  

Current Affiliation

Chen Schor

  

resTORbio Director and Chief Executive Officer

Erez Chimovits

  

Adicet, Director

Carl Gordon, Ph.D.

  

Adicet, Director

Aya Jakobovits, Ph.D.

  

Adicet, Director

Yair Schindel, M.D.

  

Adicet, Director

Jeffery A. Chodakewitz, M.D.

  

resTORbio, Director

Steve Dubin

  

N/A(1)

 

(1)

It is anticipated that Steve Dubin will be appointed to serve as a director of the combined company following the closing of the merger. Mr. Dubin is not currently affiliated with Adicet or resTORbio.

 

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Q:

Who will be the executive officers of the combined company immediately following the merger?

 

A:

Immediately following the consummation of the merger, the executive management team of the combined company is expected to include the following individuals:

 

Name

 

Position with the Combined Company

 

Current Position

Chen Schor   President and Chief Executive Officer  

President and Chief Executive

Officer of resTORbio

Stewart Abbot, Ph.D.   Senior Vice President, Chief Operating and Scientific Officer   Senior Vice President, Chief Operating and Scientific Officer of Adicet
Francesco Galimi, M.D., Ph.D.   Senior Vice President and Chief Medical Officer   Senior Vice President and Chief Medical Officer of Adicet
Lloyd Klickstein, M.D., Ph.D.   Chief Innovation Officer   Chief Scientific Officer of resTORbio
Carrie Krehlik   Senior Vice President and Chief Human Resource Officer  

Senior Vice President and Chief Human Resource Officer of

Adicet

 

Q:

As a stockholder of resTORbio, how does the resTORbio Board recommend that I vote?

 

A:

After careful consideration, the resTORbio Board recommends that resTORbio’s stockholders vote:

 

  1.

FOR Proposal No. 1 to approve the issuance of resTORbio common stock pursuant to the merger agreement and the resulting “change of control” of resTORbio under the Nasdaq rules;

 

  2.

FOR Proposal No. 2 to approve an amendment to resTORbio’s third amended and restated certificate of incorporation to effect the reverse stock split of resTORbio common stock;

 

  3.

FOR Proposal No. 3 to approve an amendment of the resTORbio 2018 Plan to increase to the total number of shares of resTORbio Common Stock available for issuance under the resTORbio 2018 Plan by 14,855,157 shares, prior to giving effect to the reverse stock split to be effected in connection with the merger; and

 

  4.

FOR Proposal No. 4 to approve an adjournment or postponement of the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal No. 1, Proposal No. 2 and Proposal No. 3.

 

Q:

As a stockholder of Adicet, how does the Adicet Board recommend that I vote?

 

A:

After careful consideration, the Adicet Board recommends that Adicet’s stockholders execute the written consent indicating their vote in favor of the adoption of the merger agreement and the approval of the merger and the contemplated transactions.

 

Q:

Have any of Adicet’s stockholders agreed to vote in favor of the merger?

 

A:

Yes. In connection with the execution of the merger agreement, holders of approximately 98% of the outstanding shares of Adicet capital stock on an as-converted to common stock basis have entered into the Adicet support agreement, as further described in the section entitled “Agreements Related To The Merger” beginning on page 229 of this proxy statement/prospectus/information statement, with resTORbio and Adicet that provides, among other things, that the stockholders of Adicet subject to this agreement will vote their shares in favor of the approval of the merger agreement and the contemplated transactions.

The merger agreement requires that, promptly after the registration statement on Form S-4, of which this proxy statement/prospectus/information statement forms a part, is declared effective, and no later than five (5) business days thereafter, Adicet must solicit for approval by written consent from Adicet’s stockholders the approval and adoption of the merger agreement and other contemplated transactions.

 

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Q:

Have any of resTORbio’s stockholders agreed to vote in favor of the issuance of the shares in the merger and the reverse stock split?

 

A:

Yes. In connection with the execution of the merger agreement, holders of approximately 24% of the outstanding shares of resTORbio common stock have entered into a support agreement (referred to as the “resTORbio support agreement”), as further described in the section entitled “Agreements Related To The Merger” beginning on page 229 of this proxy statement/prospectus/information statement, with resTORbio and Adicet that provides, among other things, that the stockholders of resTORbio subject to this agreement will vote their shares in favor of Proposal No. 1, Proposal No. 2 and Proposal No. 3.

 

Q:

What risks should I consider in deciding whether to vote in favor of Proposal No. 1, Proposal No. 2 and Proposal No. 3 or to execute and return the written consent, as applicable?

 

A:

You should carefully review the section entitled “Risk Factors” beginning on page 28 of this proxy statement/prospectus/information statement, which sets forth certain risks and uncertainties related to the merger, risks and uncertainties to which the combined company’s business will be subject, and risks and uncertainties to which each of resTORbio and Adicet, as an independent company, is subject.

 

Q:

When do you expect the merger to be consummated?

 

A:

resTORbio and Adicet anticipate that the merger will occur sometime in the second half of 2020 but neither can predict the exact timing. For more information, please see the section entitled “The Merger Agreement—Conditions to the Completion of the Merger” beginning on page 212 of this proxy statement/prospectus/information statement.

 

Q:

What are the material U.S. federal income tax consequences of the merger to U.S. Holders of Adicet capital stock?

 

A:

The merger is intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”). Assuming the merger so qualifies, a U.S. Holder (as defined in the section entitled “The Merger—Material U.S. Federal Income Tax Considerations of the Merger” beginning on page 200 of this proxy statement/prospectus/information statement) generally will not recognize gain or loss for U.S. federal income tax purposes on the exchange of Adicet capital stock for shares of resTORbio common stock pursuant to the merger. Adicet’s obligation to effect the merger is subject to the satisfaction or waiver, at or prior to the closing date of the merger, of the condition that Adicet receive an opinion of tax counsel, dated as of the closing date of the merger, to the effect that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code.

Please review the information in the section entitled “The Merger—Material U.S. Federal Income Tax Considerations of the Merger” beginning on page 200 of this proxy statement/prospectus/information statement for a more complete description of the material U.S. federal income tax consequences of the merger to U.S. Holders. The tax consequences to you of the merger will depend on your particular facts and circumstances. Please consult your tax advisors as to the specific tax consequences to you of the merger.

 

Q:

What are the material U.S. federal income tax considerations of the receipt of the CVRs and the resTORbio Reverse Stock Split to resTORbio U.S. Holders?

 

A:

resTORbio intends to report the issuance of the CVRs to resTORbio U.S. Holders (as defined in the section entitled “The Merger—Material U.S. Federal Income Tax Considerations of the Merger” beginning on page 200 of this proxy statement/prospectus/information statement) as a distribution of property with respect to its stock. Please review the information in the section entitled “Agreements Related to the Merger—Contingent Value Rights Agreement—Material U.S. Federal Income Tax Consequences of the Receipt of CVRs” on page 233 of this proxy statement/prospectus/information statement for a more

 

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  complete description of the material U.S. federal income tax consequences of the receipt of CVRs to resTORbio U.S. Holders, including possible alternative treatments. A resTORbio U.S. Holder generally should not recognize gain or loss upon the resTORbio reverse stock split, except to the extent a resTORbio U.S. Holder receives cash in lieu of a fractional share of resTORbio common stock. Please review the information in the section entitled “Matters Being Submitted to a Vote of resTORbio Stockholders—Material U.S. Federal Income Tax Consequences of the Reverse Stock Split” on page 242 of this proxy statement/prospectus/information statement for a more complete description of the material U.S. federal income tax consequences of the resTORbio reverse stock split to resTORbio U.S. Holders.

The tax consequences to you of the receipt of CVRs and the resTORbio reverse stock split will depend on your particular facts and circumstances. Please consult your tax advisors as to the specific tax consequences to you.

 

Q:

What do I need to do now?

 

A:

resTORbio and Adicet urge you to read this proxy statement/prospectus/information statement carefully, including its annexes, and to consider how the merger affects you.

If you are a stockholder of resTORbio, you may provide your proxy instructions in one of two different ways. First, you can mail your signed proxy card in the enclosed return envelope. You may also provide your proxy instructions via phone or via the internet by following the instructions on your proxy card or voting instruction form. Please provide your proxy instructions only once, unless you are revoking a previously delivered proxy instruction, and as soon as possible so that your shares can be voted at the special meeting.

If you are a stockholder of Adicet, you may execute and return your written consent to Adicet in accordance with the instructions provided by Adicet.

 

Q:

What happens if I do not return a proxy card or otherwise provide proxy instructions, as applicable?

 

A:

The failure to return your proxy card or otherwise fail to provide proxy instructions will have the same effect as voting against Proposal No. 2, and your shares will not be counted for purposes of determining whether a quorum is present at the special meeting. Abstentions and broker non-votes will not, however, be considered votes cast at the special meeting and will therefore not have any effect with respect to Proposal Nos. 1, 3 and 4. If your shares are held in “street name”, which means your shares are held by a broker, bank or other holder of record, and you do not provide voting instructions, your broker or nominee can still vote the shares with respect to matters that are considered to be “discretionary,” but may not vote the shares with respect to “non-discretionary” matters. Under rules applicable to broker-dealers, Proposal No. 1 and Proposal No. 3 are considered non-discretionary matters. Proposal No. 2 and Proposal No. 4 qualify as a discretionary matters.

 

Q:

When and where is the special meeting of resTORbio’s stockholders?

 

A:

The special meeting will be held at [●], Eastern Time, on [●], 2020, unless postponed or adjourned to a later date. In light of the COVID-19 (coronavirus) pandemic and to support the well-being of resTORbio’s stockholders and partners, the special meeting will be completely virtual.

 

Q:

How can resTORbio’s stockholders attend the special meeting?

 

A:

You may attend the special meeting and vote your shares electronically during the meeting via live webcast by visiting [●]. You will need the control number that is printed on your proxy card to enter the special meeting. resTORbio recommends that you log in at least 15 minutes before the special meeting to ensure you are logged in when the meeting starts. Please note that you will not be able to attend the special meeting in person.

 

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If your shares are held in “street name,” you may attend the special meeting. In the event that you do not have the control number required to access the special meeting, please contact your broker, bank, or other nominee as soon as possible and no later than [●], so that you can be provided with a control number and gain access to the meeting. Please note that if the holder of record of your shares is a broker, bank or other nominee and you wish to vote online at the special meeting, you must request a proxy, executed in your favor, from your bank, broker or other nominee that holds your shares and present that proxy and proof of identification at the special meeting.

 

Q:

Why is the special meeting a virtual meeting?

 

A:

resTORbio has decided to hold the special meeting virtually due to the COVID-19 pandemic; resTORbio is sensitive to the public health and travel concerns of resTORbio’s stockholders and employees and the protocols that federal, state and local governments may impose. resTORbio believes that hosting a virtual meeting will enable greater stockholder attendance and participation from any location around the world.

 

Q:

What if during the check-in time or during the special meeting I have technical difficulties or trouble accessing the virtual meeting website?

 

A:

If you encounter any difficulties accessing the virtual meeting during the check-in or meeting time, please call the technical support number that will be posted on the virtual stockholder meeting log in page.

 

Q:

As a resTORbio stockholder, how can I vote?

 

A:

Whether or not you expect to attend the special meeting online, we urge you to vote your shares of resTORbio common stock as promptly as possible by: (1) accessing the internet website specified on your proxy card; (2) calling the toll-free number specified on your proxy card; or (3) signing and returning the enclosed proxy card in the postage-paid envelope provided, so that your shares of resTORbio common stock may be represented and voted at the special meeting. If your shares of resTORbio common stock are held in the name of a bank, broker or other fiduciary, please follow the instructions on the voting instruction card furnished by the record holder.

Stockholders who choose to participate in the special meeting can vote their shares electronically during the meeting via live webcast by visiting [●]. You will need the control number that is printed on your proxy card to enter the special meeting. resTORbio recommends that you log in at least 15 minutes before the meeting to ensure you are logged in when the meeting starts.

Even if you plan to participate in the special meeting online, we recommend that you also vote by proxy as described above so that your vote will be counted if you later decide not to participate in the special meeting.

 

Q:

If my resTORbio shares are held in “street name” by my broker, will my broker vote my shares for me?

 

A:

Broker non-votes occur when a beneficial owner of shares held in “street name” does not give instructions to the broker or nominee holding the shares as to how to vote on matters deemed “non-discretionary.” Generally, if shares are held in “street name”, the beneficial owner of the shares is entitled to give voting instructions to the broker or nominee holding the shares. If the beneficial owner does not provide voting instructions, the broker or nominee can still vote the shares with respect to matters that are considered to be “discretionary,” but may not vote the shares with respect to “non-discretionary” matters. Your broker will not be able to vote your shares of resTORbio common stock without specific instructions from you for “non-discretionary” matters. You should instruct your broker to vote your shares, following the procedures provided by your broker. Under rules applicable to broker-dealers, Proposal No. 1 and Proposal No. 3 are considered a non-discretionary matters. Proposal No. 2 and Proposal No. 4 qualify as discretionary matters.

 

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Q:

May I change my vote after I have submitted a proxy or provided proxy instructions?

 

A:

resTORbio’s stockholders of record, other than those of resTORbio’s stockholders who are parties to the resTORbio support agreement, may change their vote at any time before their proxy is voted at the special meeting virtually in one of three ways. First, a stockholder of record of resTORbio can send a written notice to the Secretary of resTORbio stating that it would like to revoke its proxy. Second, a stockholder of record of resTORbio can submit new proxy instructions either on a new proxy card or via the internet or telephone before 11:59 p.m. Eastern Time on [●]. Third, a stockholder of record of resTORbio can attend the special meeting virtually and vote online. Attendance alone will not revoke a proxy. If a stockholder of resTORbio of record or a stockholder who owns resTORbio shares in “street name” has instructed a broker to vote its shares of resTORbio common stock, the stockholder must follow directions received from its broker to change those instructions.

 

Q:

How many shares must be represented to have a quorum and hold the special meeting?

 

A:

A quorum of resTORbio stockholders is necessary to hold a valid meeting. A quorum will be present if resTORbio stockholders of record holding at least a majority of resTORbio’s outstanding common stock entitled to vote at the special meeting are present or represented by proxy. Abstentions and broker non-votes will be counted toward a quorum. On the record date, there were [●] shares of resTORbio common stock outstanding and entitled to vote. Thus, the holders of [●] shares of resTORbio common stock must be represented by proxy or vote via the Internet at the special meeting to have a quorum. As a resTORbio stockholder, your shares will be counted towards the quorum if you submit a valid proxy (or one is submitted on your behalf by your broker, bank or other nominee) or if you vote via the Internet or telephone at the special meeting. Abstentions and broker non-votes, if applicable, will also be counted towards the quorum requirement. If there is no quorum, the holders of voting stock representing a majority of the voting power present at the meeting represented by proxy or voting via the Internet or telephone during the special meeting or the presiding officer may adjourn the meeting to another date.

 

Q:

Who is paying for this proxy solicitation?

 

A:

resTORbio and Adicet will share equally the cost of printing and filing of this proxy statement/prospectus/information statement and the proxy card. In addition, resTORbio has engaged The Proxy Advisory Group, LLC, a proxy solicitation firm, to assist in the solicitation of proxies and provide related advice and informational support, for a services fee and the reimbursement of customary disbursements, which are not expected to exceed $20,000 in total. Arrangements will also be made with brokerage firms and other custodians, nominees and fiduciaries who are record holders of resTORbio common stock for the forwarding of solicitation materials to the beneficial owners of resTORbio common stock. resTORbio will reimburse these brokers, custodians, nominees and fiduciaries for the reasonable out-of-pocket expenses they incur in connection with the forwarding of solicitation materials.

 

Q:

Who can help answer my questions?

 

A:

If you are a stockholder of resTORbio and would like additional copies, without charge, of this proxy statement/prospectus/information statement or if you have questions about the merger, including the procedures for voting your shares, you should contact:

The Proxy Advisory Group, LLC

Telephone: (212) 616-2181

If you are a stockholder of Adicet and would like additional copies, without charge, of this proxy statement/prospectus/information statement or if you have questions about the merger, including the procedures for voting your shares, you should contact:

Adicet Bio, Inc.

200 Construction Drive

Menlo Park, California 94025

Telephone: 650-503-9095

Attn: Anil Singhal, CEO

 

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PROSPECTUS SUMMARY

This summary highlights selected information from this proxy statement/prospectus/information statement and may not contain all of the information that is important to you. To better understand the merger, the proposals being considered at the special meeting and Adicet’s stockholders’ actions that are the subject of the written consent, you should read this entire proxy statement/prospectus/information statement carefully, including the merger agreement attached as Annex A (referred to as the “merger agreement”), the opinion of JMP Securities LLC attached as Annex B and the other annexes to which you are referred herein and which are incorporated by reference herein. For more information, please see the section entitled “Where You Can Find More Information” on page 440 of this proxy statement/prospectus/information statement.

The Companies

resTORbio, Inc.

500 Boylston Street, 13th Floor

Boston, Massachusetts 02116

Tel: (857) 315-5528

resTORbio is a clinical-stage biopharmaceutical company developing innovative medicines that target the biology of aging to prevent or treat age-related diseases with the potential to extend healthy lifespan. resTORbio’s lead program selectively inhibits the target of rapamycin complex 1, or TORC1, an evolutionarily conserved pathway that contributes to the age-related decline in function of multiple organ systems. resTORbio’s lead product candidate, RTB101, is an oral, selective, and potent inhibitor of TORC1. RTB101 inhibits the phosphorylation of multiple targets downstream of TORC1. Inhibition of TORC1 has been observed to extend lifespan and healthspan in aging preclinical species and to enhance immune, neurologic and cardiac functions, suggesting potential benefits in several aging-related diseases. In May 2020, resTORbio initiated a randomized, double-blind, placebo-controlled trial to determine if prophylaxis with RTB101 as compared to placebo reduces the severity of laboratory-confirmed COVID-19 in adults age 65 years and older who reside in a nursing home with one or more residents or staff who have laboratory-confirmed novel coronavirus disease (referred to as “COVID-19”). The primary endpoint for the study is the percentage of subjects who develop laboratory-confirmed COVID-19 with protocol-defined progressive symptoms or are hospitalized or die beginning at randomization through Week 4. Approximately 550 subjects are expected to enroll in the study. Subjects will be randomized 1:1 to RTB101 10 mg once daily or matching placebo once daily. As of July 22, 2020, fifteen (15) subjects have been randomized to receive RTB101 10 mg once daily or matching placebo. The study is conducted in collaboration with Investigators at Brown University’s Schools of Medicine and Public Health. On July 28, 2020, resTORbio announced it received a grant award from the National Institute on Aging to fund a clinical trial to obtain preliminary data on the feasibility of studying RTB101 as compared to placebo for COVID-19 post-exposure prophylaxis in adults age 65 years and older. Approximately sixty (60) subjects are expected to enroll in the clinical trial, which will be fully funded by the grant. The clinical trial is anticipated to start in the second half of 2020.

In November 2019, resTORbio announced that top line data from the PROTECTOR 1 Phase 3 study, evaluating the safety and efficacy of RTB101 in preventing clinically symptomatic respiratory illness in adults age 65 and older, did not meet its primary endpoint and that resTORbio has stopped the development of RTB101 for clinically symptomatic respiratory illness. In May 2020, resTORbio terminated its Phase 1b/2a with RTB101 alone or RTB101 in combination with sirolimus in Parkinson’s disease. Except for the studies described above for COVID-19, there are no additional clinical studies ongoing with RTB101.

Adicet Bio, Inc.

200 Constitution Drive

Menlo Park, CA 94025

Tel: (650) 503-9095



 

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Adicet is a biotechnology company that is advancing a new generation of chimeric antigen receptor (CAR)-modified-T cell therapies in oncology and other indications. Adicet’s approach is based on gamma delta T cells, an immune cell population that Adicet believes has potentially significant advantages over alpha beta T cells, which are the basis of standard CAR-T cell therapies. Adicet believes that it is at the forefront to take tumor targeting gamma delta CAR-T cell product candidates into IND-enabling studies and clinical trials for specific tumor types. Adicet is developing proprietary processes for engineering and manufacturing product candidates based on gamma delta T cells from the blood of healthy donors, resulting in high yields of cells with efficacious tumor-killing activity in preclinical experiments. The ability to administer product candidates based on gamma delta T cells to patients without inducing a graft versus host immune response means that Adicet’s products can potentially be produced as off-the-shelf therapies. This is in contrast to products based on alpha beta T cells, which either must be manufactured for each patient from his or her own T cells or which require significant gene editing to manufacture allogeneic therapies, that is, therapies that are based on T cells derived from donors that are unrelated to the patient. Based on what Adicet believes is the enormous promise of these cells and associated modifications, Adicet is initially developing product candidates in oncology, both for hematological malignancies and for solid tumor indications. Due to certain unique properties of gamma delta T cells, Adicet believes that its product candidates will have an inherent capacity to recognize and kill circulating tumor cells and to infiltrate and kill solid tumors, the cause of over 90% of all cancer deaths as estimated by the American Cancer Society in 2020. Adicet intends to file an IND application with the FDA in 2020 for ADI-001, the company’s lead product candidate, in Non-Hodgkin’s Lymphoma, or NHL. Subject to the FDA regulatory process for review of INDs, Adicet intends to initiate a clinical trial and treat the first patient with ADI-001 in the first half of 2021. Adicet expects initial clinical results from this trial in 2021. Adicet intends to file an IND application with the FDA in 2021 for ADI-002, the company’s first solid tumor product candidate. Subject to the FDA regulatory process for review of INDs, Adicet intends to initiate a clinical trial and treat the first patient with ADI-002 in 2021.

Project Oasis Merger Sub, Inc.

Project Oasis Merger Sub, Inc. is a wholly owned subsidiary of resTORbio, and was formed solely for the purposes of carrying out the merger.

The Merger (page 160)

Upon the terms and subject to the conditions of the merger agreement, at the effective time of the merger, the merger subsidiary will merge with and into Adicet, with Adicet surviving as a wholly owned subsidiary of resTORbio. The merger agreement provides that upon the consummation of the merger, the separate existence of merger subsidiary shall cease and Adicet will continue as the surviving corporation and as a wholly owned subsidiary of resTORbio.

At the effective time of the merger, each share of Adicet capital stock outstanding immediately prior to the effective time of the merger, excluding any shares of Adicet capital stock held as treasury stock and shares held by Adicet stockholders who have exercised and perfected appraisal rights as more fully described in the section entitled “The Merger—Appraisal Rights” below, will be converted into the right to receive approximately 0.8555 shares of resTORbio common stock, subject to adjustment to account for the reverse stock split at a ratio mutually agreed to by resTORbio and Adicet in the range of 1-for 4 to 1-for-12 shares outstanding (or any number in between), to be implemented immediately prior to and contingent upon the completion of the merger. This exchange ratio is an estimate only and is based upon resTORbio’s and Adicet’s capitalization as of July 22, 2020. The final exchange ratio will be determined pursuant to a formula described in more detail in the merger agreement and in the section entitled “The Merger Agreement—Merger Consideration and Exchange Ratio” on page 207 of this proxy statement/prospectus/information statement.

Immediately following the effective time of the merger, the former Adicet equityholders are expected to hold approximately 75% of the outstanding shares of resTORbio common stock on a fully-diluted basis and the



 

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current equityholders of resTORbio are expected to hold approximately 25% of the outstanding shares of resTORbio common stock on a fully-diluted basis (in each case excluding equity incentives available for grant).

The completion of the merger will occur no later than the second business day after all conditions to closing are satisfied or waived, or at such other time as resTORbio and Adicet agree. resTORbio and Adicet anticipate that the consummation of the merger will occur in the second half of fiscal year 2020. However, because the merger is subject to a number of conditions, neither resTORbio nor Adicet can predict exactly when the completion of the merger will occur or if it will occur at all. In connection with the completion of the merger, resTORbio will be renamed “Adicet Bio, Inc.” and expects to trade on Nasdaq under the symbol “ACET.”

Reasons for the Merger (177 and 179)

The resTORbio Board considered various reasons to reach its determination (i) that the contemplated transactions are advisable and fair to, and in the best interests of, resTORbio and resTORbio stockholders and (ii) to approve and declare advisable the authorization and issuance of shares of resTORbio common stock to the Adicet stockholders in accordance with the terms of the merger agreement.

The Adicet Board also considered various reasons to reach its determination (i) that the merger is advisable and fair to, and in the best interests of, Adicet and Adicet stockholders, (ii) to approve the merger agreement, and the contemplated transactions and deem the merger agreement advisable and (iii) to recommend that the Adicet stockholders vote to approve the merger agreement and the contemplated transactions.

The resTORbio Board considered reasons for the merger, including, among others, the following factors:

 

   

resTORbio’s business, financial performance (both past and prospective) and its financial condition, results of operation (both past and prospective), business and strategic objectives, as well as the risks of accomplishing those objectives;

 

   

resTORbio’s business and financial prospects if it were to remain an independent company and the resTORbio Board’s determination that resTORbio could not continue to operate as an independent company and needed to enter into an agreement with a strategic partner;

 

   

the possible alternatives to the merger, the range of possible benefits and risks to the resTORbio stockholders of those alternatives and the timing and the likelihood of accomplishing the goal of any of such alternatives and the resTORbio Board’ assessment that the merger presented a superior opportunity to such alternatives for resTORbio stockholders;

 

   

the resTORbio Board’s view of the valuation of the potential merger candidates. In particular, the resTORbio Board’s view that Adicet was the most attractive candidate because of its off-the-shelf gamma delta CAR-T cell therapy platform resulting in a potential pipeline of clinical candidates, and the resTORbio Board’s belief that the merger would create a publicly traded company focused on the development of Adicet’s off-the-shelf allogeneic gamma delta T cell therapies for oncology and other indications, and its belief that the merger with Adicet will create more value for resTORbio stockholders than any of the other proposals that the resTORbio Board had received or that resTORbio could create as a standalone company;

 

   

the ability of resTORbio stockholders to participate in the future growth potential of the combined company following the merger, while potentially receiving all net proceeds derived from the commercialization of RTB101 for prophylaxis for COVID-19 on account of the CVR agreement to be executed at the closing of the merger;

 

   

that the combined company will be led by an experienced senior management team, with Mr. Schor serving as the chief executive officer; and

 

   

the results of discussions with third parties relating to a variety of strategic transactions, including a licensing transaction and possible business combination or similar transaction with resTORbio.



 

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resTORbio’s reasons for the merger and the negative factors considered by the resTORbio Board are described in more detail in the section entitled “resTORbio Reasons for the Merger” beginning on page 177 of this proxy statement/prospectus/information statement.

In addition, the Adicet Board approved the merger based on its consideration of a number of factors, including, among others:

 

   

Adicet’s need for capital to support the pre-clinical and clinical development of its product candidates and the potential to access public market capital, including sources of capital from a broader range of investors than it could otherwise obtain if it continued to operate as a privately-held company;

 

   

the expectation that the merger would be a more time- and cost-effective means to access capital than other options considered;

 

   

the potential to provide its current stockholders with greater liquidity by owning stock in a public company listed on Nasdaq;

 

   

the Adicet Board’s belief that no alternatives to the merger were reasonably likely to create greater value for Adicet’s stockholders, after reviewing the various financing and other strategic options to enhance stockholder value that were considered by the Adicet Board, including remaining as an independent company;

 

   

the historical operations, resources, assets, technology and reputation of resTORbio (including, without limitation, the failure of its main drug candidate to meet its primary endpoints in a previous clinical trial); and

 

   

the projected financial position, operations, management structure, geographic locations, operating plans, cash burn rate and financial projections of the combined company, including the impact of the CVR agreement and the expected cash resources of the combined organization (including the ability to support the combined company’s current and planned clinical trials and operations).

Adicet’s reasons for the merger and the risks and uncertainties considered by the Adicet Board are described in more detail in the section entitled “Adicet Reasons for the Merger” beginning on page 179 of this proxy statement/prospectus/information statement.

Opinion of the resTORbio Financial Advisor (page 185)

JMP Securities LLC (referred to as “JMP”) delivered its opinion to the resTORbio Board that, as of April 28, 2020 and based upon and subject to the factors and assumptions set forth therein, the exchange ratio (referred to as the “exchange ratio”) was fair, from a financial point of view, to resTORbio.

The full text of the written opinion of JMP, dated April 28, 2020, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex B to this proxy statement/prospectus/information statement and incorporated herein by reference. JMP provided advisory services and its opinion for the information and assistance of the resTORbio Board in connection with its consideration of the merger. The JMP opinion is not a recommendation as to how any holder of resTORbio common stock should vote with respect to the merger or any other matter. Pursuant to an engagement letter between resTORbio and JMP, resTORbio has agreed to pay JMP a transaction fee estimated as of the date of the announcement of the merger at $1,250,000, $250,000 of which became payable upon the rendering of the opinion, and the remainder of which is contingent upon the completion of the merger.



 

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Overview of the Merger Agreement

Merger Consideration (page 199)

At the effective time of the merger:

 

   

any shares of Adicet capital stock held as treasury stock immediately prior to the effective time of the merger shall be canceled and retired and shall cease to exist with no consideration delivered in exchange therefor;

 

   

each share of Adicet capital stock outstanding immediately prior to the effective time (excluding shares of Adicet capital stock held as treasury stock and any dissenting shares held by stockholders who have exercised and perfected appraisal rights as more fully described in the section entitled “The Merger—Appraisal Rights” beginning on page 203 of this proxy statement/prospectus/information statement below) shall be converted solely into the right to receive a number of shares of resTORbio common stock equal to the exchange ratio of approximately 0.8555; and

 

   

no fractional shares of resTORbio common stock will be issuable to Adicet’s stockholders pursuant to the merger; however, any fractional shares of resTORbio common stock a holder of Adicet capital stock would otherwise be entitled to receive is to be aggregated before eliminating any remaining fractional share.

This exchange ratio is an estimate only and is based upon resTORbio’s and Adicet’s capitalization as of July 22, 2020. The final exchange ratio will be determined pursuant to a formula described in more detail in the merger agreement and in the section entitled “The Merger Agreement—Merger Consideration and Exchange Ratio” beginning on page 207 of this proxy statement/prospectus/information statement, and is generally calculated by dividing (a) (i) the Adicet valuation per the merger agreement of $220,000,000 divided by (ii) the number of Adicet’s outstanding shares immediately prior to the effective time on a fully diluted basis (excluding equity incentives available for grant) by (b) (i) the resTORbio valuation per the merger agreement of $73,333,333 divided by (ii) the number of resTORbio’s outstanding shares immediately prior to the effective time on a fully diluted basis (excluding equity incentives available for grant).

Immediately following the effective time of the merger, the former Adicet equityholders are expected to hold approximately 75% of the outstanding shares of resTORbio common stock on a fully-diluted basis and the current equityholders of resTORbio are expected to hold approximately 25% of the outstanding shares of resTORbio common stock on a fully-diluted basis (in each case excluding equity incentives available for grant).

The merger agreement does not include a price-based termination right, and there will be no adjustment to the total number of shares of resTORbio’s common stock that Adicet’s stockholders will be entitled to receive for changes in the market price of resTORbio’s common stock after the date the merger agreement was signed. Accordingly, the market value of the shares of resTORbio’s common stock issued pursuant to the merger will depend on the market value of the shares of resTORbio’s common stock at the time the merger closes, and could vary significantly from the market value on the date of this proxy statement/prospectus/information statement.

Treatment of resTORbio Equity Awards (page 209)

Prior to the completion of the merger, the resTORbio Board will adopt appropriate resolutions and take all other actions necessary and appropriate, including using commercially reasonable efforts to obtain any necessary consents from the holders of options to purchase resTORbio common stock (referred to as “resTORbio options”), to provide the following:

 

   

that each unexpired, unexercised and unvested resTORbio option shall be accelerated in full effective as of immediately prior to the effective time of the merger. The number of shares of resTORbio



 

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common stock underlying such options and the exercise price for such options will be adjusted to account for the reverse stock split;

 

   

that each unexpired and unexercised resTORbio option with an exercise price that equals or exceeds the volume weighted average share price of the resTORbio common stock for a five trading day period, starting with the opening of trading on the first trading day of such period to the closing of the second to last trading day prior to the effective time of the merger, as reported by Nasdaq (or, in the event Nasdaq does not report such information, such third-party service as is mutually agreed upon by the parties) (referred to as the “in-the-money price”) shall be cancelled for no consideration; and

 

   

that each unexpired and unexercised resTORbio option with an exercise price that is less than the in-the-money price shall remain outstanding after the close of the merger in accordance with its terms.

The resTORbio 2018 Stock Option and Incentive Plan (referred to as the “resTORbio 2018 Plan”) and, the resTORbio 2017 Stock Incentive Plan (referred to as the “resTORbio 2017 Plan”) and the resTORbio 2018 Employee Stock Purchase Plan (referred to as the “resTORbio 2018 ESPP,” and with the resTORbio 2018 Plan and resTORbio 2017 Plan collectively referred to as the “resTORbio Stock Plans”) shall remain in effect following the effective time of the merger.

Prior to the completion of the merger, the resTORbio Board will adopt appropriate resolutions and take all other actions necessary and appropriate to provide that (i) the vesting of each outstanding unvested equity award with respect to resTORbio common stock that represents the right to receive in the future shares of resTORbio common stock pursuant to any resTORbio Stock Plan (referred to as “resTORbio RSUs”) shall be accelerated in full effective as of immediately prior to the effective time of the merger and (ii) for each outstanding and unsettled resTORbio RSU (including any resTORbio RSUs that are accelerated as stated in (i) above), each holder thereof shall receive, immediately prior to the effective time of the merger, a number of shares of resTORbio common stock equal to the number of vested and unsettled restricted stock units underlying such resTORbio RSU (reduced by the number of shares of resTORbio common stock necessary to satisfy applicable tax withholding obligations at the maximum statutory rate). The number of shares of resTORbio common stock underlying such resTORbio RSUs will be adjusted to account for the reverse stock split.

Treatment of Adicet Equity Awards and Warrants (page 209)

At the effective time of the merger, each outstanding and unexercised Adicet option, whether vested or unvested, issued pursuant to the Adicet 2015 plan and a subset of options issued pursuant to the Adicet 2014 plan will be converted into options to purchase a number of shares of resTORbio common stock based on the exchange ratio, subject to the terms of and adjustments in the merger agreement.

Pursuant to the merger agreement, at the effective time of the merger, each Adicet option that is outstanding and unexercised immediately prior to the effective time of the merger, whether or not vested, issued pursuant to the Adicet 2015 plan and a subset of options issued pursuant to the Adicet 2014 plan, without any action on the part of the holder thereof, will be converted into and become a resTORbio option, and resTORbio shall assume the Adicet plans and each such Adicet option in accordance with the terms of the Adicet plans (as in effect as of the date of the merger agreement) and the terms of the applicable stock option agreement. All rights with respect to Adicet options assumed by resTORbio shall thereupon be converted into rights with respect to resTORbio common stock. Accordingly, from and after the effective time of the merger: (i) each Adicet option assumed by resTORbio may be exercised solely for shares of resTORbio common stock; (ii) the number of shares of resTORbio common stock subject to each Adicet option assumed by resTORbio shall be determined by multiplying (A) the number of shares of Adicet common stock that were subject to such Adicet option, as in effect immediately prior to the effective time of the merger, by (B) the exchange ratio, and rounding the resulting number down to the nearest whole number of shares of resTORbio common stock and (iii) the per share exercise



 

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price for the resTORbio common stock issuable upon exercise of each Adicet option assumed by resTORbio shall be determined by dividing (A) the per share exercise price of Adicet common stock subject to such Adicet option, as in effect immediately prior to the effective time of the merger, by (B) the exchange ratio and rounding the resulting exercise price up to the nearest whole cent. Any restriction on the exercise of any Adicet option assumed by resTORbio shall continue in full force and effect and the term, exercisability, vesting schedule and other provisions of such Adicet option shall otherwise remain unchanged.

At the effective time of the merger, all rights with respect to Adicet capital stock under Adicet warrants shall be converted into rights with respect to resTORbio common stock and thereupon assumed by resTORbio. Accordingly, from and after the effective time of the merger: (i) each Adicet warrant assumed by resTORbio may be exercised solely for shares of resTORbio common stock; (ii) the number of shares of resTORbio common stock subject to each Adicet warrant assumed by resTORbio shall be determined by multiplying (x) the number of shares of Adicet capital stock that were subject to such Adicet warrant (on an as-converted basis with respect to shares of Adicet preferred stock), as in effect immediately prior to the effective time of the merger, by (y) the exchange ratio, and rounding the resulting number down to the nearest whole number of shares of resTORbio common stock; (iii) the per share exercise price for the resTORbio common stock issuable upon exercise of each Adicet warrant assumed by resTORbio shall be determined by dividing (x) the exercise price per share of Adicet common stock subject to such Adicet warrant (or, in the case of Adicet warrants exercisable for shares of Adicet preferred stock, the exercise price per share of such series of Adicet preferred stock divided by the number of shares of Adicet common stock into which such share of Adicet preferred stock is then convertible), as in effect immediately prior to the effective time of the merger, by (y) the exchange ratio, and rounding the resulting exercise price up to the nearest whole cent; and (iv) any restriction on the exercise of any Adicet warrant assumed by resTORbio shall continue in full force and effect and the term, exercisability, vesting schedule and other provisions of such Adicet warrant shall otherwise remain unchanged.

Conditions to the Completion of the Merger (page 212)

To consummate the merger, resTORbio stockholders must approve (a) the issuance of shares of resTORbio common stock in the merger by a majority of the votes properly cast at the special meeting and (b) an amendment to the third amended and restated certificate of incorporation of resTORbio (referred to as the “resTORbio certificate of incorporation”) effecting the reverse stock split by a majority of the outstanding shares of resTORbio common stock as of the record date for the special meeting.

Additionally, Adicet’s stockholders must adopt the merger agreement thereby approving the merger and the contemplated transactions. The adoption of the merger agreement and the approval of the contemplated transactions by Adicet’s stockholders requires the affirmative vote (or written consent) of the holders of a majority of (a) the outstanding shares of Adicet capital stock (on an as-converted to Adicet common stock basis), (b) the outstanding shares of Adicet preferred stock, voting together as one class (on an as-converted to Adicet common stock basis) and (c) the outstanding shares of Adicet Series B preferred stock, voting together as one class, in each case, outstanding on the record date for the Adicet written consent and entitled to vote thereon.

Additionally, each of the other closing conditions set forth in the merger agreement and described in the section entitled “The Merger Agreement—Conditions to the Completion of the Merger” on page 212 of this proxy statement/prospectus/information statement must be satisfied or waived.

No Solicitation (page 215)

Each of resTORbio and Adicet agreed that, except as described below, from the date of the merger agreement until the earlier of the consummation of the merger or the termination of the merger agreement in accordance with its terms, resTORbio and Adicet and any of their respective subsidiaries will not, nor will either party or any



 

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of its subsidiaries authorize any of the directors, officers, employees, agents, attorneys, accountants, investment bankers, advisors or representatives retained by it or any of its subsidiaries to, directly or indirectly:

 

   

solicit, initiate or knowingly encourage, induce or facilitate the communication, making, submission or announcement of, any “acquisition proposal” (as defined in the section entitled “The Merger Agreement—No Solicitation” on page 215 of this proxy statement/prospectus/information statement), or “acquisition inquiry” (as defined in the section entitled “The Merger Agreement—No Solicitation” on page 215 of this proxy statement/prospectus/information statement);

 

   

furnish any non-public information with respect to it to any person in connection with or in response to an acquisition proposal or acquisition inquiry;

 

   

engage in discussions or negotiations with any person with respect to any acquisition proposal or acquisition inquiry;

 

   

subject to certain exceptions, approve, endorse or recommend an acquisition proposal;

 

   

execute or enter into any letter of intent or similar document or any contract contemplating or otherwise relating to an acquisition transaction (as defined in the section entitled “The Merger Agreement—No Solicitation” on page 215 of this proxy statement/prospectus/information statement);

 

   

take any action that could reasonably be expected to lead to an acquisition proposal or acquisition inquiry; or

 

   

publicly propose to do any of the foregoing.

Termination of the Merger Agreement (page 223)

Either resTORbio or Adicet can terminate the merger agreement under specified circumstances, which would prevent the merger from being consummated.

Termination Fee (page 225)

The merger agreement provides for the payment of a termination fee of $6,100,000 by each of resTORbio and Adicet to the other party upon termination of the merger agreement under specified circumstances.

Expense Reimbursement (page 245 and 246)

The merger agreement provides for the payment of an expense reimbursement of up to $1,000,000 by each of resTORbio and Adicet to the other party upon termination of the merger agreement under specified circumstances.

resTORbio Support Agreement (page 231)

Concurrently and in connection with the execution of the merger agreement, resTORbio and Adicet entered into the resTORbio support agreement with resTORbio’s current directors and certain officers and resTORbio’s largest stockholder, which collectively own an aggregate of approximately 24% of outstanding resTORbio common stock. The resTORbio support agreement provides, among other things, that each of such stockholders of resTORbio has agreed to vote or cause to be voted all of the shares of resTORbio common stock held by them in favor of the contemplated transactions, including the share issuance proposal and the reverse stock split proposal.

Adicet Support Agreement (page 230)

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stockholders, which collectively own an aggregate of approximately 98% of Adicet’s outstanding capital stock on an as-converted to common stock basis. The Adicet support agreement provides, among other things, that the stockholders of Adicet subject to this agreement will vote their shares in favor of the approval of the merger agreement and the contemplated transactions.

The merger agreement requires that, promptly after the registration statement on Form S-4, of which this proxy statement/prospectus/information statement is a part, is declared effective by the SEC, and no later than five (5) business days thereafter, Adicet must solicit for approval by written consent from Adicet’s stockholders sufficient for the approval and adoption of the merger agreement and other contemplated transactions.

In addition, following the registration statement on Form S-4, of which this proxy statement/prospectus/information statement is a part, being declared effective by SEC and pursuant to the conditions of the merger agreement and the Adicet support agreement, Adicet’s stockholders who are party to the Adicet support agreement are each obligated to execute the written consent, adopting the merger agreement, thereby approving the contemplated transactions, including the merger, no later than five business days after the registration statement on Form S-4, of which this proxy statement/prospectus/information statement forms a part, is declared effective. Therefore, holders of a sufficient number of shares of Adicet capital stock required to adopt the merger agreement are expected to adopt the merger agreement, and no meeting of Adicet’s stockholders to adopt the merger agreement and approve the merger and contemplated transactions is expected to be held.

Lock-up Agreements (page 232)

Concurrently with or promptly following the execution of the merger agreement, certain of Adicet’s current directors and officers and certain stockholders of Adicet, which collectively own an aggregate of approximately 98% of Adicet’s outstanding capital stock on an as-converted to common stock basis, and resTORbio’s current directors, certain officers of resTORbio and resTORbio’s largest stockholder, which collectively own an aggregate of approximately 24% of outstanding resTORbio common stock, entered into lock-up agreements with resTORbio and Adicet, pursuant to which each stockholder has agreed not to, except in limited circumstances, sell or transfer, or engage in swap or similar transactions with respect to, shares of resTORbio common stock, including, as applicable, shares received in the merger and issuable upon exercise of certain warrants and options, from the completion date of the merger until 180 days from the completion date of the merger.

Funding Agreement (page 229)

Concurrently with the execution of the merger agreement, Adicet and resTORbio entered into a funding agreement (referred to as the “funding agreement”) with certain investors of Adicet (referred to as the “Investors”), pursuant to which the Investors committed to fund up to an aggregate of $15,000,000 (referred to as the “funding amount”) into an escrow account, which will be used to subscribe for shares of resTORbio common stock in a concurrent private placement in connection with a private placement or public offering of resTORbio common stock for aggregate gross proceeds (including the funding amount) to the combined company of at least $30,000,000 (referred to as a “qualified financing”), on the same economic conditions (including the price per share paid by other investors in a qualified financing) and similar other terms and conditions as set forth in such a qualified financing. If resTORbio fails to consummate a qualified financing within twelve months of the completion of the merger or certain other events occur, the funding amount will be distributed back to the Investors.

Contingent Value Rights Agreement (page 232)

The merger agreement contemplates that at or prior to completion of the merger, resTORbio, the Holders’ Representative (as defined therein) and the Rights Agent (as defined therein) will execute and deliver a



 

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contingent value rights agreement (referred to as the “CVR agreement”), pursuant to which each holder of resTORbio common stock as of immediately prior to the completion of the merger shall be entitled to one contractual contingent value right (each referred to as a “CVR”) issued by resTORbio, subject to and in accordance with the terms and conditions of the CVR agreement, for each share of resTORbio common stock held by such holder. Each CVR shall entitle the holder thereof to receive net proceeds of the commercialization, if any, received from a third party commercial partner of RTB101, resTORbio’s small molecule product candidate that is a potent inhibitor of target of rapamycin complex 1 (TORC1), for a COVID-19 related indication, with clinical data expected by the first quarter of 2021. The CVRs are not transferable, except in certain limited circumstances as will be provided in the CVR agreement, will not be certificated or evidenced by any instrument and will not be registered with the SEC or listed for trading on any exchange.

Pursuant to the CVR agreement, and subject to the limitations set forth therein, from the closing of the merger until September 30, 2021, the combined company will be required to use its Commercially Reasonable Efforts (as such term is defined in the CVR agreement) to perform the key tasks necessary to continue and conduct resTORbio’s clinical trials for a COVID-19 related indication for RTB101 in strict accordance with such trials’ protocols. Pursuant to the CVR agreement, the Clinical Trial Cap (as such term is defined in the CVR agreement) for the total fees and expenses of resTORbio’s clinical trials for a COVID-19 related indication of RTB101 is $3,000,000, less any fully burdened costs accrued or incurred by resTORbio or its affiliates in connection with such clinical trials, between the date of the merger agreement and the closing of the merger. In the event the total fees and expenses of such clinical trials exceed such Clinical Trial Cap, the combined company may terminate the CVR agreement without any further liability whereupon the combined company shall be relieved of any and all obligations which will be contained therein. In addition, pursuant to the CVR agreement, and subject to the combined company’s termination rights set forth therein, from the closing of the merger until September 30, 2021, the combined company will be required to use its Commercially Reasonable Efforts to reasonably support the Finder (as such term is defined in the CVR agreement) to identify one or more partners and negotiate a CVR Commercial Agreement (as such term is defined in the CVR agreement) with such partner for the commercialization of RTB101 for a COVID-19 related indication, subject to certain limitations set forth in the CVR agreement.

The right of any holder of a CVR to receive any payments pursuant to the CVR agreement is contingent upon the combined company entering into a CVR Commercial Agreement with a third party commercial partner prior to September 30, 2021. If the combined company does enter into a CVR Commercial Agreement with a third party commercial partner prior to September 30, 2021, the Net Proceeds (as such term is defined in the CVR agreement) received by the combined company pursuant to such CVR Commercial Agreement in consideration for the rights to commercialize a COVID-19 related indication of RTB101 will then be distributed to the holders of the CVRs as set forth in the CVR agreement. If the combined company does not enter into a CVR Commercial Agreement with a third party commercial partner prior to September 30, 2021, or if the combined company does enter into such CVR Commercial Agreement but does not receive any Net Proceeds pursuant to such CVR Commercial Agreement, no payments will be made under the CVRs, and the CVRs will expire valueless.

Loan Agreement (page 237)

On April 28, 2020, Adicet entered into a Loan and Security Agreement with Pacific Western Bank for a term loan not exceeding $12.0 million (referred to as the “Loan Agreement”) to finance leasehold improvements for its new corporate headquarters in Redwood City, California and other purposes permitted under the Loan Agreement, with an interest rate equal to the greater of 0.25% above the Prime Rate (as defined in the Loan Agreement) or 5.00%. The Loan Agreement granted to Pacific Western Bank a security interest on substantially all of Adicet’s assets other than intellectual property to secure the performance of Adicet’s obligations under the Loan Agreement, and contains a variety of affirmative and negative covenants, including required financial reporting, limitations on certain dispositions of assets or distributions, limitations on the incurrence of additional



 

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debt or liens and other customary requirements. Pacific Western Bank consented to the delivery of audited consolidated financial statements that include a going concern explanatory paragraph by Adicet’s independent registered public accounting firm for the year ended December 31, 2019 in accordance with the terms of the financial statement covenants set forth in the Loan Agreement. Therefore, as of the date of this proxy statement/prospectus/information statement, Adicet was in compliance with such covenants and had no indebtedness outstanding under the Loan Agreement.

In connection with the entrance into the Loan Agreement, Adicet issued Pacific Western Bank a warrant to purchase shares of its Series B redeemable convertible preferred stock (described below) at an exercise price of $1.4034 per share (referred to as the “Existing PacWest Warrant”). The Existing PacWest Warrant is initially exercisable for 42,753 shares of Adicet’s Series B redeemable convertible preferred stock and shall be exercisable for an additional number of shares of its Series B redeemable convertible preferred stock equal to 1.00% of the aggregate original principal amount of all term loans made pursuant to the Loan Agreement (up to an aggregate maximum of 128,259 shares). Pursuant to the terms of the Existing PacWest Warrant and the merger agreement, at the effective time of the merger, resTORbio will issue a new warrant to Pacific Western Bank [or its affiliate] (referred to as the “New PacWest Warrant”) which will replace the Existing PacWest Warrant. The New PacWest Warrant will be exercisable solely for shares of resTORbio common stock and the number of shares of resTORbio common stock subject to the warrant shall be determined by multiplying (x) the number of shares of Adicet capital stock that were subject to the Existing PacWest Warrant (on an as-converted basis with respect to shares of Adicet preferred stock), as in effect immediately prior to the effective time of the merger, by (y) the exchange ratio, and rounding the resulting number down to the nearest whole number of shares of resTORbio common stock. The per share exercise price for the resTORbio common stock issuable upon exercise of the New PacWest Warrant shall be determined by dividing (x) the exercise price per share of Adicet capital stock subject to the Existing PacWest Warrant (on an as-converted basis), as in effect immediately prior to the effective time of the merger, by (y) the exchange ratio, and rounding the resulting exercise price up to the nearest whole cent. Any restriction on the exercise set forth in the Existing PacWest Warrant shall continue in full force and effect in the New PacWest Warrant and the term, exercisability, vesting schedule and other provisions of the Existing PacWest warrant shall otherwise remain unchanged in the New PacWest Warrant.

Pursuant to the terms of the Loan Agreement, Pacific Western Bank has consented in principle to the consummation of the merger as a Permitted Transaction (as defined in the Loan Agreement) subject to certain conditions, including: (i) that the merger is consummated in accordance with the merger agreement (unless otherwise approved by Pacific Western Bank in writing), (ii) Adicet providing copies of all material transaction documents to Pacific Western Bank, (iii) Adicet providing any diligence materials reasonably requested by Pacific Western Bank, (iv) resTORbio entering into a secured guaranty agreement in form and substance satisfactory to Pacific Western Bank and granting Pacific Western Bank a security interest in substantially all of its assets other than its intellectual property and (v) resTORbio issuing the New PacWest Warrant to Pacific Western Bank or its affiliate pursuant to the terms of the merger agreement and the Existing PacWest Warrant. If the conditions set forth in the consent provided by Pacific Western Bank are not satisfied, Adicet would effectively need to terminate the Loan Agreement and repay any outstanding loan funds or refinance the facility with another lender.

Management Following the Merger (page 372)

Effective as of the completion of the merger, the combined company’s executive officers are expected to include:

 

Name

 

Position with the Combined Company

 

Current Position

Chen Schor   President and Chief Executive Officer  

President and Chief Executive

Officer of resTORbio

Stewart Abbot, Ph.D.   Senior Vice President, Chief Operating and Scientific Officer   Senior Vice President, Chief Operating and Scientific Officer of Adicet


 

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Name

 

Position with the Combined Company

 

Current Position

Francesco Galimi, M.D., Ph.D.   Senior Vice President and Chief Medical Officer   Senior Vice President and Chief Medical Officer of Adicet
Lloyd Klickstein, M.D., Ph.D.   Chief Innovation Officer   Chief Scientific Officer of resTORbio
Carrie Krehlik   Senior Vice President and Chief Human Resource Officer  

Senior Vice President and Chief Human Resource Officer of

Adicet

Interests of the resTORbio Directors and Executive Officers in the Merger (page 192)

In considering the recommendation of the resTORbio Board with respect to the issuance of resTORbio common stock pursuant to the merger agreement and the other matters to be acted upon by resTORbio stockholders at the special meeting, resTORbio stockholders should be aware that certain members of the resTORbio Board and executive officers of resTORbio have interests in the merger that may be different from, or in addition to, interests they have as resTORbio stockholders. For example, pursuant to the terms of certain employment offer letters or employment agreements in effect prior to the execution of the merger agreement, each of resTORbio’s executive officers could receive cash severance payments and other benefits with a total value of approximately $2.5 million (collectively, not individually, and excluding the value attributable to any accelerated vesting of resTORbio options or resTORbio RSUs), the acceleration of resTORbio options and the acceleration of the vesting of resTORbio RSUs held by those officers, based on data available as of July 22, 2020 and assuming a qualifying termination of employment of each executive officer’s employment as of such date.

resTORbio and Adicet have agreed that Mr. Schor will serve as the chief executive officer and a director of the combined company. Mr. Schor and Adicet expect to agree upon Mr. Schor’s post-closing employment terms prior to completion of the merger and resTORbio will make appropriate disclosure of any such definitive terms.

As of July 22, 2020, resTORbio’s directors and executive officers beneficially owned, in the aggregate, approximately 11.9% of the outstanding shares of resTORbio common stock. Certain of resTORbio’s officers and directors, and their affiliates, have also entered into the resTORbio support agreement in connection with the merger. The resTORbio support agreement is discussed in greater detail in the section entitled “Agreements Related to the Merger—resTORbio Support Agreement” on page 231 of this proxy statement/prospectus/information statement.

Interests of the Adicet Directors and Executive Officers in the Merger (page 195)

In considering the recommendation of the Adicet Board with respect to approving the merger and contemplated transactions by written consent, Adicet’s stockholders should be aware that certain members of the Adicet Board and certain of Adicet’s executive officers have interests in the merger that may be different from, or in addition to, interests they have as Adicet’s stockholders. For example, certain of Adicet’s directors and executive officers have Adicet options, subject to vesting, which, at the completion of the merger, shall be converted into and become resTORbio options, certain of Adicet’s directors and executive officers are expected to become directors and executive officers of resTORbio upon the completion of the merger, certain Adicet executive officers are subject to employment agreements which provide for severance and benefit payments if employment of such officers terminates without cause or for good reason, certain affiliates of Adicet directors and resTORbio directors have overlapping ownership and/or commercial interests in resTORbio and Adicet and all of Adicet’s directors and executive officers are entitled to certain indemnification and liability insurance coverage pursuant to the terms of the merger agreement.

As of July 22, 2020, all of Adicet’s directors and executive officers, together with their affiliates, beneficially owned in the aggregate approximately 69.4% of the outstanding shares of Adicet capital stock, on an



 

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as-converted to common stock basis. Certain of Adicet’s officers and directors, and their affiliates, have also entered into the Adicet support agreement in connection with the merger. The Adicet support agreement is discussed in greater detail in the section entitled “Agreements Related to the Merger—Adicet Support Agreement” on page 230 of this proxy statement/prospectus/information statement.

Risk Factors (page 28)

Both resTORbio and Adicet are subject to various risks associated with their businesses and their industries. In addition, the merger poses a number of risks to each company and its respective stockholders, including the possibility that the merger may not be completed and the following risks:

 

   

The exchange ratio is not adjustable based on the market price of resTORbio common stock, so the merger consideration at the completion of the merger may have a greater or lesser value than at the time the merger agreement was signed;

 

   

The exchange ratio is not adjustable based on the net cash of either resTORbio or Adicet at the effective time of the merger, so the relative ownership of the combined organization as between current stockholders of resTORbio and current stockholders of Adicet may not reflect the ratio of net cash of resTORbio and Adicet, respectively, at the closing of the merger;

 

   

Failure to complete the merger may result in resTORbio and Adicet paying a termination fee or expenses to the other and could harm the price of resTORbio common stock and the future business and operations of each company;

 

   

The merger may be completed even though material adverse changes may result solely from the announcement of the merger, changes in the industry in which resTORbio and Adicet operate that apply to all companies generally and other causes, including the COVID-19 pandemic;

 

   

Some of resTORbio’s and Adicet’s respective officers and directors have interests that are different from or in addition to those considered by other stockholders of Adicet and resTORbio and which may influence them to support or approve the merger;

 

   

The market price of the combined company’s common stock may decline as a result of the merger;

 

   

resTORbio’s and Adicet’s stockholders may not realize a benefit from the merger commensurate with the ownership dilution they will experience in connection with the merger;

 

   

During the pendency of the merger, resTORbio and Adicet may not be able to enter into a business combination with another party under certain circumstances because of restrictions in the merger agreement, which could adversely affect their respective businesses;

 

   

Certain provisions of the merger agreement may discourage third parties from submitting alternative takeover proposals, including proposals that may be superior to the arrangements contemplated by the merger agreement;

 

   

resTORbio stockholders may not receive any payment on the CVRs and the CVRs may otherwise expire valueless;

 

   

Because the lack of a public market for shares of Adicet capital stock makes it difficult to evaluate the fairness of the merger, Adicet’s stockholders may receive consideration in the merger that is less than the fair market value of the shares of Adicet capital stock and/or resTORbio may pay more than the fair market value of the shares of Adicet capital stock; and

 

   

If the conditions to the merger are not met, the merger will not occur.

These risks and other risks are discussed in greater detail under the section entitled “Risk Factors” on page 28 of this proxy statement/prospectus/information statement. resTORbio and Adicet both encourage you to read and consider all of these risks carefully.



 

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Regulatory Approvals (page 200)

In the United States, resTORbio must comply with applicable federal and state securities laws and the rules and regulations of The Nasdaq Global Market (referred to as “Nasdaq”) in connection with the issuance of shares of resTORbio common stock and the filing of this proxy statement/prospectus/information statement with the SEC. As of the date hereof, the registration statement of which this proxy statement/prospectus/information statement is a part has not become effective.

Nasdaq Stock Market Listing (page 202)

Pursuant to the merger agreement, resTORbio agreed to use its commercially reasonable best efforts to, among other things, cause the shares of resTORbio common stock being issued in the merger to be approved for listing on Nasdaq at or prior to the effective time of the merger.

Anticipated Accounting Treatment (page 203)

The merger will be treated by resTORbio as a reverse merger under the acquisition method of accounting in accordance with accounting principles generally accepted in the United States (referred to as “U.S. GAAP”). For accounting purposes, Adicet is considered to be acquiring resTORbio in the merger.

Appraisal Rights (page 203)

Holders of resTORbio common stock are not entitled to appraisal rights in connection with the merger. Adicet’s stockholders are entitled to appraisal rights in connection with the merger under Delaware law. For more information about such rights, see the provisions of Section 262 of the General Corporation Law of the State of Delaware (referred to as the “DGCL”) attached hereto as Annex C and incorporated herein by reference and the section entitled “The Merger—Appraisal Rights” on page 203 of this proxy statement/prospectus/information statement.

Material U.S. Federal Income Tax Considerations of the Merger (page 200)

The merger is intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”). Adicet’s obligation to effect the merger is subject to the satisfaction or waiver, at or prior to the closing date of the merger, of the condition that Adicet receive an opinion of counsel, dated as of the closing date of the merger, to the effect that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. Assuming the merger so qualifies, a U.S. Holder (as defined in the section entitled “The Merger—Material U.S. Federal Income Tax Considerations of the Merger” beginning on page 200 of this proxy statement/prospectus/information statement) generally will not recognize gain or loss for U.S. federal income tax purposes on the exchange of Adicet capital stock for shares of resTORbio common stock pursuant to the merger.

Please review the information in the section entitled “The Merger—Material U.S. Federal Income Tax Considerations of the Merger” on page 200 of this proxy statement/prospectus/information statement for a more complete description of the material U.S. federal income tax consequences of the merger to U.S. Holders.

Material U.S. Federal Income Tax Consequences of the CVR Agreement (page 233)

resTORbio intends to report the issuance of the CVRs to be received by resTORbio stockholders pursuant to the merger agreement, to resTORbio U.S. Holders (as defined in the section entitled “The Merger—Material U.S. Federal Income Tax Considerations of the Merger” beginning on page 200 of this proxy statement/prospectus/



 

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information statement) as a distribution of property with respect to its stock. Please review the information in the section entitled “Agreements Related to the Merger—Contingent Value Rights Agreement—Material U.S. Federal Income Tax Consequences of the Receipt of CVRs” on page 233 of this proxy statement/prospectus/information statement for a more complete description of the material U.S. federal income tax consequences of the receipt of CVRs to resTORbio U.S. Holders, including possible alternative treatments.

Material U.S. Federal Income Tax Consequences of the Reverse Stock Split (page 242)

A resTORbio U.S. Holder (as defined in the section entitled “The Merger—Material U.S. Federal Income Tax Considerations of the Merger” beginning on page 200 of this proxy statement/prospectus/information statement) generally should not recognize gain or loss upon the resTORbio reverse stock split, except to the extent a resTORbio U.S. Holder receives cash in lieu of a fractional share of resTORbio common stock. Please review the information in the section entitled “Matters Being Submitted to a Vote of resTORbio Stockholders—Material U.S. Federal Income Tax Consequences of the Reverse Stock Split” on page 242 of this proxy statement/prospectus/information statement for a more complete description of the material U.S. federal income tax consequences of the resTORbio reverse stock split to resTORbio U.S. Holders.

Comparison of Stockholder Rights (page 416)

Both resTORbio and Adicet are incorporated under the laws of the State of Delaware and, accordingly, the rights of the stockholders of each are currently, and will continue to be, governed by the DGCL. If the merger is completed, Adicet’s stockholders will become stockholders of resTORbio, and their rights will be governed by the DGCL, the bylaws of resTORbio (referred to as the “resTORbio bylaws”) and, the resTORbio certificate of incorporation, as amended by the amendment set forth in Annex D assuming Proposal No. 2 is approved. The rights of resTORbio stockholders contained in the resTORbio certificate of incorporation and the resTORbio bylaws differ from the rights of Adicet’s stockholders under Adicet’s amended and restated certificate of incorporation and Adicet’s bylaws, as more fully described under the section entitled “Comparison of Rights of Holders of resTORbio Stock and Adicet Stock” on page 416 of this proxy statement/prospectus/information statement.



 

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COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA PER SHARE DATA

The information below reflects the historical per share information for resTORbio and Adicet and the unaudited pro forma per share information for the combined organization as if resTORbio and Adicet had been combined as of and for all periods presented.

The unaudited pro forma amounts in the tables below have been derived from the unaudited pro forma combined financial information included in the section titled “Unaudited Pro Forma Condensed Combined Financial Information” of this proxy statement/prospectus/information statement. The pro forma amounts are presented for illustrative purposes only and are not necessarily indicative of what the financial position, results of operations or per share information of the combined organization would have been had resTORbio and Adicet been combined as of or for the periods presented. The unaudited pro forma amounts in the table below do not give effect to the proposed reverse stock split because the proposed reverse stock split is a range and is not definitive.

The tables below should be read in conjunction with the consolidated financial statements and related notes thereto of resTORbio and Adicet included elsewhere in this proxy statement/prospectus/information statement.

 

     Three Months
Ended March 31,
2020
     Year Ended
December 31,
2019
 

resTORbio

     

Book value per share—historical(1)

   $ 2.07      $ 2.24  

Basic and diluted net loss per share—historical

   $ (0.19    $ (2.41

Cash dividends declared per share—historical

   $ —        $ —    

Adicet

     

Book value per share—historical(1)

   $ (3.68    $ (3.47

Basic and diluted net loss per share—historical

   $ (0.26    $ (1.63

Cash dividends declared per share—historical

   $ —        $ —    

Pro Forma Combined

     

Book value per share—pro forma(2)

   $ 1.01        N/A  

Basic and diluted net loss per share—pro forma

   $ (0.08    $ (1.10

Cash dividends declared per share—pro forma

   $ —        $ —    

Adicet Pro Forma Equivalent Per Common Share (3)

     

Book value per share—pro forma

   $ 0.86        N/A  

Basic and diluted net loss per share—pro forma

   $ (0.07    $ (0.94

Cash dividends declared per share—pro forma

   $ —        $ —    

 

(1)

Historical book value per share is calculated by taking total stockholders’ equity divided by total outstanding common shares.

(2)

Combined pro forma book value per share is calculated by taking pro forma combined total stockholders’ equity divided by pro forma combined total outstanding common shares.

(3)

Adicet pro forma equivalent data per common share is calculated by applying the assumed Common Stock Exchange Ratio of 0.8555 to the unaudited pro forma combined per share data.

 

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As the reverse stock split is a range and is not definitive, resTORbio’s historical per share information and the unaudited pro forma per share information have not been adjusted to give retrospective effect to the reverse stock split. Upon the effectiveness of the reverse stock split, the outstanding shares of resTORbio common stock will be combined into a lesser number of shares such that one share of resTORbio common stock will be issued for a specified number of shares, which shall be equal to or greater than four (4) and equal to or less than twelve (12), with the exact number within the range to be mutually determined by resTORbio and Adicet prior to the effective time. The exchange ratio will then be subject to adjustment to account for the effect of the reverse stock split of resTORbio common stock. The following table is presented for illustrative purposes to give effect to the range of the proposed reverse stock split as the unaudited pro forma per share information above does not reflect the proposed reverse stock split that is expected to be effected immediately prior to consummation of the merger.

 

     Three months
Ended March 31,
2020
     Year Ended
December 31,
2019
 

Pro Forma Combined - 1:4 Reverse Stock Split

     

Book value per share—pro forma (4)

   $ 4.02        N/A  

Basic and diluted net loss per share—pro forma

   $ (0.33    $ (4.41

Cash dividends declared per share—pro forma

   $      $  

Adicet Pro Forma Equivalent Per Common Share - 1:4 Reverse Stock Split (5)

     

Book value per share—pro forma

   $ 0.86        N/A  

Basic and diluted net loss per share—pro forma

   $ (0.07    $ (0.94

Cash dividends declared per share—pro forma

   $      $  

Pro Forma Combined - 1:12 Reverse Stock Split

     

Book value per share—pro forma (4)

   $ 12.07        N/A  

Basic and diluted net loss per share—pro forma

   $ (0.98    $ (13.23

Cash dividends declared per share—pro forma

   $      $  

Adicet Pro Forma Equivalent Per Common Share - 1:12 Reverse Stock Split (6)

     

Book value per share—pro forma

   $ 0.86        N/A  

Basic and diluted net loss per share—pro forma

   $ (0.07    $ (0.94

Cash dividends declared per share—pro forma

   $      $  

 

(4)

Combined split-effected pro forma book value per share is calculated by taking pro forma combined total stockholders’ equity divided by the respective split-effected pro forma combined total outstanding common shares.

(5)

Adicet split-effected pro forma equivalent data per common share is calculated by applying the assumed Common Stock Exchange Ratio of 0.2139 to the unaudited split-effected pro forma combined per share data.

(6)

Adicet split-effected pro forma equivalent data per common share is calculated by applying the assumed Common Stock Exchange Ratio of 0.0713 to the unaudited split-effected pro forma combined per share data.

 

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MARKET PRICE AND DIVIDEND INFORMATION

resTORbio Common Stock

resTORbio common stock is currently listed on The Nasdaq Global Select Market under the symbol “TORC.” The closing price of resTORbio common stock on April 28, 2020, the full trading day immediately prior to the public announcement of the merger on April 29, 2020, as reported on The Nasdaq Global Select Market, was $1.22 per share. The closing price of resTORbio common stock on [●], 2020, the last trading day before the date of this proxy statement/prospectus/information statement, as reported on The Nasdaq Global Select Market, was $[●] per share.

Because the market price of resTORbio common stock is subject to fluctuation, the market value of the shares of resTORbio common stock that Adicet equityholders will be entitled to receive in the merger may increase or decrease.

Assuming successful application for initial listing with Nasdaq, following the consummation of the merger, resTORbio anticipates that the resTORbio common stock will continue to be listed on The Nasdaq Global Select Market and will trade under resTORbio’s new name “Adicet Bio, Inc.” and new trading symbol “ACET” on The Nasdaq Global Select Market.

As of July 22, 2020, there were approximately 5 holders of record of the resTORbio common stock.

Adicet Capital Stock

Adicet is a private company and there is no established public trading market for its common stock or preferred stock. As of July 22, 2020, there were approximately 56 holders of record of the Adicet common stock and 21 holders of record of the Adicet preferred stock.

Dividends

resTORbio has never declared or paid any cash dividends on the resTORbio common stock and does not anticipate paying cash dividends on the resTORbio common stock for the foreseeable future. Notwithstanding the foregoing, any determination to pay cash dividends subsequent to the merger will be at the discretion of the combined company’s then-current board of directors and will depend upon a number of factors, including the combined company’s results of operations, financial condition, future prospects, contractual restrictions, restrictions imposed by applicable law and other factors the then-current board of directors deems relevant.

Adicet has never declared or paid any cash dividends on shares of the Adicet capital stock. Adicet anticipates that the combined company will retain all of its future earnings to advance the clinical trials for its products, and does not anticipate paying any cash dividends on shares of the combined company’s capital stock in the foreseeable future. Any future determination to declare cash dividends on shares of the combined company’s common stock will be made at the discretion of its board of directors, subject to applicable law and contractual restrictions and will depend on its financial condition, results of operations, capital requirements, general business conditions and other factors that its board of directors may deem relevant.

 

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RISK FACTORS

The combined company will be faced with a market environment that cannot be predicted and that involves significant risks, many of which will be beyond its control. In addition to the other information contained in this proxy statement/prospectus/information statement, you should carefully consider the material risks described below before deciding how to vote your shares of stock. In addition, you should read and consider the risks associated with resTORbio’s business and Adicet’s business because these risks may also affect the combined company. These risks can be found under the section entitled “Risk Factors—Risks Related to resTORbio” beginning on page 36 and “Risk Factors — Risks Related to Adicet” beginning on page 100 of this proxy statement/prospectus/information statement, including the financial statements appearing elsewhere herein and the annexes hereto, which are incorporated by reference herein. You should also read and consider the other information in this proxy statement/prospectus/information statement, including the financial statements appearing elsewhere herein and the annexes hereto, which are incorporated by reference herein. Please see the section entitled “Where You Can Find More Information” on page 440 in this proxy statement/prospectus/information statement.”

Risks Related to the Merger

Failure to complete the merger may result in resTORbio or Adicet paying a termination fee or expenses to the other party and could significantly harm the market price of resTORbio common stock and negatively affect the future business and operations of each company.

The consummation of the merger is subject to a number of closing conditions, including the approval by resTORbio’s and Adicet’s stockholders, approval by Nasdaq of resTORbio’s application for initial listing of resTORbio common stock in connection with the merger, and other customary closing conditions. The parties are targeting a closing of the transaction in the second half of 2020.

If the merger is not consummated, resTORbio and Adicet may be subject to a number of material risks, and their respective businesses and resTORbio’s stock price could be adversely affected, as follows:

 

   

Each company has incurred and expects to continue to incur significant expenses related to the merger even if the merger is not consummated;

 

   

The merger agreement contains covenants relating to each company’s solicitation of competing acquisition proposals and the conduct of each company’s respective businesses between the date of signing the merger agreement and the completion of the merger. As a result, significant business decisions and transactions of either resTORbio or Adicet before the completion of the merger require the consent of the other party. Accordingly, each company may be unable to pursue business opportunities that would otherwise be in its respective best interests as standalone companies. If the merger agreement is terminated after resTORbio has invested significant time and resources in the transaction process, resTORbio will have a limited ability to continue its current operations without obtaining additional financing to fund its operations;

 

   

resTORbio or Adicet could be obligated to pay the other party a $6,100,000 termination fee in connection with the termination of the merger agreement, depending on the reason for the termination;

 

   

resTORbio or Adicet could be obligated to pay the other party a $1,000,000 out-of-pocket expense reimbursement in connection with the termination of the merger agreement, depending on the reason for the termination;

 

   

resTORbio’s or Adicet’s collaborators and other business partners and investors in general may view the failure to consummate the merger as a poor reflection on its business or prospects;

 

   

Some of resTORbio’s or Adicet’s suppliers, collaborators and other business partners may seek to change or terminate their relationships with resTORbio or Adicet, as applicable, as a result of the merger;

 

   

As a result of the proposed merger, current and prospective employees of resTORbio or Adicet could experience uncertainty about their future roles within the combined company. This uncertainty may

 

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adversely affect either company’s ability to retain its respective key employees, who may seek other employment opportunities;

 

   

resTORbio’s or Adicet’s respective management teams may be distracted from day to day operations as a result of the merger; and

 

   

The market price of resTORbio common stock may decline to the extent that the current market price reflects a market assumption that the merger will be completed.

In addition, if the merger agreement is terminated and the resTORbio Board or the Adicet Board determines to seek another business combination, there can be no assurance that either resTORbio or Adicet will be able to find a third party willing to provide equivalent or more attractive consideration than the consideration to be provided by each party in the merger. In such circumstances, the resTORbio Board may elect to, among other things, divest all or a portion of resTORbio’s business, or take the steps necessary to liquidate all of resTORbio’s business and assets, and in either such case, the consideration that resTORbio receives may be less attractive than the consideration to be received by resTORbio pursuant to the merger agreement.

If resTORbio does not successfully consummate the merger or another strategic transaction, the resTORbio Board may decide to pursue a dissolution and liquidation of resTORbio. In such an event, the amount of cash available for distribution to resTORbio stockholders will depend heavily on the timing of such liquidation as well as the amount of cash that will need to be reserved for commitments and contingent liabilities.

There can be no assurance that the merger will be completed on the timeline anticipated or at all. If the merger is not completed, the resTORbio Board may decide to pursue a dissolution and liquidation of resTORbio. In such an event, the amount of cash available for distribution to resTORbio stockholders will depend heavily on the timing of such decision and, as with the passage of time the amount of cash available for distribution will be reduced as resTORbio continues to fund its operations. In addition, if the resTORbio Board were to approve and recommend, and resTORbio stockholders were to approve, a dissolution and liquidation of resTORbio, resTORbio would be required under Delaware corporate law to pay its outstanding obligations, as well as to make reasonable provision for contingent and unknown obligations, prior to making any distributions in liquidation to resTORbio stockholders. As a result of this requirement, a portion of resTORbio’s assets may need to be reserved pending the resolution of such obligations, and the timing of any such resolution is uncertain. In addition, resTORbio may be subject to litigation or other claims related to a dissolution and liquidation of resTORbio. If a dissolution and liquidation were pursued, the resTORbio Board, in consultation with its advisors, would need to evaluate these matters and make a determination about a reasonable amount to reserve. Accordingly, holders of resTORbio common stock could lose all or a significant portion of their investment in the event of a liquidation, dissolution or winding up of resTORbio.

Some of resTORbio’s and Adicet’s officers and directors have conflicts of interest that may influence them to support or approve the merger.

Certain officers and directors of resTORbio and Adicet participate in arrangements that provide them with interests in the merger that are different from yours, including, among others, their continued service as an officer or a director of the combined company, retention and severance benefits, the acceleration of restricted stock units and option vesting, overlapping ownership and/or commercial interests of their affiliates in Adicet and resTORbio and continued indemnification. These interests, among others, may influence the officers and directors of resTORbio or Adicet to support or approve the merger. For a more detailed discussion please see the section entitled “The Merger—Interests of the resTORbio Directors and Executive Officers in the Merger” beginning on page 192 of this proxy statement/prospectus/information statement and “The Merger—Interests of the Adicet Directors and Executive Officers in the Merger” beginning on page 195 of this proxy statement/prospectus/information statement.

 

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The merger may be completed even though material adverse changes may result from the announcement of the merger, industry-wide changes and other causes.

In general, either party can refuse to complete the merger if there is a material adverse change affecting the other party between April 28, 2020, the date of the merger agreement, and the completion of the merger. However, some types of changes do not permit either party to refuse to complete the merger, even if such changes would have a material adverse effect on resTORbio or Adicet, to the extent they resulted from the following and do not have a materially disproportionate effect on resTORbio or Adicet, as the case may be:

 

   

the announcement or pendency of the merger agreement or the contemplated transactions;

 

   

the taking of any action, or the failure to take any action, by any party that is required to comply with the terms of the merger agreement;

 

   

any natural disaster or epidemics, pandemics or other force majeure events, or any act or threat of terrorism or war, any armed hostilities or terrorist activities (including any escalation or general worsening of any of the foregoing) anywhere in the world, or any governmental or other response or reaction to any of the foregoing;

 

   

any change in generally accepted accounting principles or any change in applicable laws, rules or regulations or the interpretation thereof;

 

   

general economic or political conditions or conditions generally affecting the industries in which either party or its subsidiaries operate;

 

   

with respect to resTORbio, any change in the stock price or trading volume of resTORbio common stock (it being understood, however, that any effect causing or contributing to, or resulting from, any change in stock price or trading volume of resTORbio common stock may be taken into account in determining whether a material adverse effect has occurred, unless such effects are otherwise excepted from causing a material adverse effect under the merger agreement);

 

   

with respect to resTORbio, subject to certain exceptions, the suspension of trading in or delisting of resTORbio common stock on Nasdaq; or

 

   

with respect to Adicet, any change in the cash position of Adicet or its subsidiary which results from operations in the ordinary course of business.

If adverse changes occur but resTORbio and Adicet must still complete the merger, the combined company’s stock price may suffer. This in turn may reduce the value of the merger to the stockholders of resTORbio, Adicet or both.

The market price of the combined company’s stock may decline as a result of the merger.

The market price of the combined company’s stock may decline as a result of the merger for a number of reasons including if:

 

   

the combined company does not achieve the perceived benefits of the merger as rapidly or to the extent anticipated by financial or industry analysts;

 

   

the effect of the merger on the combined company’s business and prospects is not consistent with the expectations of financial or industry analysts;

 

   

investors react negatively to the effect on the combined company’s business and prospects from the merger; or

 

   

the combined company fails to demonstrate appropriate pre-clinical or clinical efficacy in oncology and other indications.

 

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resTORbio’s and Adicet’s stockholders may not realize a benefit from the merger commensurate with the ownership dilution they will experience in connection with the merger.

If the combined company is unable to realize the strategic and financial benefits currently anticipated from the merger, resTORbio’s and Adicet’s stockholders will have experienced substantial dilution of their ownership interest without receiving any commensurate benefit. Significant management attention and resources will be required to integrate the two companies. Delays in this process could adversely affect the combined company’s business, financial results, financial condition and stock price following the merger.

During the pendency of the merger, resTORbio or Adicet may not be able to enter into a business combination with another party and will be subject to contractual limitations on certain actions because of restrictions in the merger agreement.

Covenants in the merger agreement impede the ability of resTORbio or Adicet to make acquisitions or complete other transactions that are not in the ordinary course of business pending completion of the merger. As a result, if the merger is not completed, the parties may be at a disadvantage to their competitors. In addition, while the merger agreement is in effect and subject to limited exceptions, each party is prohibited from soliciting, initiating, encouraging or taking actions designed to facilitate any inquiries or the making of any proposal or offer that could lead to the entering into of certain extraordinary transactions with any third party, such as a sale of assets, an acquisition of resTORbio common stock, a tender offer for resTORbio common stock, a merger or other business combination outside the ordinary course of business. Any such transactions could be favorable to such party’s stockholders.

Because the lack of a public market for Adicet capital stock makes it difficult to evaluate the fairness of the merger, Adicet’s stockholders may receive consideration in the merger that is greater than or less than the fair market value of Adicet capital stock.

The outstanding share capital of Adicet is privately held and is not traded in any public market. The lack of a public market makes it extremely difficult to determine the fair market value of Adicet. Since the percentage of resTORbio’s equity to be issued to Adicet’s stockholders was determined based on negotiations between the parties, it is possible that the value of the resTORbio common stock to be issued in connection with the merger will be greater than the fair market value of Adicet. Alternatively, it is possible that the value of the shares of resTORbio common stock to be issued in connection with the merger to Adicet’s stockholders will be less than the fair market value of Adicet.

The combined company will incur significant transaction costs as a result of the merger, including investment banking, legal and accounting fees. In addition, the combined company will incur significant consolidation and integration expenses which cannot be accurately estimated at this time. These costs could include the possible relocation of certain operations from Massachusetts to other offices of the combined company as well as costs associated with terminating existing office leases and the loss of benefits of certain favorable office leases. Actual transaction costs may substantially exceed Adicet’s estimates and may have an adverse effect on the combined company’s financial condition and operating results.

If the merger does not qualify as a “reorganization” for U.S. federal income tax purposes, Adicet stockholders may be required to pay substantial U.S. federal income taxes.

The U.S. federal income tax consequences of the merger will depend on whether the merger qualifies as a “reorganization” within the meaning of Section 368(a) of the Code. Adicet’s obligation to effect the merger is subject to the satisfaction or waiver, at or prior to the closing date of the merger, of the condition that Adicet receive an opinion of counsel, dated as of the closing date of the merger, to the effect that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. The opinion will be based on customary assumptions and representations from Adicet and resTORbio, as well as certain covenants and undertakings by

 

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Adicet and resTORbio. If any of the representations, assumptions, covenants or undertakings upon which the opinion is based is incorrect, incomplete, inaccurate or violated, the validity of the opinion may be affected and the tax consequences of the merger could differ from those described in this proxy statement/prospectus/information statement. An opinion of counsel represents such counsel’s best legal judgment, but is not binding on the Internal Revenue Service (the “IRS”) or any court. Neither Adicet nor resTORbio intends to obtain a ruling from the IRS with respect to the tax consequences of the merger. Accordingly, there can be no assurances that the IRS will not assert, or that a court will not sustain, a position contrary to that contained in such opinion. If, contrary to the opinion from counsel, the IRS or a court determines that the merger does not qualify as a “reorganization” within the meaning of Section 368(a) of the Code, a holder of Adicet capital stock would recognize gain or loss for U.S. federal income tax purposes on each share of Adicet capital stock surrendered in the merger for resTORbio common stock. For a more complete discussion of the material U.S. federal income tax consequences of the merger, please carefully review the information set forth in the section entitled “The Merger—Material U.S. Federal Income Tax Considerations of the Merger” on page 200 of this proxy statement/prospectus/information statement.

Certain stockholders could attempt to influence changes within resTORbio which could adversely affect resTORbio’s operations, financial condition and the value of resTORbio common stock.

resTORbio stockholders may from time-to-time seek to acquire a controlling stake in resTORbio, engage in proxy solicitations, advance stockholder proposals or otherwise attempt to effect changes. Campaigns by stockholders to effect changes at publicly-traded companies are sometimes led by investors seeking to increase short-term stockholder value through actions such as financial restructuring, increased debt, special dividends, stock repurchases or sales of assets or the entire company. Responding to proxy contests and other actions by activist stockholders can be costly and time-consuming, and could disrupt resTORbio’s operations and divert the attention of the resTORbio Board and senior management from the pursuit of the merger. These actions could adversely affect resTORbio’s operations, financial condition, ability to consummate the merger and resTORbio’s common stock value.

resTORbio and Adicet are involved in securities litigation related to the merger and may become involved in additional securities litigation or stockholder derivative litigation in connection with the merger, and this could divert the attention of resTORbio and Adicet management and harm the combined company’s business, and insurance coverage may not be sufficient to cover all related costs and damages.

Securities litigation or stockholder derivative litigation frequently follows the announcement of certain significant business transactions, such as a business combination transaction. resTORbio and Adicet may become involved in this type of litigation in connection with the merger, and the combined company may become involved in this type of litigation in the future. Litigation often is expensive and diverts management’s attention and resources, which could adversely affect the business of resTORbio, Adicet and the combined company.

In connection with the merger, a putative class action lawsuit, Plumley v. resTORbio Inc., et al., 1:20-cv-00858, was filed on June 26, 2020 by purported resTORbio stockholder Patrick Plumley against resTORbio, its directors, Adicet, and Merger Sub in the U.S. District Court for the District of Delaware. On July 2, 2020, in connection with the merger, a complaint, Azzara v. resTORbio, Inc., et al., 1:20-cv-05088, was filed as an individual action by purported resTORbio stockholder Salvatore Azzara against resTORbio and its directors in the U.S. District Court for the Southern District of New York. On July 6, 2020, in connection with the merger, a complaint, Miller v. resTORbio, Inc., et al., 1:20-cv-05170, was filed as an individual action by purported resTORbio stockholder Megan Miller against resTORbio and its directors in the U.S. District Court for the Southern District of New York. On July 9, 2020, in connection with the merger, a complaint, Feagan v. resTORbio, Inc., et al., 1:20-cv-03063, was filed as an individual action by purported resTORbio stockholder Douglas Feagan against resTORbio and its directors in the U.S. District Court for the Eastern District of New York. On July 10, 2020, in connection with the merger, a complaint, Lowen v. resTORbio, Inc. et al., 1:20-cv-11305, was filed as an individual action by purported resTORbio stockholder Robert Lowen against resTORbio and its directors in the U.S. District Court for the District Massachusetts. On July 19, 2020, in connection with the merger, a complaint, Mercier v. resTORbio, Inc, et al., 1:20-cv-05556, was filed as an individual action by purported resTORbio stockholder Ronald Mercier against

 

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resTORbio and its directors in the U.S. District Court for the Southern District of New York. The Plumley, Azzara, Miller, Feagan, Lowen and Mercier cases are collectively referred to as the “merger actions.” The merger actions generally allege that resTORbio’s proxy statement/prospectus/information statement filed with the SEC on June 23, 2020 misrepresents and/or omits certain purportedly material information relating to financial projections, analysis performed by JMP, past engagements of JMP, and the process leading up to the execution of the merger agreement. The merger actions assert violations of Section 14(a) of the Exchange Act and Rule 14a-9 promulgated thereunder against resTORbio and its directors and violations of Section 20(a) of the Exchange Act against resTORbio’s directors. The Plumley merger action also asserts violations of Section 20(a) of the Exchange Act against Adicet and Merger Sub. The Azzara merger action also asserts claims for breach of fiduciary duty against resTORbio’s directors. The merger actions seek, among other things: an injunction enjoining consummation of the merger, costs of the action, including plaintiff’s attorneys’ fees and experts’ fees, declaratory relief, and any other relief the court may deem just and proper.

It is possible that additional similar cases could be filed in connection with the merger.

Failure to complete the merger may result in resTORbio and Adicet paying a termination fee or expenses to the other party and could harm the price of resTORbio common stock and the future business and operations of each company.

If the merger is not completed and the merger agreement is terminated under certain circumstances, resTORbio or Adicet may be required to pay the other party a termination fee of $6,100,000 and/or an out-of-pocket expense reimbursement of up to $1,000,000. Even if a termination fee or out-of-pocket expense reimbursement is not payable in connection with a termination of the merger agreement, each of resTORbio and Adicet will have incurred significant fees and expenses, which must be paid whether or not the merger is completed. Further, if the merger is not completed, it could significantly harm the market price of resTORbio common stock.

The exchange ratio is not adjustable based on the market price of resTORbio common stock, so the merger consideration at the completion of the merger may have greater or lesser value than the market price at the time the merger agreement was signed.

The merger agreement has set the exchange ratio for Adicet capital stock, and the exchange ratio is based on valuations ascribed to each company in the merger agreement and the outstanding Adicet capital stock and the outstanding resTORbio common stock, in each case immediately prior to the completion of the merger as described under the section entitled “The Merger—Merger Consideration” on page 199 of this proxy statement/prospectus/information statement. Applying the exchange ratio formula in the merger agreement, the former equityholders of Adicet are expected to hold 75% of the outstanding capital stock of resTORbio immediately following the merger, and the current equityholders of resTORbio are expected to hold approximately 25% of the outstanding capital stock of resTORbio immediately following merger (in each case excluding equity incentives available for grant), subject to certain assumptions.

Any changes in the market price of resTORbio common stock before the completion of the merger will not affect the number of shares of resTORbio common stock issuable to Adicet’s stockholders pursuant to the merger agreement. Therefore, if before the completion of the merger the market price of resTORbio common stock declines from the market price on the date of the merger agreement, then Adicet’s stockholders could receive merger consideration with substantially lower value than the value of such merger consideration on the date of the merger agreement. Similarly, if before the completion of the merger the market price of resTORbio common stock increases from the market price of resTORbio common stock on the date of the merger agreement, then Adicet’s stockholders could receive merger consideration with substantially greater value than the value of such merger consideration on the date of the merger agreement. The merger agreement does not include a price-based termination right. Because the exchange ratio does not adjust as a result of changes in the market price of resTORbio common stock, for each one percentage point change in the market price of resTORbio common stock, there is a corresponding one percentage point rise or decline, respectively, in the value of the total merger consideration payable to Adicet’s stockholders pursuant to the merger agreement.

 

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Certain provisions of the merger agreement may discourage third parties from submitting alternative takeover proposals, including proposals that may be superior to the arrangements contemplated by the merger agreement.

The terms of the merger agreement prohibit each of resTORbio and Adicet from soliciting alternative takeover proposals or cooperating with persons making unsolicited takeover proposals, except in limited circumstances when the resTORbio Board or the Adicet Board determines in good faith that a bona fide written acquisition proposal, after consultation with such party’s financial advisors and outside legal counsel, constitutes, or is reasonably likely to result in, a superior takeover proposal and the board of directors of such party concludes in good faith based on the advice of outside legal counsel that the failure to cooperate with the proponent of the proposal would be reasonably be expected to be inconsistent with the resTORbio Board’s or the Adicet Board’s respective fiduciary duties.

resTORbio stockholders may not receive any payment on the CVRs and the CVRs may otherwise expire valueless.

The merger agreement contemplates that at or prior to completion of the merger, resTORbio, the Holders’ Representative (as defined in the CVR agreement) and the Rights Agent (as defined in the CVR agreement) will execute and deliver the CVR agreement, pursuant to which each holder of resTORbio common stock as of immediately prior to the effective time of the merger shall be entitled to one contractual CVR issued by resTORbio, subject to and in accordance with the terms and conditions of the CVR agreement, for each share of resTORbio common stock held by such holder. Each CVR shall entitle the holder thereof to receive net proceeds of the commercialization, if any, received from a third party commercial partner of RTB101, resTORbio’s small molecule product candidate that is a potent inhibitor of target of rapamycin complex 1 (TORC1), for a COVID-19 related indication, with clinical data expected by the first quarter of 2021. The CVRs are not transferable, except in certain limited circumstances as will be provided in the CVR agreement, will not be certificated or evidenced by any instrument and will not be registered with the SEC or listed for trading on any exchange.

Pursuant to the CVR agreement, and subject to the limitations set forth therein, from the closing of the merger until September 30, 2021, the combined company will be required to use its Commercially Reasonable Efforts (as such term is defined in the CVR agreement) to perform the key tasks necessary to continue and conduct resTORbio’s clinical trials for a COVID-19 related indication for RTB101 in strict accordance with such trials’ protocols. Pursuant to the CVR agreement, the Clinical Trial Cap (as such term is defined in the CVR agreement) for the total fees and expenses of resTORbio’s clinical trials for a COVID-19 related indication of RTB101 is $3,000,000, less any fully burdened costs accrued or incurred by resTORbio or its affiliates in connection with such clinical trials, between the date of the merger agreement and the closing of the merger. In the event the total fees and expenses of such clinical trials exceed such Clinical Trial Cap, the combined company may terminate the CVR agreement without any further liability whereupon the combined company shall be relieved of any and all obligations which will be contained therein. In addition, pursuant to the CVR agreement, and subject to the combined company’s termination rights set forth therein, from the closing of the merger until September 30, 2021, the combined company will be required to use its Commercially Reasonable Efforts to reasonably support the Finder (as such term is defined in the CVR agreement) to identify one or more partners and negotiate a CVR Commercial Agreement (as such term is defined in the CVR agreement) with such partner for the commercialization of RTB101 for a COVID-19 related indication, subject to certain limitations set forth in the CVR agreement, which allow for the consideration of a variety of factors in determining the efforts that the combined company is required to use to reasonably support Finder to identify one or more partners and negotiate a CVR Commercial Agreement with such partner for the commercialization of RTB101 for a COVID-19 related indication and it does not require the combined company to take all possible actions to continue efforts to reasonably support the Finder to identify one or more partners and negotiate a CVR Commercial Agreement with such partner for the commercialization of RTB101 for a COVID-19 related indication. Accordingly, under certain circumstances, including if the Clinical Trial Cap is exceeded, the combined company may not be required to continue efforts to reasonably support the Finder to identify one or more partners and negotiate a CVR Commercial Agreement with such partner for the commercialization of RTB101 for a COVID-19 related indication, or may allocate resources to other projects, which would have an adverse effect on the value, if any, of the CVRs. resTORbio currently expects to engage JMP Securities LLC to act as the Finder pursuant to the CVR agreement. The right of any holder of a CVR to receive any payments pursuant to the CVR agreement is contingent upon the combined company entering into a CVR Commercial Agreement with a third party commercial partner prior to September 30, 2021. If the combined company does enter into a CVR Commercial Agreement with a third party commercial partner

 

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prior to September 30, 2021, the Net Proceeds (as such term is defined in the CVR agreement) received by the combined company pursuant to such CVR Commercial Agreement in consideration for the rights to commercialize a COVID-19 related indication of RTB101 will then be distributed to the holders of the CVRs as set forth in the CVR agreement. If the combined company does not enter into a CVR Commercial Agreement with a third party commercial partner prior to September 30, 2021, or if the combined company does enter into such CVR Commercial Agreement but does not receive any Net Proceeds pursuant to such CVR Commercial Agreement, no payments will be made under the CVRs, and the CVRs will expire valueless. Furthermore, the CVRs will be unsecured obligations of the combined company and all payments under the CVRs, all other obligations under the CVR agreement and the CVRs and any rights or claims relating thereto will be subordinated in right of payment to the prior payment in full of all current or future senior obligations of the combined company. Finally, the U.S. federal income tax treatment of the CVRs is unclear. There is no legal authority directly addressing the U.S. federal income tax treatment of the receipt of, and payments on, the CVRs, and there can be no assurance that the IRS, would not assert, or that a court would not sustain, a position that could result in adverse U.S. federal income tax consequences to holders of the CVRs. The CVR agreement is discussed in greater detail in the section entitled “Agreements Related to the Merger—Contingent Value Rights Agreement” on page 232 of this proxy statement/ prospectus/information statement.

The tax treatment to resTORbio stockholders for the receipt of the CVRs is uncertain.

The U.S. federal income tax treatment of the issuance of the CVRs to resTORbio stockholders is uncertain. resTORbio intends to report the issuance of the CVRs as a distribution of property with respect to its stock for U.S. federal income tax purposes. Under such tax treatment, resTORbio U.S. Holders would be subject to the tax consequences described below under the section entitled “Tax Consequences if Treated as a Distribution of Property” beginning on page 235 of this proxy statement/prospectus/information statement. However, there is no authority directly addressing whether the issuance of contingent value rights with characteristics similar to the CVRs should be treated as a distribution of property with respect to the corporation’s stock, a distribution of equity, a “debt instrument” or an “open transaction” for U.S. federal income tax purposes. As a result, no assurance can be given that the IRS will not assert, or that a court would not sustain, a position contrary to resTORbio’s intended reporting position, and no opinion of counsel shall be given regarding the tax treatment of the issuance of the CVRs. In the event the IRS were to successfully challenge resTORbio’s intended treatment of the CVRs, it is possible that the issuance of the CVRs could be treated as a distribution of equity, a “debt instrument” or an “open transaction” for U.S. federal income tax purposes. The tax consequences of such alternative treatments are described below under the sections entitled, “Tax Consequences if Treated as a Distribution of Equity,” “Tax Consequences if Treated as a Debt Instrument,” and “Tax Consequences if Treated as an Open Transaction” beginning on page 236 of this proxy statement/prospectus/information statement. resTORbio stockholders should consult their tax advisors with respect to the proper tax treatment of the receipt of the CVRs.

Risks Related to the Reverse Stock Split

The reverse stock split may not increase the combined company’s stock price over the long-term.

The principal purpose of the reverse stock split is to increase the per-share market price of resTORbio common stock above the minimum bid price requirement under the Nasdaq rules so that the listing of the combined company and the shares of resTORbio common stock being issued in the merger on Nasdaq will be approved. It cannot be assured, however, that the reverse stock split will accomplish this objective for any meaningful period of time. While it is expected that the reduction in the number of outstanding shares of common stock will proportionally increase the market price of resTORbio common stock, it cannot be assured that the reverse stock split will increase the market price of its common stock by a multiple of the reverse stock split ratio, or result in any permanent or sustained increase in the market price of resTORbio common stock, which is dependent upon many factors, including the combined company’s business and financial performance, general market conditions, and prospects for future success. Thus, while the stock price of the combined company might meet the continued listing requirements for Nasdaq initially, it cannot be assured that it will continue to do so.

The reverse stock split may decrease the liquidity of resTORbio common stock.

Although the resTORbio Board believes that the anticipated increase in the market price of resTORbio common stock could encourage interest in its common stock and possibly promote greater liquidity for its stockholders,

 

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such liquidity could also be adversely affected by the reduced number of shares outstanding after the reverse stock split. The reduction in the number of outstanding shares may lead to reduced trading and a smaller number of market makers for resTORbio common stock.

The reverse stock split may lead to a decrease in resTORbio’s overall market capitalization.

Should the market price of resTORbio common stock decline after the reverse stock split, the percentage decline may be greater, due to the smaller number of shares outstanding, than it would have been prior to the reverse stock split. A reverse stock split is often viewed negatively by the market and, consequently, can lead to a decrease in resTORbio’s overall market capitalization. If the per share market price does not increase in proportion to the reverse stock split ratio, then the value of the combined company, as measured by its stock capitalization, will be reduced. In some cases, the per-share stock price of companies that have effected reverse stock splits subsequently declined back to pre-reverse split levels, and accordingly, it cannot be assured that the total market value of resTORbio common stock will remain the same after the reverse stock split is effected, or that the reverse stock split will not have an adverse effect on resTORbio’s stock price due to the reduced number of shares outstanding after the reverse stock split.

Risks Related to resTORbio

Risks Related to resTORbio’s Financial Position and Need for Capital

resTORbio has incurred significant losses since inception. resTORbio anticipates that it will continue to incur significant losses for the foreseeable future, and may never achieve or maintain profitability.

resTORbio is a clinical-stage biopharmaceutical company with a limited operating history. Investment in biopharmaceutical product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to demonstrate adequate effect or an acceptable safety profile, gain regulatory approval and become commercially viable. resTORbio has no products approved for commercial sale and has not generated any revenue from product sales to date, and resTORbio will continue to incur significant research and development and other expenses related to resTORbio’s ongoing operations. As a result, resTORbio is not profitable and has incurred losses in each period since resTORbio’s inception in July 2016. resTORbio has devoted a majority of resTORbio’s financial resources and efforts to research and development, including preclinical studies and resTORbio’s clinical trials. resTORbio’s financial condition and operating results, including net losses, may fluctuate significantly from quarter to quarter and year to year. Accordingly, you should not rely upon the results of any quarterly or annual periods as indications of future operating performance. Additionally, net losses and negative cash flows have had, and will continue to have, an adverse effect on resTORbio stockholders’ equity and working capital. For the years ended December 31, 2019 and 2018, resTORbio reported a net loss of $82.7 million and $37.6 million, respectively. For the three months ended March 31, 2020, resTORbio reported a net loss of $7.0 million. As of March 31, 2020, resTORbio had an accumulated deficit of $161.2 million. resTORbio expects to continue to incur significant losses for the foreseeable future, and resTORbio expects these losses to increase as resTORbio continues research and development of, and seek regulatory approvals for, RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, and other product candidates.

resTORbio anticipates that its expenses will increase substantially if and as it:

 

   

continues to develop and conduct clinical trials for resTORbio’s lead product candidate, RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus;

 

   

initiates and continues research, preclinical and clinical development efforts for any current or future product candidates;

 

   

seeks to identify additional product candidates;

 

   

seeks regulatory approvals for RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any other product candidates that successfully complete clinical development, if any;

 

   

establishes sales, marketing, distribution, manufacturing, supply chain and other commercial infrastructure in the future to commercialize various products for which resTORbio may obtain regulatory approval, if any;

 

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requires the manufacture of larger quantities of RTB101 alone or in fixed dose combination with a rapalog, such as everolimus or sirolimus, for clinical development and, potentially, commercialization;

 

   

maintains, expands and protects resTORbio’s intellectual property portfolio;

 

   

hires and retains additional personnel, such as clinical, quality control, scientific and commercial personnel;

 

   

adds operational, financial and management information systems and personnel, including personnel to support resTORbio’s product development and help it comply with resTORbio’s obligations as a public company;

 

   

adds equipment and physical infrastructure to support resTORbio’s research and development; and

 

   

acquires or in-licenses other product candidates and technologies.

resTORbio’s ability to become and remain profitable depends on resTORbio’s ability to generate revenue. resTORbio does not expect to generate significant revenue unless and until resTORbio is, or any future collaborator is, able to obtain regulatory approval for, and successfully commercialize, RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any other product candidates. Successful commercialization will require achievement of key milestones, including demonstrating safety and efficacy in clinical trials, obtaining regulatory, including marketing, approval for these product candidates, manufacturing, marketing and selling those products for which resTORbio, or any of resTORbio’s future collaborators, may obtain regulatory approval, satisfying any post-marketing requirements and obtaining reimbursement for resTORbio’s products from private insurance or government payors. Because of the uncertainties and risks associated with these activities, resTORbio is unable to accurately and precisely predict the timing and amount of revenues, the extent of any further losses or if or when resTORbio might achieve profitability. resTORbio, and any future collaborators, may never succeed in these activities and, even if resTORbio does, or any future collaborators do, resTORbio may never generate revenues that are large enough for it to achieve profitability. Even if resTORbio does achieve profitability, resTORbio may not be able to sustain or increase profitability on a quarterly or annual basis. Additionally, resTORbio’s expenses could increase if resTORbio is required by the FDA or any comparable foreign regulatory authority to perform studies in addition to those currently expected, or if there are any delays in completing resTORbio’s clinical trials or the development of any of resTORbio’s product candidates.

resTORbio’s failure to become and remain profitable would depress the market price of resTORbio common stock and could impair resTORbio’s ability to raise capital, expand resTORbio’s business, diversify resTORbio’s product offerings or continue resTORbio’s operations. If resTORbio continues to suffer losses as resTORbio has in the past, investors may not receive any return on their investment and may lose their entire investment.

resTORbio has a limited operating history and no history of commercializing pharmaceutical products, which may make it difficult to evaluate the prospects for its future viability.

resTORbio was formed in July 2016 and commenced research and development operations in March 2017. resTORbio’s operations to date have been limited to organizing, staffing and financing, raising capital, in-licensing resTORbio’s technology and conducting research and development activities for resTORbio’s product candidates. resTORbio has not yet demonstrated an ability to obtain regulatory approvals, manufacture a commercial-scale product, or arrange for a third party to do so on resTORbio’s behalf, or conduct sales and marketing activities necessary for successful product commercialization. Accordingly, you should consider resTORbio’s prospects in light of the costs, uncertainties, delays and difficulties frequently encountered by companies in clinical development, especially clinical-stage biopharmaceutical companies such as resTORbio. Any predictions you make about resTORbio’s future success or viability may not be as accurate as they could be if resTORbio had a longer operating history or a history of successfully developing and commercializing pharmaceutical products.

resTORbio may encounter unforeseen expenses, difficulties, complications, delays and other known or unknown factors in achieving resTORbio’s business objectives. resTORbio will eventually need to transition from a company with a development focus to a company capable of supporting commercial activities. resTORbio may not be successful in such a transition.

 

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resTORbio will need substantial additional funding, and if resTORbio is unable to raise capital when needed, resTORbio could be forced to delay, reduce or eliminate resTORbio’s product discovery and development programs or commercialization efforts.

resTORbio’s operations have required substantial amounts of cash since inception. Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is a very time-consuming, expensive and uncertain process that takes years to complete. For the foreseeable future, resTORbio expects to continue to rely on additional financing to achieve resTORbio’s business objectives.

For the years ended December 31, 2019 and 2018, resTORbio used $73.7 million and $35.5 million, respectively, in net cash for resTORbio’s operating activities, of which a majority related to research and development activities. For the three months ended March 31, 2020, resTORbio used $15.0 million in net cash for resTORbio’s operating activities, of which a majority related to research and development activities. If resTORbio obtains regulatory approval for RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any other product candidates, resTORbio expects to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Some of these expenses may be incurred in advance of regulatory approval and could be substantial. Furthermore, resTORbio expects to incur significant additional costs associated with resTORbio’s continued operation as a public company. Accordingly, resTORbio will need to obtain substantial additional funding in connection with resTORbio’s continuing operations. If resTORbio is unable to raise capital when needed or on attractive terms, it may be forced to delay, reduce or eliminate resTORbio’s research and development programs or any future commercialization efforts.

resTORbio may use resTORbio’s existing cash, cash equivalents and marketable securities, to fund the development of RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, for Parkinson’s disease (referred to as “PD”) and other indications, and the remainder, if any, for working capital and general corporate purposes. resTORbio will be required to expend significant funds in order to advance the development of RTB101 alone or in combination with a rapalog, such as everolimus or sirolimus, as well as other product candidates resTORbio may seek to develop or acquire. In addition, while resTORbio may seek one or more collaborators for future development of RTB101 alone or in combination with a rapalog, such as everolimus or sirolimus, for one or more additional indications beyond PD or in geographies outside of the United States, Europe and key territories, resTORbio may not be able to enter into a collaboration for RTB101 or any other product candidates for such indications or in such geographies on suitable terms, on a timely basis, or at all. In any event, resTORbio’s existing cash, cash equivalents, and marketable securities will not be sufficient to fund all of the efforts that resTORbio plans to undertake or to activities related to the development of RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, for PD and other indications, and the development of other pipeline candidates. Accordingly, resTORbio will be required to obtain substantial additional funding through public or private equity offerings, debt financings, collaborations and licensing arrangements or other sources.

resTORbio cannot be certain that additional funding will be available on acceptable terms, or at all. Other than the funding agreement, resTORbio has no committed source of additional capital and if resTORbio is unable to raise additional capital in sufficient amounts or on terms acceptable to resTORbio, resTORbio may have to significantly delay, scale back or discontinue the development or commercialization of resTORbio’s product candidates or other research and development initiatives. Any of resTORbio’s current or future license agreements may also be terminated if resTORbio is unable to meet the payment or other obligations under the agreements. resTORbio could be required to seek collaborators for product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available or relinquish or license on unfavorable terms resTORbio’s rights to product candidates in markets where resTORbio otherwise would seek to pursue development or commercialization itself.

resTORbio believes resTORbio’s existing cash, cash equivalents and marketable securities, will enable resTORbio to fund its operating expenses and capital expenditure requirements at least into 2022. resTORbio’s estimate may prove to be wrong, and resTORbio could use available capital resources sooner than resTORbio currently expects. Further, changing circumstances, some of which may be beyond resTORbio’s control, could cause resTORbio to consume capital significantly faster than resTORbio currently anticipates, and may need to

 

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seek additional funds sooner than planned. resTORbio’s future funding requirements, both short- and long-term, will depend on many factors, including:

 

   

the scope, progress, timing, costs and results of clinical trials of, and research and preclinical development efforts for, RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, and any future product candidates;

 

   

resTORbio’s ability to enter into, and the terms and timing of, any collaborations, licensing or other arrangements on favorable terms, if at all;

 

   

the number of future product candidates that resTORbio pursues and their development requirements;

 

   

the outcome, timing and costs of seeking regulatory approvals;

 

   

if approved, the costs of commercialization activities for RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any other product candidate that receives regulatory approval to the extent such costs are not the responsibility of any future collaborators, including the costs and timing of establishing product sales, marketing, distribution and manufacturing capabilities;

 

   

subject to receipt of regulatory approval, revenue, if any, received from commercial sales of RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any future product candidates;

 

   

the extent to which resTORbio in-licenses or acquires rights to other products, product candidates or technologies;

 

   

resTORbio’s headcount growth and associated costs as resTORbio expands resTORbio’s research and development and establish a commercial infrastructure;

 

   

the amount and timing of any payments resTORbio may be required to make, or that resTORbio may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights, including milestone and royalty payments and patent prosecution fees that resTORbio is obligated to pay pursuant to resTORbio’s license agreement;

 

   

the costs of preparing, filing and prosecuting patent applications, maintaining and protecting resTORbio’s intellectual property rights including enforcing and defending intellectual property related claims; and

 

   

the costs of operating as a public company.

Raising additional capital may cause dilution to resTORbio stockholders, restrict resTORbio’s operations or require resTORbio to relinquish rights to resTORbio’s technologies or product candidates.

Unless and until resTORbio can generate a substantial amount of revenue from resTORbio’s product candidates, resTORbio expects to finance resTORbio’s future cash needs through public or private equity offerings, debt financings, collaborations, licensing arrangements or other sources, or any combination of the foregoing. In addition, resTORbio may seek additional capital due to favorable market conditions or strategic considerations, even if resTORbio believes that it has sufficient funds for resTORbio’s current or future operating plans.

To the extent that resTORbio raises additional capital through the sale of common stock, convertible securities or other equity securities, your ownership interest may be diluted, and the terms of these securities could include liquidation or other preferences and anti-dilution protections that could adversely affect your rights as a common stockholder. In addition, debt financing, if available, may result in fixed payment obligations and may involve agreements that include restrictive covenants that limit resTORbio’s ability to take specific actions, such as incurring additional debt, making capital expenditures, creating liens, redeeming stock or declaring dividends, that could adversely impact resTORbio’s ability to conduct resTORbio’s business. In addition, securing financing could require a substantial amount of time and attention from resTORbio’s management and may divert a disproportionate amount of their attention away from day-to-day activities, which may adversely affect resTORbio’s management’s ability to oversee the development of resTORbio’s product candidates.

 

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In April 2020, resTORbio entered into the merger agreement. There is no assurance that the merger will be completed.

If resTORbio raises additional funds through collaborations or marketing, distribution or licensing arrangements with third parties, resTORbio may have to relinquish valuable rights to its technologies, future revenue streams or product candidates or grant licenses on terms that may not be favorable to resTORbio. If resTORbio is unable to raise additional funds when needed, resTORbio may be required to delay, limit, reduce or terminate its product development or future commercialization efforts or grant rights to develop and market product candidates that resTORbio would otherwise prefer to develop and market itself.

Risks Related to the Discovery, Development and Commercialization of resTORbio’s Product Candidates

resTORbio’s business depends virtually entirely upon the success of RTB101 alone or in combination with a rapalog, such as everolimus or sirolimus. If resTORbio is unable to successfully develop, obtain regulatory approval for or successfully commercialize RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, resTORbio’s business may be materially harmed.

resTORbio currently has no products approved for sale and is investing the majority of resTORbio’s efforts and financial resources in the development of resTORbio’s lead product candidate, RTB101, either alone or in combination with a rapalog, such as everolimus or sirolimus. Successful continued development and ultimate regulatory approval of RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, for the treatment of aging-related diseases is critical to the future success of resTORbio’s business. resTORbio will need to raise sufficient funds for, and successfully enroll and complete, resTORbio’s clinical development program for RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, for indications such as PD and possibly other aging-related diseases. The future regulatory and commercial success of this product candidate is subject to a number of risks, including the following:

 

   

resTORbio may not have sufficient financial and other resources to initiate or complete the necessary clinical trials for RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus;

 

   

resTORbio may not be able to obtain adequate evidence of clinical efficacy and safety for RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or to obtain regulatory approval of RTB101 for PD or other indications;

 

   

even if RTB101 monotherapy succeeds in its clinical development and is approved for one or more targeted indications, there can be no assurance that RTB101 in combination with a rapalog, such as everolimus or sirolimus, would be developed successfully and approved, and vice versa;

 

   

resTORbio may not be able to maintain an acceptable safety profile for RTB101 alone or in combination with a rapalog, such as everolimus or sirolimus, even if approved;

 

   

resTORbio does not know the degree to which RTB101 alone or in combination with a rapalog, such as everolimus or sirolimus, will have market uptake as a therapy by patients, the medical community or third-party payors, among others, if approved;

 

   

in resTORbio’s clinical programs, resTORbio may experience variability in the response of subjects to treatment, the need to adjust clinical trial procedures and the need for additional clinical trial sites, which could delay resTORbio’s clinical trial progress;

 

   

the results of resTORbio’s clinical trials may not meet the level of statistical significance required by the FDA, the European Medicines Agency, or EMA, or comparable foreign regulatory bodies for regulatory approval for the treatment of PD or for other indications;

 

   

resTORbio may have difficulty enrolling subjects in trials if, for instance, a current or future effective standard of care limits the desire of patients, physicians, or regulatory agencies to participate in or support clinical trials, or if patients choose to participate in the trials of other sponsors’ product candidates;

 

   

patients in resTORbio’s clinical trials may die or suffer other adverse effects for reasons that may or may not be related to RTB101, which could delay or prevent further clinical development;

 

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the requirements implemented by regulatory agencies may change at any time;

 

   

the FDA, EMA or foreign regulatory agencies may require efficacy endpoints for a future clinical trial that differ from the endpoints of resTORbio’s current or future trials, which may require resTORbio to conduct additional clinical trials;

 

   

the mechanism of action of RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, is complex and resTORbio cannot guarantee the degree to which it will translate into a medical benefit in any indications;

 

   

competitor products including generic products may be developed that may have similar or better safety and efficacy or lower costs than RTB101 alone or in combination with a rapalog, such as everolimus or sirolimus;

 

   

resTORbio may not be able to establish sales, marketing, distribution and other commercial infrastructure in the future to commercialize various products for which resTORbio may obtain regulatory approval;

 

   

resTORbio or its contract manufacturers may not be able to manufacture RTB101, rapalogs, such as everolimus or sirolimus, the fixed dose combination of RTB101 with a rapalog, such as everolimus or sirolimus, or other future product candidates at the appropriate quality or sufficient quantities to support further clinical development and/or commercialization;

 

   

resTORbio’s investigational drug products or manufacturing processes may be considered by regulatory authorities, such as the FDA or EMA, to be unsuitable for continued development and/or commercialization;

 

   

resTORbio may observe unexpected toxicities in preclinical safety or efficacy animal studies that delay, limit or prevent further clinical development;

 

   

resTORbio’s intellectual property may not be patentable, valid or enforceable; and

 

   

resTORbio may not be able to obtain, maintain, defend, protect or enforce resTORbio’s patents, resTORbio’s trade secrets, regulatory exclusivities and other intellectual property rights, both in the United States and internationally, including those that resTORbio has licensed under resTORbio’s license agreement with Novartis.

Many of these risks are beyond resTORbio’s control, including the risks related to clinical development, the regulatory submission process, potential threats to resTORbio’s intellectual property rights and the manufacturing, marketing and sales efforts of any future collaborator. If resTORbio is unable to develop, receive regulatory approval for, or successfully commercialize RTB101 alone or in combination with a rapalog, such as everolimus or sirolimus, or if resTORbio experiences delays as a result of any of these risks or otherwise, resTORbio’s business could be materially harmed.

In addition, of the large number of drugs in development in the pharmaceutical industry, only a small percentage result in the submission of an NDA to the FDA and even fewer are approved for commercialization. Furthermore, even if resTORbio does receive regulatory approval for RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, any such approval may be subject to limitations on the indicated uses or patient populations for which resTORbio may market the product. Accordingly, even if resTORbio is able to obtain the requisite financing to continue to fund resTORbio’s development programs, it cannot assure you that it will successfully develop or commercialize RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, for PD or any other indications. If resTORbio or any of resTORbio’s future collaborators are unable to develop, or obtain regulatory approval for, or, if approved, successfully commercialize RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, for PD or any other indications, resTORbio may not be able to generate sufficient revenue to continue resTORbio’s business.

 

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resTORbio depends on the successful initiation and completion of clinical trials for RTB101 alone or in combination with a rapalog, such as everolimus or sirolimus. The positive clinical results, if any, obtained in prior or ongoing clinical trials may not be predictive of future results or repeated in later-stage clinical trials.

Before obtaining regulatory approval for the sale of RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any other potential product candidate, resTORbio must conduct additional clinical trials to demonstrate safety and efficacy in humans. The regulatory requirements for demonstrating efficacy and safety for obtaining approval for RTB101 alone or in combination with a rapalog, such as everolimus or sirolimus, may differ. A failure of one or more clinical trials can occur at any stage of testing. For example, in November 2019, resTORbio announced that top line data from the PROTECTOR 1 Phase 3 study, evaluating the safety and efficacy of RTB101 in preventing clinically symptomatic respiratory illness in adults age 65 and older, did not meet its primary endpoint and that resTORbio has stopped the development of RTB101 for clinically symptomatic respiratory illness. A number of companies in the pharmaceutical and biotechnology industries, including those with greater resources and experience than resTORbio, have suffered significant setbacks in late stage clinical development, even after seeing promising results in earlier clinical trials.

resTORbio may experience a number of unforeseen events during, or as a result of, clinical trials for RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any other potential product candidate that could adversely affect the costs, timing, or successful completion of resTORbio’s clinical trials, including:

 

   

regulators or other comparable foreign regulatory authorities may disagree as to the design or implementation of resTORbio’s clinical trials;

 

   

regulators, and/or institutional review boards, or IRBs, or other reviewing bodies may not authorize resTORbio or resTORbio’s investigators to commence a clinical trial, or to conduct or continue a clinical trial at a prospective or specific trial site;

 

   

resTORbio may not reach agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

 

   

clinical trials of RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any other potential product candidate may produce negative or inconclusive results, and resTORbio may decide, or regulators may require resTORbio, to conduct additional clinical trials or abandon product development programs;

 

   

the number of subjects or patients required for clinical trials of RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any other potential product candidate may be larger than resTORbio anticipates, enrollment in these clinical trials may be insufficient or slower than resTORbio anticipates, and the number of clinical trials being conducted at any given time may be high and result in fewer available patients for any given clinical trial, or patients may drop out of these clinical trials at a higher rate than resTORbio anticipates;

 

   

resTORbio’s third-party contractors, including those manufacturing resTORbio’s product candidates or conducting clinical trials on resTORbio’s behalf, may fail to comply with regulatory requirements or meet their contractual obligations to resTORbio in a timely manner, or at all;

 

   

resTORbio might have to suspend or terminate clinical trials of RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any other potential product candidate for various reasons, including as a result of the impact of the COVID-19 pandemic, a finding that the subjects are being exposed to unacceptable health risks or other unrelated reasons;

 

   

resTORbio may have to amend a clinical trial protocol submitted to regulatory authorities or conduct additional studies to reflect changes in regulatory requirements or guidance, which resTORbio may be required to resubmit to an IRB and regulatory authorities for re-examination;

 

   

regulators, IRBs or data monitoring committees may require or recommend that resTORbio or its investigators suspends or terminates clinical research for various reasons, including safety signals or noncompliance with regulatory requirements;

 

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the cost of clinical trials of RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any other potential product candidate may be greater than resTORbio anticipates;

 

   

regulators, IRBs or other reviewing bodies may fail to approve or subsequently find fault with the manufacturing processes or facilities of third-party manufacturers with which resTORbio enters into agreement for clinical and commercial supplies, or the supply or quality of RTB101, rapalogs, such as everolimus or sirolimus, or the fixed dose combination of RTB101 and a rapalog, such as everolimus, or sirolimus or any other potential product candidate or other materials necessary to conduct clinical trials of resTORbio’s product candidates may be insufficient, inadequate or not available at an acceptable cost, or resTORbio may experience interruptions in supply;

 

   

the potential for approval policies or regulations of the FDA or the applicable foreign regulatory agencies to significantly change in a manner rendering resTORbio’s clinical data insufficient for approval; and

 

   

RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any other potential product candidate may have undesirable side effects or other unexpected characteristics.

Regulators, IRBs of the institutions in which clinical trials are being conducted or data monitoring committees may suspend or terminate a clinical trial due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or resTORbio’s clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, or changes in governmental regulations or administrative actions or resTORbio may have a lack of adequate funding to continue the clinical trial.

Negative or inconclusive results from resTORbio’s clinical trials of RTB101 alone or in combination with a rapalog, such as everolimus or sirolimus, or any other clinical trial or preclinical studies in animals that resTORbio conducts, could mandate repeated or additional clinical trials. resTORbio does not know whether any clinical trials that resTORbio may conduct will demonstrate adequate efficacy and safety to result in regulatory approval to market RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any other potential product candidate. If later stage clinical trials do not produce favorable results, resTORbio’s ability to obtain regulatory approval for RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any other potential product candidate may be adversely impacted.

Clinical trials must be conducted in accordance with the laws and regulations of the FDA, EMA and other applicable regulatory authorities’ laws, and are subject to oversight by these governmental agencies and IRBs at the medical institutions where the clinical trials are conducted. In addition, clinical trials must be conducted with supplies of resTORbio’s product candidates produced under cGMP, requirements and other regulations. Furthermore, resTORbio relies on CROs, and clinical trial sites to ensure the proper and timely conduct of resTORbio’s clinical trials and while resTORbio has agreements governing their committed activities, resTORbio has limited influence over their actual performance. resTORbio depends on resTORbio’s collaborators and on medical institutions and CROs to conduct resTORbio’s clinical trials in compliance with GCP, requirements. To the extent resTORbio’s collaborators or the CROs fail to enroll participants for resTORbio’s clinical trials, fail to conduct the study to GCP standards or are delayed for a significant time in the execution of trials, including achieving full enrollment, resTORbio may be affected by increased costs, program delays or both. In addition, clinical trials that are conducted in countries outside the United States and EU may subject resTORbio to further delays and expenses as a result of increased shipment costs, additional regulatory requirements and the engagement of non-U.S. and non-EU CROs, as well as expose resTORbio to risks associated with clinical investigators who are unknown to the FDA or the EMA, and different standards of diagnosis, screening and medical care.

resTORbio may be subject to additional risks because resTORbio is administering RTB101 in combination with other mTOR inhibitors, including rapalogs, such as everolimus or sirolimus.

resTORbio is evaluating RTB101 in combination with other mTOR inhibitors. The use of RTB101 in combination with other compounds may subject resTORbio to risks that resTORbio would not face if RTB101 were being administered as a monotherapy. For example, other mTOR inhibitors, including rapalogs, such as everolimus or sirolimus, may have safety issues that are improperly attributed to RTB101 or the administration of RTB101 with such

 

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other therapies may result in safety issues that such other therapies or RTB101 would not have when used alone. In addition, other mTOR inhibitors with which resTORbio may administer RTB101, including a rapalog, such as everolimus or sirolimus, could be removed from the market and thus be unavailable for testing or commercial use concomitantly with RTB101. The outcome and cost of developing a product candidate to be used with other compounds is difficult to predict and dependent on a number of factors that are outside resTORbio’s reasonable control. If resTORbio experiences efficacy or safety issues in resTORbio’s clinical trials in which RTB101 is being administered with a rapalog, such as everolimus or sirolimus, resTORbio may not receive regulatory approval for RTB101, which could prevent resTORbio from ever generating revenue or achieving profitability.

Competitive products may reduce or eliminate the commercial opportunity for RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus. If resTORbio’s competitors develop technologies or product candidates more rapidly than resTORbio does, or their technologies are more effective or safer than resTORbio’s, resTORbio’s ability to develop and successfully commercialize RTB101 alone or in combination with a rapalog, such as everolimus or sirolimus, may be adversely affected.

The clinical and commercial landscape for aging-related diseases is highly competitive and subject to rapid and significant technological change. New data from competitors’ product candidates continue to emerge. It is possible that these data may alter the current standard of care, completely precluding resTORbio from further developing RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, for PD or other aging-related diseases. Further, it is possible that resTORbio may initiate a clinical trial or trials for RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any other potential product candidate only to find that data from competing products make it impossible for resTORbio to complete enrollment in clinical trials, resulting in resTORbio’s inability to submit applications for regulatory approval with regulatory agencies. Even if RTB101 were approved, alone or in combination with a rapalog, such as everolimus or sirolimus, it may have limited sales due to competition in the specific indications approved.

Competitive therapeutic treatments for aging-related diseases, including PD, include those that are currently in development and any new treatments that enter the market. resTORbio believes that a significant number of product candidates are currently under development, and may become commercially available in the future, for the treatment of conditions for which resTORbio may try to develop product candidates. resTORbio’s potential competitors include large pharmaceutical and biotechnology companies, specialty pharmaceutical and generic drug companies, academic institutions, government agencies and research institutions. resTORbio considers Navitor Pharmaceuticals, Inc. to be resTORbio’s most direct competitor in developing novel therapeutics targeting the TORC1 for aging-related diseases. Additionally, resTORbio is also aware of other companies seeking to develop treatments to prevent or treat aging-related diseases through biological pathways unrelated to mTOR inhibition, including Calico Life Sciences LLC, or Calico, and UNITY Biotechnology, Inc., or Unity. Calico has not yet disclosed any pipeline candidates, and Unity’s most advanced candidate, based on publicly disclosed information, is in Phase 1 clinical trials for osteoarthritis.

resTORbio is also aware of other companies that are potential competitors for prevention or treatment of aging-associated pathologies such as neurodegeneration. Companies pursuing prevention or treatment of aging-associated pathologies such as neurodegeneration in PD include: Denali Therapeutics, Inc., Acorda Therapeutics, Inc., Prothena Biosciences, Inc., Takeda Pharmaceutical Company (formerly Shire plc), Affiris AG, Biogen Inc., Inflazome Ltd., Casma Therapeutics, Inc., Neuropore Therapies, Inc., Caraway Therapeutics, Inc. (previously called Rheostat Therapeutics), Selphagy Therapeutics Inc., and others. Companies pursuing treatments for levodopa-induced dyskinesia in PD include: VistaGen Therapeutics, Inc., Prilienia Therapeutics, Inc., IRLAB Therapeutics AB, Neurolixis Inc, and others.

Many of resTORbio’s competitors have greater financial, technical, manufacturing, marketing, sales and supply resources, and human resources or experience than resTORbio and significantly greater experience in the discovery and development of product candidates, obtaining FDA and other regulatory approvals of products and the commercialization of those products. Accordingly, resTORbio’s competitors may be more successful than it is in obtaining regulatory approval for therapies and achieving widespread market acceptance. resTORbio’s competitors’ products may be more effective, or more effectively marketed and sold, than any product candidate

 

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resTORbio may commercialize and may render its therapies obsolete or non-competitive before resTORbio can recover development and commercialization expenses. If RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, is approved for the indications resTORbio is currently pursuing, it could compete with a range of therapeutic treatments that are in development. In addition, resTORbio’s competitors may succeed in developing, acquiring or licensing technologies and drug products that are more effective or less costly than RTB101 alone or in combination with a rapalog, such as everolimus or sirolimus, or any other product candidates that resTORbio is currently developing or that resTORbio may develop, which could render its product candidates obsolete and noncompetitive.

If resTORbio obtains approval for RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any other future product candidate, resTORbio may face competition based on many different factors, including the efficacy, safety and tolerability of its products, the ease with which its products can be administered, the timing and scope of regulatory approvals for these products, the availability and cost of manufacturing, marketing and sales capabilities, price, reimbursement coverage and patent position. Existing and future competing products could present superior treatment alternatives, including being more effective, safer, less expensive or marketed and sold more effectively than any products resTORbio may develop. Competitive products may make any products resTORbio develops obsolete or noncompetitive before resTORbio recovers the expense of developing and commercializing resTORbio’s product candidates. Such competitors could also recruit resTORbio’s employees, which could negatively impact resTORbio’s level of expertise and resTORbio’s ability to execute resTORbio’s business plan. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a small number of competitors.

resTORbio also competes with other clinical stage companies and institutions for clinical trial participants, which could reduce resTORbio’s ability to recruit participants for resTORbio’s clinical trials. Delay in recruiting clinical trial participants could adversely affect resTORbio’s ability to bring a product to market prior to resTORbio’s competitors. Further, research and discoveries by others may result in breakthroughs that render resTORbio’s product candidates obsolete even before they begin to generate any revenue.

In addition, resTORbio’s competitors may obtain patent protection, regulatory exclusivities, or FDA approval and commercialize products more rapidly than resTORbio does, which may impact future approvals or sales of any of resTORbio’s product candidates that receive regulatory approval. If the FDA approves the commercial sale of RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any other product candidate, resTORbio will also be competing with respect to marketing capabilities and manufacturing efficiency. resTORbio expects competition among products will be based on product efficacy and safety, the timing and scope of regulatory approvals, availability of supply, marketing and sales capabilities, product price, reimbursement coverage by government and private third-party payors, regulatory exclusivities and patent position. resTORbio’s profitability and financial position will suffer if resTORbio’s product candidates receive regulatory approval, but cannot compete effectively in the marketplace.

Many of resTORbio’s competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than resTORbio does. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of resTORbio’s competitors. Smaller and other early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with resTORbio in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites, as well as in acquiring technologies complementary to, or necessary for, resTORbio’s programs.

Furthermore, regulatory authorities’ assessment of the data and results required to demonstrate safety and efficacy can change over time and can be affected by many factors, such as the emergence of new information, including on other products, changing policies and agency funding, staffing and leadership. resTORbio cannot be

 

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sure whether future changes to the regulatory environment will be favorable or unfavorable to resTORbio’s business prospects. For example, average review times at the FDA for regulatory approval applications can be affected by a variety of factors, including budget and funding levels and statutory, regulatory and policy changes.

The regulatory approval processes of the FDA, the European Medicines Agency (the “EMA”) and comparable foreign authorities are lengthy, time consuming and inherently unpredictable. If clinical trials of RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, fail to satisfactorily demonstrate safety and efficacy to the FDA or other regulators, or do not otherwise produce favorable results, resTORbio, or any future collaborators, may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of RTB101 alone or in combination with a rapalog, such as everolimus or sirolimus.

resTORbio, and any future collaborators, are not permitted to commercialize, market, promote or sell any product candidate in the United States without obtaining regulatory approval from the FDA. Foreign regulatory authorities, such as the EMA, impose similar requirements. The time required to obtain approval by the FDA, EMA and comparable foreign authorities is unpredictable, but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including substantial discretion of the regulatory authorities. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions. To date, resTORbio has not submitted an NDA to the FDA or similar drug approval submissions to comparable foreign regulatory authorities for RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any other product candidate. resTORbio, and any future collaborators, must complete additional preclinical or nonclinical studies and clinical trials to demonstrate the safety and efficacy of resTORbio’s product candidates in humans before resTORbio will be able to obtain these approvals.

Clinical testing is expensive, difficult to design and implement, can take many years to complete and is inherently uncertain as to outcome. resTORbio cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. The clinical development of RTB101 alone or in combination with a rapalog, such as everolimus or sirolimus, or other drugs is susceptible to the risk of failure inherent at any stage of development, including failure to demonstrate efficacy in a clinical trial or across a broad population of patients, the occurrence of adverse events that are severe or medically or commercially unacceptable, failure to comply with protocols or applicable regulatory requirements, and determination by the FDA or any comparable foreign regulatory authority that a product candidate may not continue development or is not approvable. It is possible that even if RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any other product candidate has a beneficial effect, that effect will not be detected during clinical evaluation as a result of one or more of a variety of factors, including the size, duration, design, measurements, conduct or analysis of resTORbio’s clinical trials. Conversely, as a result of the same factors, resTORbio’s clinical trials may indicate an apparent positive effect of RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any other product candidate that is greater than the actual positive effect, if any. For example, in a topline analysis of resTORbio’s Phase 2b clinical trial, resTORbio observed that certain cohorts responded better to study drug treatment than others, and that certain cohorts did not respond at all. Similarly, in resTORbio’s clinical trials resTORbio may fail to detect toxicity of or intolerability caused by RTB101, everolimus or any other product candidate, or mistakenly believe that resTORbio’s product candidates are toxic or not well tolerated when that is not in fact the case.

Any inability to successfully complete preclinical and clinical development could result in additional costs to resTORbio, or any future collaborators. Moreover, if resTORbio, or any future collaborators, is required to conduct additional clinical trials or other testing of RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any other product candidate beyond the trials and testing that resTORbio or they contemplate, if resTORbio or they are unable to successfully complete clinical trials of resTORbio’s product candidates or other testing or the results of these trials or tests are unfavorable, uncertain or are only modestly

 

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favorable, or there are unacceptable safety concerns associated with resTORbio’s product candidates, resTORbio, or any future collaborators may:

 

   

incur additional unplanned costs;

 

   

be delayed in obtaining regulatory approval for resTORbio’s product candidates;

 

   

not obtain regulatory approval at all;

 

   

obtain approval for indications or patient populations that are not as broad as intended or desired;

 

   

obtain approval with labeling that includes significant use or distribution restrictions or significant safety warnings, including boxed warnings;

 

   

be subject to additional post-marketing testing or other requirements; or

 

   

be required to remove the product from the market after obtaining regulatory approval.

resTORbio’s failure to successfully initiate and complete clinical trials of RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any other product candidate and to demonstrate the efficacy and safety necessary to obtain regulatory approval to market RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any other product candidate would significantly harm resTORbio’s business. resTORbio’s product candidate development costs will also increase if resTORbio experiences delays in testing or regulatory approvals and resTORbio may be required to obtain additional funds to complete clinical trials. resTORbio cannot assure you that resTORbio’s clinical trials will begin as planned or be completed on schedule, if at all, or that resTORbio will not need to restructure resTORbio’s trials after they have begun. Significant clinical trial delays also could shorten any periods during which resTORbio may have the exclusive right to commercialize resTORbio’s product candidates or allow resTORbio’s competitors to bring products to market before resTORbio does and impair resTORbio’s ability to successfully commercialize resTORbio’s product candidates, which may harm resTORbio’s business and results of operations. In addition, many of the factors that cause, or lead to, delays of clinical trials may ultimately lead to the denial of regulatory approval of RTB101 alone or in combination with a rapalog, such as everolimus or sirolimus, or any other product candidate.

resTORbio’s product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following regulatory approval, if obtained.

Undesirable side effects caused by RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any other product candidate could cause resTORbio or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or comparable foreign regulatory authorities. Results of resTORbio’s clinical trials could reveal a high and unacceptable severity and prevalence of side effects or unexpected characteristics. In clinical trials of RTB101, alone and in combination with everolimus, to date, there were no observed study drug-related serious adverse events in the Phase 2a clinical trial. In the Phase 2b clinical trial, 4.5% of subjects in the RTB101 10 mg once daily cohort had a serious adverse event, none of which were related to the study drug, though 4.5% of subjects in that arm discontinued the study drug due to an adverse event. The majority of observed study-drug related adverse events were mild or moderate in severity, transient and resolved without stopping the study drug. However, there can be no guarantee that resTORbio would observe a similar tolerability profile of RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, in future clinical trials. Many compounds that initially showed promise in clinical or earlier stage testing are later found to cause undesirable or unexpected side effects that prevented further development of the compound.

If unacceptable side effects arise in the development of resTORbio’s product candidates, resTORbio, the FDA or comparable foreign regulatory authorities, the IRBs, or independent ethics committees at the institutions in which resTORbio’s trials are conducted, or the Data Safety Monitoring Board, or DSMB, could suspend or terminate

 

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resTORbio’s clinical trials or the FDA or comparable foreign regulatory authorities could order resTORbio to cease clinical trials or deny approval of resTORbio’s product candidates for any or all targeted indications. Treatment-emergent side effects that are deemed to be treatment-related could also affect subject recruitment or the ability of enrolled subjects to complete the trial or result in potential product liability claims. In addition, these side effects may not be appropriately recognized or managed by the treating medical staff. resTORbio expects to have to train medical personnel using resTORbio’s product candidates to understand the side effect profiles for resTORbio’s clinical trials and upon any commercialization of any of resTORbio’s product candidates. Inadequate training in recognizing or managing the potential side effects of resTORbio’s product candidates could result in patient injury or death. Any of these occurrences may harm resTORbio’s business, financial condition and prospects significantly.

Moreover, clinical trials of resTORbio’s product candidates are conducted in carefully defined sets of patients who have agreed to enter into clinical trials. Consequently, it is possible that resTORbio’s clinical trials, or those of any future collaborator, may indicate an apparent positive effect of a product candidate that is greater than the actual positive effect, if any, or alternatively fail to identify undesirable side effects. If, following approval of a product candidate, resTORbio, or others, discovers that the product is less effective than previously believed or causes undesirable side effects that were not previously identified, any of the following adverse consequences could occur:

 

   

regulatory authorities may withdraw their approval of the product, seize the product, or seek an injunction against its manufacture or distribution;

 

   

resTORbio, or any future collaborators, may need to recall the product, or be required to change the way the product is administered or conduct additional clinical trials, or develop a surveillance program;

 

   

additional restrictions may be imposed on the marketing of, or the manufacturing processes for, the particular product;

 

   

regulatory authorities may require one or more post-market studies;

 

   

regulatory authorities may impose distribution and/or use requirements, such as under a REMS;

 

   

resTORbio may be subject to fines, injunctions or the imposition of civil or criminal penalties;

 

   

regulatory authorities may require the addition of labeling statements, such as a “black box” warning or a contraindication, or issue safety alerts, Dear Healthcare Provider letters, press releases or other communications containing warnings or other safety information about the product;

 

   

resTORbio, or any future collaborators, may be required to create a Medication Guide outlining the risks of the previously unidentified side effects for distribution to patients;

 

   

resTORbio, or any future collaborators, could be sued and held liable for harm caused to patients;

 

   

the product may become less competitive; and

 

   

resTORbio’s reputation may suffer.

Any of these events could harm resTORbio’s business and operations and could negatively impact resTORbio’s stock price.

If resTORbio fails to develop RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, for additional indications or fail to discover, develop and commercialize other product candidates, resTORbio may be unable to grow resTORbio’s business and resTORbio’s ability to achieve resTORbio’s strategic objectives would be impaired.

As part of resTORbio’s longer-term growth strategy, resTORbio may evaluate RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, in other indications beyond PD, such as COVID-19 related

 

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indications and develop other product candidates. resTORbio intend to evaluate strategic alternatives and internal opportunities from RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or other product candidates from resTORbio’s TORC1 program, and also may choose to in-license or acquire other product candidates as well as commercial products to treat patients suffering from other disorders with significant unmet medical needs and limited treatment options. These other product candidates will require additional, time-consuming development efforts prior to commercial sale, including preclinical studies, clinical trials and approval by the FDA and/or applicable foreign regulatory authorities. All product candidates are prone to the risks of failure that are inherent in pharmaceutical product development, including the possibility that the product candidate will not be shown to be sufficiently safe and effective for approval by regulatory authorities. In addition, resTORbio cannot assure you that any such products that are approved will be manufactured or produced economically, successfully commercialized or widely accepted in the marketplace or be more effective than other commercially available alternatives.

Research programs to identify product candidates require substantial technical, financial and human resources, whether or not any product candidates are ultimately identified. resTORbio’s research programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates for clinical development for many reasons, including the following:

 

   

the research methodology used may not be successful in identifying potential product candidates;

 

   

competitors may develop alternatives that render resTORbio’s product candidates obsolete;

 

   

product candidates that resTORbio develops may nevertheless be covered by third parties’ patents or other exclusive rights;

 

   

a product candidate may, on further study, be shown to have harmful side effects or other characteristics that indicate it is unlikely to be effective or otherwise does not meet applicable regulatory criteria;

 

   

a product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and

 

   

a product candidate may not be accepted as safe and effective by patients, the medical community or third-party payors.

If resTORbio is unsuccessful in identifying and developing additional product candidates, resTORbio’s potential for growth and achieving resTORbio’s strategic objectives may be impaired.

resTORbio’s preclinical programs may not produce new product candidates that are suitable for clinical trials or that can be successfully commercialized or generate revenue through collaborations.

resTORbio must successfully complete preclinical testing for resTORbio’s preclinical programs, which may include demonstrating activity and comprehensive studies to show the lack of toxicity and other adverse effects in established animal models, before commencing clinical trials for any product candidate. Many pharmaceutical products do not successfully complete preclinical testing and, even if preclinical testing is successfully completed, may fail in clinical trials. In addition, there can be no assurance that positive results from preclinical studies will be predictive of results obtained from subsequent preclinical studies or clinical trials. Many pharmaceutical candidates are not suitable for manufacture on the scale or of the quality required for clinical trials or commercialization. Some pharmaceutical candidates that initially seem suitable may later be found to be insufficiently stable or may generate toxic impurities over time. resTORbio also cannot be certain that any product candidates that do advance into clinical trials will successfully demonstrate safety and efficacy in clinical trials. Even if resTORbio achieves positive results in early preclinical studies or clinical trials, they may not be predictive of the results in later trials.

 

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Results of preclinical studies and early clinical trials may not be predictive of results of future clinical trials, and such results do not guarantee approval of a product candidate by regulatory authorities.

The outcome of preclinical studies and early clinical trials may not be predictive of the success of later clinical trials, and interim results of clinical trials do not necessarily predict success in the results of completed clinical trials. Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials after achieving positive results in earlier development, and resTORbio could face similar setbacks. The design of a clinical trial can determine whether its results will support approval of a product and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced. In addition, preclinical and clinical data are often susceptible to varying interpretations and analyses. Many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain the same positive results in later studies or regulatory approval for their product candidates.

For example, in November 2019, resTORbio announced that top line data from the PROTECTOR 1 Phase 3 study, evaluating the safety and efficacy of RTB101 in preventing clinically symptomatic respiratory illness in adults age 65 and older, did not meet its primary endpoint and that resTORbio has stopped the development of RTB101 for clinically symptomatic respiratory illness.

In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same product candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, changes in and adherence to the dosing regimen and other clinical trial procedures and the rate of dropout among clinical trial participants. If resTORbio fails to receive positive results in clinical trials of resTORbio’s product candidates, the development timeline and regulatory approval and commercialization prospects for resTORbio’s most advanced product candidate, and, correspondingly, resTORbio’s business and financial prospects would be negatively impacted.

resTORbio may expend resTORbio’s resources to pursue a particular product candidate or indication and forgo the opportunity to capitalize on product candidates or indications that may ultimately be more profitable or for which there is a greater likelihood of success.

Because resTORbio has limited financial and managerial resources, resTORbio intends to focus on developing product candidates for specific indications that resTORbio identifies as most likely to succeed, in terms of both their potential for regulatory approval and commercialization. As a result, resTORbio may forego or delay pursuit of opportunities with other product candidates or for other indications that may prove to have greater commercial potential.

resTORbio’s resource allocation decisions may cause resTORbio to fail to capitalize on viable commercial products or profitable market opportunities. resTORbio’s spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable product candidates. If resTORbio does not accurately evaluate the commercial potential or target market for a particular product candidate, resTORbio may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for resTORbio to retain sole development and commercialization rights to the product candidate.

If the FDA or comparable foreign regulatory authorities approve generic versions of RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any other product candidate of resTORbio’s that receives regulatory approval, or such authorities do not grant resTORbio’s products appropriate periods of non-patent exclusivity before approving generic versions of such products, the sales of such products could be adversely affected.

Once an NDA is approved, the product covered thereby becomes a “listed drug” in the FDA’s publication, “Approved Drug Products with Therapeutic Equivalence Evaluations,” or the Orange Book. Manufacturers may

 

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seek approval of generic versions of reference listed drugs through submission of abbreviated new drug applications, or AND As, in the United States. In support of an ANDA, a generic manufacturer generally must show that its product has the same active ingredient(s), dosage form, strength, route of administration, conditions of use and labeling as the reference listed drug and that the generic version is bioequivalent to the reference listed drug, meaning, in part, that it is absorbed in the body at the same rate and to the same extent. Generic products may be significantly less costly to bring to market than the reference listed drug and companies that produce generic products are generally able to offer them at lower prices. Moreover, many states allow or require substitution of therapeutically equivalent generic drugs at the pharmacy level even if the branded drug is prescribed. Thus, following the introduction of a generic drug, a significant percentage of the sales of any branded product or reference listed drug may be lost to the generic product.

The FDA may not approve (or in some cases, accept) an ANDA for a generic product until any applicable period of non-patent exclusivity for the reference listed drug has expired. The Federal Food, Drug, and Cosmetic Act, or FDCA, provides a period of five years of non-patent exclusivity for a new drug containing NCE. Specifically, in cases where such exclusivity has been granted, an ANDA may not be filed with the FDA until the expiration of five years unless the submission is accompanied by a Paragraph IV certification that a patent covering the listed drug is invalid, unenforceable or will not be infringed by the generic product, in which case the applicant may submit its application four years following approval of the listed drug. It is unclear whether the FDA will treat the active ingredients in resTORbio’s product candidates as NCEs and, therefore, afford them five years of NCE data exclusivity if they are approved. If any product resTORbio develops does not receive five years of NCE exclusivity, it may nevertheless receive three years of exclusivity if it meets applicable requirements. If so, the FDA may not approve generic versions of such product until three years after its date of approval. Three-year exclusivity is given to a drug if it contains an active moiety that has previously been approved, and the NDA includes reports of one or more new clinical investigations, other than bioavailability or bioequivalence studies, that were conducted by or for the applicant and are essential to the approval of the NDA. If approved, manufacturers may seek to launch these generic products following the expiration of the applicable marketing exclusivity period, even if resTORbio still has patent protection for resTORbio’s product.

Competition that resTORbio’s products, if approved, may face from generic versions of resTORbio’s products could negatively impact resTORbio’s future revenue, profitability and cash flows and substantially limit resTORbio’s ability to obtain a return on resTORbio’s investments in those product candidates.

If resTORbio encounters difficulties enrolling patients in resTORbio’s future clinical trials, resTORbio’s clinical development activities could be delayed or otherwise adversely affected.

resTORbio may experience difficulties in patient enrollment in resTORbio’s clinical trials for a variety of reasons. The timely completion of clinical trials in accordance with their protocols depends, among other things, on resTORbio’s ability to enroll a sufficient number of patients who remain in the study until its conclusion.

Patient enrollment is affected by many factors, including:

 

   

the patient eligibility criteria defined in the protocol;

 

   

the size of the patient population required for analysis of the trial’s primary endpoints;

 

   

the proximity of patients to study sites;

 

   

the design of the trial;

 

   

resTORbio’s ability to recruit clinical trial investigators with the appropriate competencies and experience;

 

   

competing clinical trials and clinicians’ and patients’ perceptions as to the potential advantages and risks of the product candidate being studied in relation to other available therapies, including any new drugs that may be approved for the indications that resTORbio is investigating;

 

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resTORbio’s ability to obtain and maintain patient consents; and

 

   

the risk that patients enrolled in clinical trials will drop out of the trials before completion.

In addition, resTORbio’s clinical trials will compete with other clinical trials for product candidates that are in the same therapeutic areas as resTORbio’s product candidates, and this competition will reduce the number and types of patients available to resTORbio, because some patients who might have opted to enroll in resTORbio’s trials may instead opt to enroll in a trial being conducted by one of resTORbio’s competitors. Since the number of qualified clinical investigators is limited, resTORbio expects to conduct some of resTORbio’s clinical trials at the same clinical trial sites that some of resTORbio’s competitors use, which will reduce the number of patients who are available for resTORbio’s clinical trials in such clinical trial site.

resTORbio’s inability to enroll a sufficient number of patients for resTORbio’s clinical trials would result in significant delays or might require resTORbio to abandon one or more clinical trials altogether. Delays in patient enrollment may result in increased costs, affect the timing or outcome of the planned clinical trials, product candidate development and approval process and jeopardize resTORbio’s ability to seek and obtain the regulatory approval required to commence product sales and generate revenue, which could prevent completion of these trials, adversely affect resTORbio’s ability to advance the development of its product candidates, cause the value of resTORbio to decline and limit resTORbio’s ability to obtain additional financing if needed.

Ingredients, excipients and other materials necessary to manufacture RTB101 or rapalogs, such as everolimus or sirolimus, may not be available on commercially reasonable terms, or at all, which may adversely affect the development and commercialization of RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus.

resTORbio and resTORbio’s third-party manufacturers must obtain from other third-party suppliers the active pharmaceutical ingredients, excipients and primary and secondary packaging materials necessary for resTORbio’s contract manufacturers to produce RTB101 or rapalogs, such as everolimus or sirolimus, for resTORbio’s clinical trials and, to the extent approved or commercialized, for commercial distribution. There is no guarantee that resTORbio would be able to enter into all the necessary agreements with third-party suppliers that resTORbio requires for the supply of such materials on commercially reasonable terms, or at all. Even if resTORbio was able to secure such agreements or guarantees, resTORbio’s suppliers may be unable or choose not to provide resTORbio the ingredients, excipients or materials in a timely manner or in the quantities required. If resTORbio’s or its third-party manufacturers is unable to obtain the quantities of these ingredients, excipients or materials that are necessary for the manufacture of commercial supplies of RTB101 or rapalogs, such as everolimus or sirolimus, resTORbio’s ability to generate revenue from the sale of RTB101 alone or in combination with a rapalog, such as everolimus or sirolimus, would be materially and adversely affected.

Further, if resTORbio or its third-party manufacturers is unable to obtain active pharmaceutical ingredients, excipients and materials as necessary for resTORbio’s clinical trials or for the manufacture of commercial supplies of resTORbio’s product candidates, if approved, potential regulatory approval or commercialization would be delayed, which would materially and adversely affect resTORbio’s ability to generate revenue from the sale of resTORbio’s product candidates. As a result of these and other factors, the cost of manufacturing drug material may not support continued development or commercialization or may materially reduce revenue. resTORbio is also unable to predict how changing global economic conditions or potential global health concerns such as the coronavirus will affect resTORbio’s third-party suppliers and manufacturers. Any negative impact of such matters on resTORbio’s third-party suppliers and manufacturers may also have an adverse impact on resTORbio’s results of operations or financial condition.

 

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Even if RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any other product candidate of resTORbio’s receives regulatory approval, it may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success, in which case resTORbio may not generate significant revenues or become profitable.

resTORbio has never commercialized a product, and even if RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any other product candidate of resTORbio’s is approved by the appropriate regulatory authorities for marketing and sale, it may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical community. The market for therapies targeting PD with a TORC1 inhibitor is novel, and physicians may be reluctant to adopt novel therapies. In addition, patients and their physicians may not desire to add RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, even if approved, to their existing treatment regime. Further, patients often acclimate to the treatment regime that they are currently taking and do not want to switch unless their physicians recommend switching products or they are required to switch due to lack of coverage and reimbursement. In addition, even if resTORbio is able to demonstrate resTORbio’s product candidates’ safety and efficacy to the FDA and other regulators, safety or efficacy concerns in the medical community may hinder market acceptance.

Efforts to educate the medical community and third-party payors on the benefits of resTORbio’s product candidates may require significant resources, including management time and financial resources, and may not be successful. If RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any other product candidate is approved but does not achieve an adequate level of market acceptance, resTORbio may not generate significant revenues and resTORbio may not become profitable. The degree of market acceptance of resTORbio’s product candidates, if approved for commercial sale, will depend on a number of factors, including:

 

   

the efficacy and safety of the product;

 

   

the potential advantages of the product compared to competitive therapies;

 

   

the prevalence and severity of any side effects;

 

   

whether the product is recommended under physician guidelines;

 

   

whether the product is designated under physician treatment guidelines as a first-, second- or third-line therapy;

 

   

resTORbio’s ability, or the ability of any future collaborators, to offer the product for sale at competitive prices;

 

   

the product’s convenience and ease of administration compared to alternative treatments;

 

   

the willingness of the target patient population to try, and of physicians to prescribe, the product;

 

   

limitations or warnings, including distribution or use restrictions contained in the product’s approved labeling;

 

   

the strength of sales, marketing and distribution support;

 

   

changes in the standard of care for the targeted indications for the product; and

 

   

availability and adequacy of coverage and reimbursement from government payors, managed care plans and other third-party payors.

Any failure by RTB101 alone or in combination with a rapalog, such as everolimus or sirolimus, or any other product candidate of resTORbio’s that obtains regulatory approval to achieve market acceptance or commercial success would adversely affect resTORbio’s business prospects.

 

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Even if resTORbio, or any future collaborators, is able to commercialize any product candidate that resTORbio, or they, develop, the product may become subject to unfavorable pricing regulations or third-party payor coverage and reimbursement policies, any of which could harm resTORbio’s business.

Patients who are provided medical treatment for their conditions generally rely on third party payors to reimburse all or part of the costs associated with their treatment. Therefore, resTORbio’s ability, and the ability of any future collaborators to commercialize any of resTORbio’s product candidates will depend in part on the extent to which coverage and reimbursement for these products and related treatments will be available from third-party payors including government health administration authorities and private health coverage insurers. Third-party payors decide which medications they will cover and establish reimbursement levels. resTORbio cannot be certain that coverage will be available and that reimbursement will be adequate for RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any of resTORbio’s other product candidates. Also, resTORbio cannot be certain that reimbursement policies will not reduce the demand for, or the price paid for, resTORbio’s products.

If coverage and reimbursement are not available, or reimbursement is available only to limited levels, resTORbio, or any future collaborators, may be limited in resTORbio’s ability to successfully commercialize resTORbio’s product candidates. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow resTORbio, or any future collaborators, to establish or maintain pricing to realize a sufficient return on resTORbio’s or their investment. In the United States, no uniform policy of coverage and reimbursement for products exists among third-party payors and coverage and reimbursement for products can differ significantly from payor to payor. As a result, the coverage determination process is often a time-consuming and costly process that will require resTORbio to provide scientific and clinical support for the use of resTORbio’s products to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance.

There is significant uncertainty related to third-party payor coverage and reimbursement of newly approved drugs. Regulatory approvals, pricing and reimbursement for new drug products vary widely from country to country. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, resTORbio, or any future collaborators, might obtain regulatory approval for a product in a particular country, but then be subject to price regulations that delay commercial launch of the product, which may negatively impact the revenues resTORbio is able to generate from the sale of the product in that country. Adverse pricing limitations may hinder resTORbio’s ability or the ability of any future collaborators to recoup resTORbio’s or their investment in one or more product candidates, even if resTORbio’s product candidates obtain regulatory approval.

The healthcare industry is acutely focused on cost containment, both in the United States and elsewhere. Government authorities and other third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for certain medications, which could affect resTORbio’s ability or that of any future collaborators to sell resTORbio’s product candidates profitably. These payors may not view resTORbio’s products, if any, as cost-effective, and coverage and reimbursement may not be available to resTORbio’s customers, or those of any future collaborators, or may not be sufficient to allow resTORbio’s products, if any, to be marketed on a competitive basis. Cost-control initiatives could cause resTORbio, or any future collaborators, to decrease the price resTORbio, or they, might establish for products, which could result in lower than anticipated product revenues. If the prices for resTORbio’s products, if any, decrease or if governmental and other third-party payors do not provide coverage or adequate reimbursement, resTORbio’s prospects for revenue and profitability will suffer.

There may also be delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than the indications for which the drug is approved by the FDA or comparable foreign regulatory authorities. Moreover, eligibility for reimbursement does not imply that any drug will be paid for in all cases or

 

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at a rate that covers resTORbio’s costs, including research, development, manufacture, sale and distribution. Reimbursement rates may vary, by way of example, according to the use of the product and the clinical setting in which it is used. Reimbursement rates may also be based on reimbursement levels already set for lower cost drugs or may be incorporated into existing payments for other services.

In addition, increasingly, third-party payors are requiring higher levels of evidence of the benefits and clinical outcomes of new technologies and are challenging prices. resTORbio cannot be sure that coverage will be available for any product candidate that resTORbio, or any future collaborator, commercializes and, if available, that the reimbursement rates will be adequate. Further, the net reimbursement for drug products may be subject to additional reductions if there are changes to laws that presently restrict imports of drugs from one country to another. An inability to promptly obtain coverage and adequate payment rates from both government-funded and private payors for any of resTORbio’s product candidates for which resTORbio, or any future collaborator, obtains regulatory approval could significantly harm resTORbio’s operating results, resTORbio’s ability to raise capital needed to commercialize products and resTORbio’s overall financial condition.

Product liability lawsuits against resTORbio or any of resTORbio’s future collaborators could divert resTORbio’s resources and attention, cause resTORbio to incur substantial liabilities and limit commercialization of resTORbio’s product candidates.

resTORbio is exposed to potential product liability and professional indemnity risks that are inherent in the research, development, manufacturing, marketing and use of pharmaceutical products. Currently, resTORbio has no products that have been approved for commercial sale; however, the current and future use of resTORbio’s product candidates by resTORbio and any collaborators in clinical trials, and the sale of these product candidates, if approved, in the future, may expose resTORbio to liability claims. resTORbio faces an inherent risk of product liability lawsuits related to the use of resTORbio’s product candidates in elderly patients and will face an even greater risk if product candidates are approved by regulatory authorities and introduced commercially. Product liability claims may be brought against resTORbio or resTORbio’s partners by participants enrolled in resTORbio’s clinical trials, patients, health care providers, pharmaceutical companies, resTORbio’s collaborators or others using, administering or selling any of resTORbio’s future approved products. If resTORbio cannot successfully defend itself against any such claims, resTORbio may incur substantial liabilities or be required to limit commercialization of resTORbio’s product candidates. Regardless of the merits or eventual outcome, liability claims may result in:

 

   

decreased demand for any of resTORbio’s future approved products;

 

   

injury to resTORbio’s reputation;

 

   

withdrawal of clinical trial participants;

 

   

termination of clinical trial sites or entire trial programs;

 

   

significant litigation costs;

 

   

substantial monetary awards to, or costly settlements with, patients or other claimants;

 

   

product recalls or a change in the indications for which they may be used;

 

   

loss of revenue;

 

   

diversion of management and scientific resources from resTORbio’s business operations; and

 

   

the inability to commercialize resTORbio’s product candidates.

Although the clinical trial process is designed to identify and assess potential side effects, clinical development does not always fully characterize the safety and efficacy profile of a new medicine, and it is always possible that a drug, even after regulatory approval, may exhibit unforeseen side effects. If resTORbio’s product candidates were to cause adverse side effects during clinical trials or after approval, resTORbio may be exposed to

 

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substantial liabilities. Physicians and patients may not comply with any warnings that identify known potential adverse effects and patients who should not use resTORbio’s product candidates. If any of resTORbio’s product candidates are approved for commercial sale, resTORbio will be highly dependent upon consumer perceptions of resTORbio and the safety and quality of resTORbio’s products. resTORbio could be adversely affected if resTORbio is subject to negative publicity associated with illness or other adverse effects resulting from patients’ use or misuse of resTORbio’s products or any similar products distributed by other companies.

Although resTORbio maintains product liability insurance coverage in the amount of up to $10.0 million in the aggregate, including clinical trial liability, this insurance may not fully cover potential liabilities that resTORbio may incur. The cost of any product liability litigation or other proceeding, even if resolved in resTORbio’s favor, could be substantial. resTORbio will need to increase resTORbio’s insurance coverage if resTORbio commercializes any product that receives regulatory approval. In addition, insurance coverage is becoming increasingly expensive. If resTORbio is unable to maintain sufficient insurance coverage at an acceptable cost or to otherwise protect against potential product liability claims, it could prevent or inhibit the development and commercial production and sale of resTORbio’s product candidates, which could harm resTORbio’s business, financial condition, results of operations and prospects.

resTORbio currently has limited marketing, sales or distribution infrastructure. If resTORbio is unable to develop its sales, marketing and distribution capability on its own or through collaborations with marketing partners, resTORbio will not be successful in commercializing its product candidates.

resTORbio currently has limited marketing, sales or distribution infrastructure. Factors that may inhibit resTORbio’s efforts to commercialize its products on its own include:

 

   

resTORbio’s inability to recruit and retain adequate numbers of effective sales and marketing personnel;

 

   

the inability of sales personnel to obtain access to or persuade adequate numbers of physicians to prescribe any future products;

 

   

the lack of complementary products to be offered by sales personnel, which may put resTORbio at a competitive disadvantage relative to companies with more extensive product lines; and

 

   

unforeseen costs and expenses associated with creating an independent sales and marketing organization.

With respect to resTORbio’s existing and future product candidates, resTORbio may choose to collaborate with third parties that have direct sales forces and established distribution systems to serve as an alternative to resTORbio’s own sales force and distribution systems. resTORbio’s product revenue may be lower than if resTORbio directly marketed or sold resTORbio’s products, if approved. In addition, any revenue resTORbio receives will depend in whole or in part upon the efforts of these third parties, which may not be successful and are generally not within resTORbio’s control. If resTORbio is not successful in commercializing any approved products, resTORbio’s future product revenue will suffer, and resTORbio may incur significant additional losses.

If resTORbio does not establish sales and marketing capabilities successfully, either on resTORbio’s own or in collaboration with third parties, resTORbio will not be successful in commercializing resTORbio’s product candidates.

 

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If resTORbio, or any future collaborators, experiences any of a number of possible unforeseen events in connection with clinical trials of RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any other product candidate, potential clinical development, regulatory approval or commercialization of resTORbio’s product candidates could be delayed or prevented.

resTORbio, or any future collaborators, may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent clinical development, regulatory approval or commercialization of resTORbio’s product candidates, including:

 

   

resTORbio’s product candidates may produce unfavorable or inconclusive results;

 

   

regulators may require resTORbio or any future collaborators, to conduct additional clinical trials or abandon product development programs;

 

   

the number of patients required for clinical trials of resTORbio’s product candidates may be larger than resTORbio, or any future collaborators anticipates, patient enrollment in these clinical trials may be slower than resTORbio, or any future collaborators, may anticipate or participants may drop out of these clinical trials at a higher rate than resTORbio, or any future collaborators, anticipates;

 

   

the cost of planned clinical trials of resTORbio’s product candidates may be greater than resTORbio anticipates;

 

   

resTORbio’s third-party contractors or those of any future collaborators, including those manufacturing resTORbio’s product candidates or components or ingredients thereof or conducting clinical trials on resTORbio’s behalf or on behalf of any future collaborators, may fail to comply with regulatory requirements or meet their contractual obligations to resTORbio or any future collaborators in a timely manner, or at all;

 

   

regulators, IRBs or independent ethics committees may not authorize resTORbio, any future collaborators or resTORbio or their investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;

 

   

delays in reaching or failure to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites;

 

   

patients who enroll in a clinical trial may misrepresent their eligibility to do so or may otherwise not comply with the clinical trial protocol, resulting in the need to drop the patients from the clinical trial, increase the needed enrollment size for the clinical trial or extend the clinical trial’s duration;

 

   

delay, suspension or termination of clinical trials of resTORbio’s product candidates for various reasons, including a finding that the participants are being exposed to unacceptable health risks, undesirable side effects or other unexpected characteristics of the product candidate; and

 

   

regulators, IRBs or independent ethics committees may require that resTORbio, or any future collaborators, or resTORbio or its investigators suspends or terminates clinical research for various reasons, including noncompliance with regulatory requirements or their standards of conduct, a finding that the participants are being exposed to unacceptable health risks, undesirable side effects or other unexpected characteristics of the product candidate or findings of undesirable effects caused by a chemically or mechanistically similar product or product candidate.

Further, conducting clinical trials in foreign countries, as resTORbio has done and plan to do for resTORbio’s product candidates, presents additional risks that may delay completion of resTORbio’s clinical trials. These risks include the failure of enrolled patients in foreign countries to adhere to clinical protocol as a result of differences in healthcare services or cultural customs, managing additional administrative burdens associated with foreign regulatory schemes, as well as political and economic risks relevant to such foreign countries.

Product development costs for resTORbio, or any future collaborators, will increase if resTORbio, or they, experiences delays in testing or pursuing regulatory approvals and resTORbio, or they, may be required to obtain

 

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additional funds to complete clinical trials and prepare for possible commercialization of resTORbio’s product candidates. resTORbio does not know whether any preclinical studies or clinical trials will begin as planned, will need to be restructured, or will be completed on schedule, or at all. Significant preclinical study or clinical trial delays also could shorten any periods during which resTORbio, or any future collaborators, may have the exclusive right to commercialize resTORbio’s product candidates or allow resTORbio’s competitors, or the competitors of any future collaborators, to bring products to market before resTORbio, or any future collaborators, does and impair resTORbio’s ability, or the ability of any future collaborators, to successfully commercialize resTORbio’s product candidates and may harm resTORbio’s business and results of operations. In addition, many of the factors that lead to clinical trial delays may ultimately lead to the denial of regulatory approval of any of resTORbio’s product candidates.

Business interruptions resulting from the coronavirus disease (COVID-19) outbreak or similar public health crises could cause a disruption of the development of resTORbio’s product candidates and adversely impact resTORbio’s business.

Public health crises such as pandemics or similar outbreaks could adversely impact resTORbio’s business. In December 2019, a novel strain of a virus named SARS-CoV-2 (severe acute respiratory syndrome coronavirus 2), or coronavirus, which causes coronavirus disease, or COVID-19, surfaced in Wuhan, China and has reached multiple other regions and countries, including Boston, Massachusetts where resTORbio’s primary office and laboratory space are located. The coronavirus pandemic is evolving, and to date has led to the implementation of various responses, including government-imposed quarantines, travel restrictions and other public health safety measures. The extent to which the coronavirus impacts resTORbio’s operations or those of resTORbio’s third party partners will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information that will emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others.

Additionally, timely enrollment in planned clinical trials is dependent upon clinical trial sites which will be adversely affected by global health matters, such as pandemics. resTORbio plans to conduct clinical trials for resTORbio’s product candidates in geographies which are currently being affected by the coronavirus. Some factors from the coronavirus outbreak that will delay or otherwise adversely affect enrollment in the clinical trials of resTORbio’s product candidates, as well as resTORbio’s business generally, include:

 

   

the potential diversion of healthcare resources away from the conduct of clinical trials to focus on pandemic concerns, including the attention of physicians serving as resTORbio’s clinical trial investigators, hospitals serving as resTORbio’s clinical trial sites and hospital staff supporting the conduct of resTORbio’s prospective clinical trials;

 

   

limitations on travel that could interrupt key trial and business activities, such as clinical trial site initiations and monitoring, domestic and international travel by employees, contractors or patients to clinical trial sites, including any government-imposed travel restrictions or quarantines that will impact the ability or willingness of patients, employees or contractors to travel to resTORbio’s clinical trial sites or secure visas or entry permissions, a loss of face-to-face meetings and other interactions with potential partners, any of which could delay or adversely impact the conduct or progress of resTORbio’s prospective clinical trials;

 

   

interruption in global shipping affecting the transport of clinical trial materials, such as patient samples, investigational drug product and conditioning drugs and other supplies used in resTORbio’s prospective clinical trials; and

 

   

business disruptions caused by potential workplace, laboratory and office closures and an increased reliance on employees working from home, disruptions to or delays in ongoing laboratory experiments and operations, product manufacturing and supply, staffing shortages, travel limitations or mass transit disruptions, any of which could adversely impact resTORbio’s business operations or delay necessary interactions with local regulators, ethics committees and other important agencies and contractors.

 

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Risks Related to Regulatory Approval and Marketing of resTORbio’s Product Candidates and Other Legal Compliance Matters

Even if resTORbio completes the necessary preclinical studies and clinical trials, the regulatory approval process for product candidates is expensive, time consuming and uncertain and may prevent resTORbio or any future collaborators from obtaining approvals for the commercialization of RTB101 alone or in combination with a rapalog, such as everolimus or sirolimus, or any other product candidate. As a result, resTORbio cannot predict when or if, and in which territories, resTORbio, or any future collaborators, will obtain regulatory approval to commercialize a product candidate.

The research, testing, manufacturing, labeling, approval, selling, marketing, promotion and distribution of products are subject to extensive regulation by the FDA and comparable foreign regulatory authorities. resTORbio, and any future collaborators, are not permitted to market RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any other product candidate in the United States or in other countries until resTORbio, or any future collaborators, or they, receive approval of an NDA from the FDA or regulatory approval from applicable regulatory authorities outside the United States. RTB101 is in clinical development and is subject to the risks of failure inherent in drug development. resTORbio has not submitted an application for or received regulatory approval for RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any other product candidate in the United States or in any other jurisdiction. resTORbio has limited experience in conducting and managing the clinical trials necessary to obtain regulatory approvals, including obtaining FDA approval of an NDA.

The process of obtaining regulatory approvals, both in the United States and abroad, is lengthy, expensive and uncertain. It may take many years, if approval is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the product candidates involved. Securing regulatory approval requires the submission of extensive preclinical and clinical data and supporting information to regulatory authorities for each therapeutic indication to establish the product candidate’s safety and efficacy. Securing regulatory approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities by, the regulatory authorities. The FDA or other regulatory authorities may determine that RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any other product candidates are not safe and effective, only moderately effective or have undesirable or unintended side effects, toxicities or other characteristics that preclude resTORbio’s obtaining regulatory approval or prevent or limit commercial use. Any regulatory approval resTORbio ultimately obtains may be limited or subject to restrictions or post-approval commitments that render the approved product not commercially viable.

In addition, changes in regulatory approval policies during the development period, changes in or the enactment or promulgation of additional statutes, regulations or guidance or changes in regulatory review for each submitted product application, may cause delays in the approval or rejection of an application. Regulatory authorities have substantial discretion in the approval process and may refuse to accept any application or may decide that resTORbio’s data are insufficient for approval and require additional preclinical, clinical or other studies. In addition, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit or prevent regulatory approval of a product candidate. Any regulatory approval resTORbio, or any future collaborators, ultimately obtain may be limited or subject to restrictions or post-approval commitments that render the approved product not commercially viable.

Moreover, principal investigators for resTORbio’s clinical trials may serve as scientific advisors or consultants to resTORbio from time to time and receive compensation in connection with such services. Under certain circumstances, resTORbio may be required to report some of these relationships to the FDA or other regulatory authority. The FDA or other regulatory authority may conclude that a financial relationship between resTORbio and a principal investigator has created a conflict of interest or otherwise affected interpretation of the study. The FDA or other regulatory authority may therefore question the integrity of the data generated at the applicable clinical trial site and the utility of the clinical trial itself may be jeopardized. This could result in a delay in

 

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approval, or rejection, of resTORbio’s marketing applications by the FDA or other regulatory authority, as the case may be, and may ultimately lead to the denial of regulatory approval of one or more of resTORbio’s product candidates.

Any delay in obtaining or failure to obtain required approvals could negatively impact resTORbio’s ability or that of any future collaborators to generate revenue from the particular product candidate, which likely would result in significant harm to resTORbio’s business and adversely impact resTORbio’s stock price.

resTORbio’s failure to obtain regulatory approval in foreign jurisdictions would prevent resTORbio’s product candidates from being marketed abroad, and any approval resTORbio is granted for RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any of resTORbio’s other product candidates in the United States would not assure approval of product candidates in foreign jurisdictions.

In order to market any products outside of the United States, resTORbio must establish and comply with numerous and varying regulatory requirements of other countries regarding clinical trial design, safety and efficacy. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not mean that regulatory approval will be obtained in any other country. Approval procedures vary among countries and can involve additional product testing and validation and additional administrative review periods. Seeking foreign regulatory approvals could result in significant delays, difficulties and costs for resTORbio and may require additional preclinical studies or clinical trials which would be costly and time consuming and could delay or prevent introduction of RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any of resTORbio’s other product candidates in those countries. resTORbio does not have experience in obtaining regulatory approval in international markets. If resTORbio or resTORbio’s partners fail to comply with regulatory requirements or to obtain and maintain required approvals, resTORbio’s target market will be reduced and resTORbio’s ability to realize the full market potential of resTORbio’s product candidates will be harmed.

The exit of the United Kingdom, or the UK, from the European Union, or the EU, may materially affect the regulatory regime that governs resTORbio’s handling of EU personal data and expose resTORbio to legal and business risks under European data privacy and protection law.

On June 23, 2016, the UK held a referendum in which a majority of the eligible members of the electorate voted to leave the EU. The UK’s withdrawal from the EU is commonly referred to as Brexit. Pursuant to Article 50 of the Treaty on European Union, the UK ceased being a Member State of the EU on January 31, 2020. However, the terms of the withdrawal have yet to be fully negotiated. The implementation period began February 1, 2020 and will continue until December 31, 2020. During this 11-month period, the UK will continue to follow all of the EU’s rules and its trading relationship will remain the same. However, regulations (including data protection laws, health and safety laws and regulations and medicine licensing and regulations), have yet to be addressed. This lack of clarity on future UK laws and regulations and their interaction with EU laws and regulations could add legal risk, uncertainty, complexity and cost to resTORbio’s handling of EU personal information and resTORbio’s privacy and data security compliance programs. It is possible that over time the UK Data Protection Act could become less aligned with the EU General Data Protection Regulation, or GDPR, which could require resTORbio to implement different compliance measures for the UK and the European Union and result in potentially enhanced compliance obligations for EU personal data. This risk would apply more immediately in the event of a “no-deal” Brexit (including no transition period).

It is unclear whether the European Commission, or EC, will grant an adequacy finding to the UK (a finding that the UK privacy legal framework provides an adequate level of privacy protection to EU individuals). Absent an adequacy finding, transfers of personal data from the EU to the UK would be impermissible without adequate safeguards provided for under EC-approved mechanisms, such as current standard contractual clauses or, if approved in the future, an EU—UK privacy shield similar to the current framework in place between the EU and the U.S. The extensive authority of UK intelligence and law enforcement agencies, including to conduct

 

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surveillance on personal data flows, could reduce the likelihood that the EC would give the UK an adequacy finding, and reduce the likelihood that the EC would approve an EU—UK privacy shield. Accordingly, resTORbio would be exposed to legal risk for any of resTORbio’s EU-UK personal data transfers, including those that involve sensitive data such as patient and genetic data.

Even if resTORbio, or any future collaborators, obtain regulatory approvals for resTORbio’s product candidates, the terms of approvals and ongoing regulation of resTORbio’s products may limit how resTORbio manufactures and markets resTORbio’s products, which could impair resTORbio’s ability to generate revenue.

Once regulatory approval has been granted, an approved product and its manufacturer and marketer are subject to ongoing review and extensive regulation. resTORbio, and any future collaborators, must therefore comply with requirements concerning advertising and promotion for any of resTORbio’s product candidates for which resTORbio or its future collaborators obtain regulatory approval. Promotional communications with respect to prescription drugs are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product’s approved labeling. Thus, resTORbio and any future collaborators will not be able to promote any products resTORbio develops for indications or uses for which they are not approved.

In addition, manufacturers of approved products and those manufacturers’ facilities are required to comply with extensive FDA requirements, including ensuring that quality control and manufacturing procedures conform to cGMPs, which include requirements relating to quality control and quality assurance as well as the corresponding maintenance of records and documentation and reporting requirements. resTORbio, resTORbio’s contract manufacturers, any future collaborators and their contract manufacturers could be subject to periodic unannounced inspections by the FDA to monitor and ensure compliance with cGMPs. Despite resTORbio’s efforts to inspect and verify regulatory compliance, one or more of resTORbio’s third-party manufacturing vendors may be found on regulatory inspection by FDA or other authorities to be not in compliance with cGMP regulations, which may result in shutdown of the third-party vendor or invalidation of drug product lots or processes. In some cases, a product recall may be warranted or required, which would materially affect resTORbio’s ability to supply and market resTORbio’s drug products.

Accordingly, assuming resTORbio, or any future collaborators, receive regulatory approval for one or more of resTORbio’s product candidates, resTORbio, and any future collaborators, and resTORbio and their contract manufacturers will continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production, product surveillance and quality control.

If resTORbio, and any future collaborators, are not able to comply with post-approval regulatory requirements, resTORbio, and any future collaborators, could have the regulatory approvals for resTORbio’s products withdrawn by regulatory authorities and resTORbio’s, or any future collaborators’, ability to market any future products could be limited, which could adversely affect resTORbio’s ability to achieve or sustain profitability. Further, the cost of compliance with post-approval regulations may have a negative effect on resTORbio’s operating results and financial condition.

resTORbio is subject to extensive government regulation and the failure to comply with these regulations may have a material adverse effect on resTORbio’s operations and business.

Both before and after approval of any product, resTORbio and its suppliers, contract manufacturers and clinical investigators are subject to extensive regulation by governmental authorities in the United States and other countries, covering, among other things, testing, manufacturing, quality control, clinical trials, post-marketing studies, labeling, advertising, promotion, distribution, import and export, governmental pricing, price reporting and rebate requirements. Failure to comply with applicable requirements could result in one or more of the following actions: warning or untitled letters; unanticipated expenditures; delays in approval or refusal to approve a product candidate; voluntary product recall; product seizure; interruption of manufacturing or clinical

 

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trials; operating or marketing restrictions; injunctions; criminal prosecution and civil or criminal penalties including fines and other monetary penalties; exclusion from federal health care programs such as Medicare and Medicaid; adverse publicity; and disruptions to resTORbio’s business. Further, government investigations into potential violations of these laws would require resTORbio to expend considerable resources and face adverse publicity and the potential disruption of resTORbio’s business even if resTORbio is ultimately found not to have committed a violation.

Obtaining FDA approval of resTORbio’s product candidates requires substantial time, effort and financial resources and may be subject to both expected and unforeseen delays, and there can be no assurance that any approval will be granted for any of resTORbio’s product candidates on a timely basis, if at all. The FDA may decide that resTORbio’s data are insufficient for approval of resTORbio’s product candidates and require additional preclinical, clinical or other studies or additional work related to chemistry, manufacturing and controls. In addition, resTORbio, the FDA, IRBs or independent ethics committees may suspend or terminate human clinical trials at any time on various grounds, including a finding that the patients are or would be exposed to an unacceptable health risk or because of the way in which the investigators on which resTORbio relies to carry out the trials. If resTORbio is required to conduct additional trials or to conduct other testing of resTORbio’s product candidates beyond that which resTORbio currently contemplates for regulatory approval, if resTORbio is unable to complete successfully its clinical trials or other testing, or if the results of these and other trials or tests fail to demonstrate efficacy or raise safety concerns, resTORbio may face substantial additional expenses, be delayed in obtaining regulatory approval for its product candidates or may never obtain regulatory approval.

resTORbio is also required to comply with extensive governmental regulatory requirements after a product has received marketing authorization. Governing regulatory authorities may require post-marketing studies that may negatively impact the commercial viability of a product. Once on the market, a product may become associated with previously undetected adverse effects and/or may experience manufacturing or other commercial difficulties. As a result of any of these or other problems, a product’s regulatory approval could be withdrawn, suspended or modified which could harm resTORbio’s business and operating results.

Any of resTORbio’s product candidates for which resTORbio, or any future collaborators, obtain regulatory approval in the future will be subject to ongoing obligations and continued regulatory review, which may result in significant additional expense. If approved, resTORbio’s product candidates could be subject to post-marketing restrictions or withdrawal from the market and resTORbio, or any future collaborators, may be subject to substantial penalties if resTORbio, or future collaborators, fail to comply with regulatory requirements or if resTORbio, or future collaborators, experience unanticipated problems with resTORbio’s products following approval.

Any of resTORbio’s product candidates for which resTORbio, or any future collaborators, obtain regulatory approval, as well as the manufacturing processes, post-approval studies, labeling, advertising and promotional activities for such product, among other things, will be subject to ongoing requirements of and review by the FDA, EMA and other regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, registration and listing requirements, requirements relating to manufacturing, quality control, quality assurance and corresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians and recordkeeping. resTORbio and resTORbio’s contract manufacturers will also be subject to user fees and periodic inspection by the FDA, EMA and other regulatory authorities to monitor compliance with these requirements and the terms of any product approval resTORbio may obtain. Even if regulatory approval of a product candidate is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed or to the conditions of approval, including the requirement to implement a REMS.

The FDA, EMA and other regulatory authorities may also impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of a product. The FDA and other agencies,

 

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including the Department of Justice, closely regulate and monitor the post-approval marketing and promotion of products to ensure that they are manufactured, marketed and distributed only for the approved indications and in accordance with the provisions of the approved labeling. The FDA imposes stringent restrictions on manufacturers’ communications regarding off-label use and if resTORbio, or any future collaborators, do not market any of resTORbio’s product candidates for which resTORbio, or they, receive regulatory approval for only their approved indications, resTORbio, or they, may be subject to warnings or enforcement action for off-label marketing if it is alleged that resTORbio is doing so. Violation of the Federal Food, Drug and Cosmetic Act, or FDCA, and other statutes relating to the promotion and advertising of prescription drugs may lead to investigations or allegations of violations of federal and state health care fraud and abuse laws and state consumer protection laws, including the False Claims Act.

In addition, later discovery of previously unknown adverse events or other problems with resTORbio’s products or their manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may yield various results, including:

 

   

restrictions on the manufacturing of such products;

 

   

restrictions on the labeling or marketing of such products;

 

   

restrictions on product distribution or use;

 

   

requirements to conduct post-marketing studies or clinical trials;

 

   

warning letters or untitled letters;

 

   

withdrawal of the products from the market;

 

   

refusal to approve pending applications or supplements to approved applications that resTORbio submits;

 

   

recall of products;

 

   

restrictions on coverage by third-party payors;

 

   

fines, restitution or disgorgement of profits or revenues;

 

   

exclusion from federal health care programs such as Medicare and Medicaid;

 

   

suspension or withdrawal of regulatory approvals;

 

   

refusal to permit the import or export of products;

 

   

product seizure; or

 

   

injunctions or the imposition of civil or criminal penalties.

The efforts of the current administration to pursue regulatory reform may limit FDA’s ability to engage in oversight and implementation activities in the normal course, and that could negatively impact resTORbio’s business.

The policies of the FDA and of other regulatory authorities may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of resTORbio’s product candidates. resTORbio cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative or executive action, either in the United States or abroad. For example, certain policies of the current administration may impact resTORbio’s business and industry. Namely, the current administration has taken several executive actions, including the issuance of a number of executive orders, that could impose significant burdens on, or otherwise materially delay, the FDA’s ability to engage in routine regulatory and oversight activities such as implementing statutes through rulemaking, issuance of guidance, and review and approval of marketing applications. On January 30, 2017, President Trump issued an executive order,

 

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applicable to all executive agencies, including the FDA, that requires that for each notice of proposed rulemaking or final regulation to be issued in fiscal year 2017, the agency shall identify at least two existing regulations to be repealed, unless prohibited by law. These requirements are referred to as the “two-for-one” provisions. This executive order includes a budget neutrality provision that requires the total incremental cost of all new regulations in the 2017 fiscal year, including repealed regulations, to be no greater than zero, except in limited circumstances. For fiscal years 2018 and beyond, the executive order requires agencies to identify regulations to offset any incremental cost of a new regulation. In interim guidance issued by the Office of Information and Regulatory Affairs within OMB on February 2, 2017, the administration indicates that the “two-for-one” provisions may apply not only to agency regulations, but also to significant agency guidance documents, and on September 8, 2017, the FDA published notices in the Federal Register soliciting broad public comment to identify regulations that could be modified in compliance with these Executive Orders. It is difficult to predict how these requirements will be implemented, and the extent to which they will impact the FDA’s ability to exercise its regulatory authority. If these executive actions impose constraints on FDA’s ability to engage in oversight and implementation activities in the normal course, resTORbio’s business may be negatively impacted.

resTORbio’s relationships with healthcare providers, physicians and third-party payors will be subject to applicable anti-kickback, fraud and abuse, privacy and transparency and other healthcare laws and regulations, which could expose resTORbio to criminal sanctions, civil penalties, exclusion from government healthcare programs, contractual damages, reputational harm and diminished profits and future earnings.

Healthcare providers, physicians and third-party payors will play a primary role in the recommendation and prescription of any products for which resTORbio obtains regulatory approval. resTORbio’s future arrangements with third party payors, healthcare providers and physicians may expose resTORbio to broadly applicable fraud and abuse and other healthcare laws and regulations, in addition to legal obligations related to privacy, data protection and information security, that may constrain the business or financial arrangements and relationships through which resTORbio conducts its operations, including how resTORbio researches, markets, sells and distributes any products for which resTORbio obtains regulatory approval. These include the following:

 

   

Anti-Kickback Statute-The federal healthcare anti-kickback statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, order or recommendation or arranging of, any good or service, for which payment may be made under a federal healthcare program such as Medicare and Medicaid. A person or entity can be found guilty of violating the federal Anti-Kickback Statute without actual knowledge of the statute or specific intent to violate it in order to have committed a violation. In addition, the government may assert that a claim including items or services resulting from a violation of the Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act or federal civil money penalties statute;

 

   

False Claims Act-The federal False Claims Act imposes criminal and civil penalties, including through civil whistleblower or qui tam actions, against individuals or entities for, among other things, knowingly presenting, or causing to be presented false or fraudulent claims for payment by a federal healthcare program; making a false statement or record material to a false or fraudulent claim or an obligation to pay money to the federal government; or avoiding, decreasing or concealing an obligation to pay money to the federal government. A claim that includes items or services resulting from a violation of the Anti-Kickback Statute constitutes a false or fraudulent claim under the False Claims Act. Potential liability for violating the False Claims Act includes mandatory treble damages and significant per-claim penalties;

 

   

HIPAA-The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters. Similar to the Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have

 

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committed a violation. In addition, HIPAA and, as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations, also imposes obligations on covered entities and their business associates, including mandatory contractual terms and technical safeguards, with respect to maintaining the privacy, security and transmission of individually identifiable health information;

 

   

Transparency Requirements-Federal laws require applicable manufacturers of covered drugs to report payments and other transfers of value to physicians, including doctors, dentists, optometrists, podiatrists and chiropractors, and teaching hospitals, as well as information regarding ownership and investment interests held by the physicians described above and their immediate family members. Effective January 1, 2022, these reporting obligations will extend to include transfers of value made to certain non-physician providers such as physician assistants and nurse practitioners;

 

   

Analogous State and Foreign Laws-Analogous state and foreign fraud and abuse laws and regulations, such as state anti-kickback and false claims laws, can apply to resTORbio’s business practices, including but not limited to research, distribution, sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third party payors and are generally broad and are enforced by many different federal and state agencies as well as through private actions; and

 

   

European Privacy Laws-The data privacy regime in the EU imposes obligations and restrictions on the collection and use of personal data relating to individuals located in the EU and includes the GDPR, and any national laws implementing or supplementing the GDPR. If resTORbio does not comply with resTORbio’s obligations under the EU privacy regime, resTORbio could be exposed to significant fines and resTORbio may be the subject of litigation and/or adverse publicity, which could have material adverse effect on resTORbio’s reputation and business.

Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government and require manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures and pricing information. State and foreign laws also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not pre-empted by HIPAA, thus complicating compliance efforts.

Efforts to ensure that resTORbio’s business arrangements with third parties, and resTORbio’s business generally, will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that resTORbio’s business practices may not comply with current or future statutes, regulations, agency guidance or case law involving applicable fraud and abuse or other healthcare laws and regulations. If resTORbio’s operations are found to be in violation of any of these laws or any other governmental regulations that may apply to resTORbio, resTORbio may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of resTORbio’s operations. Defending against any such actions can be costly, time-consuming and may require significant financial and personnel resources. Therefore, even if resTORbio is successful in defending against any such actions that may be brought against resTORbio, resTORbio’s business may be impaired. If any of the physicians or other healthcare providers or entities with whom resTORbio expects to do business is found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.

The provision of benefits or advantages to physicians to induce or encourage the prescription, recommendation, endorsement, purchase, supply, order or use of medicinal products is generally not permitted in the countries that form part of the EU. Some EU Member States, like the United Kingdom, through the United Kingdom Bribery Act 2010, have enacted laws explicitly prohibiting the provision of these type of benefits and advantages. Infringements of these laws can result in substantial fines and imprisonment.

 

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Payments made to physicians in certain EU Member States (e.g., France or Belgium) must be publicly disclosed. Moreover, agreements with physicians often must be the subject of prior notification and approval by the physician’s employer, his or her competent professional organization and/or the regulatory authorities of the individual EU Member States. These requirements are provided in the EU Member State national laws, industry codes (e.g. the European Federation of Pharmaceutical Industries and Associations Disclosure and Healthcare Professionals Codes) or professional codes of conduct. Failure to comply with these requirements could result in reputational risk, public reprimands, administrative penalties, fines or imprisonment.

resTORbio is subject to governmental regulation and other legal obligations, particularly related to privacy, data protection and information security, and resTORbio is subject to consumer protection laws that regulate resTORbio’s marketing practices and prohibit unfair or deceptive acts or practices. resTORbio’s actual or perceived failure to comply with such obligations could harm resTORbio’s business.

The EU General Data Protection Regulation, or GDPR, imposes strict requirements on controllers and processors of personal data, including special protections for “special category data,” which includes health, biometric and genetic information of data subjects located in the EU. Further, GDPR provides a broad right for EU Member States to create supplemental national laws, such as laws relating to the processing of health, genetic and biometric data, which could further limit resTORbio’s ability to use and share such data or could cause resTORbio’s costs to increase, and harm resTORbio’s business and financial condition. GDPR grants individuals the opportunity to object to the processing of their personal information, allows them to request deletion of personal information in certain circumstances, and provides the individual with an express right to seek legal remedies in the event the individual believes his or her rights have been violated. Further, the GDPR imposes strict rules on the transfer of personal data out of the EU to the United States or other regions that have not been deemed to offer “adequate” privacy protections.

Failure to comply with the requirements of the GDPR and the related national data protection laws of the EU Member States, which may deviate slightly from the GDPR, may result in fines of up to 4% of global revenues, or €20,000,000, whichever is greater, and in addition to such fines, resTORbio may be the subject of litigation and/or adverse publicity, which could have material adverse effect on resTORbio’s reputation and business. As a result of the implementation of the GDPR, resTORbio is required to put in place additional mechanisms to ensure compliance with the new data protection rules. For example, the GDPR requires resTORbio to make more detailed disclosures to data subjects, requires disclosure of the legal basis on which resTORbio can process personal data, may make it harder for resTORbio to obtain valid consent for processing, will require the appointment of a data protection officer where sensitive personal data (i.e., health data) is processed on a large scale, introduces mandatory data breach notification requirements throughout the EU, imposes additional obligations on resTORbio when resTORbio is contracting with service providers and requires resTORbio to adopt appropriate privacy governance including policies, procedures, training and data audit.

resTORbio is subject to the supervision of local data protection authorities in those jurisdictions where resTORbio monitors the behavior of individuals in the EU (i.e., undertaking clinical trials).

resTORbio is also subject to evolving European privacy laws on electronic marketing and cookies. The EU is in the process of replacing the e-Privacy Directive (2002/58/EC) with a new set of rules taking the form of a regulation, which will be directly implemented in the laws of each EU state, without the need for further enactment. While the e-Privacy Regulation was originally intended to be adopted on May 25, 2018 (alongside the GDPR), it is still going through the European legislative process. Draft regulations were rejected by the Permanent Representatives Committee of the Council of EU on November 22, 2019; it is not clear when new regulations will be adopted.

 

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Current and future legislation may increase the difficulty and cost for resTORbio and any collaborators to obtain regulatory approval of and commercialize resTORbio’s product candidates and affect the prices resTORbio, or future collaborators, may obtain.

In the United States and foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay regulatory approval of resTORbio’s product candidates, restrict or regulate post-approval activities and affect resTORbio’s ability to profitably sell any product candidates for which resTORbio obtains regulatory approval. resTORbio expects that current laws, as well as other healthcare reform measures that may be adopted in the future, may result in additional reductions in Medicare and other healthcare funding, more rigorous coverage criteria, new payment methodologies and additional downward pressure on the price that resTORbio, or any collaborators, may receive for any approved products.

In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively the Affordable Care Act. Among the provisions of the Affordable Care Act of potential importance to resTORbio’s business and resTORbio’s product candidates are the following:

 

   

an annual, non-deductible fee on any entity that manufactures or imports specified branded prescription products and biologic products;

 

   

an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program;

 

   

a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for products that are inhaled, infused, instilled, implanted or injected;

 

   

expansion of healthcare fraud and abuse laws, including the civil False Claims Act and the federal Anti-Kickback Statute, new government investigative powers and enhanced penalties for noncompliance;

 

   

a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 70% point-of-sale discounts (increased pursuant to the Bipartisan Budget Act of 2018, effective as of 2019) off negotiated prices of applicable brand products to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient products to be covered under Medicare Part D;

 

   

extension of manufacturers’ Medicaid rebate liability to individuals enrolled in Medicaid managed care organizations;

 

   

expansion of eligibility criteria for Medicaid programs;

 

   

expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program;

 

   

new requirements to report certain financial arrangements with physicians and teaching hospitals;

 

   

a new requirement to annually report product samples that manufacturers and distributors provide to physicians;

 

   

a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research; and

 

   

established the Center for Medicare and Medicaid Innovation within CMS to test innovative payment and service delivery models.

Since its enactment, there have been numerous judicial, administrative, executive, and legislative challenges to certain aspects of the Affordable Care Act, and resTORbio expects there will be additional challenges and

 

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amendments to the Affordable Care Act in the future. Various portions of the Affordable Care Act are currently undergoing legal and constitutional challenges in the Fifth Circuit Court and the United States Supreme Court; the Trump Administration has issued various Executive Orders which eliminated cost sharing subsidies and various provisions that would impose a fiscal burden on states or a cost, fee, tax, penalty or regulatory burden on individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices; and Congress has introduced several pieces of legislation aimed at significantly revising or repealing the Affordable Care Act. It is unclear whether the Affordable Care Act will be overturned, repealed, replaced, or further amended. resTORbio cannot predict what affect further changes to the Affordable Care Act would have on resTORbio’s business.

In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. In August 2011, the Budget Control Act of 2011, among other things, included aggregate reductions to Medicare payments to providers of 2% per fiscal year, which went into effect in April 2013 and will remain in effect through 2029 unless additional Congressional action is taken. The American Taxpayer Relief Act of 2012, among other things, reduced Medicare payments to several providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These laws may result in additional reductions in Medicare and other healthcare funding and otherwise affect the prices resTORbio may obtain for any of resTORbio’s product candidates for which resTORbio may obtain regulatory approval or the frequency with which any such product candidate is prescribed or used.

The costs of prescription pharmaceuticals in the United States has also been the subject of considerable discussion in the United States, and members of Congress and the Trump Administration have stated that they will address such costs through new legislative and administrative measures. There have been several U.S. Congressional inquiries and proposed and enacted state legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, reduce the costs of drugs under Medicare and reform government program reimbursement methodologies for drug products. At the federal level, Congress and the Trump administration have each indicated that it will continue to pursue new legislative and/or administrative measures to control drug costs. The Trump administration recently released a plan, or Blueprint, to reduce the cost of drugs. The Trump administrations’ Blueprint contains certain measures that the U.S. Department of Health and Human Services is already working to implement.

Individual state legislatures have become increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing. Some of these measures include price or patient reimbursement constraints, discounts, restrictions on certain product access, marketing cost disclosure and transparency measures, and, in some cases, measures designed to encourage importation from other countries and bulk purchasing. In addition, regional health care authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other health care programs. These measures could reduce the ultimate demand for resTORbio’s products, once approved, or put pressure on resTORbio’s product pricing.

In addition, individual states in the United States have also become increasingly active in passing legislation and implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access, and to encourage importation from other countries and bulk purchasing.

The pricing of prescription pharmaceuticals is also subject to governmental control outside the United States. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of regulatory approval for a product. To obtain reimbursement or pricing approval in some countries, resTORbio may be required to conduct a clinical trial that compares the cost-effectiveness of resTORbio’s product candidates to other available therapies. If reimbursement of resTORbio’s products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, resTORbio’s ability to generate revenues and become profitable could be impaired.

 

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Governments outside the United States may impose strict price controls, which may adversely affect resTORbio’s revenues, if any.

In some countries, including Member States of the EU, the pricing of prescription drugs is subject to governmental control. Additional countries may adopt similar approaches to the pricing of prescription drugs. In such countries, pricing negotiations with governmental authorities can take considerable time after receipt of regulatory approval for a product. In addition, there can be considerable pressure by governments and other stakeholders on prices and reimbursement levels, including as part of cost containment measures. Political, economic and regulatory developments may further complicate pricing negotiations, and pricing negotiations may continue after coverage and reimbursement have been obtained. Reference pricing used by various countries and parallel distribution, or arbitrage between low-priced and high-priced countries, can further reduce prices. In some countries, resTORbio may be required to conduct a clinical study or other studies that compare the cost-effectiveness of any of resTORbio’s product candidates to other available therapies in order to obtain or maintain reimbursement or pricing approval, which is time-consuming and costly. resTORbio cannot be sure that such prices and reimbursement will be acceptable to resTORbio or resTORbio’s strategic partners. Publication of discounts by third-party payors or authorities may lead to further pressure on the prices or reimbursement levels within the country of publication and other countries. If pricing is set at unsatisfactory levels or if reimbursement of resTORbio’s products is unavailable or limited in scope or amount, resTORbio’s revenues from sales by resTORbio or resTORbio’s strategic partners and the potential profitability of any of resTORbio’s product candidates in those countries would be negatively affected.

Laws and regulations governing any international operations resTORbio may have in the future may preclude resTORbio from developing, manufacturing and selling certain products outside of the United States and require resTORbio to develop and implement costly compliance programs.

If resTORbio further expands its operations outside of the United States, resTORbio must dedicate additional resources to comply with numerous laws and regulations in each jurisdiction in which resTORbio plans to operate. The Foreign Corrupt Practices Act, or FCPA, prohibits any U.S. individual or business from paying, offering, authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to comply with certain accounting provisions requiring resTORbio to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations.

Compliance with the FCPA is expensive and difficult, particularly in countries in which corruption is a recognized problem. In addition, the FCPA presents particular challenges in the pharmaceutical industry, because, in many countries, hospitals are operated by the government, and doctors and other hospital employees are considered foreign officials. Certain payments to hospitals in connection with clinical trials and other work have been deemed to be improper payments to government officials and have led to FCPA enforcement actions.

Various laws, regulations and executive orders also restrict the use and dissemination outside of the United States, or the sharing with certain non-U.S. nationals, of information classified for national security purposes, as well as certain products and technical data relating to those products. If resTORbio expands its presence outside of the United States, it will require resTORbio to dedicate additional resources to comply with these laws, and these laws may preclude resTORbio from developing, manufacturing, or selling certain products and product candidates outside of the United States, which could limit resTORbio’s growth potential and increase resTORbio’s development costs.

The failure to comply with laws governing international business practices may result in substantial civil and criminal penalties and suspension or debarment from government contracting. The Securities and Exchange

 

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Commission, or SEC, also may suspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA’s accounting provisions.

If resTORbio fails to comply with environmental, health and safety laws and regulations, resTORbio could become subject to fines or penalties or incur costs that could harm resTORbio’s business.

resTORbio is subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. From time to time and in the future, resTORbio’s operations may involve the use of hazardous and flammable materials, including chemicals and biological materials, and may also produce hazardous waste products. Even if resTORbio contracts with third parties for the disposal of these materials and waste products, resTORbio cannot completely eliminate the risk of contamination or injury resulting from these materials. In the event of contamination or injury resulting from the use or disposal of resTORbio’s hazardous materials, resTORbio could be held liable for any resulting damages, and any liability could exceed resTORbio’s resources. resTORbio also could incur significant costs associated with civil or criminal fines and penalties for failure to comply with such laws and regulations.

resTORbio maintains workers’ compensation insurance to cover resTORbio for costs and expenses resTORbio may incur due to injuries to its employees, but this insurance may not provide adequate coverage against potential liabilities. However, resTORbio does not maintain insurance for environmental liability or toxic tort claims that may be asserted against resTORbio.

In addition, resTORbio may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. Current or future environmental laws and regulations may impair resTORbio’s research, development or production efforts. In addition, failure to comply with these laws and regulations may result in substantial fines, penalties or other sanctions.

The anticipated phasing out of LIBOR in the future may adversely affect the value of any outstanding debt instruments.

National and international regulators and law enforcement agencies have conducted investigations into a number of rates or indices known as “reference rates.” Actions by such regulators and law enforcement agencies may result in changes to the manner in which certain reference rates are determined, their discontinuance, or the establishment of alternative reference rates. In particular, in July 2017, the Chief Executive of the U.K. Financial Conduct Authority, or FCA, which regulates LIBOR, announced that the FCA will no longer persuade or compel banks to submit rates for the calculation of LIBOR after 2021. Such announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021. As a result, it appears highly likely that LIBOR will be discontinued or modified by 2021.

At this time, it is not possible to predict the effect that these developments, any discontinuance, modification or other reforms to LIBOR or any other reference rate, or the establishment of alternative reference rates may have on LIBOR, other benchmarks, or LIBOR-based debt instruments. Uncertainty as to the nature of such potential discontinuance, modification, alternative reference rates or other reforms may materially adversely affect the trading market for securities linked to such benchmarks. Furthermore, the use of alternative reference rates or other reforms could cause the interest rate calculated for the LIBOR-based debt instruments to be materially different than expected.

Risks Related to resTORbio’s Intellectual Property

resTORbio’s commercial success depends on resTORbio’s ability to protect resTORbio’s intellectual property and proprietary technology.

resTORbio’s commercial success depends in large part on resTORbio’s ability to obtain and maintain intellectual property rights protection through patents, trademarks, and trade secrets in the United States and other countries

 

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with respect to resTORbio’s proprietary product candidates. If resTORbio does not adequately protect resTORbio’s intellectual property rights, competitors may be able to erode, negate or preempt any competitive advantage resTORbio may have, which could harm resTORbio’s business and ability to achieve profitability. To protect resTORbio’s proprietary position, resTORbio has patent applications and may file other patent applications in the United States or abroad related to resTORbio’s product candidates that are important to resTORbio’s business; resTORbio may also license or purchase patent applications filed by others. The patent application and approval process is expensive and time-consuming. resTORbio may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner.

Agreements through which resTORbio licenses patent rights may not give resTORbio control over patent prosecution or maintenance, so that resTORbio may not be able to control which claims or arguments are presented, how claims are amended, and may not be able to secure, maintain, or successfully enforce necessary or desirable patent protection from those patent rights. resTORbio has not had and do not have primary control over patent prosecution and maintenance for certain of the patents and patent applications resTORbio licenses, and therefore cannot guarantee that these patents and applications will be prosecuted or maintained in a manner consistent with the best interests of resTORbio’s business. resTORbio cannot be certain that patent prosecution and maintenance activities by resTORbio’s licensors have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents.

If the scope of the patent protection resTORbio or its licensors obtain is not sufficiently broad, resTORbio may not be able to prevent others from developing and commercializing technology and products similar or identical to ours. The degree of patent protection resTORbio requires to successfully compete in the marketplace may be unavailable or severely limited in some cases and may not adequately protect resTORbio’s rights or permit resTORbio to gain or keep any competitive advantage. resTORbio cannot provide any assurances that any of resTORbio’s licensed patents have, or that any of resTORbio’s pending owned or licensed patent applications that mature into issued patents will include, claims with a scope sufficient to protect resTORbio’s proprietary platform or otherwise provide any competitive advantage, nor can resTORbio assure you that resTORbio’s licenses are or will remain in force. Other parties have developed or may develop technologies that may be related or competitive with resTORbio’s approach, and may have filed or may file patent applications and may have been issued or may be issued patents with claims that overlap or conflict with resTORbio’s patent applications, either by claiming the same compounds, formulations or methods or by claiming subject matter that could dominate resTORbio’s patent position. In addition, the laws of foreign countries may not protect resTORbio’s rights to the same extent as the laws of the United States. Furthermore, patents have a limited lifespan. In the United States, the natural expiration of a patent is generally twenty years after it is filed. Various extensions may be available; however, the life of a patent, and the protection it affords, is limited. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, resTORbio’s patent portfolio may not provide resTORbio with adequate and continuing patent protection sufficient to exclude others from commercializing products similar to resTORbio’s product candidates. In addition, the patent portfolio licensed to resTORbio is, or may be, licensed to third parties, such as outside resTORbio’s field, and such third parties may have certain enforcement rights. Thus, patents licensed to resTORbio could be put at risk of being invalidated or interpreted narrowly in litigation filed by or against another licensee or in administrative proceedings brought by or against another licensee in response to such litigation or for other reasons.

Even if they are unchallenged, resTORbio’s owned and licensed patents and pending patent applications, if issued, may not provide resTORbio with any meaningful protection or prevent competitors from designing around resTORbio’s patent claims to circumvent resTORbio’s patents by developing similar or alternative technologies or therapeutics in a non-infringing manner. For example, a third party may develop a competitive therapy that provides benefits similar to one or more of resTORbio’s product candidates but falls outside the scope of resTORbio’s patent protection or license rights. If the patent protection provided by the patents and patent applications resTORbio holds or pursues with respect to its product candidates is not sufficiently broad to

 

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impede such competition, resTORbio’s ability to successfully commercialize resTORbio’s product candidates could be negatively affected, which would harm resTORbio’s business. Currently, a significant portion of resTORbio’s patents and patent applications are in-licensed, though similar risks would apply to any patents or patent applications that resTORbio now owns or may own or in-license in the future.

resTORbio, or any future partners, collaborators, or licensees, may fail to identify patentable aspects of inventions made in the course of development and commercialization activities before it is too late to obtain patent protection on them. Therefore, resTORbio may miss potential opportunities to strengthen its patent position.

It is possible that defects of form in the preparation or filing of resTORbio’s patents or patent applications may exist, or may arise in the future, for example with respect to proper priority claims, inventorship, claim scope, or requests for patent term adjustments. If resTORbio or its partners, collaborators, licensees, or licensors, whether current or future, fail to establish, maintain or protect such patents and other intellectual property rights, such rights may be reduced or eliminated. If resTORbio’s partners, collaborators, licensees, or licensors, are not fully cooperative or disagree with resTORbio as to the prosecution, maintenance or enforcement of any patent rights, such patent rights could be compromised. If there are material defects in the form, preparation, prosecution, or enforcement of resTORbio’s patents or patent applications, such patents may be invalid and/or unenforceable, and such applications may never result in valid, enforceable patents. Any of these outcomes could impair resTORbio’s ability to prevent competition from third parties, which may have an adverse impact on resTORbio’s business.

The patent position of biotechnology and pharmaceutical companies carries uncertainty. In addition, the determination of patent rights with respect to pharmaceutical compounds commonly involves complex legal and factual questions, which are dependent upon the current legal and intellectual property context, extant legal precedent and interpretations of the law by individuals. As a result, the issuance, scope, validity, enforceability and commercial value of resTORbio’s patent rights are characterized by uncertainty.

Pending patent applications cannot be enforced against third parties practicing the technology claimed in such applications unless and until a patent issues from such applications. Assuming the other requirements for patentability are met, currently, the first to file a patent application is generally entitled to the patent. However, prior to March 16, 2013, in the United States, the first to invent was entitled to the patent. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are not published until 18 months after filing, or in some cases not at all. Therefore, resTORbio cannot be certain that resTORbio was the first to make the inventions claimed in resTORbio’s patents or pending patent applications, or that resTORbio was the first to file for patent protection of such inventions. Similarly, resTORbio cannot be certain that parties from whom resTORbio does or may license or purchase patent rights were the first to make relevant claimed inventions, or were the first to file for patent protection for them. If third parties have filed prior patent applications on inventions claimed in resTORbio’s patents or applications that were filed on or before March 15, 2013, an interference proceeding in the United States can be initiated by such third parties to determine who was the first to invent any of the subject matter covered by the patent claims of resTORbio’s applications. If third parties have filed such prior applications after March 15, 2013, a derivation proceeding in the United States can be initiated by such third parties to determine whether resTORbio’s invention was derived from theirs.

Moreover, because the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, resTORbio’s patents or pending patent applications may be challenged in the courts or patent offices in the United States and abroad. There is no assurance that all of the potentially relevant prior art relating to resTORbio’s patents and patent applications has been found. If such prior art exists, it may be used to invalidate a patent, or may prevent a patent from issuing from a pending patent application. For example, such patent filings may be subject to a third-party submission of prior art to the U.S. Patent and Trademark Office, or USPTO, or to other patent offices around the world. Alternately or additionally, resTORbio may become

 

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involved in post-grant review procedures, oppositions, derivation proceedings, ex parte reexaminations, inter partes review, supplemental examinations, or interference proceedings or challenges in district court, in the United States or in various foreign patent offices, including both national and regional, challenging patents or patent applications in which resTORbio has rights, including patents on which resTORbio relies to protect its business. An adverse determination in any such challenges may result in loss of the patent or in patent or patent application claims being narrowed, invalidated or held unenforceable, in whole or in part, or in denial of the patent application or loss or reduction in the scope of one or more claims of the patent or patent application, any of which could limit resTORbio’s ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of resTORbio’s technology and products. In addition, given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized.

Pending and future patent applications may not result in patents being issued that protect resTORbio’s business, in whole or in part, or which effectively prevent others from commercializing competitive products. Competitors may also be able to design around resTORbio’s patents. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of resTORbio’s patents or narrow the scope of resTORbio’s patent protection. In addition, the laws of foreign countries may not protect resTORbio’s rights to the same extent or in the same manner as the laws of the United States. For example, patent laws in various jurisdictions, including significant commercial markets such as Europe, restrict the patentability of methods of treatment of the human body more than United States law does. If these developments were to occur, they could have a material adverse effect on resTORbio’s ability to generate revenue.

The patent application process is subject to numerous risks and uncertainties, and there can be no assurance that resTORbio or any of its future development partners will be successful in protecting resTORbio’s product candidates by obtaining and defending patents. These risks and uncertainties include the following:

 

   

the USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions during the patent process. There are situations in which noncompliance can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than would otherwise have been the case;

 

   

patent applications may not result in any patents being issued;

 

   

patents that may be issued or in-licensed may be challenged, invalidated, modified, revoked, circumvented, found to be unenforceable or otherwise may not provide any competitive advantage;

 

   

resTORbio’s competitors, many of whom have substantially greater resources and many of whom have made significant investments in competing technologies, may seek or may have already obtained patents that will limit, interfere with or eliminate resTORbio’s ability to make, use, and sell resTORbio’s potential product candidates;

 

   

there may be significant pressure on the U.S. government and international governmental bodies to limit the scope of patent protection both inside and outside the United States for disease treatments that prove successful, as a matter of public policy regarding worldwide health concerns; and

 

   

countries other than the United States may have patent laws less favorable to patentees than those upheld by U.S. courts, allowing foreign competitors a better opportunity to create, develop and market competing product candidates.

Issued patents that resTORbio has or may obtain or license may not provide resTORbio with any meaningful protection, prevent competitors from competing with resTORbio or otherwise provide resTORbio with any competitive advantage. resTORbio’s competitors may be able to circumvent resTORbio’s patents by developing similar or alternative technologies or products in a non-infringing manner. resTORbio’s competitors may also

 

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seek approval to market their own products similar to or otherwise competitive with resTORbio’s products. Alternatively, resTORbio’s competitors may seek to market generic versions of any approved products by submitting ANDAs to the FDA in which they claim that patents owned or licensed by resTORbio are invalid, unenforceable or not infringed. In these circumstances, resTORbio may need to defend or assert its patents, or both, including by filing lawsuits alleging patent infringement. In any of these types of proceedings, a court or other agency with jurisdiction may find resTORbio’s patents invalid or unenforceable, or that resTORbio’s competitors are competing in a non-infringing manner. Thus, even if resTORbio has valid and enforceable patents, these patents still may not provide protection against competing products or processes sufficient to achieve resTORbio’s business objectives.

In addition, resTORbio relies on the protection of its trade secrets and proprietary, unpatented know-how. Although resTORbio has taken steps to protect its trade secrets and unpatented know-how, including entering into confidentiality agreements with third parties, and confidential information and invention assignment agreements with employees, consultants, collaborators, vendors, and advisors, resTORbio cannot provide any assurances that all such agreements have been duly executed, and third parties may still obtain this information or may come upon this or similar information independently. It is possible that technology relevant to resTORbio’s business will be independently developed by a person who is not a party to such a confidentiality or invention assignment agreement. resTORbio may not be able to prevent the unauthorized disclosure or use of resTORbio’s technical knowledge or trade secrets by consultants, collaborators, vendors, advisors, former employees and current employees. Furthermore, if the parties to resTORbio’s confidentiality agreements breach or violate the terms of these agreement, resTORbio may not have adequate remedies for any such breach or violation, and resTORbio could lose its trade secrets as a consequence of such breaches or violations. resTORbio’s trade secrets could otherwise become known or be independently discovered by resTORbio’s competitors. Additionally, if the steps taken to maintain resTORbio’s trade secrets are deemed inadequate, resTORbio may have insufficient recourse against third parties for misappropriating resTORbio’s trade secrets. If any of these events occurs or if resTORbio otherwise loses protection for resTORbio’s trade secrets or proprietary know-how, resTORbio’s business may be harmed.

resTORbio depends on intellectual property licensed from third parties and termination of any of these licenses could result in the loss of significant rights, which would harm resTORbio’s business.

In March 2017, resTORbio entered into a license agreement with Novartis, or the Novartis License, pursuant to which resTORbio was granted an exclusive, field-restricted, worldwide license to certain intellectual property rights owned or controlled by Novartis, including patents, patent applications, proprietary information, know-how and other intellectual property, to develop, commercialize and sell one or more therapeutic products comprising RTB101 or RTB101 and everolimus in a fixed dose combination.

resTORbio is dependent on these patents, know-how and proprietary technology, licensed from Novartis. Any termination of this license, or a finding that such intellectual property lacks legal effect, could result in the loss of significant rights and could harm resTORbio’s ability to commercialize any product candidates. Please see the section entitled “resTORbio Business—resTORbio Intellectual Property” on page 262 of this proxy statement/prospectus/information statement for additional information regarding resTORbio’s license agreements.

Disputes may also arise between resTORbio and resTORbio’s licensor, resTORbio’s licensor and its licensors, or resTORbio and third parties that co-own intellectual property with resTORbio’s licensor or its licensors, regarding intellectual property subject to a license agreement, including those relating to:

 

   

the scope of rights, if any, granted under the license agreement and other interpretation-related issues;

 

   

whether and the extent to which resTORbio’s technology and processes infringe on intellectual property of the licensor that is not subject to the license agreement;

 

   

whether resTORbio’s licensor or its licensor had the right to grant the license agreement;

 

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whether third parties are entitled to compensation or equitable relief, such as an injunction, for resTORbio’s use of the intellectual property without their authorization;

 

   

resTORbio’s right to sublicense patent and other rights to third parties under collaborative development relationships;

 

   

whether resTORbio is complying with resTORbio’s obligations with respect to the use of the licensed technology in relation to resTORbio’s development and commercialization of product candidates;

 

   

resTORbio’s involvement in the prosecution of the licensed patents and resTORbio’s licensors’ overall patent enforcement strategy;

 

   

the allocation of ownership of inventions and know-how resulting from the joint creation or use of intellectual property by resTORbio’s licensors and by resTORbio and resTORbio’s partners; and

 

   

the amounts of royalties, milestones or other payments due under the license agreement.

If disputes over intellectual property that resTORbio has licensed prevent or impair its ability to maintain resTORbio’s current licensing arrangements on acceptable terms, or are insufficient to provide resTORbio the necessary rights to use the intellectual property, resTORbio may be unable to successfully develop and commercialize the affected product candidates. If resTORbio or any such licensors fail to adequately protect this intellectual property, resTORbio’s ability to commercialize resTORbio’s products could suffer.

Novartis may partially terminate the license agreement with respect to everolimus if resTORbio fails or ceases for three years to use commercially reasonable efforts to research, develop and commercialize a product using everolimus, provided that resTORbio’s license related to RTB101 and Novartis’s license to resTORbio’s improvements related to everolimus will continue. Additionally, either party may terminate the Novartis License if the other party commits a material breach and fails to cure such breach within 60 days after written notice. If Novartis unilaterally terminates the Novartis License, the research and development of RTB101 or RTB101 and everolimus in a fixed dose combination would be suspended, and resTORbio may be unable to research, develop and license future product candidates.

resTORbio may be required to pay certain milestones and royalties under resTORbio’s license agreements with third-party licensors.

Under resTORbio’s current and future license agreements, resTORbio may be required to pay milestones and royalties based on resTORbio’s revenues from sales of resTORbio’s products utilizing the technologies licensed or sublicensed from Novartis or other licensors and these royalty payments could adversely affect the overall profitability for resTORbio of any products that resTORbio may seek to commercialize. In order to maintain resTORbio’s license rights under current and future license agreements, resTORbio may need to meet certain specified milestones, subject to certain cure provisions, in the development of resTORbio’s product candidates and in the raising of funding. In addition, these agreements may contain diligence milestones and resTORbio may not be successful in meeting all of the milestones in the future on a timely basis, or at all, which could result in termination of resTORbio’s rights under such agreements. resTORbio may need to outsource and rely on third parties for many aspects of the clinical development, sales and marketing of resTORbio’s products covered under resTORbio’s current and future license agreements. Delay or failure by these third parties could adversely affect the continuation of resTORbio’s license agreements with their third-party licensors.

It is difficult and costly to protect resTORbio’s intellectual property and resTORbio’s proprietary technologies, and resTORbio may not be able to ensure their protection.

resTORbio’s commercial success will depend in part on obtaining and maintaining patent protection and trade secret protection for the use, formulation and structure of resTORbio’s products and product candidates, the methods used to manufacture them, the related therapeutic targets and associated methods of treatment as well as

 

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on successfully defending these patents against potential third-party challenges. resTORbio’s ability to protect resTORbio’s products and product candidates from unauthorized making, using, selling, offering to sell or importing by third parties is dependent on the extent to which resTORbio has rights under valid and enforceable patents that cover these activities.

The patent positions of pharmaceutical, biotechnology and other life sciences companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. Changes in either the patent laws or in interpretations of patent laws in the United States and other countries may diminish the value of resTORbio’s intellectual property. Further, the determination that a patent application or patent claim meets all of the requirements for patentability is a subjective determination based on the application of law and jurisprudence. The ultimate determination by the USPTO or by a court or other trier of fact in the United States, or corresponding foreign national patent offices or courts, on whether a claim meets all requirements of patentability cannot be assured. Although resTORbio has conducted searches for third-party publications, patents and other information that may affect the patentability of claims in its various patent applications and patents, resTORbio cannot be certain that all relevant information has been identified. Accordingly, resTORbio cannot predict the breadth of claims that may be allowed or enforced in resTORbio’s owned patents or patent applications, in resTORbio’s licensed patents or patent applications or in third-party patents.

resTORbio cannot provide assurances that any of resTORbio’s patent applications will be found to be patentable, including over resTORbio’s own or resTORbio’s licensors’ prior art publications or patent literature, or will issue as patents. Neither can resTORbio make assurances as to the scope of any claims that may issue from resTORbio’s pending and future patent applications nor to the outcome of any proceedings by any potential third parties that could challenge the patentability, validity or enforceability of resTORbio’s patents and patent applications in the United States or foreign jurisdictions. Any such challenge, if successful, could limit patent protection for resTORbio’s products and product candidates and/or materially harm resTORbio’s business.

The degree of future protection for resTORbio’s proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect resTORbio’s rights or permit resTORbio to gain or keep resTORbio’s competitive advantage. For example:

 

   

resTORbio may not be able to generate sufficient data to support full patent applications that protect the entire breadth of developments in one or more of resTORbio’s programs;

 

   

it is possible that one or more of resTORbio’s pending patent applications will not become an issued patent or, if issued, that the patent(s) claims will have sufficient scope to protect resTORbio’s technology, provide resTORbio with a basis for commercially viable products or provide resTORbio with any competitive advantages;

 

   

if resTORbio’s pending applications issue as patents, they may be challenged by third parties as not infringed, invalid or unenforceable under United States or foreign laws;

 

   

if issued, the patents under which resTORbio holds rights may not be valid or enforceable;

 

   

resTORbio may not successfully commercialize RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, if approved, before resTORbio’s relevant patents expire;

 

   

resTORbio may not be the first to make the inventions covered by each of resTORbio’s patents and pending patent applications; or

 

   

resTORbio may not develop additional proprietary technologies or product candidates that are separately patentable.

In addition, to the extent that resTORbio is unable to obtain and maintain patent protection for one of resTORbio’s products or product candidates or in the event that such patent protection expires, it may no longer be cost-effective to extend resTORbio’s portfolio by pursuing additional development of a product or product candidate for follow-on indications.

 

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resTORbio also may rely on trade secrets to protect resTORbio’s technologies or products, especially where resTORbio does not believe patent protection is appropriate or obtainable. Also, resTORbio cannot provide any assurances that any of resTORbio’s licensed patents have claims with a scope sufficient to protect resTORbio’s technology or otherwise provide any competitive advantage, nor can resTORbio assure you that resTORbio’s licenses are or will remain in full force or effect, in which case resTORbio would similarly rely on trade secrets. However, trade secrets are difficult to protect. Although resTORbio uses reasonable efforts to protect its trade secrets, resTORbio’s employees, consultants, contractors, outside scientific collaborators and other advisers may unintentionally or willfully disclose resTORbio’s information to competitors. Enforcing a claim that a third-party entity illegally obtained and is using any of resTORbio’s trade secrets is expensive and time-consuming, and the outcome is unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets. Moreover, resTORbio’s competitors may independently develop equivalent knowledge, methods and know-how. Notably, proprietary technology protected by a trade secret does not preempt the patenting of independently developed equivalent technology, even if such equivalent technology is invented subsequent to the technology protected by a trade secret.

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

Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and applications are required to be paid to the USPTO and various governmental patent agencies outside of the United States in several stages over the lifetime of the patents and applications. The USPTO and various non-U.S. governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process and after a patent has issued. There are situations in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such a circumstance, competitors may be able to enter the market earlier than otherwise would be the case. Under the terms of some of resTORbio’s current and future licenses, resTORbio may not have the ability to maintain patents or prosecute patent applications in the portfolio and may therefore have to rely on third parties to comply with these requirements.

Patent terms may be inadequate to protect resTORbio’s competitive position on resTORbio’s products for an adequate amount of time.

Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. resTORbio expects to seek extensions of patent terms in the United States and, if available, in other countries where resTORbio is prosecuting patents. In the United States, the Drug Price Competition and Patent Term Restoration Act of 1984 permits a patent term extension of up to five years beyond the normal expiration of the patent, which is limited to the approved indication (or any additional indications approved during the period of extension). resTORbio might not be granted an extension because of, for example, failure to apply within applicable periods, failure to apply prior to the expiration of relevant patents or otherwise failure to satisfy any of the numerous applicable requirements. Moreover, the applicable authorities, including the FDA and the USPTO in the United States, and any equivalent regulatory authority in other countries, may not agree with resTORbio’s assessment of whether such extensions are available, and may refuse to grant extensions to resTORbio’s patents, or may grant more limited extensions than resTORbio requests. If this occurs, resTORbio’s competitors may be able to obtain approval of competing products following resTORbio’s patent expiration by referencing resTORbio’s clinical and preclinical data and launch their product earlier than might otherwise be the case. If this were to occur, it could have a material adverse effect on resTORbio’s ability to generate revenue.

 

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Changes to patent law in the United States and other jurisdictions could diminish the value of patents in general, thereby impairing resTORbio’s ability to protect resTORbio’s products.

As is the case with other biopharmaceutical companies, resTORbio’s commercial success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical industry involves both technological and legal complexity and is therefore costly, time consuming and inherently uncertain. Recent wide-ranging patent reform legislation in the United States, including the Leahy-Smith America Invents Act, or the America Invents Act, could increase those uncertainties and costs. The America Invents Act was signed into law on September 16, 2011, and many of the substantive changes became effective on March 16, 2013. The America Invents Act reforms United States patent law in part by changing the U.S. patent system from a “first to invent” system to a “first inventor to file” system, expanding the definition of prior art, and developing a post-grant review system. This legislation changes United States patent law in a way that may weaken resTORbio’s ability to obtain patent protection in the United States for those applications filed after March 16, 2013.

Further, the America Invents Act created new procedures to challenge the validity of issued patents in the United States, including post-grant review and inter partes review proceedings, which some third parties have been using to cause the cancellation of selected or all claims of issued patents of competitors. For a patent with an effective filing date of March 16, 2013 or later, a petition for post-grant review can be filed by a third party in a nine-month window from issuance of the patent. A petition for inter partes review can be filed immediately following the issuance of a patent if the patent has an effective filing date prior to March 16, 2013. A petition for inter partes review can be filed after the nine-month period for filing a post-grant review petition has expired for a patent with an effective filing date of March 16, 2013 or later. Post-grant review proceedings can be brought on any ground of invalidity, whereas inter partes review proceedings can only raise an invalidity challenge based on published prior art and patents. These adversarial actions at the USPTO review patent claims without the presumption of validity afforded to U.S. patents in lawsuits in U.S. federal courts and use a lower burden of proof than used in litigation in U.S. federal courts. Therefore, it is generally considered easier for a competitor or third party to have a U.S. patent invalidated in a USPTO post-grant review or inter partes review proceeding than invalidated in a litigation in a U.S. federal court. If any of resTORbio’s patents are challenged by a third party in such a USPTO proceeding, there is no guarantee that resTORbio or its licensors or collaborators will be successful in defending the patent, which may result in a loss of the challenged patent right to resTORbio.

In addition, recent court rulings in cases such as Association for Molecular Pathology v. Myriad Genetics, Inc., BRCA1- & BRCA2-Based Hereditary Cancer Test Patent Litigation, and Promega Corp. v. Life Technologies Corp. have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to resTORbio’s ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents once obtained. Depending on future actions by the U.S. Congress, the U.S. courts, the USPTO and the relevant law-making bodies in other countries, the laws and regulations governing patents could change in unpredictable ways that would weaken resTORbio’s ability to obtain new patents or to enforce its existing patents and patents that it might obtain in the future.

resTORbio may not be able to enforce resTORbio’s intellectual property rights throughout the world.

Filing, prosecuting, enforcing and defending patents on resTORbio’s product candidates in all countries throughout the world would be prohibitively expensive, and resTORbio’s intellectual property rights in some countries outside the United States can be less extensive than those in the United States. The requirements for patentability may differ in certain countries, particularly in developing countries; thus, even in countries where resTORbio does pursue patent protection, there can be no assurance that any patents will issue with claims that cover resTORbio’s products.

Moreover, resTORbio’s ability to protect and enforce resTORbio’s intellectual property rights may be adversely affected by unforeseen changes in foreign intellectual property laws. Additionally, laws of some countries

 

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outside of the United States and Europe do not afford intellectual property protection to the same extent as the laws of the United States and Europe. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some countries, including India, China and other developing countries, do not favor the enforcement of patents and other intellectual property rights. This could make it difficult for resTORbio to stop the infringement of resTORbio’s patents or the misappropriation of resTORbio’s other intellectual property rights. For example, many foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. Consequently, resTORbio may not be able to prevent third parties from practicing resTORbio’s inventions in certain countries outside the United States and Europe or from selling or importing products made from resTORbio’s inventions in and into the United States or other jurisdictions. Competitors may use resTORbio’s technologies in jurisdictions where resTORbio has not obtained patent protection to develop and market their own products and, further, may export otherwise infringing products to territories where resTORbio has patent protection, if resTORbio’s ability to enforce resTORbio’s patents to stop infringing activities is inadequate. These products may compete with resTORbio’s products, and resTORbio’s patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

Agreements through which resTORbio licenses patent rights may not give resTORbio sufficient rights to permit resTORbio to pursue enforcement of resTORbio’s licensed patents or defense of any claims asserting the invalidity of these patents (or control of such enforcement or defense) of such patent rights in all relevant jurisdictions as requirements may vary.

Proceedings to enforce resTORbio’s patent rights, whether or not successful, could result in substantial costs and divert resTORbio’s efforts and resources from other aspects of resTORbio’s business. Moreover, such proceedings could put resTORbio’s patents at risk of being invalidated or interpreted narrowly and resTORbio’s patent applications at risk of not issuing and could provoke third parties to assert claims against resTORbio. resTORbio may not prevail in any lawsuits that it initiates and the damages or other remedies awarded, if any, may not be commercially meaningful. Furthermore, while resTORbio intends to protect its intellectual property rights in major markets for resTORbio’s products, resTORbio cannot ensure that it will be able to initiate or maintain similar efforts in all jurisdictions in which resTORbio may wish to market its products, if approved. Accordingly, resTORbio’s efforts to protect its intellectual property rights in such countries may be inadequate.

Others may challenge inventorship or claim an ownership interest in resTORbio’s intellectual property which could expose it to litigation and have a significant adverse effect on its prospects.

A third party or former employee or collaborator may claim an ownership interest in one or more of resTORbio’s or resTORbio’s licensors’ patents or other proprietary or intellectual property rights. A third party could bring legal actions against resTORbio and seek monetary damages and/or enjoin clinical testing, manufacturing and marketing of the affected product or products. While resTORbio is presently unaware of any claims or assertions by third-parties with respect to resTORbio’s patents or other intellectual property, resTORbio cannot guarantee that a third party will not assert a claim or an interest in any of such patents or intellectual property. If resTORbio becomes involved in any litigation, it could consume a substantial portion of resTORbio’s resources, and cause a significant diversion of effort by resTORbio’s technical and management personnel.

If resTORbio is sued for infringing intellectual property rights of third parties, such litigation could be costly and time consuming and could prevent or delay resTORbio from developing or commercializing resTORbio’s product candidates.

resTORbio’s commercial success depends, in part, on resTORbio’s ability to develop, manufacture, market and sell resTORbio’s product candidates without infringing the intellectual property and other proprietary rights of third parties. Third parties may have U.S. and non-U.S. issued patents and pending patent applications relating to compounds, methods of manufacturing compounds and/or methods of use for the treatment of the disease indications for which resTORbio is developing resTORbio’s product candidates. If any third-party patents or

 

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patent applications are found to cover resTORbio’s product candidates or its methods of use or manufacture, resTORbio may not be free to manufacture or market resTORbio’s product candidates as planned without obtaining a license, which may not be available on commercially reasonable terms, or at all.

There is a substantial amount of intellectual property litigation in the biotechnology and pharmaceutical industries, and resTORbio may become party to, or threatened with, litigation or other adversarial proceedings regarding intellectual property rights with respect to resTORbio’s products candidates, including interference and post-grant proceedings before the USPTO. There may be third-party patents or patent applications with claims to materials, formulations, methods of manufacture or methods for treatment related to the composition, use or manufacture of resTORbio’s product candidates. resTORbio cannot guarantee that any of resTORbio’s patent searches or analyses including, but not limited to, the identification of relevant patents, the scope of patent claims or the expiration of relevant patents are complete or thorough, nor can resTORbio be certain that it has identified each and every patent and pending application in the United States and abroad that is relevant to or necessary for the commercialization of resTORbio’s product candidates in any jurisdiction. Because patent applications can take many years to issue, there may be currently pending patent applications which may later result in issued patents that resTORbio’s product candidates may be accused of infringing. In addition, third parties may obtain patents in the future and claim that use of resTORbio’s technologies infringes upon these patents. Accordingly, third parties may assert infringement claims against resTORbio based on intellectual property rights that exist now or arise in the future. The outcome of intellectual property litigation is subject to uncertainties that cannot be adequately quantified in advance. The pharmaceutical and biotechnology industries have produced a significant number of patents, and it may not always be clear to industry participants, including resTORbio, which patents cover various types of products or methods of use or manufacture. The scope of protection afforded by a patent is subject to interpretation by the courts, and the interpretation is not always uniform. If resTORbio was sued for patent infringement, resTORbio would need to demonstrate that its product candidates, products or methods either do not infringe the patent claims of the relevant patent or that the patent claims are invalid or unenforceable, and resTORbio may not be able to do this. Proving invalidity is difficult. For example, in the United States, proving invalidity requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. Even if resTORbio is successful in these proceedings, resTORbio may incur substantial costs and the time and attention of its management and scientific personnel could be diverted in pursuing these proceedings, which could significantly harm resTORbio’s business and operating results. In addition, resTORbio may not have sufficient resources to bring these actions to a successful conclusion.

If resTORbio is found to infringe a third party’s intellectual property rights, resTORbio could be forced, including by court order, to cease developing, manufacturing or commercializing the infringing product candidate or product. Alternatively, resTORbio may be required to obtain a license from such third party in order to use the infringing technology and continue developing, manufacturing or marketing the infringing product candidate or product. If resTORbio was required to obtain a license to continue to manufacture or market the affected product, resTORbio may be required to pay substantial royalties or grant cross-licenses to resTORbio’s patents. resTORbio cannot, however, assure you that any such license will be available on acceptable terms, if at all. Ultimately, resTORbio could be prevented from commercializing a product, or be forced to cease some aspect of resTORbio’s business operations as a result of claims of patent infringement or violation of other intellectual property rights, Further, the outcome of intellectual property litigation is subject to uncertainties that cannot be adequately quantified in advance, including the demeanor and credibility of witnesses and the identity of any adverse party. This is especially true in intellectual property cases that may turn on the testimony of experts as to technical facts upon which experts may reasonably disagree. Furthermore, resTORbio may not be able to obtain any required license on commercially reasonable terms, or at all. Even if resTORbio was able to obtain a license, it could be non-exclusive, thereby giving resTORbio’s competitors access to the same technologies licensed to resTORbio; alternatively or additionally it could include terms that impede or destroy resTORbio’s ability to compete successfully in the commercial marketplace. In addition, resTORbio could be found liable for monetary damages, including treble damages and attorneys’ fees if resTORbio is found to have willfully infringed a patent. A finding of infringement could prevent resTORbio from commercializing

 

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resTORbio’s product candidates or force resTORbio to cease some of resTORbio’s business operations, which could harm resTORbio’s business. Claims that resTORbio has misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on resTORbio’s business.

resTORbio may be subject to claims by third parties asserting that resTORbio’s employees or resTORbio has misappropriated their intellectual property, or claiming ownership of what resTORbio regards as its own intellectual property.

Many of resTORbio’s current and former employees and resTORbio’s licensors’ current and former employees, including resTORbio’s senior management, were previously employed at universities or at other biotechnology or pharmaceutical companies, including some which may be competitors or potential competitors. Some of these employees, including members of resTORbio’s senior management, may have executed proprietary rights, non-disclosure and non-competition agreements, or similar agreements, in connection with such previous employment. Although resTORbio tries to ensure that its employees do not use the proprietary information or know-how of others in their work for resTORbio, resTORbio may be subject to claims that resTORbio or these employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such third party. Litigation may be necessary to defend against such claims. If resTORbio fails in defending any such claims, in addition to paying monetary damages, resTORbio may sustain damages or lose key personnel, valuable intellectual property rights or the personnel’s work product, which could hamper or prevent commercialization of resTORbio’s technology, which could materially affect resTORbio’s commercial development efforts. Such intellectual property rights could be awarded to a third party, and resTORbio could be required to obtain a license from such third party to commercialize resTORbio’s technology or products. Such a license may not be available on commercially reasonable terms, or at all. Even if resTORbio is successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.

In addition, while resTORbio typically requires its employees, consultants and contractors who may be involved in the development of intellectual property to execute agreements assigning such intellectual property to resTORbio, resTORbio may be unsuccessful in executing such an agreement with each party who in fact develops intellectual property that resTORbio regards as its own, which may result in claims by or against resTORbio related to the ownership of such intellectual property. If resTORbio fails in prosecuting or defending any such claims, in addition to paying monetary damages, resTORbio may lose valuable intellectual property rights. Even if resTORbio is successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to resTORbio’s senior management and scientific personnel.

resTORbio may become involved in lawsuits to protect or enforce resTORbio’s patents or other intellectual property, which could be expensive, time consuming and unsuccessful.

Competitors may infringe resTORbio’s patents, trademarks, copyrights or other intellectual property. To counter infringement or unauthorized use, resTORbio may be required to file infringement claims, which can be expensive and time consuming and divert the time and attention of resTORbio’s management and scientific personnel. Any claims resTORbio asserts against perceived infringers could provoke these parties to assert counterclaims against resTORbio alleging that resTORbio infringes their patents, in addition to counterclaims asserting that resTORbio’s patents are invalid or unenforceable, or both. In any patent infringement proceeding, there is a risk that a court will decide that a patent of ours is invalid or unenforceable, in whole or in part, and that resTORbio does not have the right to stop the other party from using the invention at issue. There is also a risk that, even if the validity of such patents is upheld, the court will construe the patent’s claims narrowly or decide that resTORbio does not have the right to stop the other party from using the invention at issue on the grounds that resTORbio’s patent claims do not cover the invention. An adverse outcome in a litigation or proceeding involving one or more of resTORbio’s patents could limit resTORbio’s ability to assert those patents against those parties or other competitors, and may curtail or preclude resTORbio’s ability to exclude third parties from making and selling similar or competitive products. Similarly, if resTORbio asserts trademark infringement claims, a court may determine that the marks resTORbio has asserted are invalid or unenforceable, or that the

 

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party against whom resTORbio has asserted trademark infringement has superior rights to the trademarks in question. In this case, resTORbio could ultimately be forced to cease use of such trademarks.

Even if resTORbio establishes infringement, the court may decide not to grant an injunction against further infringing activity and instead award only monetary damages, which may or may not be an adequate remedy. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of resTORbio’s confidential information could be compromised by disclosure during litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could adversely affect the price of shares of resTORbio common stock. Moreover, there can be no assurance that resTORbio will have sufficient financial or other resources to file and pursue such infringement claims, which typically last for years before they are concluded. Even if resTORbio ultimately prevails in such claims, the monetary cost of such litigation and the diversion of the attention of resTORbio’s management and scientific personnel could outweigh any benefit resTORbio receives as a result of the proceedings.

Additionally, for certain of resTORbio’s existing and future in-licensed patent rights, resTORbio may not have the right to bring suit for infringement and may have to rely on third parties to enforce these rights for resTORbio. If resTORbio cannot or choose not to take action against those resTORbio believes infringe its intellectual property rights, resTORbio may have difficulty competing in certain markets where such potential infringers conduct their business, and resTORbio’s commercialization efforts may suffer as a result.

If resTORbio’s trademarks and trade names are not adequately protected, then resTORbio may not be able to build name recognition in resTORbio’s trademarks of interest and resTORbio’s business may be adversely affected.

resTORbio’s trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. resTORbio relies on both registration and common law protection for resTORbio’s trademarks. resTORbio may not be able to protect resTORbio’s rights to these trademarks and trade names or may be forced to stop using these names, which resTORbio needs for name recognition by potential partners or customers in resTORbio’s markets of interest. During trademark registration proceedings, resTORbio may receive rejections. Although resTORbio would be given an opportunity to respond to those rejections, resTORbio may be unable to overcome such rejections. In addition, in the USPTO and in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against resTORbio’s trademarks, and resTORbio’s trademarks may not survive such proceedings. Moreover, any name resTORbio proposes to use for its products in the United States must be approved by the FDA, regardless of whether resTORbio has registered it, or applied to register it, as a trademark. The FDA typically conducts a review of proposed product names, including an evaluation of potential for confusion with other product names. If the FDA objects to any of resTORbio’s proposed product names, resTORbio may be required to expend significant additional resources in an effort to identify a usable substitute name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA. If resTORbio is unable to establish name recognition based on its trademarks and trade names, resTORbio may not be able to compete effectively and resTORbio’s business may be adversely affected.

Risks Related to resTORbio’s Dependence on Third Parties

resTORbio relies on third parties to assist in conducting resTORbio’s clinical trials. If they do not perform satisfactorily, resTORbio may not be able to obtain regulatory approval or commercialize resTORbio’s product candidates, or such approval or commercialization may be delayed, and resTORbio’s business could be substantially harmed.

resTORbio does not independently conduct clinical trials of any of resTORbio’s product candidates. resTORbio has relied upon and plan to continue to rely on third parties, such as CROs, clinical data management

 

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organizations, medical institutions and clinical investigators, to conduct these clinical trials and expect to rely on these third parties to conduct clinical trials of any other product candidate that resTORbio develops. Any of these third parties may terminate their engagements with resTORbio under certain circumstances. resTORbio may not be able to enter into alternative arrangements or do so on commercially reasonable terms. In addition, there is a natural transition period when a new CRO begins work. As a result, delays may occur, which could negatively impact resTORbio’s ability to meet resTORbio’s expected clinical development timelines and harm resTORbio’s business, financial condition and prospects. For example, in April 2020, resTORbio announced that it would postpone enrollment in the fifth cohort of its ongoing Phase 1b/2a trial of RTB 101 in patients with PD due to the COVID-19 level 4 alert in New Zealand. While resTORbio plans to analyze the data from the four completed dosing arms and completed cohorts, resTORbio subsequently elected to terminate the study and not to dose patients in the fifth dosing arm.

Further, although resTORbio’s reliance on these third parties for clinical development activities limits its control over these activities, resTORbio remains responsible for ensuring that each of its trials is conducted in accordance with the applicable protocol, legal and regulatory requirements and scientific standards. For example, notwithstanding the obligations of a CRO for a trial of one of resTORbio’s product candidates, resTORbio remains responsible for ensuring that each of resTORbio’s clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA requires resTORbio to comply with requirements, commonly referred to as GCPs, for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. The FDA enforces these GCPs through periodic inspections of trial sponsors, principal investigators, clinical trial sites and IRBs. If resTORbio or its third-party contractors fail to comply with applicable GCPs, the clinical data generated in resTORbio’s clinical trials may be deemed unreliable and the FDA may require resTORbio to perform additional clinical trials before approving resTORbio’s product candidates, which would delay the regulatory approval process. resTORbio cannot be certain that, upon inspection, the FDA will determine that any of resTORbio’s clinical trials comply with GCPs. resTORbio is also required to register certain clinical trials and post the results of completed clinical trials on a government-sponsored database, ClinicalTrials.gov, within certain timeframes. Failure to do so can result in fines, adverse publicity and civil and criminal sanctions.

Furthermore, the third parties conducting clinical trials on resTORbio’s behalf are not resTORbio’s employees, and except for remedies available to resTORbio under resTORbio’s agreements with such contractors, resTORbio cannot control whether or not they devote sufficient time, skill and resources to resTORbio’s ongoing development programs. These contractors may also have relationships with other commercial entities, including resTORbio’s competitors, for whom they may also be conducting clinical trials or other drug development activities, which could impede their ability to devote appropriate time to resTORbio’s clinical programs. If these third parties, including clinical investigators, do not successfully carry out their contractual duties, meet expected deadlines or conduct resTORbio’s clinical trials in accordance with regulatory requirements or resTORbio’s stated protocols, resTORbio may not be able to obtain, or may be delayed in obtaining, regulatory approvals for resTORbio’s product candidates. If that occurs, resTORbio will not be able to, or may be delayed in its efforts to, successfully commercialize resTORbio’s product candidates. In such an event, resTORbio’s financial results and the commercial prospects for any product candidates that resTORbio seeks to develop could be harmed, its costs could increase and its ability to generate revenues could be delayed, impaired or foreclosed.

resTORbio also relies on other third parties to store and distribute drug supplies for resTORbio’s clinical trials. Any performance failure on the part of resTORbio’s distributors could delay clinical development or regulatory approval of resTORbio’s product candidates or commercialization of any resulting products, producing additional losses and depriving resTORbio of potential product revenue.

 

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resTORbio’s use of third parties to manufacture resTORbio’s product candidates and products which resTORbio is studying in combination with resTORbio’s product candidates may increase the risk that resTORbio will not have sufficient quantities of resTORbio’s product candidates, products, or necessary quantities of such materials on time or at an acceptable cost.

resTORbio does not own or operate manufacturing facilities for the production of clinical or commercial quantities of resTORbio’s product candidates, and resTORbio lacks the resources and the capabilities to do so. As a result, resTORbio currently relies on third parties for the manufacture and supply of the active pharmaceutical ingredients, or API, in resTORbio’s product candidates. resTORbio’s current strategy is to outsource all manufacturing of resTORbio’s product candidates to third parties.

resTORbio currently engages one third-party manufacturer to provide the active pharmaceutical ingredient, or API, and two other third-party manufacturers to provide services for the final drug product formulation of RTB101 that is being used in resTORbio’s clinical trials. Although resTORbio believes that there are several potential alternative manufacturers who could manufacture RTB101 and rapalogs, such as everolimus or sirolimus, resTORbio may incur added costs and delays in identifying and qualifying any such replacement. In addition, resTORbio typically orders raw materials and services on a purchase order basis and do not enter into long-term dedicated capacity or minimum supply arrangements with any commercial manufacturer. There is no assurance that resTORbio will be able to timely secure needed supply arrangements on satisfactory terms, or at all. resTORbio’s failure to secure these arrangements as needed could have a material adverse effect on resTORbio’s ability to complete the development of resTORbio’s product candidates or, to commercialize them, if approved. resTORbio may be unable to conclude agreements for commercial supply with third-party manufacturers, or may be unable to do so on acceptable terms. There may be difficulties in scaling up to commercial quantities and formulation of RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, and the costs of manufacturing could be prohibitive.

Even if resTORbio is able to establish and maintain arrangements with third-party manufacturers, reliance on third-party manufacturers entails additional risks, including:

 

   

the failure of the third-party manufacturer to comply with applicable regulatory requirements and reliance on third-parties for manufacturing process development, regulatory compliance and quality assurance;

 

   

manufacturing delays if resTORbio’s third-party manufacturers give greater priority to the supply of other products over resTORbio’s product candidates or otherwise do not satisfactorily perform according to the terms of the agreement with resTORbio;

 

   

limitations on supply availability resulting from capacity and scheduling constraints of third-parties;

 

   

the possible breach of manufacturing agreements by third-parties because of factors beyond resTORbio’s control;

 

   

the possible termination or non-renewal of the manufacturing agreements by the third-party, at a time that is costly or inconvenient to resTORbio; and

 

   

the possible misappropriation of resTORbio’s proprietary information, including resTORbio’s trade secrets and know-how.

If resTORbio does not maintain its key manufacturing relationships, resTORbio may fail to find replacement manufacturers or develop its own manufacturing capabilities, which could delay or impair resTORbio’s ability to obtain regulatory approval for resTORbio’s products. If resTORbio does find replacement manufacturers, resTORbio may not be able to enter into agreements with them on terms and conditions favorable to resTORbio and there could be a substantial delay before new facilities could be qualified and registered with the FDA and other foreign regulatory authorities.

If any of resTORbio’s product candidates are approved by any regulatory agency, resTORbio intends to utilize arrangements with third-party contract manufacturers for the commercial production of those products. This

 

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process is difficult and time consuming and resTORbio may face competition for access to manufacturing facilities as there are a limited number of contract manufacturers operating under cGMPs that are capable of manufacturing resTORbio’s product candidates. Consequently, resTORbio may not be able to reach agreement with third-party manufacturers on satisfactory terms, which could delay resTORbio’s commercialization.

resTORbio’s failure, or the failure of resTORbio’s third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on resTORbio, including clinical holds, fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, seizures or voluntary recalls of product candidates, operating restrictions and criminal prosecutions, any of which could significantly affect supplies of resTORbio’s product candidates. resTORbio does not control the manufacturing process of, and are completely dependent on, resTORbio’s contract manufacturing partners for compliance with cGMPs. If resTORbio’s contract manufacturers cannot successfully manufacture material that conforms to resTORbio’s specifications and the strict regulatory requirements of the FDA or others, resTORbio may not be able to secure and/or maintain regulatory approval for its product manufactured at these facilities. In addition, resTORbio has no control over the ability of resTORbio’s contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA finds deficiencies or a comparable foreign regulatory authority does not approve these facilities for the manufacture of resTORbio’s product candidates or if it withdraws any such approval in the future, resTORbio may need to find alternative manufacturing facilities, which would significantly impact resTORbio’s ability to develop, obtain regulatory approval for or market resTORbio’s product candidates, if approved. Contract manufacturers may face manufacturing or quality control problems causing drug substance production and shipment delays or a situation where the contractor may not be able to maintain compliance with the applicable cGMP requirements. Any failure to comply with cGMP requirements or other FDA, EMA and comparable foreign regulatory requirements could adversely affect resTORbio’s clinical research activities and resTORbio’s ability to develop resTORbio’s product candidates and market resTORbio’s products, if approved.

The FDA and other foreign regulatory authorities require manufacturers to register manufacturing facilities. The FDA and corresponding foreign regulators also inspect these facilities to confirm compliance with cGMPs. Contract manufacturers may face manufacturing or quality control problems causing drug substance production and shipment delays or a situation where the contractor may not be able to maintain compliance with the applicable cGMP requirements. Any failure to comply with cGMP requirements or other FDA, EMA and comparable foreign regulatory requirements could adversely affect resTORbio’s clinical research activities and resTORbio’s ability to develop resTORbio’s product candidates and market resTORbio’s products following approval.

If any third-party manufacturer of resTORbio’s product candidates is unable to increase the scale of its production of resTORbio’s product candidates, and/or increase the product yield of its manufacturing, then resTORbio’s costs to manufacture the product may increase and commercialization may be delayed.

In order to produce sufficient quantities to meet the demand for clinical trials and, if approved, subsequent commercialization of RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, or any other product candidates that resTORbio may develop, resTORbio’s third-party manufacturer will be required to increase its production and optimize its manufacturing processes while maintaining the quality of the product. The transition to larger scale production could prove difficult. In addition, if resTORbio’s third-party manufacturer is not able to optimize its manufacturing process to increase the product yield for resTORbio’s product candidates, or if it is unable to produce increased amounts of resTORbio’s product candidates while maintaining the quality of the product, then resTORbio may not be able to meet the demands of clinical trials or market demands, which could decrease resTORbio’s ability to generate profits and have a material adverse impact on resTORbio’s business and results of operation.

 

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resTORbio may need to maintain licenses for active ingredients from third parties to develop and commercialize some of resTORbio’s product candidates, which could increase resTORbio’s development costs and delay resTORbio’s ability to commercialize those product candidates.

Should resTORbio decide to use active pharmaceutical ingredients in any of its product candidates that are proprietary to one or more third parties, resTORbio would need to maintain licenses to those active ingredients from those third parties. If resTORbio is unable to gain or continue to access rights to these active ingredients prior to conducting preclinical toxicology studies intended to support clinical trials, resTORbio may need to develop alternate product candidates for these programs by either accessing or developing alternate active ingredients, resulting in increased development costs and delays in commercialization of these product candidates. If resTORbio is unable to gain or maintain continued access rights to the desired active ingredients on commercially reasonable terms or develop suitable alternate active ingredients, resTORbio may not be able to commercialize product candidates from these programs.

Use of third parties to conduct testing of resTORbio’s product candidates in tissues or animals may increase the risk that resTORbio will have unsuitable or invalidated data for regulatory submissions and approval.

resTORbio currently do not own or operate laboratory facilities in which to conduct preclinical testing of resTORbio’s product candidates in tissues or animals. Preclinical studies regulated by FDA, EMA and most other health authorities are governed by GLP. Additionally, studies involving animals may be subject to further regulation by institutional, private or government animal welfare authorities that may vary by territory. Studies involving human tissues may also be subject to institutional and government human subject privacy policies that may vary by territory. Third-party vendors conducting tissue and/or animal studies on resTORbio’s behalf may be found to be in violation of one or more of these regulations or policies and may be subject to closure, censure or other penalties. In some cases, these penalties could materially impact the performance, availability, or validity of studies conducted on resTORbio’s behalf. Even in the absence of violations resulting in penalties, regulatory and other authorities may refuse to authorize the conduct or to accept the results of studies for regulatory or ethical reasons.

resTORbio enters into various contracts in the normal course of resTORbio’s business in which resTORbio indemnifies the other party to the contract. In the event resTORbio has to perform under these indemnification provisions, it could have a material adverse effect on resTORbio’s business, financial condition and results of operations.

In the normal course of business, resTORbio periodically enters into academic, commercial, service, collaboration, licensing, consulting and other agreements that contain indemnification provisions. With respect to resTORbio’s academic and other research agreements, resTORbio typically indemnifies the institution and related parties from losses arising from claims relating to the products, processes or services made, used, sold or performed pursuant to the agreements for which resTORbio has secured licenses, and from claims arising from resTORbio’s exercise of rights under the agreement. With respect to resTORbio’s commercial agreements, resTORbio indemnifies its vendors from any third-party product liability claims that could result from the production, use or consumption of the product, as well as for alleged infringements of any patent or other intellectual property right by a third party.

Should resTORbio’s obligation under an indemnification provision exceed applicable insurance coverage or if resTORbio was denied insurance coverage, resTORbio’s business, financial condition and results of operations could be adversely affected. Similarly, if resTORbio is relying on a collaborator to indemnify resTORbio and the collaborator is denied insurance coverage or the indemnification obligation exceeds the applicable insurance coverage and does not have other assets available to indemnify resTORbio, resTORbio’s business, financial condition and results of operations could be adversely affected.

 

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resTORbio may seek to establish collaborations and, if resTORbio is not able to establish them on commercially reasonable terms, resTORbio may have to alter its development and commercialization plans.

resTORbio may seek one or more collaborators for the development and commercialization of one or more of resTORbio’s product candidates. Likely collaborators may include large and mid-size pharmaceutical companies, regional and national pharmaceutical companies and biotechnology companies. In addition, if resTORbio is able to obtain regulatory approval for product candidates from foreign regulatory authorities, resTORbio may enter into collaborations with international biotechnology or pharmaceutical companies for the commercialization of such product candidates.

resTORbio faces significant competition in seeking appropriate collaborators. Whether resTORbio reaches a definitive agreement for a collaboration will depend, among other things, upon resTORbio’s assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include the potential differentiation of resTORbio’s product candidate from competing product candidates, design or results of clinical trials, the likelihood of approval by the FDA, the EMA or comparable foreign regulatory authorities and the regulatory pathway for any such approval, the potential market for the product candidate, the costs and complexities of manufacturing and delivering the product to patients and the potential of competing products. The collaborator may also consider alternative product candidates or technologies for similar indications that may be available for collaboration and whether such a collaboration could be more attractive than the one with resTORbio for resTORbio’s product candidate. If resTORbio elects to increase its expenditures to fund development or commercialization activities on resTORbio’s own, resTORbio may need to obtain additional capital, which may not be available to resTORbio on acceptable terms, or at all. If resTORbio does not have sufficient funds, resTORbio may not be able to further develop its product candidates or bring them to market and generate product revenue.

Collaborations are complex and time-consuming to negotiate and document. Further, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators. Any collaboration agreements that resTORbio enters into in the future may contain restrictions on resTORbio’s ability to enter into potential collaborations or to otherwise develop specified product candidates. resTORbio may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If resTORbio is unable to do so, resTORbio may have to curtail the development of the product candidate for which resTORbio is seeking to collaborate, reduce or delay its development program or one or more of resTORbio’s other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase resTORbio’s expenditures and undertake development or commercialization activities at resTORbio’s own expense.

If resTORbio enters into collaborations with third parties for the development and commercialization of its product candidates, resTORbio’s prospects with respect to those product candidates will depend in significant part on the success of those collaborations.

resTORbio may enter into collaborations for the development and commercialization of certain of resTORbio’s product candidates. If resTORbio enters into such collaborations, resTORbio will have limited control over the amount and timing of resources that resTORbio’s collaborators will dedicate to the development or commercialization of resTORbio’s product candidates. resTORbio’s ability to generate revenues from these arrangements will depend on any future collaborators’ abilities to successfully perform the functions assigned to them in these arrangements. In addition, any future collaborators may have the right to abandon research or development projects and terminate applicable agreements, including funding obligations, prior to or upon the expiration of the agreed upon terms.

Collaborations involving resTORbio’s product candidates pose a number of risks, including the following:

 

   

collaborators have significant discretion in determining the efforts and resources that they will apply to these collaborations;

 

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collaborators may not perform their obligations as expected;

 

   

collaborators may not pursue development and commercialization of resTORbio’s product candidates or may elect not to continue or renew development or commercialization programs, based on clinical trial results, changes in the collaborators’ strategic focus or available funding or external factors, such as an acquisition, that divert resources or create competing priorities;

 

   

collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;

 

   

collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with resTORbio’s product candidates;

 

   

a collaborator with marketing and distribution rights to one or more products may not commit sufficient resources to the marketing and distribution of such product or products;

 

   

disagreements with collaborators, including disagreements over proprietary rights, including trade secrets and intellectual property rights, contract interpretation, or the preferred course of development might cause delays or termination of the research, development or commercialization of product candidates, might lead to additional responsibilities for resTORbio with respect to product candidates, or might result in litigation or arbitration, any of which would be time-consuming and expensive;

 

   

collaborators may not properly maintain or defend resTORbio’s intellectual property rights or may use resTORbio’s proprietary information in such a way as to invite litigation that could jeopardize or invalidate resTORbio’s intellectual property or proprietary information or expose resTORbio to potential litigation;

 

   

collaborators may infringe the intellectual property rights of third parties, which may expose resTORbio to litigation and potential liability; and

 

   

collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable product candidates.

Collaboration agreements may not lead to development or commercialization of product candidates in the most efficient manner, or at all. If any future collaborator of ours is involved in a business combination, it could decide to delay, diminish or terminate the development or commercialization of any product candidate licensed to it by resTORbio.

resTORbio may have to alter resTORbio’s development and commercialization plans if resTORbio is not able to establish collaborations.

resTORbio will require additional funds to complete the development and potential commercialization of RTB101 alone or in combination with a rapalog, such as everolimus or sirolimus, and other product candidates. For some of resTORbio’s product candidates, resTORbio may decide to collaborate with pharmaceutical and biotechnology companies for the development and potential commercialization of those product candidates.

resTORbio faces significant competition in seeking and obtaining appropriate collaborators. Whether resTORbio reaches a definitive agreement for a collaboration will depend, among other things, upon resTORbio’s assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include:

 

   

the design or results of clinical trials;

 

   

the likelihood of approval by the FDA or comparable foreign regulatory authorities;

 

   

the potential market for the subject product candidate;

 

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the costs and complexities of manufacturing and delivering such product candidate to patients;

 

   

the potential for competing products;

 

   

resTORbio’s patent position protecting the product candidate, including any uncertainty with respect to resTORbio’s ownership of resTORbio’s technology or resTORbio’s licensor’s ownership of technology resTORbio licenses from them, which can exist if there is a challenge to such ownership without regard to the merits of the challenge;

 

   

the need to seek licenses or sub-licenses to third-party intellectual property; and

 

   

industry and market conditions generally.

The collaborator may also consider alternative product candidates or technologies for similar indications that may be available for collaboration and whether such a collaboration could be more attractive than the one with resTORbio for resTORbio’s product candidate. resTORbio may also be restricted under future license agreements from entering into agreements on certain terms with potential collaborators. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators.

If resTORbio is unable to reach agreements with suitable collaborators on a timely basis, on acceptable terms, or at all, resTORbio may have to curtail the development of a product candidate, reduce or delay its development program or one or more of resTORbio’s other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase resTORbio’s expenditures and undertake development or commercialization activities at resTORbio’s own expense. If resTORbio elects to fund and undertake development or commercialization activities on its own, resTORbio may need to obtain additional expertise and additional capital, which may not be available to resTORbio on acceptable terms, or at all. If resTORbio fails to enter into collaborations and do not have sufficient funds or expertise to undertake the necessary development and commercialization activities, resTORbio may not be able to further develop its product candidates or bring them to market and resTORbio’s business may be materially and adversely affected.

Business or economic disruptions or global health concerns could seriously harm resTORbio’s development efforts and increase resTORbio’s costs and expenses.

Broad-based business or economic disruptions could adversely affect resTORbio’s ongoing or planned research and development activities. For example, in December 2019 an outbreak of a novel strain of coronavirus originated in Wuhan, China, and has since spread to a number of other countries, including the United States and several countries in the EU. To date, this outbreak has already resulted in extended shutdowns of certain businesses in the Wuhan region and has had ripple effects to businesses around the world. Global health concerns, such as coronavirus, could also result in social, economic, and labor instability in the countries in which resTORbio or the third parties with whom resTORbio engages operate. resTORbio cannot presently predict the scope and severity of any potential business shutdowns or disruptions, but if resTORbio or any of the third parties with whom resTORbio engages, including the suppliers, clinical trial sites, regulators and other third parties with whom resTORbio conducts business, were to experience shutdowns or other business disruptions, resTORbio’s ability to conduct resTORbio’s business in the manner and on the timelines presently planned could be materially and negatively impacted. It is also possible that global health concerns such as this one could disproportionately impact the hospitals and clinical sites in which resTORbio conducts any of its clinical trials, which could have a material adverse effect on resTORbio’s business and resTORbio’s results of operation and financial condition.

Risks Related to Employee Matters and Managing Growth

resTORbio only has a limited number of employees to manage and operate resTORbio’s business.

As of July 22, 2020, resTORbio had ten full-time employees and no part-time employees. resTORbio’s focus on the development of RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, requires

 

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resTORbio to optimize cash utilization and to manage and operate resTORbio’s business in a highly efficient manner. resTORbio cannot assure you that it will be able to hire and/or retain adequate staffing levels to develop RTB101, alone or in combination with a rapalog, such as everolimus or sirolimus, meet resTORbio’s obligations as a public company, run resTORbio’s operations and/or accomplish all of the objectives that it otherwise would seek to accomplish.

resTORbio’s internal computer systems, or those used by resTORbio’s CROs or other independent organizations, advisors, contractors or consultants, may be subject to cyber-attacks, fail or suffer security breaches.

Despite the implementation of security measures, resTORbio’s internal computer systems and those of resTORbio’s CROs and other independent organizations, advisors, contractors and consultants are vulnerable to damage from computer viruses and unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. Because information systems, networks and other technologies are critical to many of resTORbio’s operating activities, shutdowns or service disruptions at the company or vendors that provide information systems, networks or other services to resTORbio pose increasing risks. Disruptions of this nature may be caused by events such as computer hacking, phishing attacks, ransomware, dissemination of computer viruses, worms and other destructive or disruptive software, denial of service attacks and other malicious activity, as well as power outages, natural disasters (including extreme weather), terrorist attacks or other similar events. In addition, outside parties may attempt to penetrate resTORbio’s systems or those of resTORbio’s vendors or fraudulently induce resTORbio’s personnel or the personnel of resTORbio’s vendors to disclose sensitive information in order to gain access to resTORbio’s data and/or systems. Like other companies, resTORbio has on occasion experienced, and will continue to experience, threats and incursions to resTORbio’s data and systems, including malicious codes and viruses, phishing, business email compromise attacks or other cyber-attacks. The number and complexity of these threats continue to increase over time. While resTORbio has not experienced any material system failure or security breach to date, if an event of that nature were to occur and cause interruptions in resTORbio’s operations, it could result in a material disruption of resTORbio’s development programs and resTORbio’s business operations. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in resTORbio’s regulatory approval efforts and significantly increase resTORbio’s costs to recover or reproduce the data. resTORbio currently, and may in the future continue to, rely on third parties for the manufacture of resTORbio’s product candidates and to conduct clinical trials and similar events relating to their computer systems could also have a material adverse effect on resTORbio’s business. To the extent that any disruption or security breach were to result in a loss of, or damage to, resTORbio’s internal computer systems or those used by resTORbio’s CROs or other independent organizations, advisors, contractors or consultants, resTORbio’s data or applications, or inappropriate disclosure of confidential or proprietary information, resTORbio could incur liability, suffer reputational harm and experience delays in the further development and commercialization of resTORbio’s product candidates.

resTORbio could be required to expend significant amounts of money and other resources to respond to these threats or breaches and to repair or replace information systems or networks. resTORbio also could suffer financial loss or the loss of valuable confidential information. In addition, resTORbio could be subject to regulatory actions and/or claims made by individuals and groups in private litigation involving privacy issues related to data collection and use practices and other data privacy laws and regulations, including claims for misuse or inappropriate disclosure of data, as well as unfair or deceptive practices. Although resTORbio develops and maintains systems and controls designed to prevent these events from occurring and resTORbio has a process to identify and mitigate threats, the development and maintenance of these systems, controls and processes is costly and requires ongoing monitoring and updating as technologies change and efforts to overcome security measures become increasingly sophisticated. Moreover, despite resTORbio’s efforts, the possibility of these events occurring cannot be eliminated entirely and there can be no assurance that any measures resTORbio take will prevent cyber-attacks or security breaches that could adversely affect resTORbio’s business.

 

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resTORbio depends heavily on resTORbio’s executive officers, principal consultants and others and the loss of their services would materially harm resTORbio’s business.

resTORbio’s success depends, and will likely continue to depend, upon resTORbio’s ability to hire, retain the services of resTORbio’s current executive officers, principal consultants and others, including Chen Schor, resTORbio’s president and chief executive officer, Joan Mannick, resTORbio’s chief medical officer, and Lloyd Klickstein, resTORbio’s chief scientific officer. resTORbio has entered into employment agreements with Mr. Schor, Dr. Mannick, and Dr. Klickstein, but they may terminate their employment with resTORbio at any time. Although resTORbio does not have any reason to believe that resTORbio will lose the services of Mr. Schor, Dr. Mannick, and Dr. Klickstein in the foreseeable future, the loss of their services might impede the achievement of resTORbio’s research, development and commercialization objectives.

resTORbio’s ability to compete in the biotechnology and pharmaceuticals industries depends upon resTORbio’s ability to attract and retain highly qualified managerial, scientific and medical personnel. resTORbio’s industry has experienced a high rate of turnover of management personnel in recent years. Replacing executive officers or other key employees may be difficult and may take an extended period of time because of the limited number of individuals in resTORbio’s industry with the breadth of skills and experience required to develop, gain regulatory approval of and commercialize products successfully.

Competition to hire from this limited pool is intense, and resTORbio may be unable to hire, train, retain or motivate these additional key employees on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. resTORbio also experience competition for the hiring of scientific and clinical personnel from universities and research institutions.

resTORbio relies on consultants and advisors, including scientific and clinical advisors, to assist resTORbio in formulating resTORbio’s research and development and commercialization strategy. resTORbio’s consultants and advisors may be employed by other entities and may have commitments under consulting or advisory contracts with those entities that may limit their availability to resTORbio. If resTORbio is unable to continue to attract and retain highly qualified personnel, resTORbio’s ability to develop and commercialize resTORbio’s product candidates will be limited.

resTORbio’s employees, independent contractors, consultants, collaborators and contract research organizations may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements, which could cause significant liability for resTORbio and harm resTORbio’s reputation.

resTORbio is exposed to the risk that resTORbio’s employees, independent contractors, consultants, collaborators and CROs may engage in fraudulent conduct or other illegal activity. Misconduct by those parties could include intentional, reckless and/or negligent conduct or disclosure of unauthorized activities to resTORbio that violates:

 

   

FDA regulations or similar regulations of comparable non-U.S. regulatory authorities, including those laws requiring the reporting of true, complete and accurate information to such authorities;

 

   

manufacturing standards;

 

   

federal and state healthcare fraud and abuse laws and regulations and similar laws and regulations established and enforced by comparable non-U.S. regulatory authorities; and

 

   

laws that require the reporting of financial information or data accurately.

Activities subject to these laws also involve the improper use or misrepresentation of information obtained in the course of clinical trials, creating fraudulent data in resTORbio’s preclinical studies or clinical trials or illegal misappropriation of product materials, which could result in regulatory sanctions and serious harm to

 

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resTORbio’s reputation. It is not always possible to identify and deter misconduct, and the precautions resTORbio takes to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting resTORbio from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws, standards or regulations. Additionally, resTORbio is subject to the risk that a person or government could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against resTORbio, and resTORbio is not successful in defending itself or asserting resTORbio’s rights, those actions could have a significant impact on resTORbio’s business and results of operations, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of resTORbio’s operations, any of which could have a material adverse effect on resTORbio’s ability to operate resTORbio’s business and resTORbio’s results of operations.

resTORbio’s current operations are concentrated primarily in a single location and any events affecting resTORbio’s headquarters may have material adverse consequences.

resTORbio’s current operations are primarily located in resTORbio’s principal office in Boston, Massachusetts. Any unplanned event, such as flood, fire, explosion, earthquake, extreme weather condition, medical epidemics, power shortage, telecommunication failure or other natural or manmade accidents or incidents that result in resTORbio being unable to fully utilize the office may have a material adverse effect on resTORbio’s ability to operate resTORbio’s business, and have significant negative consequences on resTORbio’s financial and operating conditions. Loss of access to this office may result in increased costs, delays in the development of resTORbio’s product candidates or interruption of resTORbio’s business operations. As part of resTORbio’s risk management policy, resTORbio maintains insurance coverage at levels that resTORbio believes are appropriate for its business. However, in the event of an accident or incident at resTORbio’s office, resTORbio’s insurance coverage may not be sufficient to satisfy all of resTORbio’s damages and losses. If resTORbio’s office is unable to operate because of an accident or incident or for any other reason, even for a short period of time, any or all of resTORbio’s research and development programs may be harmed.

If resTORbio fails to maintain an effective system of internal control over financial reporting, resTORbio may not be able to accurately report its financial results or prevent fraud. As a result, stockholders could lose confidence in resTORbio’s financial and other public reporting, which would harm resTORbio’s business and the trading price of resTORbio common stock.

Effective internal controls over financial reporting are necessary for resTORbio to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. resTORbio currently have a limited number of employees performing resTORbio’s accounting functions, including monitoring and maintaining effective internal control over financial reporting. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause resTORbio to fail to meet resTORbio’s reporting obligations. In addition, any testing by resTORbio conducted in connection with Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, or any subsequent testing by resTORbio’s independent registered public accounting firm, may reveal deficiencies in resTORbio’s internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to resTORbio’s consolidated financial statements or identify other areas for further attention or improvement. Inferior internal controls could also cause investors to lose confidence in resTORbio’s reported financial information, which could have a negative effect on the trading price of resTORbio’s stock.

resTORbio will be required to disclose changes made in resTORbio’s internal controls and procedures on a quarterly basis and resTORbio’s management will be required to assess the effectiveness of these controls annually. However, for as long as resTORbio is an “emerging growth company” under the JOBS Act, resTORbio’s independent registered public accounting firm will not be required to attest to the effectiveness of resTORbio’s internal controls over financial reporting pursuant to Section 404. resTORbio could be an

 

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“emerging growth company” for up to five years. An independent assessment of the effectiveness of resTORbio’s internal controls over financial reporting could detect problems that resTORbio’s management’s assessment might not. Undetected material weaknesses in resTORbio’s internal controls over financial reporting could lead to financial statement restatements and require resTORbio to incur the expense of remediation.

resTORbio’s disclosure controls and procedures may not prevent or detect all errors or acts of fraud.

resTORbio’s disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by resTORbio in reports resTORbio files or submits under the Securities Exchange Act of 1934, as amended (referred to as the “Exchange Act”) is accumulated and communicated to management, recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. resTORbio believes that any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in resTORbio’s control system, misstatements or insufficient disclosures due to error or fraud may occur and not be detected.

resTORbio has conducted and expect to continue to conduct resTORbio’s operations in jurisdictions outside of the United States, and such foreign operations subject resTORbio to additional risks.

A portion of resTORbio’s operations, including resTORbio’s clinical research and development efforts, have been undertaken outside of the United States, and resTORbio expects to continue to conduct a portion of its business in foreign countries. For example, resTORbio conducted resTORbio’s Phase 2b clinical trial across two hemispheres. In addition, resTORbio may utilize third party contract organizations, some of which may be located in foreign jurisdictions, for the conduct of resTORbio’s clinical trials, the manufacturing of resTORbio’s product candidates and the commercialization of resTORbio’s product candidates, if approved. Such operations subject resTORbio to additional risks related to international business operations, including:

 

   

potentially reduced protection for intellectual property rights;

 

   

price and currency exchange fluctuations;

 

   

unexpected changes in tariffs, trade barriers and regulatory requirements;

 

   

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

 

   

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

 

   

difficulties in complying with tax, employment, immigration and labor laws for personnel living or traveling abroad;

 

   

production shortages resulting from any events affecting a product candidate and/or finished drug product supply or manufacturing capabilities abroad;

 

   

business interruptions resulting from geo-political actions, including war and terrorism, or natural disasters, including earthquakes, hurricanes, typhoons, floods and fires; and

 

   

failure to comply with Office of Foreign Asset Control rules and regulations and the Foreign Corrupt Practices Act.

These and other risks may materially adversely affect resTORbio’s ability to conduct resTORbio’s business in international markets.

 

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resTORbio may engage in acquisitions that could disrupt resTORbio’s business, cause dilution to resTORbio stockholders or reduce resTORbio’s financial resources.

In the future, resTORbio may enter into transactions to acquire other businesses, products or technologies. If resTORbio does identify suitable candidates, resTORbio may not be able to make such acquisitions on favorable terms, or at all. Any acquisitions resTORbio makes may not strengthen resTORbio’s competitive position, and these transactions may be viewed negatively by customers or investors. resTORbio may decide to incur debt in connection with an acquisition or issue resTORbio common stock or other equity securities to the stockholders of the acquired company, which would reduce the percentage ownership of resTORbio’s existing stockholders. resTORbio could incur losses resulting from undiscovered liabilities of the acquired business that are not covered by the indemnification resTORbio may obtain from the seller. In addition, resTORbio may not be able to successfully integrate the acquired personnel, technologies and operations into resTORbio’s existing business in an effective, timely and nondisruptive manner. Acquisitions may also divert management attention from day-to-day responsibilities, increase resTORbio’s expenses and reduce resTORbio’s cash available for operations and other uses. resTORbio cannot predict the number, timing or size of future acquisitions or the effect that any such transactions might have on resTORbio’s operating results.

Risks Related to resTORbio’s Common Stock

An active trading market for resTORbio common stock may not be sustained. If an active trading market is not sustained, resTORbio’s ability to raise capital in the future may be impaired.

resTORbio’s shares began trading on The Nasdaq Global Select Market on January 26, 2018. Given the limited trading history of resTORbio common stock, there is a risk that an active trading market for resTORbio’s shares may not be sustained, which could put downward pressure on the market price of resTORbio common stock and thereby affect your ability to sell shares you purchased. An inactive trading market for resTORbio common stock may also impair resTORbio’s ability to raise capital to continue to fund resTORbio’s operations by selling shares and impair resTORbio’s ability to acquire other companies or technologies by using resTORbio’s shares as consideration.

The trading price of resTORbio common stock is highly volatile, which could result in substantial losses for purchasers of resTORbio common stock. Securities class action or other litigation involving resTORbio or members of its management team could also substantially harm its business, financial condition and results of operations.

resTORbio’s stock price is highly volatile. The stock market in general and the market for smaller pharmaceutical and biotechnology companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, you may not be able to sell your common stock at or above the purchase price and you may lose some or all of your investment. The market price for resTORbio common stock may be influenced by many factors, including:

 

   

the success of existing or new competitive products or technologies;

 

   

regulatory actions with respect to resTORbio’s product candidates or resTORbio’s competitors’ products and product candidates;

 

   

announcements by resTORbio or resTORbio’s competitors of significant acquisitions, strategic partnerships, joint ventures, collaborations or capital commitments;

 

   

the timing and results of clinical trials of RTB101 alone or in combination with a rapalog, such as everolimus or sirolimus, and any other product candidates;

 

   

commencement or termination of collaborations for resTORbio’s development programs;

 

   

failure or discontinuation of any of resTORbio’s development programs;

 

   

results of clinical trials of product candidates of resTORbio’s competitors;

 

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regulatory or legal developments in the United States and other countries;

 

   

developments or disputes concerning patent applications, issued patents or other proprietary rights;

 

   

the recruitment or departure of key personnel;

 

   

the level of expenses related to any of resTORbio’s product candidates or clinical development programs;

 

   

the results of resTORbio’s efforts to develop additional product candidates or products;

 

   

actual or anticipated changes in estimates as to financial results or development timelines;

 

   

announcement or expectation of additional financing efforts;

 

   

sales of resTORbio common stock by resTORbio, resTORbio’s insiders or other stockholders;

 

   

variations in resTORbio’s financial results or those of companies that are perceived to be similar to resTORbio;

 

   

changes in estimates or recommendations by securities analysts, if any, that cover resTORbio;

 

   

changes in the structure of healthcare payment systems;

 

   

market conditions in the pharmaceutical and biotechnology sectors;

 

   

general economic, industry and market conditions; and

 

   

the other factors described in this section entitled “Risk Factors” beginning on page 28 of this proxy statement/prospectus/information statement.

In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for biopharmaceutical companies, which have experienced significant stock price volatility in recent years.

resTORbio is an “emerging growth company,” and the reduced disclosure requirements applicable to emerging growth companies may make resTORbio common stock less attractive to investors.

resTORbio is an emerging growth company, and, for as long as resTORbio continues to be an emerging growth company, resTORbio may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies.” resTORbio could remain an “emerging growth company” for up to five years following resTORbio’s IPO, or until the earliest of (1) the last day of the first fiscal year in which resTORbio’s annual gross revenue exceeds $1.07 billion, (2) the date that resTORbio becomes a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of resTORbio common stock that is held by non-affiliates exceeds $700.0 million as of the last business day of resTORbio’s most recently completed second fiscal quarter or (3) the date on which resTORbio has issued more than $1.0 billion in non-convertible debt during the preceding three-year period. So long as resTORbio remains an “emerging growth company,” resTORbio expects to avail itself of the exemption from the requirement that resTORbio’s independent registered public accounting firm attest to the effectiveness of resTORbio’s internal control over financial reporting under Section 404. When resTORbio’s independent registered public accounting firm is required to undertake an assessment of resTORbio’s internal control over financial reporting, the cost of resTORbio’s compliance with Section 404 will correspondingly increase. Moreover, if resTORbio is not able to comply with the requirements of Section 404 applicable to resTORbio in a timely manner, or if resTORbio or its independent registered public accounting firm identifies deficiencies in resTORbio’s internal control over financial reporting that are deemed to be material weaknesses, the market price of resTORbio’s stock could decline and resTORbio could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources.

 

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In addition, the JOBS Act also provides that an “emerging growth company” can take advantage of an extended transition period for complying with new or revised accounting standards. resTORbio has elected to take advantage of this extended transition period under the JOBS Act. As a result, resTORbio’s operating results and financial statements may not be comparable to the operating results and financial statements of other companies who have adopted the new or revised accounting standards. It is possible that some investors will find resTORbio’s common stock less attractive as a result, which may result in a less active trading market for resTORbio’s common stock and higher volatility in resTORbio’s stock price.

resTORbio is also a “smaller reporting company,” and the reduced disclosure requirements applicable to smaller reporting companies may make resTORbio common stock less attractive to investors.

resTORbio is considered a “smaller reporting company” under Rule 12b-2 of the Exchange Act. resTORbio is therefore entitled to rely on certain reduced disclosure requirements, such as an exemption from providing selected financial data and executive compensation information. These exemptions and reduced disclosures in resTORbio’s SEC filings due to resTORbio’s status as a smaller reporting company also mean resTORbio’s auditors are not required to review resTORbio’s internal control over financial reporting and may make it harder for investors to analyze resTORbio’s results of operations and financial prospects. resTORbio cannot predict if investors will find resTORbio common stock less attractive because resTORbio may rely on these exemptions. If some investors find resTORbio common stock less attractive as a result, there may be a less active trading market for resTORbio common stock and resTORbio common stock prices may be more volatile. resTORbio will remain a smaller reporting company until resTORbio’s public float exceeds $250 million or resTORbio’s annual revenues exceed $100 million with a public float greater than $700 million.

resTORbio has and will incur increased costs as a result of operating as a public company, and resTORbio’s management will be required to devote substantial time to new compliance initiatives and corporate governance practices.

As a public company, and particularly after resTORbio is no longer an “emerging growth company,” resTORbio has and will incur significant legal, accounting and other expenses that resTORbio did not incur as a private company, including costs associated with public company reporting requirements. resTORbio has and will incur costs associated with relatively recently adopted corporate governance requirements, including requirements of the Securities and Exchange Commission, or SEC, and The Nasdaq Global Select Market. resTORbio expects these rules and regulations to increase resTORbio’s legal and financial compliance costs and to make some activities more time-consuming and costly. resTORbio also expect that these rules and regulations may make it more difficult and more expensive for resTORbio to obtain director and officer liability insurance and resTORbio may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for resTORbio to attract and retain qualified individuals to serve on the resTORbio Board or as executive officers.

resTORbio is currently evaluating and monitoring developments with respect to these rules, and resTORbio cannot predict or estimate the amount of additional costs resTORbio may incur or the timing of such costs. These rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.

Pursuant to Section 404, resTORbio is required to furnish a report by resTORbio’s management on resTORbio’s internal control over financial reporting in annual financial statements with the Securities and Exchange Commission, or the SEC. However, while resTORbio remains an emerging growth company, resTORbio will not be required to include an attestation report on internal control over financial reporting issued by resTORbio’s independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, resTORbio has engaged in a process to document and evaluate resTORbio’s internal control over

 

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financial reporting, which is both costly and challenging. In this regard, resTORbio will need to continue to dedicate internal resources, engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting. resTORbio will continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite resTORbio’s efforts, there is a risk that resTORbio will not be able to conclude, within the prescribed timeframe, or at all, that resTORbio’s internal control over financial reporting is effective as required by Section 404. If resTORbio identifies one or more material weaknesses, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of resTORbio’s consolidated financial statements.

resTORbio has broad discretion over the use of its cash, cash equivalents, and marketable securities and may not use them effectively.

resTORbio’s management has broad discretion to use its cash, cash equivalents, and marketable securities to fund resTORbio’s operations and could spend these funds in ways that do not improve resTORbio’s results of operations or enhance the value of resTORbio common stock. The failure by resTORbio’s management to apply these funds effectively could result in financial losses that could have a material adverse effect on resTORbio’s business, cause the price of resTORbio common stock to decline and delay the development of resTORbio’s product candidates. Pending resTORbio’s use to fund operations, resTORbio may invest its cash, cash equivalents, and marketable securities in a manner that does not produce income or that loses value.

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

resTORbio will need additional capital in the future to continue resTORbio’s planned operations. To the extent resTORbio raises additional capital by issuing equity securities, resTORbio stockholders may experience substantial dilution. resTORbio may sell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner resTORbio determines from time to time. If resTORbio sells common stock, convertible securities or other equity securities in more than one transaction, investors may be materially diluted by subsequent sales. These sales may also result in material dilution to resTORbio’s existing stockholders, and new investors could gain rights superior to resTORbio’s existing stockholders.

On February 1, 2019, resTORbio filed a registration statement on Form S-3 (File No. 333-229499) with the SEC, which was declared effective on February 12, 2019 (referred to as the “Shelf Registration Statement”), in relation to the registration of common stock, preferred stock, warrants and/or units of any combination thereof for the purposes of selling, from time to time, resTORbio common stock, convertible securities or other equity securities in one or more offerings. The Shelf Registration Statement also registered for resale from time to time up to 12,445,646 shares of common stock held by the selling stockholders named therein. resTORbio also simultaneously entered into a Controlled Equity Offering Sales Agreement (referred to as the “Sales Agreement”) with SVB Leerink LLC and Cantor Fitzgerald & Co., (referred to as the “Sales Agents”), to provide for the offering, issuance and sale of up to an aggregate amount of $50.0 million of resTORbio common stock from time to time in “at-the-market” offerings under the Shelf Registration Statement and subject to the limitations thereof. As of March 31, 2020, approximately $43.0 million in shares of common stock remain eligible for sale under the Sales Agreement. resTORbio will pay to the Sales Agent cash commissions of 3.0 percent of the aggregate gross proceeds of sales of common stock under the Sales Agreement. Sales of common stock, convertible securities or other equity securities by resTORbio or resTORbio stockholders under the Shelf Registration Statement may represent a significant percentage of resTORbio common stock currently outstanding. If resTORbio or resTORbio stockholders sell, or the market perceives that resTORbio or resTORbio stockholders intend to sell, substantial amounts of resTORbio common stock under the Shelf Registration Statement or otherwise, the market price of resTORbio common stock could decline significantly.

 

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In addition, sales of a substantial number of shares of resTORbio’s outstanding common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares of common stock intend to sell shares, could reduce the market price of resTORbio common stock. Persons who were resTORbio stockholders prior to resTORbio’s IPO continue to hold a substantial number of shares of resTORbio common stock that many of them are now able to sell in the public market. Significant portions of these shares are held by a relatively small number of stockholders. Sales by resTORbio stockholders of a substantial number of shares, or the expectation that such sales may occur, could significantly reduce the market price of resTORbio common stock.

resTORbio does not anticipate paying any cash dividends on resTORbio’s capital stock in the foreseeable future. Accordingly, stockholders must rely on capital appreciation, if any, for any return on their investment.

resTORbio has never declared nor paid cash dividends on resTORbio’s capital stock. resTORbio currently plan to retain all of resTORbio’s future earnings, if any, to finance the operation, development and growth of resTORbio’s business. In addition, the terms of any future debt or credit agreements may preclude resTORbio from paying dividends. As a result, capital appreciation, if any, of resTORbio common stock will be your sole source of gain for the foreseeable future.

resTORbio’s principal stockholders and management own a significant percentage of resTORbio’s stock and, if they choose to act together, will be able to control or exercise significant influence over matters subject to stockholder approval.

As of July 22, 2020, resTORbio’s executive officers, directors, five percent or greater stockholders and their affiliates own approximately 29.2% of resTORbio’s outstanding voting stock. These stockholders may have the ability to influence resTORbio through their ownership positions. These stockholders may be able to determine all matters requiring stockholder approval. For example, these stockholders, acting together, may be able to control elections of directors or approval of any merger, sale of assets or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for resTORbio common stock that you may believe are in your best interest as one of resTORbio stockholders.

Provisions in the resTORbio certificate of incorporation documents and under Delaware law may prevent or frustrate attempts by resTORbio stockholders to change resTORbio’s management or hinder efforts to acquire a controlling interest in resTORbio.

Provisions in the resTORbio certificate of incorporation and the resTORbio bylaws may discourage, delay or prevent a merger, acquisition or other change in control of resTORbio that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of resTORbio common stock, thereby depressing the market price of resTORbio common stock. In addition, because the resTORbio Board is responsible for appointing the members of resTORbio’s management team, these provisions may frustrate or prevent any attempts by resTORbio stockholders to replace or remove resTORbio’s current management by making it more difficult for stockholders to replace members of the resTORbio Board. Among other things, these provisions:

 

   

establish a classified board of directors such that all members of the board are not elected at one time;

 

   

allow the authorized number of resTORbio’s directors to be changed only by resolution of the resTORbio Board;

 

   

limit the manner in which stockholders can remove directors from the board;

 

   

establish advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted on at stockholder meetings;

 

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require that stockholder actions must be effected at a duly called stockholder meeting and prohibit actions by resTORbio stockholders by written consent;

 

   

limit who may call a special meeting of stockholders;

 

   

authorize the resTORbio Board to issue preferred stock without stockholder approval, which could be used to institute a “poison pill” that would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by the resTORbio Board; and

 

   

require the approval of the holders of at least 66.7% of the votes that all resTORbio stockholders would be entitled to cast to amend or repeal certain provisions of resTORbio’s charter or bylaws.

Moreover, because resTORbio is incorporated in Delaware, resTORbio is governed by the provisions of Section 203 of the General Corporation Law of the State of Delaware, which prohibits a person who owns in excess of 15% of resTORbio’s outstanding voting stock from merging or combining with resTORbio for a period of three years after the date of the transaction in which the person acquired in excess of 15% of resTORbio’s outstanding voting stock, unless the merger or combination is approved in a prescribed manner. This could discourage, delay or prevent someone from acquiring resTORbio or merging with resTORbio, whether or not it is desired by, or beneficial to, resTORbio stockholders. This could also have the effect of discouraging others from making tender offers for resTORbio common stock, including transactions that may be in your best interests. These provisions may also prevent changes in resTORbio’s management or limit the price that investors are willing to pay for resTORbio’s stock.

The resTORbio bylaws provide that, unless resTORbio consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for most legal actions between resTORbio and resTORbio stockholders, which could limit resTORbio stockholders’ ability to obtain a favorable judicial forum for disputes with resTORbio or resTORbio’s directors, officers, employees or agents.

The resTORbio bylaws specify that, unless resTORbio consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of resTORbio, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of resTORbio to resTORbio or resTORbio stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law or the resTORbio certificate of incorporation or the resTORbio bylaws, or (iv) any action asserting a claim against resTORbio governed by the internal affairs doctrine provided, that these choice of forum provisions do not apply to suits brought to enforce a duty or liability created by the Securities Act of 1933, as amended (referred to as the Securities Act), the Exchange Act, or any other claim for which the federal courts have exclusive jurisdiction. Any person or entity purchasing or otherwise acquiring any interest in shares of resTORbio’s capital stock shall be deemed to have notice of and to have consented to the provisions of the resTORbio bylaws described above.

resTORbio believes this provision benefits resTORbio by providing increased consistency in the application of Delaware law by chancellors particularly experienced in resolving corporate disputes, efficient administration of cases on a more expedited schedule relative to other forums and protection against the burdens of multi-forum litigation. However, the provision may have the effect of discouraging lawsuits against resTORbio’s directors, officers, employees and agents as it may limit any stockholder’s ability to bring a claim in a judicial forum that such stockholder finds favorable for disputes with resTORbio or resTORbio’s directors, officers, employees or agents. The enforceability of similar choice of forum provisions in other companies’ bylaws or certificates of incorporation has been challenged in legal proceedings, and it is possible that, in connection with any applicable action brought against resTORbio, a court could find the choice of forum provisions contained in the resTORbio bylaws to be inapplicable or unenforceable in such action. If a court were to find the choice of forum provision contained in the resTORbio bylaws to be inapplicable or unenforceable in an action, resTORbio may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect resTORbio’s business, financial condition or results of operations.

 

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If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about resTORbio’s business, resTORbio’s share price and trading volume could decline.

The trading market for resTORbio common stock will be influenced by the research and reports that industry or securities analysts publish about resTORbio or resTORbio’s business. If one or more of the analysts who cover resTORbio issues an adverse opinion about the company, resTORbio’s stock price would likely decline. If one or more of these analysts ceases research coverage of resTORbio or fails to regularly publish reports on resTORbio, resTORbio could lose visibility in the financial markets, which in turn could cause resTORbio’s stock price or trading volume to decline.

resTORbio’s ability to use net operating losses and research and development credits to offset future taxable income may be subject to certain limitations as a result of the merger.

As of December 31, 2019, resTORbio had federal net operating loss carryforwards of $127.0 million, of which $14.0 million will begin to expire in 2036 and $113.0 million can be carried forward indefinitely. As of December 31, 2019, resTORbio had state net operating loss carryforwards of $130.8 million, which begin to expire in various amounts in 2036. As of December 31, 2019, resTORbio also had federal research and development tax credit carryforwards of $3.8 million, which begin to expire in 2037. These net operating loss and tax credit carryforwards could expire unused and be unavailable to offset future income tax liabilities. In addition, in general, under Sections 382 and 383 of the Code, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change net operating losses or tax credits, or NOLs or credits, to offset future taxable income or taxes. For these purposes, an ownership change generally occurs where the aggregate stock ownership of one or more stockholders or groups of stockholders who owns at least 5% of a corporation’s stock increases its ownership by more than 50 percentage points over its lowest ownership percentage within a specified testing period. resTORbio’s existing NOLs or credits may be subject to limitations arising from previous ownership changes. resTORbio has not completed a study to determine whether resTORbio’s public offerings, private placements and other transactions that have occurred over the past three years may have triggered an ownership change limitation. In addition, the merger, if consummated, is expected to constitute an ownership change under Sections 382 and 383 of the Code. resTORbio’s NOLs or credits may also be impaired under state law. Accordingly, resTORbio may not be able to utilize a material portion of resTORbio’s NOLs or credits.

The ability of the combined company to utilize resTORbio’s NOLs or credits following the merger is conditioned upon the combined company attaining profitability and generating U.S. federal and state taxable income. As described under the sections entitled “Risk Factors—Risks Related to resTORbios Financial Position and Need for Capital” and “Risk Factors—Risks Related to Adicets Business and Industry” on pages 36 and 100, respectively, of this proxy statement/prospectus/information statement, each of resTORbio and Adicet has incurred significant net losses since inception and it is anticipated that each will continue to incur significant losses for the foreseeable future; and therefore, resTORbio does not know whether or when the combined company will generate the U.S. federal or state taxable income necessary to utilize resTORbio’s NOL or credit carryforwards that are, or become, subject to limitation by Sections 382 and 383 of the Code.

Risks Related to Adicet

Risks Related to Adicet’s Business and Industry

Adicet has a limited operating history and faces significant challenges and expense as it builds its capabilities.

Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. Adicet began operation in November 2014. Adicet has a limited operating history upon which you can evaluate Adicet’s business and prospects and is subject to the risks inherent in any early stage company, including, among other things, risks that Adicet may not be able to hire sufficient qualified personnel and establish operating controls and procedures. Adicet currently does not have complete in-house resources to

 

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enable its gamma delta T cell platform. As Adicet builds its own capabilities, it expects to encounter risks and uncertainties frequently experienced by growing companies in new and rapidly evolving fields, including the risks and uncertainties described herein. Consequently, any predictions made about Adicet’s future success or viability may not be as accurate as they could be if Adicet had a history of successfully developing and commercializing biopharmaceutical products.

Adicet has incurred net losses in every period since its inception and anticipates that it will incur substantial net losses in the future.

Adicet is a pre-clinical stage biopharmaceutical company. Investment in biopharmaceutical product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to demonstrate adequate effect or an acceptable safety profile, gain regulatory approval and become commercially viable. Adicet’s programs, including ADI-001 and ADI-002, remain in the pre-clinical stage. Adicet has no products approved for commercial sale and has not generated any revenue from product sales to date, and it will continue to incur significant research and development and other expenses related to its ongoing operations. As a result, Adicet is not profitable and has incurred net losses in each period since Adicet’s inception. For the years ended December 31, 2019 and 2018, Adicet reported net losses of $28.1 million and $9.3 million, respectively. As of March 31, 2020, Adicet had an accumulated deficit of $74.1 million.

Adicet expects to incur significant expenditures for the foreseeable future, and it expects these expenditures to increase as it continues its research and development of, and seek regulatory approvals for, product candidates based on its gamma delta T cell platform, including ADI-001 and ADI-002. Even if Adicet succeeds in commercializing one or more of its product candidates, it will continue to incur substantial research and development and other expenditures to develop and market additional product candidates. Adicet may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect its business. The size of Adicet’s future net losses will depend, in part, on the rate of future growth of its expenses and its ability to generate revenue. Adicet’s prior losses and expected future losses have had and will continue to have an adverse effect on its stockholders’ equity and working capital. Further, even if Adicet does achieve profitability, it may not be able to sustain or increase profitability on a quarterly or annual basis. Adicet’s failure to become and remain profitable would depress the value of the combined company and could impair its ability to raise capital, expand its business, maintain its research and development efforts, diversify its product candidates or even continue its operations, any of which could have a material adverse effect on Adicet’s business, financial condition, results of operations, and prospects and cause you to lose all or part of your investment.

Adicet’s history of recurring losses and anticipated expenditures raise substantial doubts about its ability to continue as a going concern. Adicet’s ability to continue as a going concern requires that it obtain sufficient funding to finance its operations.

Adicet has incurred operating losses to date and it is possible Adicet will never generate a profit. Adicet has concluded that substantial doubt exists regarding its ability to continue as a going concern. Adicet’s financial statements included elsewhere in this proxy statement/prospectus/information statement have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of these uncertainties related to Adicet’s ability to operate on a going concern basis.

The report of Adicet’s independent registered public accounting firm on its financial statements as of and for the years ended December 31, 2019 and 2018 includes an explanatory paragraph indicating that there is substantial doubt about Adicet’s ability to continue as a going concern. If Adicet is unable to raise sufficient capital when needed, Adicet’s business, financial condition and results of operations will be harmed, and Adicet will need to significantly modify its operational plans to continue as a going concern. If Adicet is unable to continue as a going concern, Adicet might have to liquidate its assets and the values it receives for its assets in liquidation or

 

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dissolution could be significantly lower than the values reflected in its financial statements. The inclusion of a going concern explanatory paragraph by Adicet’s auditors, its lack of cash resources and its potential inability to continue as a going concern may negatively impact Adicet’s share price and its ability to raise new capital or to enter into critical contractual relations with third parties due to concerns about its ability to meet its contractual obligations.

Adicet’s gamma delta T cell candidates represent a novel approach to cancer treatment that creates significant challenges for Adicet.

Adicet is developing a pipeline of gamma delta T cell product candidates and a novel antibody platform that are intended for use in patient with certain cancers. Advancing these novel product candidates creates significant challenges for Adicet, including:

 

   

manufacturing its product candidates to its specifications and in a timely manner to support its future clinical trials, and, if approved, commercialization;

 

   

sourcing future clinical and, if approved, commercial supplies for the raw materials used to manufacture its product candidates;

 

   

understanding and addressing variability in the quality of a donor’s T cells, which could ultimately affect its ability to produce product in a reliable and consistent manner;

 

   

inability to achieve efficacy in cancer patients following treatment with Adicet’s product candidates;

 

   

achieving a side effect profile, including GvHD, from Adicet product candidates that makes them commercially unattractive for further development;

 

   

educating medical personnel regarding the potential side effect profile of its product candidates, if approved;

 

   

using medicines to manage adverse side effects of its product candidates which may not adequately control the side effects and/or may have a detrimental impact on the efficacy of the treatment;

 

   

conditioning patients with chemotherapy or other lymphodepletion agents in advance of administering Adicet’s product candidates, which may increase the risk of adverse side effects;

 

   

obtaining regulatory approval, as the FDA and other regulatory authorities have limited experience with development of allogeneic T cell therapies for cancer; and

 

   

establishing sales and marketing capabilities upon obtaining any regulatory approval to gain market acceptance of a novel therapy.

The success of Adicet’s business, including its ability to obtain financing and generate any revenue in the future, will primarily depend on the successful development, manufacturing, positive efficacy and safety profile in its clinical trials, regulatory approval and commercialization of Adicet’s novel product candidates, which may never occur. Adicet has not yet succeeded and may not succeed in demonstrating efficacy and safety for any of its product candidates in clinical trials or in obtaining marketing approval thereafter. Given Adicet’s early stage of development, it may be several years, if at all, before Adicet has demonstrated the safety and efficacy of a product candidate sufficient to warrant approval for commercialization. If Adicet is unable to develop, or obtain regulatory approval for, or, if approved, successfully commercialize its product candidates, Adicet may not be able to generate sufficient revenue to continue its business, which could have a material adverse effect on Adicet’s results of operations and prospects.

Adicet’s product candidates are based on novel technologies, which makes it difficult to predict the likely success of such product candidates and the time and cost of product candidate development and obtaining regulatory approval.

Adicet has concentrated its research and development efforts on its allogeneic gamma delta T cell therapy and Adicet’s future success depends on the successful development of this therapeutic approach. Adicet is in the

 

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early stages of developing its platform and product candidates and there can be no assurance that any development problems Adicet has experienced or may experience in the future will not cause significant delays or result in unforeseen issues or unanticipated costs, or that any such development problems or issues can be overcome. Adicet may also experience delays in developing a sustainable, reproducible and scalable manufacturing process or transferring that process to commercial partners, which may prevent it from completing Adicet’s future clinical studies or commercializing its products on a timely or profitable basis, if at all. In addition, Adicet’s expectations with regard to the advantages of an allogenic gamma delta T cell therapy platform relative to other therapies may not materialize or materialize to the degree Adicet anticipates. Further, Adicet’s scalability and costs of manufacturing may vary significantly as Adicet develops its product candidates and understands these critical factors.

In addition, the clinical study requirements of the FDA, EMA and other regulatory agencies and the criteria these regulators use to determine the safety and efficacy of a product candidate are determined according to the type, complexity, novelty and intended use and market of the potential products. The regulatory approval process for novel product candidates such as Adicet’s can be more complex and consequently more expensive and take longer than for other, better known or extensively studied pharmaceutical or other product candidates. Approvals by the EMA and FDA for existing autologous CAR-T therapies, such as Kymriah® and Yescarta®, may not be indicative of what these regulators may require for approval of Adicet’s therapies. Also, while Adicet expects reduced variability in its products candidates compared to autologous products, Adicet does not have significant clinical data supporting any benefit of lower variability. More generally, approvals by any regulatory agency may not be indicative of what any other regulatory agency may require for approval or what such regulatory agencies may require for approval in connection with new product candidates.

Adicet’s product candidates may also not perform successfully in clinical trials or may be associated with adverse events that distinguish them from the autologous CAR-T therapies that have previously been approved or alpha beta T cell therapies that may be approved in the future. Unexpected clinical outcomes could materially and adversely affect Adicet’s business, results of operations and prospects.

Adicet’s business is highly dependent on the success of ADI-001 and ADI-002. If Adicet is unable to obtain approval for ADI-001 or ADI-002 and effectively commercialize ADI-001 or ADI-002 for the treatment of patients in its approved indications, its business would be significantly harmed.

Adicet’s business and future success depends on its ability to obtain regulatory approval of, and then successfully commercialize, its most advanced product candidates, ADI-001 and ADI-002. ADI-001 is in the early stages of development and Adicet intends to file an IND application with the FDA in 2020 and, subject to the FDA regulatory process for review of INDs, initiate a clinical trial of ADI-001 targeting CD20 for the treatment of patients with Non-Hodgkin’s Lymphoma and treat the first patient in the first half of 2021. ADI-002 is also in the early stage of development and Adicet intends to file an IND application with the FDA in 2021 for ADI-002 and, subject to the FDA regulatory process for review of INDs, initiate a clinical trial and treat the first patient with ADI-002 in 2021.

Adicet’s pre-clinical results to date may not predict results for its planned trials or any future studies of ADI-001 and ADI-002 or any other allogeneic gamma delta T cell product candidate. Because of the lack of evaluation of allogeneic products and gamma delta T cell therapy products in the clinic to date, any such product’s failure, or the failure of other allogeneic T cell therapies or gamma delta T cell therapies, may significantly influence physicians’ and regulators’ opinions in regards to the viability of Adicet’s entire pipeline of allogeneic T cell therapies, which could have a material adverse effect on Adicet’s reputation. If Adicet’s gamma delta T cell therapy is viewed as less safe or effective than autologous therapies or other allogeneic T cell therapies, Adicet’s ability to develop other allogeneic gamma delta T cell therapies may be significantly harmed.

All of Adicet’s product candidates, including ADI-001 and ADI-002, will require additional clinical and non-clinical development, regulatory review and approval in multiple jurisdictions, substantial investment, access

 

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to sufficient commercial manufacturing capacity and significant marketing efforts before Adicet can generate any revenue from product sales. In addition, because ADI-001 is Adicet’s most advanced product candidate, and because its other product candidates are based on similar technology, if ADI-001 encounters safety or efficacy problems, manufacturing problems, developmental delays, regulatory issues or other problems, Adicet’s development plans and business would be significantly harmed, which could have a material adverse effect on Adicet’s business, reputation and prospects.

Adicet’s product candidates may cause undesirable side effects or have other properties that could halt their clinical development, prevent their regulatory approval, limit their commercial potential or result in significant negative consequences.

Undesirable or unacceptable side effects caused by Adicet’s product candidates could cause Adicet or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign regulatory authorities. Results of Adicet’s clinical trials could reveal a high and unacceptable severity and prevalence of side effects or unexpected characteristics. Approved autologous CAR T therapies and those under development have shown frequent rates of cytokine release syndrome and neurotoxicity, and adverse events have resulted in the death of patients. While Adicet believes its gamma delta T cell therapy may lessen such results, similar or other adverse events for its allogeneic gamma delta T cell product candidates may occur. In addition, while Adicet anticipates its focus on gamma delta T cells may lessen the likelihood of GvHD relative to therapies relying on unrelated alpha beta T cells, similar or other adverse events for its allogeneic gamma delta T cell product candidates may occur.

If unacceptable toxicities arise in the development of Adicet’s product candidates, Adicet could suspend or terminate its trials or the FDA or comparable foreign regulatory authorities could order it to cease clinical trials or deny approval of its product candidates for any or all targeted indications. The data safety monitoring board may also suspend or terminate a clinical trial at any time on various grounds, including a finding that the research patients are being exposed to an unacceptable health risk, including risks inferred from other unrelated immunotherapy trials. Treatment-related side effects could also affect patient recruitment or the ability of enrolled subjects to complete the trial or result in potential product liability claims. Novel therapeutic candidates, such as those developed by Adicet, may result in novel side effect profiles that may not be appropriately recognized or managed by the treating medical staff. Adicet anticipates having to train medical personnel using Adicet’s product candidates to understand the side effect profile of Adicet’s product candidates for Adicet’s clinical trials and upon any commercialization of any of Adicet’s product candidates. Inadequate training in recognizing or managing the potential side effects of Adicet’s product candidates could result in serious adverse events including patient deaths. Based on available preclinical data and on management’s clinical experience with other cell therapy agents, the safety profile of Adicet’s pipeline product candidates are expected to include cytokine release syndrome, neurotoxicity, and possibly additional adverse events. Any of these occurrences may have a material adverse effect Adicet’s business, financial condition and prospects.

Adicet’s clinical trials may fail to demonstrate the safety and efficacy of any of its product candidates, which would prevent or delay regulatory approval and commercialization.

Before obtaining regulatory approvals for the commercial sale of Adicet’s product candidates, including ADI-001 and ADI-002, Adicet must demonstrate through lengthy, complex and expensive preclinical testing and clinical trials that its product candidates are both safe and effective for use in each target indication. Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. The results of preclinical studies and early clinical trials of Adicet’s product candidates may not be predictive of the results of later-stage clinical trials.

There is typically an extremely high rate of attrition from the failure of product candidates proceeding through clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy profile despite having progressed through preclinical studies and initial clinical trials. A number of companies in

 

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the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy, insufficient durability of efficacy or unacceptable safety issues, notwithstanding promising results in earlier trials. Most product candidates that commence clinical trials are never approved as products.

In addition, for ADI-001 and ADI-002 and any future trials that may be completed, Adicet cannot guarantee that the FDA or foreign regulatory authorities will interpret the results as Adicet does, and more trials could be required before Adicet submits its product candidates for approval. To the extent that the results of the trials are not satisfactory to the FDA or foreign regulatory authorities for support of a marketing application, approval of Adicet’s product candidates may be significantly delayed, or Adicet may be required to expend significant additional resources, which may not be available to it, to conduct additional trials in support of potential approval of Adicet’s product candidates. Any of the foregoing could have a material adverse effect on Adicet’s business, prospects and financial condition.

Interim “top line” and preliminary data from Adicet’s clinical trials that Adicet may announce or publish from time to time may change as more patient data becomes available and are subject to audit and verification procedures that could result in material changes in the final data.

From time to time, Adicet may publish interim “top line” or preliminary data from Adicet’s clinical studies. Interim data from clinical trials that Adicet may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available.

Preliminary or “top line” data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data Adicet previously published. As a result, interim and preliminary data should be viewed with caution until the final data are available. Adverse differences between preliminary or interim data and final data could significantly harm Adicet’s business prospects.

Adicet may not be able to file INDs to commence additional clinical trials on the timelines it expects, and even if Adicet is able to, the FDA may not permit it to proceed.

Adicet plans to submit an IND to the FDA in 2020 and, subject to the FDA regulatory process for review of INDs, initiate a clinical trial of ADI-001 targeting CD20 for the treatment of patients with Non-Hodgkin’s Lymphoma and treat the first patient in the first half of 2021. Additionally, Adicet intends to file an IND application with the FDA in 2021 for ADI-002 and, subject to the FDA regulatory process for review of INDs, initiate a clinical trial and treat the first patient with ADI-002 in 2021. Adicet currently expects to submit INDs for additional product candidates in its pipeline in 2022 and 2023. However, Adicet’s timing of filing on these product candidates is dependent on further pre-clinical and manufacturing success, which Adicet works on with various third parties, as well as on timing of research and development with respect to product candidates that are in the early stages of development. Adicet cannot be sure that it will be able to submit its IND in a timely manner, if at all, or that submission of an IND or IND amendment will result in the FDA allowing testing and clinical trials to begin, or that, once begun, issues will not arise that suspend or terminate such clinical trials. Additionally, even if such regulatory authorities agree with the design and implementation of the clinical trials set forth in an IND or clinical trial application, Adicet cannot guarantee that such regulatory authorities will not change their requirements in the future. The inability to initiate a clinical trial on ADI-001 or ADI-002, or any of Adicet’s additional product candidates, on the timelines currently anticipated or at all could have a material adverse effect on Adicet’s business, results of operations and prospects.

Adicet may encounter substantial delays in its clinical trials, or may not be able to conduct its trials on the timelines Adicet expects.

Clinical testing is expensive, time consuming and subject to uncertainty. Adicet cannot guarantee that any clinical studies will be conducted as planned or completed on schedule, if at all. Even if these trials begin as planned, issues may arise that could suspend or terminate such clinical trials. A failure of one or more clinical

 

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studies can occur at any stage of testing, and Adicet’s future clinical studies may not be successful. Events that may prevent successful or timely completion of clinical development include:

 

   

inability to generate sufficient preclinical, toxicology or other in vivo or in vitro data to support the initiation of clinical studies;

 

   

delays in sufficiently developing, characterizing or controlling a manufacturing process suitable for advanced clinical trials;

 

   

delays in developing suitable assays for screening patients for eligibility for trials with respect to certain product candidates;

 

   

delays in reaching a consensus with regulatory agencies on study design;

 

   

delays in reaching agreement on acceptable terms with prospective CROs and clinical study sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and clinical study sites;

 

   

delays in obtaining required institutional review board (IRB) approval at each clinical study site;

 

   

imposition of a temporary or permanent clinical hold by regulatory agencies for a number of reasons, including after review of an IND application or amendment, or equivalent application or amendment; as a result of a safety finding that presents unreasonable risk to clinical trial participants; a negative finding from an inspection of Adicet’s clinical study operations or study sites; developments on trials conducted by competitors for related technology that raises FDA concerns about risk to patients of the technology broadly; or if FDA finds that the investigational protocol or plan is clearly deficient to meet its stated objectives;

 

   

delays in recruiting suitable patients to participate in Adicet’s clinical studies;

 

   

difficulty collaborating with patient groups and investigators;

 

   

failure by Adicet CROs, other third parties or it to adhere to clinical study requirements;

 

   

failure to perform in accordance with the FDA’s good clinical practice (GCP) requirements or applicable regulatory guidelines in other countries;

 

   

transfer of manufacturing processes to any new clinical manufacturing organization (referred to as a “CMO”) or Adicet’s own manufacturing facilities or any other development or commercialization partner for the manufacture of product candidates;

 

   

delays in having patients complete participation in a study or return for post-treatment follow-up;

 

   

patients dropping out of a study;

 

   

occurrence of adverse events associated with the product candidate that are viewed to outweigh its potential benefits;

 

   

changes in regulatory requirements and guidance that require amending or submitting new clinical protocols;

 

   

changes in the standard of care on which a clinical development plan was based, which may require new or additional trials;

 

   

the cost of clinical studies of Adicet’s product candidates being greater than Adicet anticipates;

 

   

clinical studies of Adicet’s product candidates producing negative or inconclusive results, which may result in Adicet deciding, or regulators requiring Adicet, to conduct additional clinical studies or abandon product development programs;

 

   

delays or failure to secure supply agreements with suitable raw material suppliers, or any failures by suppliers to meet Adicet quantity or quality requirements for necessary raw materials; and

 

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delays in manufacturing, testing, releasing, validating, or importing/exporting sufficient stable quantities of Adicet’s product candidates for use in clinical studies or the inability to do any of the foregoing.

Adicet’s timing of filing on these product candidates is dependent on further pre-clinical and manufacturing success, which Adicet works on with various third parties. Adicet cannot be sure that it will be able to submit its IND in a timely manner, if at all, or that submission of an IND or IND amendment will result in the FDA allowing testing and clinical trials to begin, or that, once begun, issues will not arise that suspend or terminate such clinical trials. Additionally, even if such regulatory authorities agree with the design and implementation of the clinical trials set forth in an IND or clinical trial application, Adicet cannot guarantee that such regulatory authorities will not change their requirements in the future.

Any inability to successfully complete preclinical and clinical development could result in additional costs to Adicet or impair Adicet’s ability to generate revenue. In addition, if Adicet makes manufacturing or formulation changes to its product candidates, Adicet may be required to or Adicet may elect to conduct additional studies to bridge Adicet’s modified product candidates to earlier versions. Clinical study delays could also shorten any periods during which Adicet’s products have patent protection and may allow Adicet’s competitors to bring products to market before Adicet does, which could impair Adicet’s ability to successfully commercialize Adicet’s product candidates and may harm Adicet’s business and results of operations.

Monitoring safety of patients receiving Adicet’s product candidates is challenging, which could adversely affect Adicet’s ability to obtain regulatory approval and commercialize.

In Adicet’s planned clinical trials of its product candidates, Adicet has contracted with and is expected to continue to contract with academic medical centers and hospitals experienced in the assessment and management of toxicities arising during clinical trials. Nonetheless, these centers and hospitals may have difficulty observing patients and treating toxicities, which may be more challenging due to personnel changes, inexperience, shift changes, house staff coverage or related issues. This could lead to more severe or prolonged toxicities or even patient deaths, which could result in Adicet or the FDA delaying, suspending or terminating one or more of Adicet’s clinical trials, and which could jeopardize regulatory approval. Medicines used at centers to help manage adverse side effects of ADI-001 and ADI-002 may not adequately control the side effects and/or may have a detrimental impact on the efficacy of the treatment. Use of these medicines may increase with new physicians and centers administering Adicet’s product candidates, any of which could have a material adverse effect on Adicet’s ability to obtain regulatory approval and commercialize on the timelines anticipated or at all, which could have a material adverse effect on Adicet’s business and results of operations.

If Adicet encounters difficulties enrolling patients in Adicet’s clinical trials, Adicet’s clinical development activities could be delayed or otherwise adversely affected.

Adicet may experience difficulties in patient enrollment in Adicet’s clinical trials for a variety of reasons, including, without limitation, the impact of the COVID-19 pandemic. The timely completion of clinical trials in accordance with their protocols depends, among other things, on Adicet’s ability to enroll a sufficient number of patients who remain in the study until its conclusion. The enrollment of patients depends on many factors, including:

 

   

the patient eligibility criteria defined in the protocol;

 

   

the size of the patient population required for analysis of the trial’s primary endpoints;

 

   

the proximity of patients to study sites;

 

   

the design of the trial;

 

   

Adicet’s ability to recruit clinical trial investigators with the appropriate competencies and experience;

 

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Adicet’s ability to obtain and maintain patient consents; and

 

   

the risk that patients enrolled in clinical trials will drop out of the trials before the infusion of Adicet’s product candidates or trial completion.

Adicet intends to conduct a number of clinical trials for product candidates in the fields of cancer and other indications in geographies which are affected by COVID-19 pandemic. Adicet believes that the coronavirus pandemic will have an impact on various aspects of its future clinical trials. For example, investigators may not want to take the risk of exposing cancer patients to COVID-19 since the dosing of patients is conducted within an in-patient setting. Other potential impacts of the COVID-19 pandemic on Adicet’s future various clinical trials include patient dosing and study monitoring, which may be paused or delayed due to changes in policies at various clinical sites, federal, state, local or foreign laws, rules and regulations, including quarantines or other travel restrictions, prioritization of healthcare resources toward pandemic efforts, including diminished attention of physicians serving as Adicet’s clinical trial investigators and reduced availability of site staff supporting the conduct of its clinical trials, interruption or delays in the operations of the government regulators, or other reasons related to the COVID-19 pandemic. It is unknown how long these pauses or disruptions could continue.

In addition, Adicet’s clinical trials will compete with other clinical trials for product candidates that are in the same therapeutic areas as Adicet’s product candidates, and this competition will reduce the number and types of patients available to Adicet because some patients who might have opted to enroll in Adicet trials may instead opt to enroll in a trial being conducted by one of Adicet’s competitors. Since the number of qualified clinical investigators is limited, some of Adicet’s clinical trial sites are also being used by some of Adicet’s competitors, which may reduce the number of patients who are available for Adicet’s clinical trials in that clinical trial site.

Moreover, because Adicet’s product candidates represent unproven methods for cancer treatment, potential patients and their doctors may be inclined to use conventional therapies, such as chemotherapy and hematopoietic cell transplantation or autologous CAR-T cell therapies, rather than enroll patients in Adicet’s clinical trial. Patients eligible for allogeneic CAR-T cell therapies but ineligible for autologous CAR T cell therapies due to aggressive cancer and inability to wait for autologous CAR-T cell therapies may be at greater risk for complications and death from therapy.

Delays in patient enrollment may result in increased costs or may affect the timing or outcome of Adicet’s ongoing clinical trial and planned clinical trials, which could prevent completion of these trials and adversely affect Adicet’s ability to advance the development of Adicet’s product candidates.

Clinical trials are expensive, time-consuming and difficult to design and implement.

Human clinical trials are expensive and difficult to design and implement, in part because they are subject to rigorous regulatory requirements. Because Adicet’s gamma delta T cell product candidates are based on new technologies and will require the creation of inventory of mass-produced, off-the-shelf products, Adicet expects that it will require extensive research and development and have substantial manufacturing and processing costs. In addition, costs to treat patients with Non Hodgkin’s lymphoma cancer and to treat potential side effects that may result from Adicet’s product candidates can be significant. Accordingly, Adicet’s clinical trial costs are likely to be significantly higher than for more conventional therapeutic technologies or drug products, which is expected to have a material adverse effect on Adicet’s financial position and ability to achieve profitability.

The market opportunities for Adicet’s product candidates may be limited to those patients who are ineligible for or have failed prior treatments and may be small.

The FDA often approves new therapies initially only for use in patients who are currently not adequately treated with currently approved therapies. Adicet expects to initially seek approval of ADI-001 and ADI-002 and Adicet’s other product candidates in this setting. Subsequently, for those products that prove to be sufficiently

 

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beneficial, if any, Adicet would expect to seek approval in earlier lines of treatment and potentially as a first line therapy. There is no guarantee that Adicet’s product candidates, even if approved, would be approved for earlier lines of therapy, and, prior to any such approvals, Adicet will have to conduct additional clinical trials, including potentially comparative trials against approved therapies. Adicet is also targeting a similar patient population as autologous CART product candidates, including approved autologous CART products. Adicet’s therapies may not be as safe and effective as autologous CART therapies and may only be approved for patients who are ineligible for autologous CART therapy.

Adicet’s projections of both the number of people who have the cancers Adicet is targeting, as well as the subset of people with these cancers in a position to receive second or later lines of therapy and who have the potential to benefit from treatment with Adicet’s product candidates, are based on Adicet’s beliefs and estimates. These estimates have been derived from a variety of sources, including scientific literature, patient foundations, or market research and may prove to be incorrect. Further, new studies may change the estimated incidence or prevalence of these cancers. The number of patients may turn out to be lower than expected. Additionally, the potentially addressable patient population for Adicet’s product candidates may be limited or may not be amenable to treatment with Adicet’s product candidates. Even if Adicet obtains significant market share for its product candidates, because the potential target populations are small, Adicet may never achieve profitability without obtaining regulatory approval for additional indications.

If Adicet fails to develop additional product candidates, Adicet’s commercial opportunity will be limited.

One of Adicet’s core strategies is to pursue clinical development of additional product candidates beyond ADI-001 and ADI-002. Developing, obtaining regulatory approval and commercializing additional gamma delta T cell product candidates will require substantial additional funding and is prone to the risks of failure inherent in medical product development. Adicet cannot provide you any assurance that it will be able to successfully advance any of these additional product candidates through the development process.

Even if Adicet receives FDA approval to market additional product candidates for the treatment of cancer, Adicet cannot assure you that any such product candidates will be successfully commercialized, widely accepted in the marketplace or more effective than other commercially available alternatives. If Adicet is unable to successfully develop and commercialize additional product candidates, Adicet’s commercial opportunity will be limited. Moreover, a failure in obtaining regulatory approval of additional product candidates may have a negative effect on the approval process of any other, or result in losing approval of any approved, product candidate which could have a material adverse effect on Adicet’s business and prospects.

Adicet does not currently operate its own manufacturing facility, which would require significant resources and any failure to successful manufacture its products could adversely affect Adicet’s clinical trials and the commercial viability of Adicet’s product candidates.

Adicet may not be able to achieve clinical or commercial manufacturing and cell processing on its own or through its CMOs, including mass-producing off-the-shelf product to satisfy demands for any of Adicet’s product candidates. Very few companies have experience in manufacturing gamma delta T cell therapy derived from blood of healthy donors and gamma delta T cells require several complex manufacturing steps before being available as a mass-produced, off-the-shelf product. While Adicet believes its manufacturing and processing approaches are appropriate to support Adicet’s clinical product development, Adicet has limited experience in managing the allogeneic gamma delta T cell engineering process, and Adicet’s allogeneic processes may be more difficult or more expensive than the approaches taken by Adicet’s competitors. Adicet cannot be sure that the manufacturing processes employed by or on its behalf will result in T cells that will be safe and effective.

Adicet’s operations remain subject to review and oversight by the FDA and the FDA could object to Adicet’s use of any manufacturing facilities. Adicet must first receive approval from the FDA prior to licensure to manufacture Adicet’s product candidates, which Adicet may never obtain. Even if approved, Adicet would be

 

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subject to ongoing periodic unannounced inspection by the FDA and corresponding state agencies to ensure strict compliance with current good manufacturing practices (cGMPs) and other government regulations. Adicet’s license to manufacture product candidates will be subject to continued regulatory review.

Adicet’s cost of goods development is at an early stage. The actual cost to manufacture and process Adicet’s product candidates could be greater than Adicet expects and could materially and adversely affect the commercial viability of its product candidates.

The manufacture of biopharmaceutical products is complex and requires significant expertise, including the development of advanced manufacturing techniques and process controls. Manufacturers of cell therapy products often encounter difficulties in production, particularly in scaling out and validating initial production and ensuring the absence of contamination. These problems include difficulties with production costs and yields, quality control, including stability of the product, quality assurance testing, operator error, shortages of qualified personnel, as well as compliance with strictly enforced federal, state and foreign regulations. Furthermore, if contaminants are discovered in Adicet’s supply of product candidates or in the manufacturing facilities, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination. Adicet cannot assure you that any stability or other issues relating to the manufacture of Adicet’s product candidates will not occur in the future.

Adicet may fail to manage the logistics of storing and shipping Adicet’s product candidates. Storage failures and shipment delays and problems caused by Adicet, Adicet’s vendors or other factors not in Adicet’s control, such as weather, could result in loss of usable product or prevent or delay the delivery of product candidates to patients.

Adicet may also experience manufacturing difficulties due to resource constraints or as a result of labor disputes. If Adicet were to encounter any of these difficulties, Adicet’s ability to provide Adicet’s product candidates to patients would be jeopardized, which could have a material adverse effect on Adicet’s business, results of operations and prospects.

Adicet currently has no marketing and sales organization and as a company has no experience in marketing products. If Adicet is unable to establish marketing and sales capabilities or enter into agreements with third parties to market and sell Adicet’s product candidates, Adicet may not be able to generate product revenue.

Adicet currently has no sales, marketing or distribution capabilities and as a company has no experience in marketing products. Adicet may develop a marketing organization and sales force, which will require significant capital expenditures, management resources and time. Adicet will have to compete with other pharmaceutical and biotechnology companies to recruit, hire, train and retain marketing and sales personnel.

If Adicet is unable or decides not to establish internal sales, marketing and distribution capabilities, Adicet will pursue collaborative arrangements regarding the sales and marketing of Adicet’s products; however, there can be no assurance that Adicet will be able to establish or maintain such collaborative arrangements, or if Adicet is able to do so, that it will have effective sales forces. Any revenue Adicet receives will depend upon the efforts of such third parties, which may not be successful. Adicet may have little or no control over the marketing and sales efforts of such third parties and Adicet’s revenue from product sales may be lower than if Adicet had commercialized Adicet’s product candidates themselves. Adicet also faces competition in its search for third parties to assist it with the sales and marketing efforts of Adicet’s product candidates.

There can be no assurance that Adicet will be able to develop in-house sales and distribution capabilities or establish or maintain relationships with third-party collaborators to commercialize any product that receives regulatory approval in the United States or overseas. If Adicet is unable to successfully market and distribute its products, Adicet’s business, results of operations and prospects could be materially adversely effected.

 

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A variety of risks associated with conducting research and clinical trials abroad and marketing Adicet’s product candidates internationally could materially adversely affect Adicet’s business.

Adicet plans to globally develop its product candidates. Accordingly, Adicet expects that it will be subject to additional risks related to operating in foreign countries, including:

 

   

differing regulatory requirements in foreign countries;

 

   

unexpected changes in tariffs, trade barriers, price and exchange controls and other regulatory requirements;

 

   

increased difficulties in managing the logistics and transportation of storing and shipping product candidates produced in the United States and shipping the product candidate to the patient abroad;

 

   

import and export requirements and restrictions;

 

   

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

 

   

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

 

   

foreign taxes, including withholding of payroll taxes;

 

   

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

 

   

difficulties staffing and managing foreign operations;

 

   

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

 

   

differing payor reimbursement regimes, governmental payors or patient self-pay systems, and price controls;

 

   

potential liability under the Foreign Corrupt Practices Act of 1977 or comparable foreign regulations;

 

   

challenges enforcing Adicet’s contractual and intellectual property rights, especially in those foreign countries that do not respect and protect intellectual property rights to the same extent as the United States;

 

   

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

 

   

business interruptions resulting from geo-political actions, including war and terrorism.

These and other risks associated with Adicet’s potential international operations may materially adversely affect Adicet’s ability to attain or maintain profitable operations, which could have a material adverse effect on Adicet’s business and results of operations.

Adicet faces significant competition from other biotechnology and pharmaceutical companies, and Adicet’s operating results will suffer if Adicet fails to compete effectively.

The biopharmaceutical industry, and the immuno-oncology industry specifically, is characterized by intense competition and rapid innovation. Adicet’s competitors may be able to develop other compounds or drugs that are able to achieve similar or better results. Adicet’s potential competitors include major multinational pharmaceutical companies, established biotechnology companies, specialty pharmaceutical companies and universities and other research institutions. Many of Adicet’s competitors have substantially greater financial, technical and other resources, such as larger research and development staff and experienced marketing and manufacturing organizations and well-established sales forces. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies.

 

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Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in its competitors. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries. Adicet’s competitors, either alone or with collaborative partners, may succeed in developing, acquiring or licensing on an exclusive basis drug or biologic products that are more effective, safer, more easily commercialized or less costly than Adicet’s product candidates or may develop proprietary technologies or secure patent protection that Adicet may need for the development of Adicet’s technologies and products.

Specifically, engineered T cells face significant competition in both the CAR and TCR technology space from multiple companies. Even if Adicet obtains regulatory approval of Adicet’s product candidates, the availability and price of Adicet’s competitors’ products could limit the demand and the price Adicet is able to charge for Adicet’s product candidates. Adicet may not be able to implement its business plan if the acceptance of its product candidates is affected by price competition or the reluctance of physicians to switch from existing methods of treatment to Adicet’s product candidates, or if physicians switch to other new drug or biologic products or choose to reserve Adicet’s product candidates for use in limited circumstances.

Adicet is highly dependent on Adicet’s key personnel, and if Adicet is not successful in attracting and retaining highly qualified personnel, Adicet may not be able to successfully implement its business strategy.

Adicet’s ability to compete in the highly competitive biotechnology and pharmaceutical industries depends upon its ability to attract and retain highly qualified managerial, scientific and medical personnel. Adicet is highly dependent on Adicet’s management, scientific and medical personnel. The loss of the services of any of Adicet’s executive officers, other key employees, and other scientific and medical advisors, and its inability to find suitable replacements could result in delays in product development and harm Adicet’s business.

Adicet conducts substantially all of its operations at its facilities in the San Francisco Bay Area. This region is headquarters to many other biopharmaceutical companies and many academic and research institutions. Competition for skilled personnel in this market is intense and may limit Adicet’s ability to hire and retain highly qualified personnel on acceptable terms or at all.

To induce valuable employees to remain at the company, in addition to salary and cash incentives, Adicet has provided stock options that vest over time. The value to employees of stock options that vest over time may be significantly affected by fluctuations in Adicet’s stock price that are beyond Adicet’s control and may at any time be insufficient to counteract more lucrative offers from other companies. Despite Adicet’s efforts to retain valuable employees, members of Adicet’s management, scientific and development teams may terminate their employment with Adicet on short notice. Although Adicet has employment agreements with its key employees, these employment agreements provide for at-will employment, which means that any of Adicet’s employees could leave Adicet’s employment at any time, with or without notice. Adicet does not maintain “key person” insurance policies on the lives of these individuals or the lives of any of Adicet’s other employees. Adicet’s success also depends on Adicet’s ability to continue to attract, retain and motivate highly skilled junior, mid-level and senior managers as well as junior, mid-level and senior scientific and medical personnel.

Adicet has grown rapidly and will need to continue to grow the size of its organization, and it may experience difficulties in managing this growth.

As Adicet’s development and commercialization plans and strategies develop, and as Adicet transitions into operating as a public company, Adicet has rapidly expanded its employee base and expects to continue to add managerial, operational, sales, research and development, marketing, financial and other personnel. Current and future growth imposes significant added responsibilities on members of management, including:

 

   

identifying, recruiting, integrating, maintaining and motivating additional employees;

 

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managing Adicet’s internal development efforts effectively, including the clinical and FDA review process for Adicet’s product candidates, while complying with Adicet’s contractual obligations to contractors and other third parties; and

 

   

improving Adicet’s operational, financial and management controls, reporting systems and procedures.

Adicet’s future financial performance and its ability to commercialize Adicet’s product candidates will depend, in part, on its ability to effectively manage its growth, and Adicet’s management may also have to divert a disproportionate amount of its attention away from day-to-day activities in order to devote a substantial amount of time to managing these growth activities.

Adicet currently relies, and for the foreseeable future will continue to rely, in substantial part on certain independent organizations, advisors and consultants, which expire after a certain period of time, to provide certain services, including certain research and development as well as general and administrative support. There can be no assurance that the services of independent organizations, advisors and consultants will continue to be available to Adicet on a timely basis when needed, or that Adicet can find qualified replacements. In addition, if Adicet is unable to effectively manage Adicet’s outsourced activities or if the quality or accuracy of the services provided by consultants is compromised for any reason, Adicet’s clinical trials may be extended, delayed or terminated, and Adicet may not be able to obtain regulatory approval of its product candidates or otherwise advance its business. There can be no assurance that Adicet will be able to manage Adicet’s existing consultants or find other competent outside contractors and consultants on economically reasonable terms, or at all.

If Adicet is not able to effectively expand its organization by hiring new employees and expanding Adicet’s groups of consultants and contractors, Adicet may not be able to successfully implement the tasks necessary to further develop and commercialize Adicet’s product candidates and, accordingly, may not achieve its research, development and commercialization goals, which could have a material adverse effect on Adicet’s business, results of operations and prospects.

Adicet may form or seek strategic alliances or enter into additional licensing arrangements in the future, and Adicet may not realize the benefits of such alliances or licensing arrangements.

Adicet may form or seek strategic alliances, create joint ventures or collaborations or enter into additional licensing arrangements with third parties that Adicet believes will complement or augment Adicet development and commercialization efforts with respect to Adicet’s product candidates and any future product candidates that Adicet may develop. Any of these relationships may require Adicet to incur non-recurring and other charges, increase its near and long-term expenditures, issue securities that dilute Adicet’s existing stockholders or disrupt its management and business. In addition, Adicet faces significant competition in seeking appropriate strategic partners and the negotiation process is time-consuming and complex. Moreover, Adicet may not be successful in its efforts to establish a strategic partnership or other alternative arrangements for Adicet’s product candidates because they may be deemed to be at too early of a stage of development for collaborative effort and third parties may not view Adicet’s product candidates as having the requisite potential to demonstrate safety and efficacy. Any delays in entering into new strategic partnership agreements related to Adicet’s product candidates could delay the development and commercialization of Adicet’s product candidates in certain geographies for certain indications, which would harm Adicet’s business prospects, financial condition and results of operations.

If Adicet licenses products or businesses, Adicet may not be able to realize the benefit of such transactions if Adicet is unable to successfully integrate them with Adicet’s existing operations and company culture. For instance, Adicet’s Exclusive License and Collaboration Agreement with Regeneron requires significant research and development commitments that may not result in the development and commercialization of product candidates. Adicet cannot be certain that, following a strategic transaction or license, Adicet will achieve the results, revenue or specific net income that justifies such transaction, which could have a material adverse effect on Adicet’s business and results of operations.

 

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Adicet will need substantial additional financing to develop Adicet’s products and implement Adicet’s operating plans. If Adicet fails to obtain additional financing, Adicet may be unable to complete the development and commercialization of Adicet’s product candidates.

Adicet expects to spend a substantial amount of capital in the clinical development of Adicet’s product candidates, including the planned clinical trials for ADI-001 and ADI-002. Adicet will need substantial additional financing to develop Adicet’s products and implement Adicet’s operating plans. In particular, Adicet will require substantial additional financing to enable commercial production of Adicet’s products and initiate and complete registration trials for multiple products. Further, if approved, Adicet will require significant additional amounts in order to launch and commercialize Adicet’s product candidates.

Adicet believes that its cash, cash equivalents and marketable debt securities will not be sufficient for Adicet to continue as a going concern for at least one year from the issuance date of the accompanying consolidated financial statements. However with funding that Adicet expects to receive under its existing collaborations, together with the existing cash, cash equivalents and investments of resTORbio, assuming the successful completion of the merger, Adicet expects it will be able to fund its operating expenses and capital expenditure requirements through at least December 31, 2021. However, changing circumstances may cause it to consume capital significantly faster than Adicet currently anticipates, and Adicet may need to spend more money than currently expected because of circumstances beyond its control. Adicet may require additional capital for the further development and commercialization of its product candidates, including funding Adicet internal manufacturing capabilities and may need to raise additional funds sooner if Adicet chooses to expand more rapidly than Adicet presently anticipates.

Adicet cannot be certain that additional funding will be available on acceptable terms, or at all. Other than the funding agreement and its loan agreement with Pacific Western Bank, Adicet has no committed source of additional capital and if it is unable to raise additional capital in sufficient amounts or on terms acceptable to it, Adicet may have to significantly delay, scale back or discontinue the development or commercialization of Adicet’s product candidates or other research and development initiatives. Adicet’s license agreements may also be terminated if Adicet is unable to meet the payment obligations under the agreements. Adicet could be required to seek collaborators for Adicet’s product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available or relinquish or license on unfavorable terms Adicet’s rights to Adicet’s product candidates in markets where Adicet otherwise would seek to pursue development or commercialization themselves. Additionally, Adicet may not be able to incur indebtedness if the ongoing macroeconomic effects of the COVID-19 pandemic, including certain actions taken by U.S. or other governmental authorities, such as decreases in short-term interest rates as announced by the Federal Reserve, cause the closure of banks for an extended period of time or a sudden increase in requests for indebtedness at one time by many potential borrowers, either or both of which could overwhelm the banking industry.

Any of the above events could significantly harm Adicet’s business, prospects, financial condition and results of operations and cause the price of the combined company’s common stock to decline.

Business disruptions could seriously harm Adicet’s future revenue and financial condition and increase Adicet’s costs and expenses.

Adicet’s operations, and those of Adicet’s CMO, CROs and other contractors and consultants, could be subject to earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics, such as the COVID-19 pandemic, and other natural or man-made disasters or business interruptions. The occurrence of any of these business disruptions could seriously harm Adicet’s operations and financial condition and increase its costs and expenses.

Adicet’s ability to manufacture Adicet’s product candidates could be disrupted if Adicet’s operations or those of Adicet’s suppliers are affected by a man-made or natural disaster or other business interruption. Adicet’s

 

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corporate headquarters are located in California near major earthquake faults and fire zones. The ultimate impact on Adicet, its significant suppliers and its general infrastructure of being located near major earthquake faults and fire zones and being consolidated in certain geographical areas is unknown, but Adicet’s operations and financial condition could suffer in the event of a major earthquake, fire or other natural disaster.

A pandemic, epidemic or outbreak of an infectious disease, such as COVID-19, may materially and adversely affect Adicet’s business and operations.

Adicet’s business, financial position, results of operations or cash flows may be affected by the ongoing global COVID-19 pandemic and the resulting volatility and uncertainty it has caused, and is likely to continue to cause, in the U.S. and international markets, including as a result of prolonged economic downturn or recession. On March 11, 2020, the World Health Organization declared the recent outbreak of COVID-19 a pandemic. As a result, national, state and local authorities have recommended social distancing and imposed or are considering quarantine, shelter-in-place, curfew and similar isolation measures, including government orders and other restrictions on the conduct of business operations, which has resulted in significant unemployment levels, decreased productivity, decreases in certain non-COVID-19 healthcare activities and healthcare utilization. Such measures have had, and are likely to continue to have, adverse impacts on the U.S. economy of uncertain severity and duration and may negatively impact Adicet’s operations and those of third parties on which Adicet relies, including by causing disruptions in the supply of its product candidates and the conduct of current and future clinical trials. In addition, the COVID-19 pandemic may affect the operations of the FDA and other health authorities, which could result in delays of reviews and approvals, including with respect to Adicet’s product candidates. The evolving COVID-19 pandemic is also likely to directly or indirectly impact the pace of enrollment in Adicet’s future clinical trials as patients may avoid or may not be able to travel to healthcare facilities and physicians’ offices unless due to a health emergency, and clinical trial sites may be less willing to enroll patients in clinical trials that may compromise a person’s immune system. Such facilities and offices may also be required to focus limited resources on non-clinical trial matters, including treatment of COVID-19 patients, and may not be available, in whole or in part, for clinical trial services related to ADI-001 or ADI-002 or Adicet’s other product candidates. Additionally, while the potential economic impact brought by, and the duration of the COVID-19 pandemic is difficult to assess or predict, the impact of the COVID-19 pandemic on the global financial markets may reduce Adicet’s ability to access capital, which could negatively impact Adicet’s short-term and long-term liquidity. The ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change. Due to the uncertain and rapidly evolving nature of current conditions in the United States and around the world, Adicet cannot reasonably estimate the length or severity of the COVID-19 pandemic or the related response, including the length of time it may take for normal economic and operating conditions to resume. Adicet does not yet know the full extent of potential delays or impacts on its business, financing or clinical trial activities or on healthcare systems or the global economy as a whole. However, any of the foregoing risks, or other unforeseen risks related to the COVID-19 pandemic, could have a material impact on Adicet’s liquidity, capital resources, operations and business and those of the third parties on which it relies.

Inadequate funding for the FDA and other government agencies, or disruptions in their staffing levels related to the COVID-19 global pandemic, could hinder their ability to hire and retain key leadership and other personnel, prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal business functions on which the approval of Adicet’s product candidates rely, which would negatively impact its business.

The ability of the FDA to review and approve new products can be affected by a variety of factors, includin