Table of Contents

As filed with the Securities and Exchange Commission on May 13, 2019

Registration No. 333-230637

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

Amendment No. 1 to

FORM S-4

REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933

XENETIC BIOSCIENCES, INC.

(Exact name of registrant as specified in its charter)

40 Speen Street, Suite 102

Framingham, Massachusetts

(781) 778-7720

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

James F. Parslow

Chief Financial Officer
40 Speen Street, Suite 102

Framingham, Massachusetts

(781) 778-7720

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

With a copy to:

Michael Francis, Esq.
Christina C. Russo, Esq.
Akerman LLP
350 East Las Olas Boulevard, Suite 1600
Fort Lauderdale, Florida 33301
(954) 463-2700

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement and upon completion of the merger described in the accompanying joint proxy statement/prospectus.

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, 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, a smaller reporting company, or 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.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for comply with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of 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 13e-4(i) (Cross-Border Issuer Tender Offer) ☐

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

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 which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), may determine.

Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This proxy statement/prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation, or sale would be unlawful.

SUBJECT TO COMPLETION— DATED MAY 13, 2019

XENETIC BIOSCIENCES, INC.

40 Speen Street, Suite 102

Framingham, Massachusetts 01701

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

To Be Held On June 19, 2019

Dear Stockholder:

You are cordially invited to attend a Special Meeting of Stockholders (the “Special Meeting”) of XENETIC BIOSCIENCES, INC., a Nevada corporation (the “Company”). The Special Meeting will be held on Wednesday, June 19, 2019 at 10:00 a.m. local time at the offices of Akerman LLP, 350 East Las Olas Boulevard, Suite 1600, Fort Lauderdale, Florida 33301 for the following purposes:

1.          To approve the transaction pursuant to which the Company will acquire the XCART platform technology, as described in the proxy statement/prospectus accompanying this Notice (the “Transaction”). In connection with the Transaction, the Company entered into a Share Purchase Agreement, dated as of March 1, 2019 (the “Share Purchase Agreement”), with Hesperix SA, a Swiss corporation (“Hesperix”), the stockholders of Hesperix (each a “Seller” and collectively, the “Sellers”), and Alexey Andreevich Vinogradov, as the representative of each Seller (the “Sellers’ Representative”), providing for the acquisition by the Company of all the outstanding shares of capital stock of Hesperix (the “Hesperix Acquisition”). Upon completion of the Hesperix Acquisition, the Company will assume the rights and obligations under the Assignment Agreement by and among Hesperix, Shemyakin-Ovchinnikov Institute of Bioorganic Chemistry (“IBCH”), PJSC Pharmsynthez (“Pharmsynthez”), and other parties thereto (the “Assignors”), dated March 1, 2019 (the “Hesperix Assignment Agreement”). Completion of the Transaction is conditioned upon the consummation of the Assignment Agreement, dated March 1, 2019, by and between the Company and OPKO Pharmaceuticals, LLC (the “OPKO Assignment Agreement,” and together with the Share Purchase Agreement and the Hesperix Assignment Agreement, the “Transaction Documents”). We refer to this proposal as the “Transaction Proposal.”

2.          To approve the issuance of shares of the Company’s common stock, par value $0.001 (the “Common Stock”), to be issued in connection with the Hesperix Acquisition and in accordance with the OPKO Assignment Agreement as required by and in accordance with the applicable rules of The NASDAQ Stock Market LLC (“NASDAQ”). We refer to this proposal as the “Share Issuance Proposal.”

3.          To elect Dr. Alexey Vinogradov to the Company’s board of directors. We refer to this proposal as the “Director Proposal.”

4.          To approve an amendment to the Company’s Articles of Incorporation to increase the authorized shares of Common Stock. We refer to this proposal as the “Stock Increase Proposal.”

5.          To approve a proposal to adjourn the Special Meeting to a later date or dates, if necessary, to permit further solicitation and vote of proxies if, based upon the tabulated vote at the time of the Special Meeting, the Company is not authorized to consummate the transactions contemplated by the aforementioned proposals. We refer to this proposal as the “Adjournment Proposal.”

These items of business are more fully described in the proxy statement/prospectus accompanying this Notice.

Stockholders of record at the close of business on May 13, 2019 (the “Record Date”) are entitled to notice of, and to attend and to vote at, the Special Meeting and any postponement or adjournment thereof. This Notice of Special Meeting of Stockholders and the attached proxy statement/prospectus are first being mailed to the Company’s stockholders on or about May 17, 2019.

All stockholders are cordially invited to attend the Special Meeting in person. Stockholders of record as of the Record Date will be admitted to the Special Meeting and any postponement or adjournment thereof upon presentation of identification. Please note that if your shares are held in the name of a bank, broker, or other nominee, and you wish to vote in person at the Special Meeting, you must bring to the Special Meeting a statement or letter from your bank, broker or other nominee showing your ownership of shares as of the Record Date and a proxy from the record holder of the shares authorizing you to vote at the Special Meeting.

Whether or not you plan to attend the Special Meeting in person, you are encouraged to read the proxy statement/prospectus accompanying this Notice and then cast your vote as promptly as possible in accordance with the instructions contained in the proxy statement/prospectus. Even if you have given your proxy, you may still vote in person if you attend the Special Meeting and follow the instructions contained in the attached proxy statement/prospectus.

Your vote is important, whether or not you expect to attend the Special Meeting, we urge you to vote by proxy to ensure your vote is counted. You are urged to vote either via the Internet or telephone, or to mark, sign and date and promptly return the proxy in the stamped return envelope provided with these materials. Voting promptly will help avoid the additional expense of further solicitation to assure a quorum at the meeting.

REFERENCES TO ADDITIONAL INFORMATION

This proxy statement/prospectus incorporates important business and financial information about Xenetic that is not included in or delivered with this document. You may obtain this information without charge through the SEC website (www.sec.gov) or upon your written or oral request by contacting the Secretary of Xenetic Biosciences, Inc., 40 Speen Street, Suite 102, Framingham MA 01701 or by calling (781) 778-7720. To ensure timely delivery of these documents, any request should be made no later than June 5, 2019 to receive them before the special meeting.

For additional details about where you can find information about Xenetic, please see the section titled “Where You Can Find More Information” in this proxy statement/prospectus.

TABLE OF CONTENTS

XENETIC BIOSCIENCES, INC.

40 Speen Street, Suite 102

Framingham, Massachusetts 01701

The following information is furnished to each stockholder in connection with the foregoing Notice of Special Meeting of Stockholders of XENETIC BIOSCIENCES, INC., a Nevada corporation, to be held on Wednesday, June 19, 2019 at 10:00 a.m. local time at the offices of Akerman LLP, 350 East Las Olas Boulevard, Suite 1600, Fort Lauderdale, Florida 33301. The enclosed proxy is for use at the special meeting of stockholders and any postponement or adjournment thereof. This proxy statement/prospectus and form of proxy are being mailed to stockholders on or about May 17, 2019. Unless the content requires otherwise, references in this proxy statement/prospectus to “Xenetic,” the “Company,” “we,” “our,” and “us” refer to Xenetic Biosciences, Inc.

In accordance with the Amended and Restated Bylaws of the Company (the “Bylaws”), the Special Meeting has been called for the following purposes:

1.          To approve the transaction pursuant to which the Company will acquire the XCART platform technology, as described in this proxy statement/prospectus (the “Transaction”). In connection with the Transaction, the Company entered into a Share Purchase Agreement, dated as of March 1, 2019 (the “Share Purchase Agreement”), with Hesperix SA, a Swiss corporation (“Hesperix”), the stockholders of Hesperix (each a “Seller” and collectively, the “Sellers”), and Alexey Andreevich Vinogradov, as the representative of each Seller (the “Sellers’ Representative”), providing for the acquisition by the Company of all the outstanding shares of capital stock of Hesperix (the “Hesperix Acquisition”). Upon completion of the Hesperix Acquisition, the Company will assume the rights and obligations under the Assignment Agreement by and among Hesperix, Shemyakin-Ovchinnikov Institute of Bioorganic Chemistry (“IBCH”), PJSC Pharmsynthez (“Pharmsynthez”), and other parties thereto (the “Assignors”), dated March 1, 2019 (the “Hesperix Assignment Agreement”). Completion of the Transaction is conditioned upon the consummation of the Assignment Agreement, dated March 1, 2019, by and between the Company and OPKO Pharmaceuticals, LLC (the “OPKO Assignment Agreement,” and together with the Share Purchase Agreement and the Hesperix Assignment Agreement, the “Transaction Documents”). We refer to this proposal as the “Transaction Proposal.”

2.          To approve the issuance of shares of the Company’s common stock, par value $0.001 (the “Common Stock”), to be issued in connection with the Hesperix Acquisition and in accordance with the OPKO Assignment Agreement as required by and in accordance with the applicable rules of The NASDAQ Stock Market LLC (“NASDAQ”). We refer to this proposal as the “Share Issuance Proposal.”

3.          To elect Dr. Alexey Vinogradov to the Company’s board of directors. We refer to this proposal as the “Director Proposal.”

4.          To approve an amendment to the Company’s Articles of Incorporation to increase the authorized shares of Common Stock. We refer to this proposal as the “Stock Increase Proposal.”

5.           To approve a proposal to adjourn the Special Meeting to a later date or dates, if necessary, to permit further solicitation and vote of proxies if, based upon the tabulated vote at the time of the Special Meeting, Xenetic is not authorized to consummate the transactions contemplated by the aforementioned proposals. We refer to this proposal as the “Adjournment Proposal.”

Pursuant to the Bylaws, no business is proper for consideration, or may be acted upon, at the Special Meeting, except as set forth in the Notice of Special Meeting of Stockholders.

Shares represented by duly executed and unrevoked proxies will be voted at the Special Meeting and any postponement or adjournment thereof in accordance with the specifications made therein. If no such specification is made, shares represented by duly executed and unrevoked proxies will be voted “FOR” each of Proposals 1, 2, 3, 4, and 5.

RISK FACTORS

An investment in our Common Stock involves a high degree of risk. Before deciding whether to invest in our Common Stock, you should consider carefully the risks described below. If any of these risks actually occur, our business, financial condition, results of operations or cash flows could be seriously harmed. This could cause the trading price of our Common Stock to decline, resulting in a loss of all or part of your investment.

Risks Related to the Transaction

We cannot assure you that the proposed Transaction will be completed on a timely basis or at all or that the Company will recognize the anticipated benefits of the Transaction.

On March 1, 2019, we entered into an agreement to acquire the novel CAR T platform technology, referred to herein as “XCART,” a proximity-based screening platform capable of identifying CAR constructs that can target patient-specific tumor neoantigens, with a demonstrated proof of mechanism in B-cell Non-Hodgkin lymphomas. The XCART technology, developed by the Institute in collaboration with the IBCH, is believed to have the potential to significantly enhance the safety and efficacy of cell therapy for B-cell lymphomas by generating patient- and tumor-specific CAR T cells.

There are a number of risks and uncertainties relating to the Transaction. For example, the Transaction may not be completed, or may not be completed in the time frame, on the terms or in the manner currently anticipated and the Company may not recognize the anticipated benefits of the Transaction, as a result of a number of factors, including the following:

Our business will substantially depend on the success of XCART.

Our business will substantially depend on the successful consummation of the acquisition of the XCART platform technology and its clinical development, regulatory approval and commercialization. It will require substantial clinical development and regulatory approval efforts before we are permitted to commence its commercialization, if ever. The clinical trials and manufacturing and marketing of XCART and any other product candidates will be subject to extensive and rigorous review and regulation by numerous government authorities in the United States, the European Union and other jurisdictions where we intend to test and, if approved, market our product candidates. Before obtaining regulatory approvals for the commercial sale of any product candidate, we must demonstrate through preclinical testing and clinical trials that the product candidate is safe and effective for use in each target indication, and potentially in specific patient populations. This process can take many years and may include post-marketing studies and surveillance, which would require the expenditure of substantial resources beyond the proceeds we have currently raised. Of the large number of drugs in development for approval in the United States and the European Union, only a small percentage successfully complete the FDA or European Medicines Agency, or EMA, regulatory approval processes, as applicable, and are commercialized. Accordingly, even if we are able to obtain the requisite financing to continue to fund our research, development and clinical programs, we cannot assure you that XCART or any of our other product candidates will be successfully developed or commercialized.

Some of the Company’s directors and principal stockholders have interests in the Transaction that may differ from, or are in addition to, those of the Company’s other stockholders.

In considering whether to approve the proposals at the Special Meeting, the Company’s stockholders should recognize that certain of the Company’s directors and stockholders have interests in the Transaction that may differ from, or that are in addition to, their interests as stockholders generally. These interests include, among others, (i) Dr. Genkin, a director of the Company, serves as the Executive Chairman of Pharmsynthez, the Company’s largest and controlling stockholder with ownership of approximately [●]% of the Company’s issued and outstanding Common Stock as of the Record Date, (ii) Mr. Knyazev, a director of the Company, is also a director of Pharmsynthez, (iii) Dr. Curtis Lockshin, an executive officer of the Company, is an officer of a wholly-owned subsidiary of Pharmsynthez, and (iv) Adam Logal, a director of the Company, is the Senior Vice President and Chief Financial Officer of OPKO Health, which owns approximately [●]% of the Company’s issued and outstanding Common Stock and approximately [●]% of the issued and outstanding stock of Pharmsynthez. These interests may cause some of the Interested Parties to view the Transaction differently than you may view them as a disinterested stockholder of the Company, and may influence or may have influenced the Interested Parties in determining to support or approve the Transaction.

The market price of the Company’s Common Stock may decline as a result of the Transaction.

The market price of the Company’s Common Stock may decline as a result of the Transaction for a number of reasons including:

The number of shares of Common Stock that the Sellers, OPKO, and the Institute will receive in the Transaction will not change based on the market price of our Common Stock so the consideration that the Sellers, OPKO, and the Institute will receive at the closing of the Transaction may have a greater or lesser value than the value at the time the Transaction Documents were entered into.

The Transaction Documents set the number of Transaction Shares of our Common Stock to be issued in the Transaction. Any changes in the market price of our Common Stock before the completion of the Transaction will not affect the number of Transaction Shares issuable pursuant to the Transaction. Therefore, if before the completion of the Transaction the market price of our Common Stock declines from the market price on the date of the Transaction Documents, then paid by the Company in the Transaction may have a consideration with substantially lower value at closing. Conversely, if before the completion of the Transaction the market price of our Common Stock increases from the market price on the date of the Transaction Documents, then paid by the Company in the Transaction may have a consideration with substantially greater value at closing.

Risks Related to Our Common Stock

An active, liquid and orderly market for our Common Stock may not develop.

Our Common Stock trades on NASDAQ Capital Markets. An active trading market for our Common Stock may never develop or be sustained. If an active market for our Common Stock does not continue to develop or is not sustained, it may be difficult for investors in our Common Stock to sell shares without depressing the market price for the shares or to sell the shares at all. An inactive market may also impair our ability to raise capital by selling Common Stock and may impair our ability to acquire other businesses, applications or technologies using our Common Stock as consideration, which, in turn, could materially adversely affect our business. 

The market price of our stock may be highly volatile, and you may not be able to sell shares of our stock.

Companies trading in the stock market in general have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our stock, regardless of our actual operating performance.

The market price of our stock may be volatile. Our stock price could be subject to wide fluctuations in response to a variety of factors, including the following:

Our executive officers, directors and affiliates own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.

As of the Record Date, our executive officers, directors and affiliates beneficially own approximately [·]% of our outstanding Common Stock. Therefore, these stockholders will have the ability to influence us through their ownership positions. Further, our majority stockholder, Pharmsynthez, has beneficial ownership of approximately [●] million shares of Common Stock. These shares represent ownership of approximately [·]% of our Common Stock as of the Record Date. 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, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited transaction proposals or offers for our Common Stock that you may believe are in your best interest as one of our stockholders.

We have entered into several agreements with our major stockholders.

We have entered into several agreements with our major stockholders. Some of the agreement parties may be considered affiliates of ours, which may result in conflicts of interest. In addition, these arrangements may not have been negotiated at arm’s length and may contain terms and conditions that are not in our best interest and would not otherwise be applicable if we entered into arrangements with a third-party not affiliated with us.

Our preferred stock has rights, preferences and privileges that are not held by, and are preferential to, the rights of our common stockholders, which could result in the interests of the holders of our preferred stock differing from those of our common stockholders.

The holders of our preferred stock have the right to receive a liquidation preference entitling them to be paid out of our assets available for distribution to stockholders before any payment may be made to holders of any Common Stock or any series of preferred stock ranked junior to such class of preferred stock. The existence of a liquidation preference may reduce the value of our Common Stock, make it harder for us to sell shares of Common Stock in offerings in the future, or prevent or delay a change of control. Additionally, each share of Series A preferred stock is convertible into one share of Common Stock and each share of Series B preferred stock is convertible into two shares of Common Stock, subject to certain adjustments, which may cause substantial dilution to our common stockholders. The preferential rights could result in divergent interests between the holders of shares of preferred stock and holders of our Common Stock. In addition, our majority shareholder, Pharmsynthez holds shares consisting of the majority of our Series B Preferred Stock and all of our Series A Preferred Stock. The interests of these preferred holders may differ from the interests of our security holders as a whole.

The issuance of future shares of Common Stock may result in dilution to our stockholders.

As of the Record Date, we had [●] shares of Common Stock excluding:

The issuance of these shares of Common Stock and the sale of these shares of Common Stock, or even the potential of such issuance and sale, may have a depressive effect on the market price of our Common Stock and the issuance of such Common Stock will cause dilution to our stockholders.

We could be subject to securities class action litigation.

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

We do not intend to pay dividends on our Common Stock or preferred stock so any returns will be limited to the value of our stock.

We have never declared or paid any cash dividends on our Common Stock or preferred stock. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any return to common or preferred stockholders will therefore be limited to the appreciation of their stock.

Risks Related to Our Financial Condition and Capital Requirements

We have never been profitable and may never achieve or sustain profitability.

We are a clinical stage biopharmaceutical company with a limited operating history. Pharmaceutical product and technology development is a highly speculative undertaking and involves a substantial degree of risk. To date, we have focused primarily on developing our drug candidates, XBIO-101 and PolyXen, our biological platform technology, and researching additional drug candidates. We have no products approved for commercial sale and have generated only limited revenue to date. Due to capital constraints in 2018 we focused solely on the development of XBIO-101. We continue to incur significant research and development and other expenses related to our ongoing operations. As a result, we have never been profitable and we may not achieve profitability in the foreseeable future, if at all. Our ability to generate profits in the future will depend on a number of factors, including: 

As of March 31, 2019, we had an accumulated deficit of approximately $154.6 million. Substantial doubt exists about our ability to continue as a going concern as a result of anticipated capital needs. We expect to incur additional significant operating losses as we expand our research and development activities and our commercialization, marketing and sales efforts. We may also encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. In addition, because of the numerous risks and uncertainties associated with pharmaceutical product development, including that our current drug candidates may not achieve the clinical endpoints of applicable trials, we are unable to predict the timing or amount of increased expenses, and if or when we will achieve or maintain profitability. If we are unable to generate sufficient revenue from our operations to pay expenses or we are unable to obtain additional financing on commercially reasonable terms, our business, financial condition and results of operations may be materially and adversely affected.

Our independent registered public accounting firm and the Company have expressed substantial doubt about our ability to continue as a going concern.

We have concluded there is substantial doubt about our ability to continue as a going concern. As described in their audit report, our auditors have included an explanatory paragraph that states that we have incurred recurring losses and negative cash flows from operations since inception and have an accumulated deficit at March 31, 2019 of $154.6 million. These matters raise substantial doubt about our ability to continue as a going concern. Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. If we cannot continue as a viable entity, our stockholders may lose some or all of their investment in us.

We will require substantial additional funding to achieve our goals. Failure to obtain this necessary capital when needed on acceptable terms, or at all, may force us to delay, limit or terminate our product development efforts, other operations or commercialization efforts.

Developing drug candidates is an expensive, risky and lengthy process, and we expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research and development of, continue and initiate clinical trials of, and seek marketing approval for, our drug candidates.

As of March 31, 2019, we had cash and restricted cash of $2.1 million. We expect that we will require additional capital to complete clinical trials, obtain regulatory approval for, and to commercialize, our drug candidates, including our other preclinical drug candidates and our future drug candidates. However, our operating plan may change as a result of many factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings, third-party funding, marketing and distribution arrangements, as well as other collaborations, strategic alliances and licensing arrangements, or a combination of these approaches. In any event, we will require additional capital to pursue preclinical and clinical activities, pursue regulatory approval for, and to commercialize, our longer term pipeline drug candidates. Even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital if market conditions are favorable or if we have specific strategic considerations.

Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our drug candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. Moreover, the terms of any financing may negatively impact the holdings or the rights of our stockholders, and the issuance of additional securities, whether equity or debt, by us or the possibility of such issuance may cause the market price of our shares to decline. The incurrence of indebtedness could result in increased fixed payment obligations and we may be required to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business.

If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue our clinical development program or the commercialization of any drug candidates. We may also be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could harm our business, financial condition and results of operations.

Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or drug candidates.

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity and debt financings, as well as selectively continuing to enter into collaborations, strategic alliances and licensing arrangements. We do not currently have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, equity interests will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, and may be secured by all or a portion of our assets.

If we raise funds by selectively continuing to enter into collaborations, strategic alliances or licensing arrangements with third-parties, we may have to relinquish additional valuable rights to our technologies, future revenue streams, research programs or drug candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market drug candidates that we would otherwise prefer to develop and market ourselves. If we are unable to raise additional funds through collaborations, strategic alliances or licensing arrangements, we may be required to terminate product development or future commercialization efforts or to cease operations altogether.

Risks Related to the Discovery and Development of our Pharmaceutical Products

We are an early stage company in the business of developing pharmaceutical products including drug candidates and technologies. Given the uncertainty of such development, our business operations may never fully materialize and create value for investors.

We currently do not have any products that have gained marketing approval. We have invested substantially all of our efforts and financial resources developing ErepoXen, OncoHist and, most recently, XBIO-101. Our revenues to date consist primarily of collaboration revenue from a single partner and not from product sales or royalties. Our ability to generate product revenues, which may not occur for several years, if ever, will depend on the successful development and eventual commercialization of our drug candidates. We currently generate no revenues from sales of any drugs, and we may never be able to develop or commercialize a marketable drug. Each of our drug candidates will require development, management of development and manufacturing activities, marketing approval in multiple jurisdictions, obtaining manufacturing supply, building of a commercial organization, substantial investment and significant marketing efforts before we generate any revenues from drug sales. We have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly in the pharmaceutical area. For example, to execute our business plan, we will need to successfully:

We may find it difficult to enroll patients in our clinical studies, which could delay or prevent clinical studies of our pharmaceutical products.

Identifying and qualifying patients to participate in clinical studies of our pharmaceutical products is critical to our success. The timing of our clinical studies depends on the speed at which we can recruit patients to participate in testing our pharmaceutical products. We may experience delays. If patients are unwilling to participate in our clinical studies because of negative publicity from adverse events in the biopharmaceutical industries or for other reasons, including competitive clinical studies for similar patient populations, the timeline for recruiting patients, conducting studies and obtaining regulatory approval of potential products may be delayed. These delays could result in increased costs, delays in advancing our product development, delays in testing the effectiveness of our technology or termination of the clinical studies altogether.

We may not be able to identify, recruit and enroll a sufficient number of patients, or those with required or desired characteristics to achieve diversity in a study, to complete our clinical studies in a timely manner. Patient enrollment is affected by factors including:

We may not be able to initiate or continue clinical studies if we cannot enroll a sufficient number of eligible patients to participate in the clinical studies required by the FDA or other regulatory agencies. Our ability to successfully initiate, enroll and complete a clinical study in any foreign country is subject to numerous risks unique to conducting business in foreign countries, including:

If we have difficulty enrolling a sufficient number of patients to conduct our clinical studies as planned, we may need to delay, limit or terminate ongoing or planned clinical studies, any of which would have an adverse effect on our business.

We may encounter substantial delays in commencement, enrollment or completion of our clinical trials or we may fail to demonstrate safety and efficacy to the satisfaction of applicable regulatory authorities, which could prevent us from commercializing our current and future drug candidates on a timely basis, if at all.

Before obtaining marketing approval from regulatory authorities for the sale of our current and future drug candidates, we must conduct extensive clinical trials to demonstrate the safety and efficacy of the drug candidates. We cannot guarantee that any clinical studies will be conducted as planned or completed on schedule, if at all. A failure of one or more clinical studies can occur at any stage of testing. Events that may prevent successful or timely completion of clinical development include:

Any inability to successfully complete preclinical studies and clinical trials could result in additional costs to us or impair our ability to generate revenues from product sales, regulatory and commercialization milestones and royalties. In addition, if we make manufacturing or formulation changes to our drug candidates, we may need to conduct additional studies to bridge our modified drug candidates to earlier versions. Clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our drug candidates or allow our competitors to bring products to market before we do, which could impair our ability to successfully commercialize our drug candidates and may harm our business, financial condition, results of operations and prospects.

If the results of our clinical studies are inconclusive or if there are safety concerns or adverse events associated with our pharmaceutical products, we may:

As described above, any of these events could prevent us from achieving or maintaining market acceptance of our pharmaceutical products and impair our ability to generate revenues.

Clinical trials may fail to demonstrate the safety and efficacy of our pharmaceutical drug candidates and could prevent or significantly delay regulatory approval.

Before receiving NDA or BLA approval to commercialize a drug candidate, we must demonstrate to the FDA, with substantial evidence from well-controlled clinical trials, that the drug candidate is both safe and effective or the biologic is safe, pure and potent. If these trials or future clinical trials are unsuccessful, our business and reputation could be harmed and our stock price could be adversely affected.

Clinical failure can occur at any stage of clinical development. Clinical trials may produce negative or inconclusive results, and we or any of our current and future collaborators may decide, or regulators may require us, to conduct additional clinical or preclinical testing. We will be required to demonstrate with substantial evidence through well-controlled clinical trials that our drug candidates are as safe and effective for use in a specific patient population as the respective reference products before we can seek regulatory approvals for their commercial sale. Success in early clinical trials does not mean that future larger registration clinical trials will be successful because drug candidates in later-stage clinical trials may fail to demonstrate equivalent safety and efficacy to the satisfaction of the FDA and foreign regulatory agencies despite having progressed through initial clinical trials. Drug candidates that have shown promising results in early clinical trials may still fail in subsequent confirmatory clinical trials. Similarly, the outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. A number of companies in the pharmaceutical industry, including those with greater resources and experience than us, have suffered significant setbacks in advanced clinical trials, even after obtaining promising results in earlier clinical trials.

In addition, 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. We may be unable to design and execute a clinical trial to support regulatory approval. In some instances, there can be significant variability in safety or efficacy results between different trials of the same drug candidate due to numerous factors, including but not limited to changes in trial protocols, differences in size and type of the patient populations, adherence to the dosing regimen and the rate of dropout among clinical trial participants.

Because of these risks, our research and development efforts, and those of our collaborative partners, may not result in any commercially viable products. If a significant portion of these development efforts is not successfully completed, or if required regulatory approvals are not obtained by us or our partners, or any approved products are not commercially successful, we may not generate significant revenues or become profitable.

Even if we complete the necessary preclinical and clinical studies, we cannot predict when or if we will obtain regulatory approval to commercialize a drug candidate or the approval may be for a more narrow indication than we expect.

A drug candidate cannot be commercialized until the appropriate regulatory authorities have reviewed and approved the drug candidate. Even if our drug candidates demonstrate safety and efficacy in clinical studies, the regulatory agencies may not complete their review processes in a timely manner, or we may not be able to obtain regulatory approval. Additional delays may result if an FDA Advisory Committee or other regulatory advisory group or authority recommends non-approval or restrictions on approval. In addition, we may experience delays or rejections based upon additional government regulation from future legislation or administrative action, or changes in regulatory agency policy during the period of product development, clinical studies and the review process. Regulatory agencies also may approve a drug candidate for fewer or more limited indications than requested or may grant approval subject to the performance of post-marketing studies. In addition, regulatory agencies may not approve the labeling claims that are necessary or desirable for the successful commercialization of our drug candidates. Failure to obtain, or a delay in obtaining, regulatory approval to commercialize a drug candidate will impair our ability to generate revenues and harm our business prospects.

Even if we obtain regulatory approval for a drug candidate, our drug candidate will remain subject to regulatory scrutiny.

If our drug candidates are approved, they will be subject to ongoing regulatory requirements for manufacturing, labeling, packaging, storage, advertising, promotion, sampling, record-keeping, conduct of post-marketing studies and submission of safety, efficacy and other post-market information, including both federal and state requirements in the United States and requirements of comparable foreign regulatory authorities.

Manufacturers and manufacturing facilities are required to comply with extensive FDA, and comparable foreign regulatory authority, requirements, including ensuring that quality control and manufacturing procedures conform to cGMP regulations. As such, we will be subject to continual review and inspections to assess compliance with cGMP and adherence to commitments made in any, BLA or marketing authorization application, or MAA. Accordingly, we and our collaborators and suppliers must continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production and quality control.

Any regulatory approvals that we or our collaboration partners receive for our drug candidates may be subject to limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval or may contain requirements for potentially costly additional clinical trials and surveillance to monitor the safety and efficacy of the drug candidate. We will be required to report certain adverse reactions and production problems, if any, to the FDA and comparable foreign regulatory authorities. Any new legislation addressing drug safety issues could result in delays in product development or commercialization or increased costs to assure compliance. We will have to comply with requirements concerning advertising and promotion for our products. 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 label. As such, we are not allowed to promote our products for indications or uses for which they do not have approval. If our drug candidates are approved, we must submit new or supplemental applications and obtain approval for certain changes to the approved products, product labeling or manufacturing process. We could also be asked to conduct post-marketing clinical trials to verify the safety and efficacy of our products in general or in specific patient subsets. An unsuccessful post-marketing study or failure to complete such a study could result in the withdrawal of marketing approval.

If a regulatory agency discovers previously unknown problems with an approved product, such as adverse events of unanticipated severity or frequency or problems with our manufacturing facilities or disagrees with the promotion, marketing or labeling of a product, such regulatory agency may impose restrictions on that product or us, including requiring withdrawal of the product from the market. If we fail to comply with applicable regulatory requirements, a regulatory agency or enforcement authority may, among other things:

Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to commercialize and generate revenue from our products. If regulatory sanctions are applied or if regulatory approval is withdrawn, the value of our company and our operating results will be negatively impacted.

The commercial success of any current or future pharmaceutical products will depend upon the degree of market acceptance by physicians, patients, third-party payors and others in the medical community.

Even with the requisite approvals, the commercial success of our pharmaceutical products will depend in part on the medical community, patients, and third-party payors accepting our pharmaceutical products as medically useful, cost-effective, and safe. Any pharmaceutical product that we or our partners bring to the market may not gain market acceptance by physicians, patients, third-party payors and others in the medical community. The degree of market acceptance of these pharmaceutical products, if approved for commercial sale, will depend on a number of factors, including:

Even if a potential product displays a favorable efficacy and safety profile in preclinical and clinical studies, market acceptance of the product will not be known until after it is launched. Our efforts to educate the medical community and third-party payors on the benefits of the pharmaceutical products may require a significant amount of resources and may never be successful. If these products do not achieve an adequate level of acceptance, we may not generate significant product revenue and may not become profitable.

The commercial potential of a pharmaceutical candidate in development is difficult to predict. If the market size for a new drug candidate or technology is significantly smaller than we anticipate, it could significantly and negatively impact our revenue, results of operations and financial condition.

It is very difficult to estimate the commercial potential of pharmaceutical products due to important factors such as safety and efficacy compared to other available technologies or treatments, including changing standards of care, third-party payor reimbursement standards, patient and physician preferences, the availability of competitive alternatives that may emerge either during the long drug development process or after commercial introduction, and the availability of generic versions of our successful drug candidates following approval by government health authorities based on the expiration of regulatory exclusivity or our inability to prevent generic versions from coming to market by asserting our patents. If due to these factors, or others, the market potential for a pharmaceutical product is lower than we anticipated, it could significantly and negatively impact the commercial terms of any collaboration partnership potential for such pharmaceutical product or, if we have already entered into a collaboration for such pharmaceutical product, the revenue potential from royalty and milestone payments could be significantly diminished which would negatively impact our business, financial condition and results of operations.

Failure to obtain or maintain adequate coverage and reimbursement for our drug candidates, if approved, could limit our ability to market those products and decrease our ability to generate revenue.

The success of our drug candidates, if approved, depends on the availability of adequate coverage and reimbursement from third-party payors. In addition, because our drug candidates represent new approaches to the treatment of certain diseases, we cannot be sure that coverage and reimbursement will be available for, or accurately estimate the potential revenue from, our drug candidates or assure that coverage and reimbursement will be available for any product that we may develop.

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. Adequate coverage and reimbursement from governmental healthcare programs, such as Medicare and Medicaid, and commercial payors are critical to new product acceptance.

Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which drugs and treatments they will cover and the amount of reimbursement. Coverage and reimbursement by a third-party payor may depend upon a number of factors, including the third-party payor’s determination that use of a product is:

In the United States, no uniform policy of coverage and reimbursement for products exists among third-party payors. As a result, obtaining coverage and reimbursement approval of a product from a government or other third-party payor is a time-consuming and costly process that could require us to provide to each payor supporting scientific, clinical and cost-effectiveness data for the use of our products on a payor-by-payor basis, with no assurance that coverage and adequate reimbursement will be obtained. Even if we obtain coverage for a given product, the resulting reimbursement payment rates might not be adequate for us to achieve or sustain profitability or may require co-payments that patients find unacceptably high. Additionally, third-party payors may not cover, or provide adequate reimbursement for, long-term follow-up evaluations required following the use of our gene-modifying products. Patients are unlikely to use our drug candidates unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our drug candidates. There is significant uncertainty related to insurance coverage and reimbursement of newly approved products. It is difficult to predict at this time what third-party payors will decide with respect to the coverage and reimbursement for our drug candidates.

Moreover, increasing efforts by governmental and third-party payors in the United States and abroad to cap or reduce healthcare costs may cause such organizations to limit both coverage and the level of reimbursement for newly approved products and, as a result, they may not cover or provide adequate payment for our drug candidates. We expect to experience pricing pressures in connection with the sale of any of our drug candidates due to the trend toward managed healthcare, the increasing influence of health maintenance organizations, cost containment initiatives and additional legislative changes.

We intend to seek approval to market our drug candidates in both the United States and in select foreign jurisdictions. If we obtain approval in one or more foreign jurisdictions for our drug candidates, we will be subject to rules and regulations in those jurisdictions. In some foreign countries, the pricing of pharmaceutical products is subject to governmental control and other market regulations which could put pressure on the pricing and usage of our drug candidates. In these countries, pricing negotiations with governmental authorities can take considerable time after obtaining marketing approval of a drug candidate. In addition, market acceptance and sales of our drug candidates will depend significantly on the availability of adequate coverage and reimbursement from third-party payors for our drug candidates and may be affected by existing and future health care reform measures. Failure to obtain or maintain adequate coverage and reimbursement for our drug candidates, if approved, could limit our ability to market those products and decrease our ability to generate revenue.

We may use our financial and human resources to pursue a particular research program or drug candidate and fail to capitalize on programs or drug candidates that may be more profitable or for which there is a greater likelihood of success.

Because we have limited resources, we may forego or delay pursuit of opportunities with certain programs or drug candidates or for indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs for drug candidates may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular drug candidate, we may relinquish valuable rights to that drug candidate through strategic collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such drug candidate, or we may allocate internal resources to a drug candidate in a therapeutic area in which it would have been more advantageous to enter into a partnering arrangement. Failure to pursue opportunities with greater commercial potential or relinquishing valuable rights to drug candidates may adversely impact our business, results of operations and prospects.

We may not be successful in our efforts to identify or discover additional pharmaceutical products.

The success of our business depends primarily upon our ability to identify and develop pharmaceutical products. Our research programs may fail to identify potential pharmaceutical products for clinical development for a number of reasons. Our research methodology may be unsuccessful in identifying potential pharmaceutical products or our potential pharmaceutical products may be shown to have harmful side effects or may have other characteristics that may make the products unmarketable or unlikely to receive marketing approval.

If any of these events occur, we may be forced to abandon our development efforts for a program or programs, which would have a material adverse effect on our business and could potentially cause us to cease operations. Research programs to identify new pharmaceutical products require substantial technical, financial and human resources. We may focus our efforts and resources on potential programs or pharmaceutical products that ultimately prove to be unsuccessful. If we are not successful in our efforts to identify or discover additional pharmaceutical products, it could adversely affect our business, results of operations and prospects.

We may fail to obtain orphan drug designations from the FDA for our drug candidates, and even if we obtain such designations, we may be unable to maintain the benefits associated with orphan drug designation, including the potential for market exclusivity.

Under the Orphan Drug Act, the FDA may grant orphan drug designation to a drug or biologic intended to treat a rare disease or condition, which is defined as one occurring in a patient population of fewer than 200,000 in the United States, or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing the drug or biologic will be recovered from sales in the United States. In the United States, orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers. In addition, if a product that has orphan drug designation subsequently receives the first FDA approval for the disease for which it has such designation, the product is entitled to orphan drug exclusivity, which means that the FDA may not approve any other applications, including a full NDA or BLA, to market the same drug or biologic for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity or where the manufacturer is unable to assure sufficient product quantity.

OncoHist for AML and XBIO-101 for endometrial cancer have orphan designation in the U.S. While we have not obtained nor have we sought to obtain additional orphan designations for any drug candidate, we believe our products and drug candidates could qualify for additional orphan drug designations for additional indications. We may seek to obtain orphan drug designation for our drug candidates for any qualifying indications they may be approved for in the future. Even if we obtain such designations, we may not be the first to obtain marketing approval of our drug candidate for the orphan-designated indication due to the uncertainties associated with developing pharmaceutical products. In addition, exclusive marketing rights in the United States may be limited if we seek approval for an indication broader than the orphan-designated indication or may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease or condition. Further, even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs with different active moieties can be approved for the same condition. Even after an orphan product is approved, the FDA can subsequently approve the same drug with the same active moiety for the same condition if the FDA concludes that the later drug is safer, more effective or makes a major contribution to patient care. Orphan drug designation neither shortens the development time or regulatory review time of a drug, nor gives the drug any advantage in the regulatory review or approval process. In addition, while we may seek orphan drug designation for our drug candidates, we may never receive such designations.

The market opportunities for our drug candidates may be limited to those patients who are ineligible for or have failed prior treatments and may be small.

Cancer therapies are sometimes characterized as first line, second line or third line, and the FDA often approves new therapies initially only for third line use. When cancer is detected early enough, first line therapy is sometimes adequate to cure the cancer or prolong life without a cure. Whenever first line therapy, usually chemotherapy, hormone therapy, surgery or a combination of these, proves unsuccessful, second line therapy may be administered. Second line therapies often consist of more chemotherapy, radiation, antibody drugs, tumor targeted small molecules or a combination of these. Third line therapies can include bone marrow transplantation, antibody and small molecule targeted therapies, more invasive forms of surgery and new technologies. In markets with approved therapies, we expect to initially seek approval of our drug candidates as a later stage therapy for patients who have failed other approved treatments. Subsequently, for those drugs that prove to be sufficiently beneficial, if any, we would expect to seek approval as a second line therapy and potentially as a first line therapy, but there is no guarantee that our drug candidates, even if approved, would be approved for second line or first line therapy. In addition, we may have to conduct additional clinical trials prior to gaining approval for second line or first line therapy.

Our projections of both the number of people who have the cancers we are targeting, as well as the subset of people with these cancers in a position to receive later stage therapy and who have the potential to benefit from treatment with our drug candidates, are based on our beliefs and estimates. These estimates have been derived from a variety of sources, including scientific literature, surveys of clinics, 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. In addition, the potentially addressable patient population for our drug candidates may be limited or may not be amenable to treatment with our drug candidates. Even if we obtain significant market share for our drug candidates, we may never achieve profitability without obtaining regulatory approval for additional indications, including use as a first or second line therapy, which may adversely affect our business and results of operations.

Healthcare legislative reform measures may have a material adverse effect on our business and results of operations.

In both the United States and certain foreign jurisdictions, there have been a number of legislative and regulatory enactments in recent years that change the healthcare system in ways that could impact our future ability to sell our drug candidates profitably.

Furthermore, there have been and continue to be a number of initiatives at the federal and state level that seek to reduce healthcare costs. Most significantly, in March 2010, the Patient Protection and Affordable Health Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively the ACA, was signed into law, which includes measures that significantly change the way healthcare is financed by both governmental and private insurers. In January 2017, Congress voted to adopt a budget resolution for fiscal year 2017, or the Budget Resolution, that authorizes the implementation of legislation that would repeal portions of the ACA. In addition, on January 20, 2017, President Trump signed an Executive Order directing federal agencies with authorities and responsibilities under the ACA to waive, defer, grant exemptions from, or delay the implementation of any provision of the ACA that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. Further, on October 12, 2017, President Trump issued another executive order requiring the Secretaries of the Departments of Health and Human Services (“HHS”), Labor, and the Treasury to consider proposing regulations or revising existing guidance to allow more employers to form association health plans that would be allowed to provide coverage across state lines, increase the availability of short-term, limited duration health insurance plans, which are generally not subject to the requirements of the ACA, and increase the availability and permitted use of health reimbursement arrangements. On October 13, 2017, the Department of Justice announced that HHS was immediately stopping its cost sharing reduction payments to insurance companies based on the determination that those payments had not been appropriated by Congress. Furthermore, on December 22, 2017, President Trump signed the Tax Cuts and Jobs Act (the “TCJA”) into law that, in addition to overhauling the federal tax system, also, effective as of January 1, 2019, repeals the penalties associated with the individual mandate. Congress or the President of the United States also could consider subsequent legislation or executive action to replace or eliminate elements of the ACA. We will continue to evaluate the effect that the ACA and any future measures to modify, repeal or replace the ACA have on our business. We are not able to provide any assurance that the continued healthcare reform debate will not result in legislation, regulation, or executive action by the President of the United States that is adverse to our business.

Laws and other reform and cost containment measures that may be proposed and adopted in the future remain uncertain, but may result in additional reductions in Medicare and other healthcare funding, which could have a material adverse effect on our future customers and accordingly, our ability to generate revenue, attain profitability, or commercialize our products.

Risks Related to Our Reliance on Third-Parties

If conflicts arise between us and our collaborators or strategic partners, these parties may act in their self-interest, which may limit our ability to implement our strategies.

If conflicts arise between our corporate or academic collaborators or strategic partners and us, the other party may act in its self-interest, which may limit our ability to implement our strategies. Some of our academic collaborators and strategic partners are conducting multiple product development efforts within each area that is the subject of the collaboration with us. Our collaborators or strategic partners, however, may develop, either alone or with others, products in related fields that are competitive with the products or potential products that are the subject of these collaborations. Competing products, either developed by the collaborators or strategic partners or to which the collaborators or strategic partners have rights, may result in the withdrawal of partner support for our drug candidates.

Some of our collaborators or strategic partners could also become our competitors in the future. Our collaborators or strategic partners could develop competing products, preclude us from entering into collaborations with their competitors, fail to obtain timely regulatory approvals, terminate their agreements with us prematurely, or fail to devote sufficient resources to the development and commercialization of products. Any of these developments could harm our product development efforts, which may adversely affect our business, results of operations and prospects.

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

We expect to rely on CROs, clinical investigators and clinical study sites to ensure our clinical studies are conducted properly and on time. We will have limited influence over the performance by CROs, clinical investigators and clinical study sites and we will control only certain aspects of our CROs’ activities. Nevertheless, we will be responsible for ensuring that each of our clinical studies is conducted in accordance with the applicable protocol, legal, and regulatory requirements and scientific standards, and our reliance on the CROs does not relieve us of our regulatory responsibilities.

We, our clinical investigators and our CROs are required to comply with the FDA’s GCPs for conducting, recording and reporting the results of clinical trials to assure that the data and reported results are credible and accurate and that the rights, integrity and confidentiality of clinical trial participants are protected. The FDA enforces these GCPs through periodic inspections of study sponsors, principal investigators and clinical trial sites. If we or our CROs or the clinical investigators fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA may require us to perform additional clinical trials before approving any marketing applications. Upon inspection, the FDA may determine that our clinical trials did not comply with GCPs. In addition, our future clinical trials will require a sufficient number of test subjects to evaluate the safety and efficacy of our drug candidates. Accordingly, if our CROs or clinical investigators fail to comply with these regulations or fail to recruit a sufficient number of patients, we may be required to repeat such clinical trials, which would delay the regulatory approval process.

Our CROs are not our employees, and we are therefore unable to directly monitor whether or not they devote sufficient time and resources to our clinical and nonclinical programs, which must be conducted in accordance with GCPs and GLPs, respectively. These CROs may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical studies or other drug development activities that could harm our competitive position. If our CROs do not successfully carry out their contractual duties or obligations, fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements, or for any other reasons, our clinical studies may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for, or successfully commercialize our pharmaceutical products. As a result, our financial results and the commercial prospects for our pharmaceutical products would be harmed, our costs could increase, and our ability to generate revenues could be delayed.

We may also rely on other third-parties to store and distribute our products for any clinical studies that we may conduct. Any performance failure on the part of our distributors could delay clinical development or marketing approval of our pharmaceutical products or commercialization of our products, if approved, producing additional losses and depriving us of potential product revenue.

Our collaborators or strategic partners may decide to adopt alternative technologies or may be unable to develop commercially viable products with our technology, which would negatively impact our revenues and our strategy to develop these products.

Our collaborators or strategic partners may adopt alternative technologies, which could decrease the marketability of our products. Additionally, because our current or future collaborators or strategic partners are likely to be working on more than one development project, they could choose to shift their resources to projects other than those they are working on with us. If they do so, this would delay our ability to test our technology and would delay or terminate the development of potential products based on our platforms. Further, our collaborators and strategic partners may elect not to develop products arising out of our collaborative and strategic partnering arrangements or to devote sufficient resources to the development, manufacturing, marketing or sale of these products. The failure to develop and commercialize a drug candidate pursuant to our agreements with our current or future collaborator would prevent us from receiving future milestone and royalty payments which would negatively impact our revenues.

We may seek to establish additional collaborations and, if we are not able to establish them on commercially reasonable terms, we may have to alter our development and commercialization plans.

Our drug candidate development programs and the potential commercialization of our drug candidates will require substantial additional cash to fund expenses. For some of our drug candidates, we may decide to collaborate with additional pharmaceutical and biotechnology companies for the development and potential commercialization of those drug candidates.

We face significant competition in seeking appropriate collaborators. Whether we reach a definitive agreement for any additional collaborations will depend, among other things, upon our 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 FDA or similar regulatory authorities outside the United States, the potential market for the subject drug candidate, the costs and complexities of manufacturing and delivering such drug candidate to patients, the potential of competing drugs, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge, and industry and market conditions generally. The collaborator may also consider alternative drug candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us for our drug candidate. The terms of any additional collaborations or other arrangements that we may establish may not be favorable to us.

We may also be restricted under existing collaboration agreements from entering into future agreements on certain terms with potential collaborators. Collaborations are complex and time-consuming to negotiate and document. 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.

We may not be able to negotiate additional collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do so, we may have to curtail the development of the drug candidate for which we are seeking to collaborate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to further develop our drug candidates or bring them to market and generate product revenue.

If we enter into one or more collaborations, we may be required to relinquish important rights to and control over the development of our drug candidates or otherwise be subject to unfavorable terms.

Any future collaborations we enter into could subject us to a number of risks, including:

Our contract manufacturers are subject to significant regulation with respect to manufacturing our products. The manufacturing facilities on which we rely may not continue to meet regulatory requirements and have limited capacity.

We currently have relationships with a limited number of suppliers for the manufacturing of our pharmaceutical products. Each supplier may require licenses to manufacture components if such processes are not owned by the supplier or in the public domain and we may be unable to transfer or sublicense the intellectual property rights we may have with respect to such activities. 

All entities involved in the preparation of pharmaceutical products for clinical studies or commercial sale, including our existing contract manufacturers for our drug candidates, are subject to extensive regulation. Components of a finished pharmaceutical product approved for commercial sale or used in late-stage clinical studies must be manufactured in accordance with cGMP. These regulations govern manufacturing processes and procedures (including record keeping) and the implementation and operation of quality systems to control and assure the quality of investigational products and products approved for sale. Poor control of production processes can lead to the introduction of adventitious agents or other contaminants, or to inadvertent changes in the properties or stability of our pharmaceutical products that may not be detectable in final product testing. Our contract manufacturers must supply all necessary documentation in support of an NDA or BLA on a timely basis and must adhere to the FDA’s GLP, and cGMP regulations enforced by the FDA through its facilities inspection program. The facilities and quality systems of some or all of our third-party contractors must pass a pre-approval inspection for compliance with the applicable regulations as a condition of regulatory approval of our pharmaceutical products or any of our other potential products. In addition, the regulatory authorities may, at any time, audit or inspect a manufacturing facility involved with the preparation of our pharmaceutical products or our other potential products or the associated quality systems for compliance with the regulations applicable to the activities being conducted. If these facilities do not pass a pre-approval plant inspection, FDA approval of the products will not be granted.

The regulatory authorities also may, at any time following approval of a product for sale, audit the manufacturing facilities of our third-party contractors. If any such inspection or audit identifies a failure to comply with applicable regulations or if a violation of our product specifications or applicable regulations occurs independent of such an inspection or audit, we or the relevant regulatory authority may require remedial measures that may be costly and/or time-consuming for us or a third-party to implement and that may include the temporary or permanent suspension of a clinical study or commercial sales or the temporary or permanent closure of a facility. Any such remedial measures imposed upon third-parties with whom we contract could materially harm our business.

If our third-party manufacturers fail to maintain regulatory compliance, the FDA can impose regulatory sanctions including, among other things, refusal to approve a pending application for a drug candidate, or revocation of a pre-existing approval. As a result, our business, financial condition and results of operations may be materially harmed.

Additionally, if supply from one approved manufacturer is interrupted, there could be a significant disruption in commercial supply. The number of manufacturers with the necessary manufacturing capabilities is limited. In addition, an alternative manufacturer would need to be qualified through an NDA or BLA supplement which could result in further delay. The regulatory agencies may also require additional studies if a new manufacturer is relied upon for commercial production. Switching manufacturers may involve substantial costs and is likely to result in a delay in our desired clinical and commercial timelines, which could materially harm our business and results of operations.

These factors could cause the delay of clinical studies, regulatory submissions, required approvals or commercialization of our pharmaceutical products, cause us to incur higher costs and prevent us from commercializing our products successfully. Furthermore, if our suppliers fail to meet contractual requirements, and we are unable to secure one or more replacement suppliers capable of production at a substantially equivalent cost, our clinical studies may be delayed or we could lose potential revenue, which could materially harm our business and results of operations.

We have no manufacturing, sales, marketing or distribution capabilities, and we may have to invest a significant amount of resources to develop these capabilities.

We have no internal manufacturing capabilities. As a result, for manufacturing we depend on third-party manufacturers, including Kevelt, Pharmsynthez and the Serum Institute, which in turn may rely upon third-parties to manufacture our products. Although our strategy is based on leveraging the ability of collaboration partners to develop and manufacture our products for commercialization in the pharmaceutical marketplace, we will be dependent on collaborations with drug development and manufacturing collaborators. If we are not able to maintain existing collaborative arrangements or establish new arrangements on commercially acceptable terms, we would be required to undertake product manufacturing and development activities at our own expense. This would increase our capital requirements or require us to limit the scope of our development activities. Moreover, we have limited or no experience in conducting full scale bioequivalence or other clinical studies, preparing and submitting regulatory applications, and distributing and marketing pharmaceutical products and as such we are reliant on contract parties for such efforts. We may not be able to enter into collaborations or hire consultants or external service providers to assist us in sales, marketing and distribution functions on acceptable financial terms or at all.

If any of our developmental collaborators breach or terminate their agreements with us or otherwise fail to conduct their collaborative activities in a timely manner, the preclinical and/or clinical development and/or commercialization of our pharmaceutical products will be delayed and we would be required to devote additional resources to product development and commercialization or terminate certain development programs. Also, a license relationship may be terminated at the discretion of our collaborator, or at the end of contract terms, and in some cases with only limited notice to us. The termination of the collaborative arrangement could have a material adverse effect on our business, financial condition and results of operations. There also can be no assurance that disputes will not arise with respect to the ownership of rights to any technology developed with third-parties. These and other possible disagreements with collaborators could lead to delays in the development or commercialization of our pharmaceutical products or could result in litigation or arbitration, which could be time consuming and expensive and could have a material adverse effect on our business, financial condition and results of operations. Even if we decide to perform clinical trials, sales, marketing and distribution functions ourselves, we could face a number of additional related risks, including:

Any failure to perform such activities could have a material adverse effect on our business, financial condition and results of our operations.

Our reliance on third-parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed.

Because we rely on third-parties to manufacture our pharmaceutical products, and because we collaborate with various organizations and academic institutions on the development of our pharmaceutical products, we must, at times, share trade secrets with them. We seek to protect our proprietary technology in part by entering into confidentiality agreements and, if applicable, material transfer agreements, collaborative research agreements, consulting agreements or other similar agreements with our collaborators, advisors, employees and consultants prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third-parties to use or disclose our confidential information, such as trade secrets. Despite the contractual provisions employed when working with third-parties, the need to share trade secrets and other confidential information increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our know-how and trade secrets, a competitor’s discovery of our trade secrets or other unauthorized use or disclosure would impair our competitive position and may have a material adverse effect on our business.

In addition, these agreements typically restrict the ability of our collaborators, advisors, employees and consultants to publish data potentially relating to our trade secrets. Our academic collaborators typically have rights to publish data, provided that we are notified in advance and may delay publication for a specified time in order to secure our intellectual property rights arising from the collaboration. In other cases, publication rights are controlled exclusively by us, although in some cases we may share these rights with other parties. We may also conduct joint research and development programs that may require us to share trade secrets under the terms of our research and development partnerships or similar agreements. Despite our efforts to protect our trade secrets, our competitors may discover our trade secrets, either through breach of these agreements, independent development or publication of information including our trade secrets in cases where we do not have proprietary or otherwise protected rights at the time of publication. A competitor’s discovery of our trade secrets would impair our competitive position and have an adverse impact on our business.

Risks Related to Our Intellectual Property

If we fail to adequately protect or enforce our intellectual property rights, we may be unable to operate effectively.

Our success and ability to compete are substantially dependent on our patents, proprietary formulations and trademarks. Although we believe that the patents and associated trademarks and licenses are valid, there can be no assurance that they will not be challenged and subsequently invalidated and/or canceled. The invalidation or cancellation of any one or all of the patents or trademarks would significantly damage our commercial prospects. Further, we may find it necessary to legally challenge parties infringing our patents or trademarks or licensed trademarks to enforce our rights thereto. There can be no assurance that any of the patents would ultimately be held valid or that efforts to defend any of the patents, trade secrets, know-how or other IP rights would be successful.

The patent positions of pharmaceutical and biotechnology companies, such as ours, are uncertain and involve complex legal and factual issues. We own numerous U.S. and foreign patents and a number of pending patent applications that cover various aspects of our drug candidates and technologies. There can be no assurance that patents that have been issued will be held valid and enforceable in a court of law. Even for patents that are held valid and enforceable, the legal process associated with obtaining such a judgment is time consuming and costly. Additionally, issued patents can be subject to opposition or other proceedings that can result in the revocation of the patent or maintenance of the patent in amended form (and potentially in a form that renders the patent without commercially relevant and/or broad coverage). Further, our competitors may be able to circumvent and otherwise design around our patents. Even if a patent is issued and enforceable, because development and commercialization of pharmaceutical products can be subject to substantial delays, patents may expire early and provide only a short period of protection, if any, following the commercialization of a product encompassed by our patents. We may have to participate in interference proceedings declared by the USPTO, which could result in a loss of the patent and/or substantial cost to us.

We have filed patent applications and plan to file additional patent applications, covering various aspects of our drug candidates and technologies. There can be no assurance that the patent applications for which we apply would actually be issued as patents, or do so with commercially relevant and/or broad coverage. The coverage claimed in a patent application can be significantly reduced before the patent is issued. The scope of our claim coverage can be critical to our ability to enter into licensing transactions with third-parties and our right to receive royalties from our collaboration partnerships. Since publication of discoveries in scientific or patent literature often lags behind the date of such discoveries, we cannot be certain that we were the first inventor of inventions covered by our patents or patent applications. In addition, there is no guarantee that we will be the first to file a patent application directed to an invention.

An adverse outcome in any judicial proceeding involving IP, including patents, could subject us to significant liabilities to third-parties, require disputed rights to be licensed from or to third-parties or require us to cease using the technology in dispute. In those instances where we seek an IP license from another, we may not be able to obtain the license on a commercially reasonable basis, if at all, thereby raising concerns on our ability to freely commercialize our technologies and/or products. It is also possible that we or our licensors or licensees will 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. Moreover, in some circumstances, we may not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering technology that we license from or license to third-parties and are reliant on our licensors or licensees. Therefore, these patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business. If our current or future licensors or licensees fail to establish, maintain or protect such patents and other intellectual property rights, such rights may be reduced or eliminated. If our licensors or licensees are not fully cooperative or disagree with us as to the prosecution, maintenance or enforcement of any patent rights, such patent rights could be compromised.

Failure to adequately protect or enforce our intellectual property rights could have a material adverse impact on our business, results of operations and prospects.

Issued patents covering our drug candidates could be found invalid or unenforceable if challenged in court.

If we or one of our licensing partners initiated legal proceedings against a third-party to enforce a patent covering one of our drug candidates, the defendant could counterclaim that the patent covering our drug candidate is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. Third-parties may also raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include re-examination, post grant review, and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings). Such proceedings could result in revocation or amendment to our patents in such a way that they no longer cover our drug candidates. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our drug candidates. Such a loss of patent protection would have a material adverse impact on our business.

We may not be able to protect our intellectual property rights throughout the world.

Filing, prosecuting and defending patents on drug candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third-parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our inventions in jurisdictions where we have not obtained patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our products and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection, particularly those relating to biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third-parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

Failure to adequately protect our intellectual property rights throughout the world could have a material adverse impact on our business, results of operations and prospects.

If we infringe on the intellectual property rights of others, our business and profitability may be adversely affected.

Our commercial success will also depend, in part, on us and our collaborative partners not infringing on the patents or proprietary rights of others. There can be no assurance that the technologies and products used or developed by our collaborative partners and marketed and sold by us will not infringe such rights. If such infringement occurs and neither we nor our collaborative partner is able to obtain a license from the relevant third-party, we will not be able to continue the development, manufacture, use, or sale of any such infringing technology or product. There can be no assurance that necessary licenses to third-party technology will be available at all, or on commercially reasonable terms. In some cases, litigation or other proceedings may be necessary to defend against or assert claims of infringement or to determine the scope and validity of the proprietary rights of third-parties. Any potential litigation could result in substantial costs to, and diversion of, our resources and could have a material and adverse impact on us. An adverse outcome in any such litigation or proceeding could subject us to significant liabilities, require us to cease using the subject technology or require us to license the subject technology from the third-party, all of which could have a material adverse effect on our business.

If we fail to comply with our obligations in the agreements under which we license intellectual property rights from third-parties or otherwise experience disruptions to our business relationships with our licensors, we could lose license rights that are important to our business.

We are a party to a number of intellectual property license agreements that are important to our business and we expect to enter into additional license agreements in the future. Our existing license agreements impose, and we expect that future license agreements will impose, various diligence, milestone payment, royalty and other obligations on us. If we fail to comply with our obligations under these agreements, or we are subject to a bankruptcy, the licensor may have the right to terminate the license, in which event we would not be able to market products covered by the license.

We may need to obtain licenses from third-parties to advance our research, and we have done so from time to time. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. In that event, we may be required to expend significant time and resources to develop or license replacement technology. If we are unable to do so, we may be unable to develop the affected drug candidates, which could harm our business significantly. We cannot provide any assurances that third-party patents do not exist which might be enforced against our current drug candidates or future products, resulting in either an injunction prohibiting the sales, or, with respect to the sales, an obligation on our part to pay royalties and/or other forms of compensation to third-parties.

In many cases, patent prosecution of our licensed technology is controlled solely by the licensor. If our licensors fail to obtain and maintain patent or other protection for the proprietary intellectual property we license from them, we could lose our rights to the intellectual property or our exclusivity with respect to those rights, and our competitors could market competing products using the intellectual property. In certain cases, we control the prosecution of patents resulting from licensed technology. In the event we breach any of our obligations related to such prosecution, we may incur significant liability to our licensing partners. Licensing of intellectual property is of critical importance to our business and involves complex legal, business and scientific issues and is complicated by the rapid pace of scientific discovery in our industry. Disputes may arise regarding intellectual property subject to a licensing agreement, including:

If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on acceptable terms, we may be unable to successfully develop and commercialize the affected drug candidates, which could have a material adverse effect on our business.

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

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

Interference proceedings provoked by third-parties or brought by us may be necessary to determine the priority of inventions with respect to our patents or patent applications or those of our licensors. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms. Our defense of litigation or interference proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees. We may not be able to prevent, alone or with our licensors, misappropriation of our intellectual property rights, particularly in countries where the laws may not protect those rights as fully as in the United States.

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

Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.

As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biotechnology industry involve both technological and legal complexity and is, therefore, costly, time-consuming and inherently uncertain. In addition, the United States has recently enacted and is currently implementing wide-ranging patent reform legislation. Recent U.S. Supreme Court rulings 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 our 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 decisions by the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.

Patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our and our licensors’ patent applications and the enforcement or defense of our or our licensors’ issued patents. Provisions of the Leahy-Smith America Invents Act, or the Leahy-Smith Act, adopted in September 2011, which includes a number of significant changes to U.S. patent law, are still being implemented through the adoption of new regulations. The Leahy-Smith Act and its implementation, in addition to any new regulation, could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business and financial condition.

We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third-parties or that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.

We employ individuals who were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. We may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of any of our employee’s former employers or other third-parties. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel, which could adversely impact our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

We may be subject to claims challenging the inventorship or ownership of our patents and other intellectual property.

We may also be subject to claims that former employees, collaborators or other third-parties have an ownership interest in our patents or other intellectual property. We may have in the future ownership disputes arising, for example, from conflicting obligations of consultants or others who are involved in developing our drug candidates. Litigation may be necessary to defend against these and other claims challenging inventorship or ownership. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

 Our inability to protect our confidential information and trade secrets would harm our business and competitive position.

In addition to seeking patents for some of our technology and products, we also rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position. We seek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees, corporate collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors and other third-parties. We also enter into confidentiality and invention or patent assignment agreements with our employees and consultants. Any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts both within and outside the United States may be less willing or unwilling to protect trade secrets. If a competitor lawfully obtained or independently developed any of our trade secrets, we would have no right to prevent such competitor from using that technology or information to compete with us, which could harm our competitive position and our business.

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

Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due 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/or 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. Non-compliance may 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 an event, our competitors might be able to enter the market and this circumstance would have a material adverse effect on our business.

Risks Related to Our Business Operations

We operate in an extremely competitive environment and there can be no assurances that competing technologies would not harm our business development.

We are engaged in a rapidly evolving field. Competition from numerous pharmaceutical companies is intense and expected to increase. The large and rapidly growing market for oncology treatments is likely to attract new entrants. Numerous biotechnology and pharmaceutical companies are focused on developing cancer treatments and I-O technologies including CAR T. Many, if not all, of these companies have greater financial and other resources and development capabilities than we do. Many of our competitors also have greater collective experience in undertaking preclinical and clinical testing of products, obtaining regulatory approvals and manufacturing and marketing prescription pharmaceutical products. There can be no assurance that our under-development drug candidates will be more effective or achieve greater market acceptance than competitive products, or that our competitors will not succeed in developing products and technologies that are more effective than those being developed by us or that would render our products and technologies less competitive or obsolete. Additionally, there can be no assurance that the development by others of new or improved drugs will not make our pharmaceutical products superfluous or obsolete.

We are a party to collaboration agreements and other significant agreements which contain complex commercial terms that could result in disputes, litigation or indemnification liability that could adversely affect our business, results of operations and financial condition.

We currently derive, and expect to derive in the foreseeable future, all or much of our revenue from collaboration agreements with biotechnology and pharmaceutical companies. These collaboration agreements contain complex commercial terms, including:

From time to time, we have informal dispute resolution discussions with third-parties regarding the appropriate interpretation of the complex commercial terms contained in our agreements. One or more disputes may arise or escalate in the future regarding our collaboration agreements, transaction documents, or third-party license agreements that may ultimately result in costly litigation and unfavorable interpretation of contract terms, which would have a material adverse effect on our business, financial condition and results of operations.

Governments may impose price controls, which may adversely affect our future profitability.

We intend to seek approval to market our drug candidates in both the United States and in foreign jurisdictions. In some foreign countries and jurisdictions, particularly in the European Union, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a drug candidate. To obtain reimbursement or pricing approval in some countries, we may be required to conduct clinical trials to compare the cost effectiveness of our drug candidates to other available therapies, which is time consuming and costly. If reimbursement of our future products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, we may be unable to achieve or sustain profitability.

Write-offs related to the impairments of our long-lived assets, including goodwill and indefinite-lived intangible assets, and other non-cash charges such as share-based payments may adversely impact our results of operations.

We may incur significant non-cash charges related to impairments of our long-lived assets, including goodwill and indefinite-lived intangible assets. Although we did not record any such charges during 2018, we are required to perform periodic impairment reviews of those assets at least annually. The carrying value of goodwill on our balance sheet that is subject to impairment reviews was approximately $3.3 million at December 31, 2018 and December 31, 2017 and the carrying value of our indefinite-lived assets was $9.2 million at December 31, 2018 and December 31, 2017. To the extent future reviews conclude that the expected future cash flows generated from our business activities are not sufficient to recover the carrying value of these assets, we will be required to measure and record an impairment charge to write-down these assets to their realizable values and those impairment charges could be equal to the entire carrying value.

We completed our last review during the fourth quarter of 2018 and determined that goodwill and indefinite-lived intangible assets were not impaired as of December 31, 2018. However, there can be no assurance that upon completion of subsequent reviews a material impairment charge will not be recorded. If future periodic reviews determine that our assets are impaired and a write-down is required, it will adversely impact our operating results.

In addition, we recorded non-cash charges of approximately $1.4 million and $1.8 million for share-based expense during the years ended December 31, 2018 and 2017, respectively. In the future, this amount could fluctuate materially as the Company expects to continue to issue share-based payments awards.

Potential new accounting standards or legislative actions may adversely impact our future financial position or results of operations.

Future changes in financial accounting standards may cause adverse, unexpected fluctuations in the timing of the recognition of revenues or expenses, and may affect our financial position or results of operations. New standards may occur in the future and may cause us to be required to make changes in our accounting policies. Compliance with changing regulation of corporate governance and public disclosure may result in additional expenses. Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, new SEC regulations, Public Company Accounting Oversight Board, or PCAOB, standards and NASDAQ rules, are creating uncertainty for companies such as ours and insurance, accounting and auditing costs are high as a result of this uncertainty and other factors.

We have limited capital resources and currently have only one full time employee in our finance department. We rely on outside consultants to supplement our internal expertise and are committed to maintaining high standards of corporate governance and public disclosure. As a result, we intend to invest all reasonably necessary resources to comply with evolving standards, and this investment may result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.

Varying interpretations of existing standards and rules have occurred with frequency and may cause us to have to restate previously reported result of operations.

Varying interpretations of existing standards of accounting policies or accounting treatments of existing transactions may cause us to have to restate previously reported result of operations.

For example, in January 2014 we completed a transaction that we determined to be a reverse merger business combination. We allocated the purchase price consideration to the assets acquired and liabilities assumed at their estimated fair values as of the date of acquisition. Our determination that the transaction met the criteria for a business combination was based on our best knowledge of the facts and circumstances surrounding the transaction, and required the application of our judgment. Changes to this determination would result in the transaction to be accounted for as a recapitalization, with no goodwill recorded, which could cause a material change in our reported results of operations and could cause the Company to have to amend prior periodic or other filings with the SEC, at further expense to the Company. We may be subject to similar varying interpretations of existing standards of accounting policies or accounting treatments in the future.

In addition, we do not consider the Company to be a development stage entity for financial reporting presentation purposes. A determination that the Company is a development stage entity could cause a material change in our reported results of operations and could cause the Company to have to amend prior periodic or other filings with the SEC, at further expense to the Company.

Tax reform may significantly affect the Company and its stockholders.

On December 22, 2017, the TCJA, which significantly reforms the Internal Revenue Code of 1986, as amended (the “Code”), was signed into law. The TCJA, among other things, includes changes to U.S. federal tax rates, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, limitations of the tax deduction for interest expense to 30% of adjusted earnings (except for certain small businesses), limitations of the deduction for net operating losses (“NOLs”) to 80% of current year taxable income and elimination of NOL carrybacks, one time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, elimination of U.S. tax on foreign earnings (subject to certain important exceptions), immediate deductions for certain new investments instead of deductions for depreciation expense over time, modifying or repealing many business deductions and credits and putting into effect the migration from a “worldwide” system of taxation to a territorial system. Notwithstanding the reduction in the corporate income tax rate, the overall impact of the new federal tax law is uncertain and our business and financial condition could be adversely affected. In addition, it is uncertain if and to what extent various states will adjust their policies in response to the newly enacted federal tax law. The impact of this tax reform on holders of our Common Stock is uncertain and could be adverse.

Due to the potential for changes to tax laws and regulations or changes to the interpretation thereof (including regulations and interpretations pertaining to the TCJA), the ambiguity of tax laws and regulations, the subjectivity of factual interpretations and other factors, our estimates of effective tax rate and income tax assets and liabilities may be incorrect and our financial statements could be adversely affected. The impact of these factors referenced in the first sentence of this paragraph may be substantially different from period-to-period.

In addition, the amount of income taxes we pay is subject to ongoing audits by U.S. federal, state and local tax authorities and by non-U.S. tax authorities. If audits result in payments or assessments different from our reserves, our future results may include unfavorable adjustments to our tax liabilities and our financial statements could be adversely affected. Any further significant changes to the tax system in the United States or in other jurisdictions (including changes in the taxation of international income as further described below) could adversely affect our financial statements.

Our ability to use potential future operating losses and our federal and state NOL carryforwards to offset taxable income from revenue generated from operations or corporate collaborations could be limited.

The use of our NOL carryforwards may have limitations resulting from certain future ownership changes or other factors under the Code and other taxing authorities. The TCJA changed both the federal deferred tax value of the NOL carryforwards and the rules of utilization of federal NOL carryforwards. The TCJA lowered the corporate tax rate from 35% to 21% effective for our 2018 fiscal year. For NOL carryforwards generated in years prior to 2018, there is no annual limitation on the utilization and the carryforward period remains at 20 years. However, NOL carryforwards generated in years after 2017 will only be available to offset 80% of future taxable income in any single year but will not expire.

If our NOL carryforwards are limited, and we have taxable income which exceeds the available NOL carryforwards for that period, we would incur an income tax liability even though NOL carryforwards may be available in future years prior to their expiration. Any such income tax liability may adversely affect our future cash flow, financial position and financial results.

Our future success depends on our ability to retain key employees, consultants and advisors and to attract, retain and motivate qualified personnel.

We are highly dependent on principal members of our executive team and key employees, the loss of whose services may adversely impact the achievement of our objectives. Recruiting and retaining other qualified employees, consultants and advisors for our business, including scientific and technical personnel, will also be critical to our success. There is currently a shortage of skilled executives in our industry, which is likely to continue. As a result, competition for skilled personnel is intense and the turnover rate can be high. We may not be able to attract and retain personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for individuals with similar skill sets. In addition, failure to succeed in preclinical or clinical studies may make it more challenging to recruit and retain qualified personnel. The inability to recruit or loss of the services of any executive, key employee, consultant or advisor may impede the progress of our research and development objectives.

We will need to expand our organization and we may experience difficulties in managing this growth, which could disrupt our operations.

As of March 31, 2019, we had four full-time employees. As we mature, we may need to expand our full-time employee base and to hire more consultants and contractors. Our management may need to divert a disproportionate amount of its attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities. We may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure, operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees, all of which may have a material adverse effect on our business, results of operations and prospects. Any future growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of additional drug candidates. If our management is unable to effectively manage our growth, our expenses may increase more than expected, our ability to generate and/or grow revenues could be reduced, and we may not be able to implement our business strategy. Our future financial performance and our ability to commercialize drug candidates and compete effectively will depend, in part, on our ability to effectively manage any future growth.

Our employees, principal investigators, consultants and commercial partners may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements and insider trading.

We are exposed to the risk of fraud or other misconduct by our employees, principal investigators, consultants and commercial partners. Misconduct by these parties could include intentional failures to comply with the regulations of the FDA and non-U.S. regulators, provide accurate information to the FDA and non-U.S. regulators, comply with healthcare fraud and abuse laws and regulations in the United States and abroad, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Such misconduct could also involve the improper use of information obtained in the course of clinical studies, which could result in regulatory sanctions and cause serious harm to our reputation or could cause regulatory agencies not to approve our drug candidates. It is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.

We face potential product liability, and, if successful claims are brought against us, we may incur substantial liability and costs. If the use of our drug candidates harms patients, or is perceived to harm patients even when such harm is unrelated to our drug candidates, our regulatory approvals could be revoked or otherwise negatively impacted and we could be subject to costly and damaging product liability claims.

The use of our drug candidates in clinical studies and the sale of any products for which we obtain marketing approval exposes us to the risk of product liability claims. Product liability claims might be brought against us by consumers, healthcare providers, pharmaceutical companies or others selling or otherwise coming into contact with our products. There is a risk that our drug candidates may induce adverse events. If we cannot successfully defend against product liability claims, we could incur substantial liability and costs. In addition, regardless of merit or eventual outcome, product liability claims may result in:

all of which may have a material adverse effect on our business, results of operations and prospects.

If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.

We are 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. Our operations involve the use of hazardous and flammable materials, including chemicals and biological materials. Our operations also produce hazardous waste products. We generally contract with third-parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties.

The workers’ compensation insurance we maintain to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials or other work-related injuries may not provide adequate coverage against potential liabilities. In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions, which may have a material adverse effect on our business and results of operations.

Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.

We are subject to the periodic reporting requirements of the Exchange Act. 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 our control system, misstatements due to error or fraud may occur and not be detected, which may have material adverse effect on our business and results of operations.

Failure in our information technology systems, including by cybersecurity attacks or other data security incidents, could significantly disrupt our operations.

Our operations depend, in part, on the continued performance of our information technology systems. Our information technology systems are potentially vulnerable to physical or electronic break-ins, computer viruses and similar disruptions. Failure of our information technology systems could adversely affect our business, profitability and financial condition.

A successful cybersecurity attack or other data security incident could result in the misappropriation and/or loss of confidential or personal information, create system interruptions, or deploy malicious software that attacks our systems. It is possible that a cybersecurity attack might not be noticed for some period of time. The occurrence of a cybersecurity attack or incident could result in business interruptions from the disruption of our information technology systems, or negative publicity resulting in reputational damage with our clinical trial participants, customers, stockholders and other stakeholders and/or increased costs to prevent, respond to or mitigate cybersecurity events. In addition, the unauthorized dissemination of sensitive personal information or proprietary or confidential information could expose us or other third-parties to regulatory fines or penalties, litigation and potential liability, or otherwise harm our business. 

PROPOSAL ONE

PROPOSAL ONE: THE TRANSACTION PROPOSAL

On March 4, 2019, the Company announced its agreement to acquire the novel CAR T platform technology, called “XCART,” a proximity-based screening platform capable of identifying CAR constructs that can target patient-specific tumor neoantigens, with a demonstrated proof of mechanism in B-cell non-Hodgkin lymphomas. The XCART technology, developed by the Institute in collaboration with IBCH, is believed to have the potential to significantly enhance the safety and efficacy of cell therapy for B-cell lymphomas by generating patient- and tumor-specific CAR T cells.

The XCART technology platform was designed by its originators to utilize an established screening technique to identify peptide ligands that bind specifically to the unique B-cell receptor (“BCR”) on the surface of an individual patient’s malignant tumor cells. The peptide is then inserted into the antigen-binding domain of a CAR, and a subsequent transduction/transfection process is used to engineer the patient’s T cells into a CAR T format which redirects the patient’s T cells to attack the tumor. Essentially, the XCART screening platform is the inverse of a typical CAR T screening protocol wherein libraries of highly specific antibody domains are screened against a given target. In the case of XCART screening, the target is itself an antibody domain, and hence highly specific by its nature. The XCART technology creates the possibility of personalized treatment of lymphomas utilizing a CAR with an antigen-binding domain that should only recognize, and only be recognized by, the unique BCR of a particular patient’s B-cell lymphoma. An expected result for XCART is limited off-tumor toxicities, such as B-cell aplasia. Xenetic’s clinical development program will seek to confirm the early preclinical results, and to demonstrate a more attractive safety profile than existing therapies.

A description of the Transaction Documents and the transactions contemplated thereby are set forth below. Subject to the satisfaction of the closing conditions, the Transaction is expected to close in the first half of 2019.

The Share Purchase Agreement

The following includes a summary of the material provisions of the Share Purchase Agreement, a copy of which is attached to this proxy statement/prospectus as Appendix A. This summary may not contain all of the information about the Share Purchase Agreement and Hesperix Acquisition that is important to you. We encourage you to read carefully the Share Purchase Agreement in its entirety, as the rights and obligations of the parties thereto are governed by the express terms of the Share Purchase Agreement and not by this summary or any other information contained in this proxy statement/prospectus. Certain portions of Appendix A have been omitted. The omitted information is not material and would likely cause competitive harm to the Company if publicly disclosed.

On the Signing Date, the Company entered into the Share Purchase Agreement with Hesperix, the Sellers, and the Sellers’ Representative. Pursuant to the terms and subject to the conditions set forth in the Share Purchase Agreement, the Company has agreed to purchase, and the Sellers have agreed to sell to the Company, all of the issued and outstanding shares of Hesperix in exchange for the Company issuing to Sellers an aggregate of Four Million Eight Hundred Seventy-Five Thousand (4,875,000) shares of Common Stock, regardless of the trading price per share of the Common Stock at the time of the closing.

Closing

We are working towards completing the transaction as soon as possible. The closing is required to take place no later than two business days after the last of the conditions set forth in the Share Purchase Agreement (other than those conditions that by their nature are to be satisfied at the closing, but subject to the satisfaction or waiver of those conditions) have been satisfied or, to the extent permissible, waived by the party or parties entitled to the benefit of such conditions, or at such other time or on such other date or at such other place as the Company and Hesperix may mutually agree.

As described below, if the Share Purchase Agreement has not closed on or prior to July 1, 2019, the Share Purchase Agreement may be terminated by the Company or by Sellers’ Representative.

Representations and Warranties

The Share Purchase Agreement contains representations and warranties made by (a) each Seller to the Company; (b) Hesperix and each Seller to the Company; and (c) by the Company to Sellers. Certain of the representations and warranties in the Share Purchase Agreement are subject to knowledge qualifications, which means that those representations and warranties would not be deemed untrue, inaccurate or incorrect as a result of matters of which any director, managing member, manager, or officer, as may be applicable, of the party making the representation did not and do not have actual knowledge, or the knowledge that such person would have reasonably obtained in the due exercise of care in the performance of their duties to such person without having made any search or investigation. In addition, the representations and warranties contained in the Share Purchase Agreement are subject to specified exceptions and qualifications and the confidential disclosure schedules that Sellers have provided to the Company in connection with signing the Share Purchase Agreement, which such disclosures are not reflected in the Share Purchase Agreement or otherwise publicly disclosed. You should not rely on the representations, warranties, covenants or any description thereof as actual characterizations of the actual state of facts or conditions of the Company, Hesperix, or any of their respective subsidiaries or affiliates. Moreover, the information concerning the subject matter of the representations and warranties may change after the Signing Date. The representations and warranties should not be read alone but, instead, should be read only in conjunction with the information provided elsewhere in this proxy statement/prospectus.

For purposes of the Share Purchase Agreement, a “material adverse effect” with respect to Hesperix means any event, occurrence, fact, condition or change that is, or could reasonably be expected to become, individually or in the aggregate, materially adverse to (a) the business, results of operations, condition (financial or otherwise), or assets of Hesperix and/or its subsidiaries, or (b) the ability of Sellers to consummate the transaction; provided, however, that none “material adverse effect” will not include any event, occurrence, fact, condition or change, directly or indirectly, arising out of or attributable to:

The Share Purchase Agreement contains representations and warranties made by each Seller, severally but not jointly, to the Company relating to a number of matters, including, among other things, the following:

The Share Purchase Agreement also contains representations and warranties by Hesperix and each Seller, severally but not jointly, made to the Company, relating to a number of matters, including, the following:

The Share Purchase Agreement also contains representations and warranties made by the Company to the Sellers relating to a number of matters, including, the following:

Subject to the limitations and other provisions in the Share Purchase Agreement, the representations and warranties in the Share Purchase Agreement will survive the closing and remain in full force and effect until the date that is twenty-four (24) months from the closing date; provided, however, certain representations and warranties, including, among others, (i) with respect to the Sellers and Hesperix, those relating to the organization and authority of Sellers and Hesperix, conflicts and approvals of third parties, the capitalization of Hesperix and ownership by the Sellers of Hesperix, subsidiaries of Hesperix, no activities or liabilities of Hesperix, the Hesperix intellectual property, brokers and related party transactions (collectively, the “Hesperix Fundamental Representations”), and (ii) with respect to the Company, the organization and authority of the Company, conflicts and approvals of third parties and brokers (collectively the “Company Fundamental Representations” and together with Hesperix Fundamental Representations, the “Fundamental Representations”), all of which will survive indefinitely. If the Share Purchase Agreement is validly terminated, there will be no liability under the representations and warranties of the parties, except with respect to any willful breach or material breach of any provision, or for fraud or criminal misconduct of any party.

Conduct of Hesperix’s Business

Sellers have agreed as to itself, Hesperix and its subsidiaries that, except as otherwise expressly required by the Share Purchase Agreement or approved in writing by the Company, after the Signing Date, and until the earlier to occur of the termination of the Share Purchase Agreement or the closing of the transactions contemplated thereby, the business of Hesperix and its subsidiaries will be conducted in the ordinary and usual course consistent with past practice and, to the extent consistent therewith, Hesperix and its subsidiaries will use their commercially reasonable efforts to (i) maintain and preserve intact the current organization, business, Hesperix intellectual property and franchise of Hesperix and its subsidiaries, and (ii) maintain the existing relationships and goodwill of Hesperix and its subsidiaries.

In addition to the general covenants above, Sellers have agreed that after the Signing Date, and prior to the earlier of the termination of the Share Purchase Agreement or the closing of the transactions contemplated thereby, except as expressly required by the Share Purchase Agreement or as otherwise approved in writing by the Company (such approval not to be unreasonably withheld or delayed), Sellers will cause Hesperix and/or its subsidiaries to:

No Solicitation of Other Bids

Sellers and Hesperix were required upon the execution of the Share Purchase Agreement to, and to cause its affiliates and representatives to, immediately cease and cause to be terminated any discussions and negotiations with any person, other than the Company, concerning any acquisition proposal.

Non-competition; Non-solicitation

For a period of five (5) years commencing on the closing date (the “Restricted Period”), each Seller has agreed to not, and will not permit and of its affiliates to, directly, or indirectly (i) engage in or assist others in engaging in the inventing, developing, use or commercialization of any process or product covered by any claim as filed as part of Hesperix’s patents (the “Restricted Business”); (ii) have an interest in any person that engages directly or indirectly in the Restricted Business in any capacity, including as partner, stockholder, member, manager, inventor, employee, or consultant; and (iii) intentionally interfere in any material respect with the business relationships (past or present) of Hesperix, the Company or any of their subsidiaries.

During the Restricted Period, each Seller will not, and will not permit any of its affiliates to, directly or indirectly, hire or solicit any inventor or scientist of Hesperix or any affiliate or any party involved in the creation or development of Hesperix’s intellectual property (irrespective of whether any such party performed work on behalf of Hesperix or any affiliate), or interfere with the relationship between any such party and Hesperix or any affiliate or hire any such party who is no longer involved with Hesperix or any affiliate; however, these provisions will not prevent a Seller or affiliate from hiring (i) an inventor or scientist whose employment has been terminated by Hesperix or the Company, or (ii) after 180 days from termination, any inventor or scientist who has terminated his employment with Hesperix or the Company.

IBCH and Pharmsynthez who are each being provided royalties by Hesperix pursuant that certain Assignment Agreement with IBCH, Pharmsynthez, and certain other parties thereto will each execute separate non-competition and non-solicitation agreements at the closing containing the same or similar language (the “Royalty Restrictive Covenant Agreement”).

Other Covenants and Agreements

The Share Purchase Agreement contains certain other covenants and agreements, including, among others, covenants relating to:

Conditions to Each Party’s Obligations

The respective obligations of each of the parties to consummate the transactions contemplated by the Share Purchase Agreement are subject to the satisfaction or waiver at or prior to closing of the following conditions:

Conditions to Obligations of the Company

The obligations of the Company to consummate the transactions contemplated by the Share Purchase Agreement are also subject to the satisfaction or waiver by the Company at or prior to the closing of the following conditions:

Conditions to Obligations of Hesperix and each Seller

The obligations of Hesperix and each Seller to consummate the transactions contemplated by the Share Purchase Agreement is also subject to the satisfaction or waiver by the Seller Representative at or prior to the closing of the following conditions:

Indemnification

From and after the closing, the Sellers will indemnify and defend each of the Company and its affiliates (including Hesperix) and their respective representatives against, and will hold each of them harmless, including the reimbursement for any and all losses, damages, liabilities, awards, including reasonable attorneys’ fees and the cost of enforcing any right of indemnification (“Losses”), arising out of, with respect to or by reason of (i) any inaccuracy in or breach of any of the representations or warranties of Hesperix or any Seller contained in the Share Purchase Agreement or in any certificate or instrument delivered by or on behalf of the Company pursuant to the Share Purchase Agreement (other than such representations or warranties relating to taxes as the sole remedy for any such breach are pursuant to such tax covenants contained in the Share Purchase Agreement); (ii) any breach, alleged breach or non-fulfillment of any covenant, agreement or obligation to be performed by Hesperix or any Seller pursuant to the Share Purchase Agreement (other than any breach or violation of, or failure to perform, any covenant, agreement, undertaking or obligation relating to taxes as the sole remedy for any such breach are pursuant to such tax covenants contained in the Share Purchase Agreement); and (iii) any Hesperix indebtedness and transaction expenses to the extent not paid at closing.

From and after the closing, the Company will indemnify and defend Sellers and its affiliates and their respective representatives against, and will hold each of them harmless, including the reimbursement for all Losses, arising out of, with respect to or by reason of (i) any inaccuracy in or breach of any of the representations or warranties of the Company contained in the Share Purchase Agreement or in any certificate or instrument delivered by or on behalf of the Company pursuant to the Share Purchase Agreement; or (ii) any breach, alleged breach or non-fulfillment of any covenant, agreement or obligation to be performed by the Company pursuant to the Share Purchase Agreement.

The indemnification provided for in the Share Purchase Agreement are subject to the following limitations:

Termination of the Share Purchase Agreement

The Share Purchase Agreement may be terminated at any time prior to the closing:

Effect of Termination

If the Share Purchase Agreement is terminated, the Share Purchase Agreement will become void and of no effect with no liability to any person on the part of any party except that the provisions of the Share Purchase Agreement relating to termination and certain technical provisions will continue in effect. The effect of the termination of the Share Purchase Agreement will not relieve any party from any liability for any willful breach or material breach of any provision therein, or for fraud or criminal misconduct.

Amendments and Waivers

Subject to the limitations of the Share Purchase Agreement, the Share Purchase Agreement may be amended or modified by a written instrument executed by the Company and the Sellers’ Representative on behalf of the Sellers, or in the case of a waiver, any such extension or waiver will be valid only if set forth in an instrument in writing signed by Buyer or Sellers’ Representative on behalf of Sellers, as the case may be.

Specific Performance

If for any reason any of the provisions of the Share Purchase Agreement are not performed in accordance with their specific terms or are otherwise breached or threatened to be breached, each party to the Share Purchase Agreement will be entitled to seek equitable relief, including an injunction or injunctions or orders for specific performance to prevent breaches of the Share Purchase Agreement and to enforce specifically the terms and provisions of the Share Purchase Agreement, in addition to any other remedy such party would be entitled to at law or in equity as a remedy for any such breach or threatened breach.

The Hesperix Assignment Agreement

Upon completion of the Hesperix Acquisition, Hesperix will be a wholly-owned subsidiary of the Company and as such, the Company will assume the rights and obligations of the Hesperix Assignment Agreement. The following includes a summary of the material provisions of the Hesperix Assignment Agreement, a copy of which is attached to this proxy statement/prospectus as Appendix B. This summary may not contain all of the information about the Hesperix Assignment Agreement and related transactions that is important to you. We encourage you to read carefully the Hesperix Assignment Agreement in its entirety, as the rights and obligations of the parties thereto are governed by the express terms of the Hesperix Assignment Agreement and not by this summary or any other information contained in this proxy statement/prospectus. Certain portions of Appendix B have been omitted. The omitted information is not material and would likely cause competitive harm to the Company if publicly disclosed.

On the Signing Date, Hesperix entered into the Hesperix Assignment Agreement with Alexey Vyacheslavovich Stepanov, Alexander Gabibovich Gabibov, Ivan Vitalievich Smirnov, Dmitry Dmitrievich Genkin, Richard A. Lerner, Alexey Anatolievich Belogurov, Alexey Vinogradov, IBCH, and Pharmsynthez (Stepanov, Gabibov, Genkin, Belogurov, and Pharmsynthez, collectively “Assignors”). Pursuant to the terms and subject to the conditions set forth in the Hesperix Assignment Agreement, Assignors have agreed, among other things, to sell, assign, transfer, and convey unto Hesperix all of their individual right, title, and interest throughout the world in and to the following patents relating to the “Articles And Methods Directed To Personalized Therapy Of Cancer,” (the “Assignor Patent Rights”) and the related know-how: (i) RU2017134483 filed October 4, 2017 (C1256.70030RU00); (ii) RU2018112009 filed April 4, 2018 (C1256.70031RU00); (iii) RU2018134321 filed October 1, 2018 (C1256.70033RU00); and (iv) PCT/RU2018/000653 filed October 4, 2018 (C1256.70030WO00), in exchange for Hesperix paying each of IBCH and Pharmsynthez a running royalty in the low single digit range based on net sales of products in each country in which, in absence of the Hesperix Assignment Agreement, the manufacture, use, offer for sale, sale, or importation of such product would infringe a valid claim of an issued patent; provided, that the running royalty would be reduced by one half (1/2) in each country in which, the manufacture, use, offer for sale, sale or importation of such product would infringe a valid claim of a pending patent application, if such claim were a claim of an issued patent.

Assignments; Certain Representations

Prior to the Hesperix Assignment Effective Date, each of Stepanov, Gabibov and Belogurov will have granted to IBCH an irrevocable assignment of certain patents owned by each relating to the Assignor Patent Rights and Genkin will have granted to Pharmsynthez an irrevocable assignment of certain Assignor Patent Rights owned by him.

Collectively, the Assignors own all right, title, and interest, throughout the word in all inventions in and to the Assignor Patent Rights and the related know-how, free and clear of all liens or other encumbrances of any nature whatsoever other than those rights, title and interests that the Institute has in the Assignor Patent Rights and related know-how (the “Institute Rights”). Subject to the terms and the conditions set forth in the Hesperix Assignment Agreement, Hesperix will purchase all of the Assignor’s collective rights, title, interests in and to the Assignor Patent Rights, and each Assignor will irrevocably, sell, assign, transfer, and convey unto Hesperix all of their individual right, title, and interest throughout the world in and to the Assignor Patent Rights and related know-how (including the right to sue for past infringement), including any patent application whether conventional, design, divisional, continuation, continuation-in-part, and continued prosecution applications, requests for continued examination, substitutions, patents of additions, reissues, renewals, or re-exams thereof, and in and to all inventions, preparatory to obtaining Letters Patent of the United States and patents throughout the world.

In addition, Assignors have each authorized the United States Commissioner of Patents and Trademarks, and will request that all patent authorities throughout the world, to issue any and all patents, including in or resulting from the Assignor Patent Rights, to Hesperix for its interest and for the sole use and benefit of Hesperix and its assigns and representative, in each case provided that the parties acknowledge and agree that their respective rights, title, interests and obligations pursuant to the assignment and the Hesperix Assignment Agreement are subject to the rights of the United States government, which may arise from the Institute’s and the Institute’s assignors receipt of research support from the United States government.

No Other Technology Rights

Each of the parties to the Hesperix Assignment Agreement have agreed that the Hesperix Assignment Agreement does not grant any party thereto any license, covenant, or other right in the intellectual property of any other party other than as expressly provided in the Hesperix Assignment Agreement.

Further Acts; Cooperation

Each Assignor has agreed, at no further cost or expense to Hesperix other than as provided by the Hesperix Assignment Agreement, that he/she/it will undertake all legal acts at any time necessary to:

The Assignors have also agreed to cooperate with Hesperix and its counsel in connection with prosecuting and maintaining the Assignor Patent Rights by providing all pertinent information and data with respect to the Assignor Patent Rights, assisting in reviewing and responding to any actions issued by any patent office, and executing applications, specifications, declarations, and all similar instruments which Hesperix may deem necessary.

Running Royalties

In consideration of the assignments by IBCH and Pharmsynthez of the Assignor Patent Rights and subject to the terms and conditions of the Hesperix Assignment Agreement, Hesperix has agreed to pay each of IBCH and Pharmsynthez during the term of the Hesperix Assignment Agreement, a running royalty rate in the low single-digit range based on the net sales of any active pharmaceutical, chemical or biological ingredient, or any component thereof disclosed in an Assignor Patent Right or encompassed by the claims of the Assignor Patent Rights (the “Product”), in each country in which the absence of the Hesperix Assignment Agreement, the manufacture, use, offer for sale, sale, or importation of the Product would infringe on a claim of an issued and unexpired patent or a claim of a pending patent application within the Assignor Patent Rights which has not been held un-patentable, invalid or unenforceable by a court or other government agency of competent jurisdiction (a “Valid Claim”). The running royalty to each of IBCH and Pharmsynthez, would be reduced by one half in each country in which, the manufacture, use, offer for sale, sale or importation of such product would infringe a valid claim of a pending patent application, if such claim were a claim of an issued patent. The running royalty to each of IBCH and Pharmsynthez would be further reduced for any royalty term in which neither of the foregoing running royalty rates applicable. The running royalty rate will be paid only once for each unit of Product no matter how many times such unit is sold or how many Assignor Patent Rights, absent of the Hesperix Assignment Agreement, would be infringed by the manufacture, use, offer for sale, sale, or importation of such Product.

Royalty Term

The running royalties due under the Hesperix Assignment Agreement will commence on the Signing Date through, Product-by-Product and country-by-country bases, the later of (i) the expiration of the last-to-expire Assignor Patent Right, a Valid Claim of which, absent the Hesperix Assignment Agreement, be infringed by the manufacture, use, offer for sale, sale or import of a Product, or (ii) ten (10) years from the date of first commercial sale by Hesperix or any licensee of any of Hesperix’s right, title or interest in the Assignor Patent Rights to a third party.

Royalty Payments and Reports

The running royalties under the Hesperix Assignment Agreement will be due forty-five (45) calendar days after the end of each calendar quarter. Each payment of the running royalty will be accompanied by a report setting forth, on a Product-by-Product and country-by-country bases, the amount of gross sales of each Product, a calculation of corresponding net sales and the information used to make such calculation, the currency conversion rate used, if applicable, the United States dollar equivalent of such net sales, and a calculation of the royalty payment due on the such net sales.

Interest on Late Payments

Any payments or portions due under the Hesperix Assignment Agreement which are not paid when such payment is due will bear interest at the lower of (a) the U.S. Prime Rate in effect on the due date plus one (1) percentage point, or (b) the maximum rate permitted by applicable law, calculated on the number of calendar days such payment is delinquent.

Currency

The royalty payments due under the Hesperix Assignment Agreement will be paid in U.S. dollars by bank wire transfer of immediately available funds to such bank account as designated in writing by IBCH and Pharmsynthez.

Other Agreements regarding Payments and Payment Terms

The Hesperix Assignment Agreement contains certain other agreements relating to the payment and payments terms of the running royalty, including, among others, agreements relating to:

Allocation of Shares in Hesperix

Each of Hesperix, Gabibov, Stepanov, Smirnov, Belogurov, Genkin, Vinogradov, and Lerner have agreed that upon executing the Hesperix Assignment Agreement, to reallocate the ownership of all the issued and outstanding shares of Hesperix in all classes, whether by issuance of additional shares or otherwise, in which Gabibov, Stepanov, Smirnov, Belogurov, Genkin, Vinogradov, and Lerner will receive approximately 12.3%, 4.6%, 3.1%, 3.1%, 23.1%, 46.1%, and 7.7% of the issued and outstanding shares of Hesperix, respectively. These Hesperix shares will be exchanged pro rata and on a one-for-one basis for the Hesperix Transaction Shares upon closing of the Hesperix Acquisition.

Representations and Warranties

The Hesperix Assignment Agreement contains representations and warranties made by Hesperix to the other parties relating to a number of matters, including, the following:

The Hesperix Assignment Agreement also contains representations and warranties made by each Assignor to the other parties relating to a number of matters, including, the following:

The Hesperix Assignment Agreement also contains representations and warranties made by IBCH to the other parties relating to a number of matters, including, the following:

The Hesperix Assignment Agreement also contains representations and warranties made by Pharmsynthez to the other parties relating to a number of matters, including, the following:

Warranty Disclaimer

Except as expressly set forth in the Hesperix Assignment Agreement, no party thereto has made any representations or extends any warranties of any kind, either express or implied, including any express or implied warranties of merchantability or fitness for a particular purpose with respect to the Assignor Patent Rights, technology, or any materials or information provided with respect to any Product or services.

Limitation of Liability

Except for any breach of confidentiality, no party to the Hesperix Assignment Agreement will be liable to any other party for special, indirect, incidental, or punitive damages, or consequential damages, including damages resulting from loss of use, loss of profits, or interruption or loss of business or other similar economic loss arising out of the Hesperix Assignment Agreement or with a party’s performance or non-performance of its obligations under the Hesperix Assignment Agreement.

Termination without Cause

Hesperix may exclusively terminate the Hesperix Assignment Agreement with any or all parties thereto without cause immediately upon written notice to the appropriate party(ies). No other party will be able to terminate the Hesperix Assignment Agreement without cause.

Termination for Financial Reasons

To the extent permitted by applicable law, upon the filing or institution of bankruptcy, reorganization, liquidation or receivership proceedings by and party to the Hesperix Assignment Agreement, Hesperix may terminate the Hesperix Assignment Agreement, provided, that, in the case of an involuntary bankruptcy, the right to terminate will only become effective if the subject party consents to the involuntary bankruptcy or such proceeding is not dismissed within ninety (90) days after the filing thereof.

Assignment

Under the Hesperix Assignment Agreement, Hesperix will have the right to assign the Hesperix Assignment Agreement, without the consent of any other Party, to (i) any Affiliate; (ii) any successor in interest by reason of any merger, acquisition, partnership, or license agreement, or (iii) any other third party, where the assignee would succeed to such rights and would assume the obligations of Hesperix under the Hesperix Assignment Agreement to the same extent if such assignee was an original party to the Hesperix Assignment Agreement.

The OPKO Assignment Agreement

The following includes a summary of the material provisions of the OPKO Assignment Agreement, a copy of which is attached to this proxy statement/prospectus as Appendix C. This summary may not contain all of the information about the OPKO Assignment Agreement and related transactions that is important to you. We encourage you to read carefully the OPKO Assignment Agreement in its entirety, as the rights and obligations of the parties thereto are governed by the express terms of the OPKO Assignment Agreement and not by this summary or any other information contained in this proxy statement/prospectus.

On the Signing Date the Company entered into the OPKO Assignment Agreement with OPKO. Pursuant to the terms and subject to the conditions set forth in the OPKO Assignment Agreement, the Company has agreed to acquire and accept, all of OPKO’s right, title, and interest in and to that certain Intellectual Property License Agreement (the “IP License Agreement”), entered into between the Institute and OPKO regarding certain patents related to “Articles And Methods Directed To Personalized Therapy of Cancer” and pursuant to which the Institute agreed to grant an exclusive royalty-bearing license, to the patent rights owned by the Institute to OPKO and OPKO has agreed to pay the Institute a running royalty in the low single-digit range based on net sales of products in each country in which, in absence of the IP License Agreement, the manufacture, use, offer for sale, sale, or importation of such product would infringe a valid claim of a patent or pending application.

Under the terms of the OPKO Assignment Agreement, the Company will issue to OPKO the OPKO Transaction Shares, and to the Institute the Institute Transaction Shares, regardless of the trading price per share of the Common Stock at the time of the closing.

Closing

We are working towards completing the transaction as soon as possible. The closing is required to take place no later than two business days after the last of the conditions set forth in the OPKO Assignment Agreement (other than those conditions that by their nature are to be satisfied at the closing, but subject to the satisfaction or waiver of those conditions) have been satisfied or, to the extent permissible, waived by the party or parties entitled to the benefit of such conditions, or at such other time or on such other date or at such other place as the Company and OPKO may mutually agree.

As described below, if the OPKO Assignment Agreement has not closed on or prior to July 1, 2019, the OPKO Assignment Agreement may be terminated by the Company or by OPKO.

Representations and Warranties

The OPKO Assignment Agreement contains representations and warranties made by, on the one hand, OPKO to the Company, and on the other hand, by the Company to OPKO. Certain of the representations and warranties in the OPKO Assignment Agreement are subject to knowledge qualifications, which means that those representations and warranties would not be deemed untrue, inaccurate or incorrect as a result of matters of which the Chief Patent Counsel or its executive officers, as may be applicable, did not and do not have actual knowledge. In addition, the representations and warranties contained in the OPKO Assignment Agreement are subject to specified exceptions and qualifications in connection with signing the OPKO Assignment Agreement, which such disclosures are not reflected in the OPKO Assignment Agreement or otherwise publicly disclosed. You should not rely on the representations, warranties, covenants or any description thereof as actual characterizations of the actual state of facts or conditions of the Company, OPKO, or any of their respective subsidiaries or affiliates. Moreover, the information concerning the subject matter of the representations and warranties may change after the Signing Date. The representations and warranties should not be read alone but, instead, should be read only in conjunction with the information provided elsewhere in this proxy statement/prospectus.

For purposes of the OPKO Assignment Agreement, a “material adverse effect” with respect to OPKO means any event, occurrence, fact, condition or change that is, or could reasonably be expected to become, individually or in the aggregate, materially adverse to the IP License Agreement or the OPKO intellectual property licensed thereunder, or the ability of OPKO to consummate the transaction; provided, however, that none of the following, will be deemed to constitute a material adverse effect nor be considered in determining whether a material adverse effect has occurred:

The OPKO Assignment Agreement contains representations and warranties by OPKO, made to the Company, relating to a number of matters, including, the following:

The OPKO Assignment Agreement also contains representations and warranties made by the Company to OPKO relating to a number of matters, including, the following:

Subject to the limitations and other provisions in the OPKO Assignment Agreement, the representations and warranties in the OPKO Assignment Agreement will survive the closing and remain in full force and effect until the date that is eighteen (18) months from the closing date; provided, however, certain representations and warranties, including, among others, those relating to the organization and authority of OPKO and the Company and conflicts and approvals of third parties and issuance of OPKO Transaction Shares will survive indefinitely. If the OPKO Assignment Agreement is validly terminated, there will be no liability under the representations and warranties of the parties, except with respect to any willful breach or material breach of any provision, or for fraud or criminal misconduct of any party.

Conduct of OPKO’s Business

OPKO has agreed as to itself and its subsidiaries that, except as otherwise expressly required by the OPKO Assignment Agreement or approved in writing by the Company, after the Signing Date, and until the earlier to occur of the termination of the OPKO Assignment Agreement or the closing of the transactions contemplated thereby, OPKO and its subsidiaries will (i) maintain and preserve intact the IP License Agreement and the licensed intellectual property (without any amendments thereto or modifications thereof) and any permits therewith; (ii) pay any obligations thereunder when due; (iii) defend and protect their properties and assets relating to the IP License Agreement and the licensed intellectual property from infringement or usurpation; and (iv) comply in all material respects with all applicable laws relating to the IP License Agreement and the licensed intellectual property.

Conditions to Each Party’s Obligations

The respective obligations of each of the parties to consummate the transactions contemplated by the OPKO Assignment Agreement are subject to the satisfaction or waiver at or prior to closing of the following conditions:

Conditions to Obligations of the Company

The obligations of the Company to consummate the transactions contemplated by the OPKO Assignment Agreement are also subject to the satisfaction or waiver by the Company at or prior to the closing of the following conditions:

Conditions to Obligations of OPKO

The obligations of OPKO to consummate the transactions contemplated by the OPKO Assignment Agreement is also subject to the satisfaction or waiver by OPKO at or prior to the closing of the following conditions:

Indemnification

From and after the closing, the OPKO will indemnify and defend each of the Company and its affiliates and their respective representatives against, and will hold each of them harmless, including the reimbursement for any and all losses, damages, liabilities, awards, including reasonable attorneys’ fees and the cost of enforcing any right of indemnification (“Losses”), arising out of, with respect to or by reason of (i) any inaccuracy in or breach of any of the representations or warranties of OPKO contained in the OPKO Assignment Agreement or in any certificate or instrument delivered by or on behalf of the Company pursuant to the OPKO Assignment Agreement; (ii) any breach, alleged breach or non-fulfillment of any covenant, agreement or obligation to be performed by OPKO to the OPKO Assignment Agreement; (iii) any amounts owed under the IP License Agreement and any OPKO transaction expenses to the extent not paid at closing; and (iv) any taxes of OPKO arising from the transfer of the IP License Agreement to the Company.

From and after the closing, the Company will indemnify and defend OPKO and its affiliates and their respective representatives against, and will hold each of them harmless, including the reimbursement for all Losses, arising out of, with respect to or by reason of (i) any inaccuracy in or breach of any of the representations or warranties of the Company contained in the OPKO Assignment Agreement or in any certificate or instrument delivered by or on behalf of the Company pursuant to the OPKO Assignment Agreement; (ii) any breach, alleged breach or non-fulfillment of any covenant, agreement or obligation to be performed by the Company pursuant to the OPKO Assignment Agreement; or (iii) any amounts owed under the IP License Agreement following the closing date.

The indemnification provided for in the OPKO Assignment Agreement are subject to the following limitations:

Termination of the OPKO Assignment Agreement

The OPKO Assignment Agreement may be terminated at any time prior to the closing:

Effect of Termination

If the OPKO Assignment Agreement is terminated, the OPKO Assignment Agreement will become void and of no effect with no liability to any person on the part of any party except that the provisions of the OPKO Assignment Agreement relating to termination and certain technical provisions will continue in effect. The effect of the termination of the OPKO Assignment Agreement will not relieve any party from any liability for any willful breach or material breach of any provision therein, or for fraud or criminal misconduct.

Amendments and Waivers

Subject to the limitations of the OPKO Assignment Agreement, the OPKO Assignment Agreement may be amended or modified by a written instrument executed by the Company and OPKO, or in the case of a waiver, any such extension or waiver will be valid only if set forth in an instrument in writing signed by Buyer or OPKO, as the case may be.

Specific Performance

If for any reason any of the provisions of the OPKO Assignment Agreement are not performed in accordance with their specific terms or are otherwise breached or threatened to be breached, each party to the OPKO Assignment Agreement will be entitled to seek equitable relief, including an injunction or injunctions or orders for specific performance to prevent breaches of the OPKO Assignment Agreement and to enforce specifically the terms and provisions of the OPKO Assignment Agreement, in addition to any other remedy such party would be entitled to at law or in equity as a remedy for any such breach or threatened breach.

The IP License Agreement

The following includes a summary of the material provisions of the IP License Agreement, a copy of which is attached to this proxy statement/prospectus as Appendix D. This summary may not contain all of the information about the IP License Agreement and related transactions that is important to you. We encourage you to read carefully the IP License Agreement in its entirety, as the rights and obligations of the parties thereto are governed by the express terms of the IP License Agreement and not by this summary or any other information contained in this proxy statement/prospectus. Upon completion of the Transaction, Xenetic will assume all of the rights and obligations of OPKO under the IP License Agreement. Certain portions of Appendix D have been omitted. The omitted information is not material and would likely cause competitive harm to the Company if publicly disclosed.

On February 25, 2019 (the “IP License Effective Date”), OPKO entered into the IP License Agreement with the Institute. Pursuant to the terms and subject to the conditions set forth in the IP License Agreement, the Institute has agreed to grant an exclusive worldwide royalty-bearing license to OPKO of the Institute’s interest in and to certain patents related to the “Articles And Methods Directed To Personalized Therapy Of Cancer” (PCT/RU2018/000653) and the priority applications of the same title having Russian Application No. 2017134483 filed October 4, 2017; Russian Application No. 2018112009 filed April 4, 2018 and Russian Application No. 2018134321 filed October 1, 2018 and all applications claiming priority to such filings (collectively, the “Institute Patent Rights”) and the technology that is described therein (the “Institute Technology”) in exchange for OPKO paying the Institute a running royalty in the low single digit range based on net sales of products in each country in which, in absence of the IP License Agreement, the manufacture, use, offer for sale, sale, or importation of such product would infringe a valid claim of a patent or pending application.

Warranty and Limitation of Liability

The Institute makes no representations or warranties with respect to Institute Patent Rights or the Institute Technology, including express, implied, or statutory warranties of merchantability, fitness for a particular purpose, non-infringement of third party rights, title, accuracy, or arising out of course of conduct or trade customs. In addition, the Institute makes no representations or warranties as to the validity, scope, or enforceability of the Institute Patent Rights or the Institute Technology, or that any licensed product, licensed process, Institute Patent Rights or the Institute Technology would be free of infringement on patents or other intellectual property rights of third parties, or that no third party are in any way infringing upon any Parent Right or Institute Technology.

The Institute’s aggregate liability, if any, under the IP License Agreement or relating to the subject therein will not exceed the amount paid by OPKO to the Institute under the IP License Agreement.

License

The Institute has agreed to grant to OPKO (A) an exclusive, worldwide, royalty-bearing license to the Institute Patent Rights to develop, make use, offer to sell, and import products that (i) the manufacture, importation, sale, offer for sale or use would, but for the IP License Agreement, infringe on the Institute Patent Rights, (ii) comprises of, utilizes, or incorporates any Institute Technology, or (iii) is made using any process or method claimed in the Institute Patent Rights (collectively, the “Licensed Product”), and (B) a non-exclusive worldwide license to the Institute Technology, each subject to:

OPKO may grant sublicenses to any party with respect to the rights conferred upon OPKO under the IP License Agreement. Any sublicenses granted by OPKO will not have the right to further sublicense without the Institute’s prior written consent, which shall not be unreasonably withheld, and will be subject in all respects to the applicable provisions contained in the IP License Agreement.

Payments and Reports

In consideration of the rights granted to OPKO by the Institute, OPKO has agreed to pay or deliver to the Institute a royalty in the low single-digit range based on net sales for all Licensed Products. In consideration of the sublicense rights granted to OPKO under the IP License Agreement, OPKO has agreed to pay or deliver the Institute a non-creditable, non-refundable percentage of the sublicense revenues.

In connection with the transactions contemplated by the OPKO Assignment Agreement, OPKO has directed that the Company issue to the Institute the Institute Transaction Shares as the sole sublicense payment for the OPKO Assignment Agreement. The Institute has agreed to execute a lock-up agreement in favor of the Company, which will restrict such recipient’s sale or transfer of any of the Company’s common shares ultimately received by such recipient as provided therein and as otherwise required by law.

OPKO has agreed to make payments to the Institute upon the attainment of certain milestones.

OPKO has agreed to keep complete and accurate records of its and its sublicensees’ net sales under the license granted pursuant to the IP License Agreement in sufficient detail to enable the royalties and milestones payable thereunder to be determined. Beginning after the first commercial sale of a Licensed Product or licensed process, OPKO must deliver to the Institute a written report, even if no payments are due, giving the particulars of the business conducted by OPKO and its sublicensees, if any, during certain preceding times.

Payment Increase in the Event of a Challenge

In the event that OPKO or its sublicensee directly (a) institutes or maintains any interference, opposition, re-examination, post-grant review or similar proceeding with respect to any Institute Patent Right with the U.S. Patent and Trademark Office, or (b) makes any filing or institutes any action or legal proceeding with a court or other governmental body (including the U.S. Patent and Trademark Office or any foreign patent office) (collectively, a “Challenge”) alleging that any Institute Patent Rights are invalid or unenforceable, the royalty obligations will be increased from the date the challenging party first institutes or makes such Challenge and during the pendency of such Challenge, and will continue to apply after the conclusion of such Challenge in the event that at least one (1) claim of the Institute Patent Rights being challenged that covers a Licensed Product or licensed process is held to be valid and enforceable.

Diligence; Regulatory Matters

OPKO has agreed to use (whether directly or through its sublicensees) commercially reasonable efforts to develop and commercialize, or have developed and commercialized, the Licensed Products throughout the world.

Term; Termination

The IP License Agreement will become effective on the IP License Effective Date and will continue until the later of (a) the IP License Agreement is terminated, (b) the expiration of the last-to-expire patent within the Institute Patent Rights, or (c) an agreed upon number of years from the first commercial sale of a Licensed Product, in each case on a country-by-country basis.

The IP License Agreement may be terminated, subject to temporal limitations:

If the IP License Agreement is terminated, the IP License Agreement will be deemed to release either party of any obligations matured prior to the effective date of the termination. After the effective date of the termination, OPKO has agreed to provide the Institute with a written inventory of Licensed Products in process of manufacture, in use or in stock. OPKO may sell any such Licensed Product following the termination of the IP License Agreement provided that OPKO pays the Institute any earned royalties any other amount due pursuant to the terms of the IP License Agreement.

Assignment

OPKO may not assign the IP License Agreement without the prior written consent of the Institute; provided, however, OPKO will be able to assign the IP License Agreement in connection with (i) the assignment of the IP License Agreement to an affiliate; (ii) as part of a sale, regardless of whether such sale occurs through an asset sale, stock sale, merger or other combination or transfer of OPKO’s entire business; or (iii) the assignment of the IP License Agreement to the Company.

Patent Markings

OPKO has agreed to permanently and legibly mark all products, packaging and documentation manufactured or sold under the IP License Agreement with a patent notice as may be permitted or required under Title 25, United States Code.

Indemnification and Insurance

OPKO has agreed to indemnify, defend, and hold harmless the Institute and any parent, subsidiary, or other affiliated entity of the Institute and their respective trustees, officers, directors, employees, scientist, students, and other representatives from and against and all losses, damages, liabilities, awards, including reasonable attorneys’ fees and the cost of enforcing any right of indemnification, arising out of, with respect to, or resulting from (a) the exercise or practice of the license granted under the IP License Agreement by OPKO and its sublicensees and affiliates; (b) alleged defects or other problems with any of the Licensed Product, licensed processes, or manufactured, sold, distributed, or rendered by or on behalf of OPKO or any sublicensee; (c) the research, development, manufacture, use, marketing, advertising, distribution, sale or importation of any Licensed Product, licensed process, by on or behalf of OPKO or any of its sublicensees; (d) the negligent or willful acts or omissions of OPKO or any of its sublicensees; (e) any allegations that the Licensed Product, licensed processes, by or on behalf of OPKO or any sublicensee and/or any trademarks, service marks, logos symbols, slogans, or other materials used in connection with or to market the Licensed Products, licensed processes, violate or infringe upon the trademarks, service marks, trade dress, trade names, copyrights, patents or any other intellectual or industrial property right of any third party; (f) OPKO’s or any of its affiliate’s or sublicensee’s failure to comply with any applicable laws, rules or regulations, and/or (g) OPKO’s or any of its affiliate’s or sublicensee’s labeling, packaging or patent marking of the any Licensed Product or containers thereof by or on behalf of OPKO or any sublicensee.

Use of Name

OPKO has agreed to not use any name of the Institute, without the Institute’s prior written consent except in such instances required by governmental law, rule or regulation.

Export Control

OPKO has agreed to abide by the United States laws and regulations (including the Export Administration Act of 1979 and Arms Export Control Act) controlling the export of technical data, computer software, laboratory prototypes, biological material and other commodities.

Alternative Dispute Resolution

The Institute and OPKO have agreed that any controversy or claiming arising out of the IP License Agreement, or the breach thereof, will first be referred to senior management of each party for resolution. In the event that senior management fails to resolve such controversy or claim within thirty (30) days, then such controversy or claim will be submitted to mediation in San Diego County, California in which the mediator will be a retired judge or other neutral third party mutually selected by OPKO and the Institute who has at least ten (10) years’ experience in mediating or arbitrating cases in the biopharmaceutical industry and regarding the same or substantially similar subject matter as the dispute between OPKO and the Institute if such dispute is not resolved through mediation, either party may refer the dispute to a court of competent jurisdiction in San Diego County, California.

Parties to the Hesperix Acquisition

The Company

Xenetic Biosciences, Inc., a Nevada corporation, was originally incorporated as General Aircraft, Inc. on August 9, 2011. In 2013, the Company changed its name to “General Sales and Leasing, Inc.,” and in 2014 the Company changed its name “Xenetic Biosciences, Inc.” Our principal executive offices are located at 40 Speen Street, Suite 102, Framingham, Massachusetts 01701 and our telephone number is (781) 778-7720. The Company’s securities trade on the Nasdaq Capital Markets under the symbol “XBIO.”

The Company is a clinical - stage biopharmaceutical company focused on the discovery, research and development of next -generation biologic drugs and novel orphan oncology therapeutics. Xenetic’s lead investigational product candidate is oncology therapeutic XBIO-101 (sodium cridanimod) for the treatment of progesterone resistant endometrial cancer. Xenetic is also developing a proprietary drug development platform, PolyXen, which enables next –generation biologic drugs by improving their half - life and other pharmacological properties. The Company has ongoing business development activities to explore partnerships utilizing its PolyXen delivery platform.

Hesperix SA

Hesperix SA, a Swiss corporation, is a biotechnology company created as a holding company with assets recently assigned specifically for this transaction. These assets consist primarily of the intellectual property supporting a new CAR T technology, which is capable of addressing multiple tumor types (including but not limited to B-cell lymphomas and leukemias) through targeting of personalized patient specific tumor neoantigens. Hesperix does not have executive offices, but its mailing address is Agus Corporate Services SA, Via Luganetto 4, P.O. Box 433, CH-6962.

Background of the Hesperix Acquisition and the Transaction

Highlighted below is a detailed chronology of events leading up to and subsequent to the execution of the Share Purchase Agreement and the Transaction Documents.

On July 11, 2017, Dr. Dmitry Dmitrievich Genkin met with Dr. Phillip Frost and Steven Rubin of OPKO. Jeffrey Eisenberg was also invited to join the meeting where one of the agenda items was Genkin describing a new CAR T technology.

On July 13, 2017, Genkin contacted Frost, Rubin, Dr. Alexander Gabibov, Dr. Richard Lerner and Aleksei Stepanov indicating that Genkin would begin work on a development plan for the new technology. Around that time Genkin suggested to Eisenberg that perhaps the Company was the right vehicle to acquire and develop the technology and provided Eisenberg with additional information on CAR T development generally.

In July 2017, OPKO’s patent counsel began working with Genkin and the inventor group to prepare a draft patent application.

On October 9, 2017, Genkin contacted Frost and Rubin to discuss a proposed preclinical development plan for the new CAR T technology.

From October 2017 until March 2018, there was no activity relating to the CAR T technology involving the Company.

On March 16, 2018, Company’s Board formed the Strategic Alternatives Committee (the “SAC”) to evaluate an alternative transaction (the “Alternative Transaction”) and other strategic alternatives for the Company should they arise. James Callaway, an independent outside director of the Company, was appointed Chair of the SAC.

On March 20, 2018, the Company engaged Akerman LLP (“Akerman”) to represent the SAC in connection with the Alternative Transaction.

On April 2, 2018, the SAC signed (i) an engagement letter with Maxim Group LLC (“Maxim”) to serve as exclusive advisor in connection with a potential transaction and (ii) a separate engagement letter with Maxim to issue a fairness opinion in connection with the potential transaction.

On April 16, 2018, Genkin discussed with Mr. Eisenberg a proposed structure for a transaction in which Company would acquire Hesperix. The proposal contemplated a financing by the Company to fund development of the CAR T technology. Genkin discussed this proposal with Maxim, who would serve as financial advisor. On the same day, Eisenberg scheduled a call with Jim Alfaro and Chris Avery of Maxim to discuss the proposal.

On April 17, 2018, Genkin and Eisenberg held a webconference with Alfaro and Avery to review the proposal. Eisenberg requested that Maxim propose a fee structure for the Hesperix Acquisition and any related financing.

Also on April 17, 2018, the SAC convened a meeting and discussed the potential transaction. Immediately following the SAC meeting a Board meeting was convened, and the Board discussed the Hesperix Acquisition and potential need for additional financing.

On April 27, 2018, Eisenberg provided the chairs of the SAC and Board a general update on the potential transactions.

On April 30, 2018, the Company began working with Akerman to set up an electronic data room (the “Data Room”) to facilitate the due diligence process.

Between April and May 2018, Genkin discussed the allocation of share ownership in Hesperix by the inventor/ownership group of the CAR T technology with OPKO.

On May 3, 2018, Maxim sent drafts of revised engagement letters relating to a potential acquisition and any related financing, respectively, to Eisenberg and Callaway. Over the next two weeks, Akerman negotiated the new engagement letters with Maxim and on May 21, 2018, the SAC approved the new engagement letters with Maxim. Both engagement letters were executed on May 22, 2018, and became effective as of May 16, 2018.

On June 14, 2018, Company and Hesperix entered into a Non-Disclosure Agreement, effective as of June 1, 2018, to commence due diligence on Hesperix and its technology. Over the next two weeks, the Data Room was populated and the Company began its due diligence review.

On July 11, 2018, Genkin and Eisenberg discussed at a high level the process required to complete pre-clinical development of the new technology.

In late July 2018, Company management and Maxim engage in discussions regarding financing working capital and development costs in connection with the Hesperix Acquisition. The Company’s due diligence process continued through August 2018.

In late August 2018, Company, Akerman and Maxim prepared a draft letter of intent (“LOI”) for the Hesperix Acquisition, which reflected a purchase price of up to $13 million, payable in shares of Company, with a stipulation that if Company’s share price remained at or above $2 per share at the Closing, then Hesperix’s equity holders would receive shares equaling a value of $13 million; provided however, if Company’s share price falls below $2 per share, then Hesperix’s equity holders would receive 6.5 million shares with a value equal to the product of 6.5 million multiplied by the current share price, which is an aggregate value of less than $13 million (with the exact consideration to be received dependent on the actual Company share price at the Closing).

On August 29, 2018, Company’s SAC and Board convened meetings to discuss, among other things, the terms of the draft LOI, potential financing, the Company’s forecast for the remainder of the year, and certain other matters relating to the 2018 annual stockholder meeting.

On August 30, 2018, Eisenberg sent the draft of the LOI for the Hesperix Acquisition to Genkin.

From August 2018 to September 2018, Company’s advisors accessed the Data Room to assist with the due diligence review of Hesperix.

On September 7, 2018, Genkin informed Eisenberg by email that the ownership group was expected to meet on September 17, 2018 to review the proposed LOI. Genkin told Eisenberg to expect a counterproposal on two points: (1) consideration would be $15 million and (2) the exclusivity period would be reduced from 120 to 60 days. Eisenberg informed Callaway of the communication. Following this communication, Akerman began drafting Transaction Documents, including a first draft of the Share Purchase Agreement.

On September 24, 2018, Genkin sent a counterproposal to the LOI to Eisenberg by email. The Sellers proposed a purchase price of $15 million in Common Stock based on the trailing four week stock price of Company or 6.5 million shares, whichever is greater. In addition, the Sellers proposed an aggregate royalty at a low single-digit rate of net sales, potential board representation, and a sponsored research agreement in the amount of $1.5 million per year for three years. Eisenberg shared this counterproposal with Callaway.

On September 24, 2018, Eisenberg discussed the counterproposal with Genkin, and on September 25, 2018, Eisenberg met with Callaway to discuss the latest proposals. Akerman revised the LOI accordingly to include, among other things (i) exclusivity by Hesperix for 90 days rather than 120 days, (ii) changes to the value of Hesperix and the ultimate amount of Common Stock to be issued in the transaction regardless of the trading price of the Common Stock at closing, (iii) a royalty arrangement, (iv) the entering into of a sponsored research agreement with IBCH upon the receipt by the Company of a certain level of capital, and (v)  the Board composition post-closing.

On September 28, 2018, Eisenberg sent the revised LOI to Genkin, which was largely accepted with certain minor changes including (i) IBCH as one of the parties receiving the royalty arrangement, (ii) that following the closing, the Company would use commercially reasonable efforts to develop the technology subject to the Company raising adequate capital to do so, and (iii) making certain changes to the terms of the proposed sponsored research agreement. Akerman makes such changes and Eisenberg sent the LOI back to Genkin for his final review and approval.

On October 5, 2018, Genkin sent Eisenberg the LOI executed on behalf of the Sellers.

On October 5, 2018, the SAC met to review and approve the final LOI, after which Eisenberg executed the LOI and sent a fully executed version to Genkin.

On October 12, 2018, Eisenberg began drafting a Company investor presentation deck with Maxim.

In October 2018, OPKO began negotiations with the Institute on an exclusive license of the Institute’s rights in the technology and associated intellectual property. These negotiations continue through January 2019.

Between October 2018 and January 2019, the Company and its advisors continued to work on the Company investor presentation, which was intended to support the bridge financing efforts after signing the Transaction Documents.

On November 5, 2018, Genkin sent the first draft of the Hesperix Assignment Agreement to Eisenberg and, at Genkin’s request, shared the draft with OPKO.

In early November 2018, Jim Parslow, Chief Financial Officer of the Company, and Genkin corresponded and coordinated on Hesperix financial statement requirements for proposed acquisition.

From November 20, 2018 to November 27, 2018, Akerman and Troutman exchanged drafts of the Share Purchase Agreement and Hesperix Assignment Agreement.

On November 30, 2018, Maxim sent a draft Letter of Engagement for the proposed bridge financing (the “LOE”) to Eisenberg and Parslow.

During the week of December 3, 2018, Akerman and Troutman met via teleconference to review open issues on the Transaction Documents.

On December 6, 2018, Maxim provided Eisenberg and Parslow with due diligence requests prepared by its counsel Ellenoff, Grossman & Schole LLP (“EGS”), in connection with the proposed financing (the “Bridge Financing”). The following week, Company, Maxim, and EGS had several teleconferences related to due diligence items.

On December 12, 2018, Parslow negotiated the final terms of bridge financing LOE with Maxim.

On December 19, 2018, Company engaged BodmerFischer Ltd. as Swiss counsel to work with Akerman on the Hesperix Acquisition.

On December 20, 2018, Eisenberg contacted Genkin, requesting details on, among other things, a loan Genkin advanced to Hesperix, which Genkin was requesting to be repaid at closing of the Transaction, and potential Board representation.

During December 2018, Akerman’s tax counsel determined that there may be a tax issue with the proposed transaction structure that would cause the Hesperix Acquisition to be taxable to US shareholders.

Between December 2018 and January 2019, Troutman and Akerman exchanged additional drafts of the various Transaction Documents, such revisions primarily relating to (i) holdback provisions, representation and warranties, tax structure, consideration, indemnification and the definition of restricted business, with respect to the Share Purchase Agreement, (ii) royalty payments and liability limitations, (iii) the OPKO Assignment Agreement, and (iv) exclusivity, royalty and termination payments, and assignment consent, with respect to the IP License Agreement.

On January 3, 2019, Eisenberg and Genkin met via webconference to resolve open issues on the Share Purchase Agreement, primarily related to definition of “Restricted Business.” Over the next few weeks, Eisenberg and Genkin exchanged several emails on this issue, and reached an agreement as reflected in the Final Share Purchase Agreement. In those email exchanges, Eisenberg and Genkin also discussed issues regarding the lockup, holdback, tax treatment, and post-closing development efforts standards.

On January 9, 2019, the Expense Management and Financing Oversight Committee of the Board received an update from Akerman on the material changes to the Share Purchase Agreement, the Hesperix Assignment Agreement, and the IP License Agreement discussed below.

On January 10, 2019, the SAC and the Board each convened a meeting, regarding the material changes or issues to the (i) Share Purchase Agreement, which included, among other things, a reduced hold back of Hesperix Transaction Shares to secure indemnification claims and reduced indemnification obligations of Hesperix and the Sellers and changes to the intellectual property representations; (ii) the Hesperix Assignment Agreement, which included the Company’s desire to mirror royalty provisions with the IP License Agreement, the limitation on liability provisions and the Company’s desire to remove certain parties from the Hesperix Assignment Agreement; and (iii) the IP License Agreement, which included further negotiations regarding the amount of the sublicense revenue fee percentage and milestones of net sales, the Institute’s termination fee request, the Institute’s consent rights on assignments and equity share allocations between OPKO and the Institute.

Also, on January 16, 2019, the Company executed the Maxim bridge financing LOE.

In late January 2019, Akerman begins drafting the proxy statement/prospectus to be filed in connection with the Hesperix Transaction.

On January 30, 2019, OPKO informed Akerman that it is not be part of the Hesperix Acquistion. During that week, the holdback provision was removed from the OPKO Assignment Agreement as a result of the Institute objection and Akerman and Troutman exchanged drafts of disclosure schedules.

Also, on January 30, 2019, IP Counsel commenced due diligence of the Company.

On February 1, 2019, the Company’s management and Akerman met with Callaway via teleconference to review the final Share Purchase Agreement and secure Callaway’s approval.

On February 5, 2019, Eisenberg and other members of Xenetic management discussed with the Pharmsynthez board of directors, Xenetic’s plans for the XCART technology.

On February 6, 2019, Maxim provided the Company with a target list of potential investors in the Bridge Financing.

On February 7, 2019, Genkin informed Troutman that the sellers have signed off on the final changes to the Share Purchase Agreement and the Hesperix Assignment Agreement.

On February 8, 2019, EGS provided initial drafts of documents in connection with the proposed Bridge Financing.

On February 9, 2019, the Company, Maxim, Akerman, and EGS met via teleconference to discuss the process for the Bridge Financing.

During the week of February 11, 2019, OPKO agreed to enter into the OPKO Assignment Agreement which is separate from the Hesperix Assignment Agreement. The parties also finalized disclosure schedules to the Share Purchase Agreement during that week.

On February 14, 2019, the Hesperix Sellers agreed on the final share allocation in connection with the Hesperix Acquisition.

On February 19, 2019, the Expense Management and Financing Oversight Committee of the Board convened a meeting and discussed and recommended to the Board for approval, the terms of the Securities Purchase Agreement to be entered into in connection with Bridge Financing (the “Bridge SPA”).

Also on February 19, 2019, the Company’s Board convened a meeting and discussed, among other things, the Hesperix Acquisition, Bridge SPA, and the registration of shares in connection with the Transaction. The Board approved the form of Bridge SPA, subject to the final approval of the Pricing Committee of the Board (the “Pricing Committee”), which was established at the Board meeting.

One February 25, 2019, Eisenberg, Akerman, and Callaway met via teleconference to review drafts of the Transaction Documents.

Between February 18, 2019 and March 1, 2019, the Company, Hesperix Sellers, OPKO, and the Institute finalized the Transaction Documents and exchanged signature pages to be held in escrow.

On February 26, 2019, Akerman and EGS met via teleconference to discuss the Bridge Financing, and Akerman sent drafts of the disclosure schedules to the Bridge SPA.

The signature pages to the Transaction Documents were released, effective March 1, 2019.

Between March 1, 2019 and March 5, 2019, EGS and Akerman exchanged drafts of the Bridge SPA and the warrants to be issued in connection with the Bridge Financing.

On March 4, 2019, the Company issued a press release announcing the Hesperix Acquisition and filed a Current Report on Form 8-K in connection with the signing of the Hesperix Acquisition.

On March 5, 2019, the Pricing Committee met via teleconference and, among other things, approved the Bridge SPA and priced the securities to be issued in the Bridge Financing. On the same day, the Company entered into the Bridge SPA and the parties agreed to close the Bridge Financing “T+2.”

Also on March 5, 2019, the Company issued a press release announcing the pricing of Bridge Financing and filed a Current Report on Form 8-K in connection with the pricing of the Bridge Financing.

On March 7, 2019, the Bridge Financing closed, and the Company filed a Current Report on Form 8-K in connection with the closing of the Bridge Financing.

On March 29, 2019, the Company filed a preliminary proxy statement/prospectus with the SEC with respect to the Transaction and the share issuance in connection with the Transaction.

Reasons for the Transaction

By acquiring this novel and differentiated CAR T technology, the Company will be positioned in a field that is at the forefront in the development of new oncology therapeutics, which the Company believes has the potential to drive significant value for shareholders. The XCART platform was designed to target personalized, patient-specific tumor neoantigens and has demonstrated proof of mechanism in B-cell lymphoma, an area of significant unmet medical need. In addition, the acquisition of XCART fits with the Company’s current strategy of focusing on research addressing unmet needs in oncology. The Company’s R&D efforts will focus initially on leveraging the XCART platform to develop cell-based therapeutics for the treatment of B-cell Non-Hodgkin lymphomas, an initial global market opportunity estimated to exceed $5 billion per year.

We believe that our development efforts with XCART should benefit from the fact that the approvals of Kymriah™ and Yescarta™ have validated CAR T as a clinical therapeutic option. As a result, there are a significant number of companies advancing CAR T research, and the field is attracting large amounts of capital. Given the variety and, often, complementary nature of technical and clinical approaches under investigation, the Company also believes that early successes in development of XCART should generate significant collaboration potential.

Anticipated Accounting Treatment

The Transaction is expected to be treated as an asset acquisition by the Company. To determine the accounting for this transaction under United States (U.S.) generally accepted accounting principles (GAAP), a company must assess whether an integrated set of assets and activities should be accounted for as an acquisition of a business or an asset acquisition. Substantially all of the fair value is included in in-process research and development and no substantive processes are being acquired. As such, the Transaction is expected to be treated as an asset acquisition. Asset acquisitions are to be accounted for by allocating costs, including transaction costs, of the acquisition to the acquired assets based on their relative fair value basis.

Opinion of Xenetic’s Financial Advisor

On May 22, 2018, Xenetic retained Maxim to act as financial adviser to Xenetic in connection with the Transaction. As part of this engagement, Xenetic requested that Maxim evaluate the fairness of the Transaction consideration to be paid by Xenetic pursuant to the Share Purchase Agreement, from a financial point of view, to Xenetic. As discussed in the following paragraph, on January 10, 2019, Maxim delivered to the Xenetic Board its oral opinion, confirmed by its delivery of a written opinion dated January 10, 2019, that as of the date thereof, and subject to the assumptions, limitations, qualifications and conditions set forth in Maxim’s written opinion, the Transaction consideration being paid to Hesperix stockholders in accordance with the Share Purchase Agreement is fair from a financial point of view to Xenetic and its stockholders.

The full text of Maxim’s written opinion, dated January 10, 2019, which sets forth, among other things, the assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by Maxim in delivering its opinion, is attached as Appendix E to this proxy statement/prospectus and is incorporated herein by reference in its entirety. The description of Maxim’s written opinion set forth in this proxy statement/prospectus is qualified in its entirety by the full text of such opinion. Maxim’s opinion does not constitute a recommendation to the Xenetic Board or to any other persons in respect of the Transaction, including as to how any holder of Xenetic Common Shares should vote or act with respect to the Transaction and Share Issuance Proposal. We encourage you to read Maxim’s opinion carefully and in its entirety.

Maxim’s opinion was provided for the information and benefit of the Strategic Alternatives Committee and was delivered to the Strategic Alternatives Committee in connection with their evaluation of whether the Transaction consideration to be paid by Xenetic pursuant to the Share Purchase Agreement is fair, from a financial point of view to Xenetic, and did not address any other aspect of the Share Purchase Agreement or the transactions contemplated thereby, including the Transaction. Maxim’s opinion did not address the relative merits of the Transaction as compared to other business or financial strategies that might be available to Xenetic, nor did it address the underlying business decision of Xenetic to engage in the Transaction. Maxim also provided the Xenetic Board with a presentation in connection with their evaluation.

Maxim’s opinion necessarily was based upon information made available to Maxim as of January 10, 2019 and financial, economic, monetary, market, regulatory and other conditions and circumstances as they existed and as could be evaluated on such date. Maxim has no obligation to update, revise or reaffirm its opinion based on subsequent developments. Maxim’s opinion did not express any opinion as to the price at which the shares of Xenetic Common Shares will trade at any time.

The following is a summary of Maxim’s opinion, and is qualified in its entirety by the full text of such opinion attached as Appendix E to this proxy statement/prospectus. We encourage you to read Maxim’s written opinion carefully in its entirety:

In connection with delivering its opinion, Maxim, among other things:

For purposes of its analysis and opinion, Maxim assumed and relied upon, without undertaking any independent verification of, the accuracy and completeness of all of the information publicly available, and all of the information supplied or otherwise made available to, discussed with, or reviewed by Maxim, and Maxim assumes no liability therefor. Maxim was not requested to, and did not, explore alternatives to the Transaction or solicit interest of any other parties in pursuing transactions with Xenetic.

Maxim was not asked to pass upon, and expressed no opinion with respect to, any matter other than the fairness of the Transaction consideration to be paid by Xenetic pursuant to the Share Purchase Agreement, from a financial point of view, to Xenetic. Maxim did not express any view on, and its opinion did not address, the fairness of the Transaction to, or any consideration received in connection therewith by, the holders of any other securities, creditors or other constituencies of Xenetic or Hesperix, or as to the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of Xenetic or Hesperix or any of the other parties to the Share Purchase Agreement or any affiliates thereof, or any class of such persons, whether relative to the Transaction consideration or otherwise. Maxim assumed that any modification to the structure of the Transaction would not vary in any respect material to its analysis. Maxim’s opinion did not address the relative merits of the Transaction as compared to other business or financial strategies that might be available to Xenetic, nor did it address the underlying business decision of Xenetic to engage in the Transaction. Maxim’s opinion does not constitute a recommendation to the Xenetic Board, or Strategic Alternatives Committee or to any other persons in respect of the Transaction, including as to how any holder of shares of Xenetic Common Stock should vote or act in respect of the Transaction. Maxim expressed no opinion as to the price at which Xenetic Common Stock will trade at any time. Maxim is not a legal, regulatory, accounting or tax expert and assumed the accuracy and completeness of assessments by the management of Xenetic and its advisors with respect to legal, regulatory, accounting and tax matters.

Maxim provides a multitude of financial services including investment banking; private wealth management; and global institutional equity, fixed-income and derivatives sales and trading as well as equity research. Maxim and its affiliates, or other related entities or individuals, may at any time purchase, sell, hold or vote long or short positions and investments in securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments of the Company, and any of their respective affiliates and third parties, or any currency or commodity that may be involved in the Transaction. Maxim will receive a fee from the Company for delivering the Opinion as well as reimbursement of certain expenses. Maxim's fee will be due in its entirety upon the delivery of the Opinion, irrespective of whether the Transaction is completed. The Company has agreed to indemnify Maxim against certain liabilities, and to reimburse it for certain liabilities in connection with Maxim providing the Opinion. No controlling person of Maxim is directly personally receiving compensation or other remuneration from any of the Parties. On March 5, 2019, Xenetic Biosciences announced pricing of $3.1 million registered direct offering and Maxim acted as the exclusive placement agent for the offering.

In rendering its opinion, Maxim relied upon and assumed, without assuming any responsibility for independent verification, the accuracy and completeness of all the financial, legal, regulatory, tax, accounting and other documentation and information provided to, discussed with, or reviewed by Maxim and has relied on such information as being complete and accurate in all material respects, including any documentation and information originally produced by Xenetic or Hesperix and provided by Xenetic to Maxim. In that regard, Maxim assumed that the Forecasts have been reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of Xenetic and those financial projections originally produced by Xenetic and Hesperix and provided by Xenetic to Maxim. Maxim assumed that there were no material changes in the assets, liabilities, financial condition, results of operations, reserves, business operations since the date of the financial statements referenced herein. Moreover, it is understood that the Forecasts are based on numerous variables and assumptions that are inherently uncertain, including without limitation, factors related to general economic, market and competitive conditions. Accordingly, actual results could vary significantly from those set forth in such Forecasts, and as noted previously, Maxim has relied on these Forecasts without independent verification or analyses and does not in any respect assume any responsibility for the accuracy or completeness thereof. Maxim has not made an independent evaluation or appraisal of the assets and liabilities (including any joint ventures, contingent, derivative or other off-balance-sheet assets and liabilities) of Xenetic or any of its subsidiaries, Hesperix or any of its subsidiaries, joint ventures and Maxim has not been furnished with any such evaluation or appraisal. Maxim has assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the Transaction will be obtained without any adverse effect on the expected benefits of the Transaction in any way meaningful to their analysis. Maxim is not an actuary and its services did not include any actuarial determination or evaluation by Maxim or any attempt to evaluate actuarial assumptions, and Maxim has relied on Xenetic with respect to the appropriateness and adequacy of reserves of Xenetic and forecast assumptions used by Xenetic in connection with the Forecasts. In that regard, Maxim has made no analysis of, and expressed no opinion as to, the appropriateness or adequacy of reserves or forecast assumptions. Maxim has relied upon assurances by Xenetic and Hesperix that they are unaware of any facts that would make their respective information incomplete or misleading. Maxim has no obligation to update or modify its opinion.

Maxim was not requested to, and did not, explore alternatives to the transaction or solicit interest of any other parties in pursuing transactions with Xenetic.

Maxim’s Analysis of Hesperix

Maxim performed a series of analyses to derive indicative valuation ranges for Hesperix’ Common Stock.

Series A Venture Valuation Analysis

Maxim analyzed precedent Series A investments in preclinical oncology and immunotherapy companies that were announced between January 1, 2015 and December 17, 2018. Given the nature of this type of investment, many transactions do not disclose a valuation. Transactions that did not disclose any deal size or valuation details were not considered as part of this analysis.

The analysis of the pre-market valuation of the peer group yielded an implied equity value of $18.7 million using the mean of the peer group and an implied equity valuation of $20.0 million using the median of the peer group.

Discounted Cash Flow Analysis

Maxim performed a discounted cash flow analysis of XCART to calculate the present value of XCART based on the sum of the present values of the projected available cash flow streams and the terminal value of the equity using the Forecasts.

Maxim’s discounted cash flow analysis is based on Xenetic management’s and Hesperix management’s clinical stage & commercial financial cash flow projections up to 2037, year of peak sales. Maxim has assumed that the financial projections have been reasonably prepared on a basis reflecting the best currently available estimates and judgments of Xenetic Management and Hesperix and provided by Xenetic to Maxim. Maxim applied risk adjustments for clinical Probability of Success (“PoS”) using Maxim’s assumption for the risk of achieving positive clinical outcomes and obtaining regulatory approval. Different PoSs are applied to the entirety of the cash flows for the corresponding stage of the development when the cash flow incurs. The derivation of PoSs is based on multiple literature: Schuhmacher, Grassmann, Hinder 2016, Wong, Siah, Lo 2018, Clinical Development Success Rates 2006-2015 – BIO, Biomedtracker, Amplion 2016. Maxim applied the success rates that are most relevant to Xenetic’s pathway to FDA approval.

The projected values were discounted using a Maxim derived discount rate of 24.86% to 27.48%. Given the Target’s current capital structure, Maxim assumes no debt. Therefore, the weighted average cost of capital (“WACC”) equals the cost of equity ranging from 12.76% to 14.28% plus size risk premium 11.63% (Zanni 2017, Duff & Phelps, 2017 Valuation Handbook: U.S. Guide to Cost of Capital). Maxim also determined the terminal value assuming a perpetuity growth rate of 3.0% at the end of the forecast period (ending in 2037) reflecting the historical inflation rate of 3%.

Maxim utilized a discounted cash flow analysis that calculates the present value of XCART based on the sum of the present values of the probability weighted projected available cash flow streams and the terminal value of the equity. The range of implied equity value is driven by the range of WACC.

The result of the analysis yielded an equity value of $13.8 million to $19.3 million.

Maxim received additional information provided by the Xenetic management on January 21, 2019 and did not consider it to have a material impact on the valuation.

Precedent M&A Transactions Analysis

The universe of pure-play comparable M&A precedent transactions for pre-clinical biotech companies is limited. Hence, Maxim included all pre-clinical biotechology precedents and not limiting our analysis to purely oncology and immunotherapy. The analysis covers the period January 1, 2012 to December 17, 2018. In order to ensure that the right precedent transactions for comparison were selected, only transactions including pre-clinical drugs were selected, and all others including drugs in clinical trial were excluded. In addition, 6 out of 10 selected transactions were structured to pay an upfront payments upon closing of the transaction and additional contingent payment upon the achievement of certain development, regulatory and sales milestones (“Earnout”) and some include additional royalties. Maxim conservatively has utilized only the upfront payment as the implied enterprise value of the transactions, and Maxim notes that the Transaction does not have any additional contingent payment other than the previously mentioned royalties.

Public Comparable Companies Valuation

Maxim analyzed comparable companies listed on the NASDAQ and NYSE in the biotechnology sector. The peer group was then condensed to only include biotechnology companies that have not yet entered clinical stage of development for any of their drug candidate(s).

Maxim believes the selected public comparable companies are not relevant to the overall analysis due to their outsized valuations, as a result of having somewhat of a self-selected ability to go public due to their unique position in the marketplace.

Other Factors

In arriving at its opinion, Maxim did not draw, in isolation, conclusions from or with regard to any factor or analysis considered by it. Rather, Maxim made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of the analyses. The order of the analyses and reviews described in the summary above and the results thereof do not represent the relative importance or weight given to these analyses and reviews by Maxim. Considering selected portions of the analyses and reviews in the summary set forth above, without considering the analyses and reviews as a whole, could create an incomplete or misleading view of the analyses and reviews underlying Maxim’s opinion. Maxim may have considered various assumptions more or less probable than other assumptions, so the range of valuations resulting from any particular analysis or combination of analyses described above should not be taken to represent Maxim’s view with respect to the actual value of XCART or Xenetic Common Share.

For purposes of its analyses and reviews, Maxim considered industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of Hesperix, Xenetic and their advisors. No company or business used in Maxim’s analyses and reviews as a comparison is identical to Hesperix or Xenetic, and an evaluation of the results of those analyses and reviews is not entirely mathematical. Rather, the analyses and reviews involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the acquisition, public trading or other values of the companies, businesses or transactions used in Maxim’s analyses and reviews. The estimates contained in Maxim’s analyses and reviews and the ranges of valuations resulting from any particular analysis or review are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by Maxim’s analyses and reviews. In addition, analyses and reviews relating to the value of companies, businesses or securities do not purport to be appraisals or to reflect the prices at which companies, businesses or securities actually may be sold. Accordingly, the estimates used in, and the results derived from, Maxim’s analyses and reviews are inherently subject to substantial uncertainty, and Maxim assumes no responsibility if future results or values are materially different from those forecasted in such estimates.

From 2016 to early 2018, no material relationship existed between Maxim and its affiliates and Xenetic or Hesperix pursuant to which compensation was received by Maxim or its affiliates as a result of such a relationship. On May 22, 2018, Maxim was retained by Xenetic to serve as financial advisor to Xenetic and to assist the Strategic Alternatives Committee of the Board of Directors in its evaluation of potential strategic alternatives. Maxim will receive a fee in the form of $275,000 cash or $300,000 of Xenetic Common Stock upon the successful close of the Transaction. On March 5, 2019, Maxim acted as the exclusive placement agent for $3.1 million registered directed offering by Xenetic and received compensation. In the future, Maxim may provide financial advisory or other services to Hesperix, Xenetic or their respective affiliates, and in connection with any such services Maxim may receive compensation.

With respect to the Transaction, Maxim did not recommend any specific transaction consideration to the Xenetic Board or Xenetic management or that any specific consideration constituted the only appropriate consideration in the Transaction.

In the ordinary course of business, Maxim or its affiliates may actively trade the securities, or related derivative securities, or financial instruments of Xenetic, Hesperix and their respective affiliates, for its own account and for the accounts of its customers and, accordingly, may at any time hold a long or short position in such securities or instruments.

Certain Financial Forecasts

Xenetic does not publicly disclose long-term forecasts as to future revenue, earnings or other results due to, among other reasons, the uncertainty and subjectivity of the underlying assumptions and estimates. As a result, Xenetic does not provide the unaudited forecast financial information as a reliable indication of future results. Xenetic is including certain unaudited forecast financial information in this document solely because it was among the financial information made available to the Xenetic Board of Directors and the SAC and used by Xenetic's financial advisor in connection with its evaluation of the Transaction. The unaudited forecast financial information presented below includes forecasts for XCART prepared by Xenetic management in consultation with certain of the Sellers as part of Transaction process. Except to the extent required by applicable law, Xenetic undertakes no obligation to update the forecast financial information included in this proxy statement/prospectus and has not done so and does not intend to do so. The inclusion of this information should not be regarded as an indication that any of Xenetic, Xenetic's financial advisor, Hesperix, or any other recipient of this information considered, or now considers, it in any way predictive of actual future results. There can be no assurance that the forecast results will be realized or that actual results will not be significantly higher or lower than set forth below.

Since the unaudited forecast financial information covers multiple years beginning in 2026, such information, by its nature, is in no way predictive at the start, and becomes less predictive with each successive year. The unaudited forecast financial information was not prepared with a view toward public disclosure, nor was it prepared with a view toward compliance with applicable securities laws, published guidelines of the SEC, or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of forecast financial information. Neither Xenetic's independent registered public accounting firm, nor any other independent accounting firm has audited, reviewed, compiled, or performed any procedures with respect to the unaudited forecast financial information for the purpose of its inclusion herein and, accordingly, neither Xenetic's independent registered public accounting firm nor any other independent accounting firm express an opinion or provide any form of assurance with respect thereto for the purpose of this proxy statement/prospectus. The report of Xenetic's independent registered public accounting firm included in this proxy statement/prospectus, relates only to the historical financial information of Xenetic. Such report does not extend to the unaudited forecast financial information set forth below and should not be read to do so. Furthermore, the unaudited forecast financial information does not take into account any circumstances or events occurring after the date it was prepared.

XCART Unaudited Forecast Financial Information ⁽¹⁾

_______________

Vote Required

The affirmative vote of a majority of the votes cast affirmatively or negatively at the Special Meeting by the holders of our Common Stock is required to approve the Transaction Proposal.

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THE TRANSACTION PROPOSAL

PROPOSAL TWO

PROPOSAL TWO: THE SHARE ISSUANCE PROPOSAL

The Share Issuance Proposal is a proposal to approve under the listing rules of NASDAQ the issuance of shares of Common Stock in connection with the Transaction to be voted on in the Transaction Proposal.

The Company’s Common Stock is listed on the NASDAQ Capital Market and, as such, the Company is subject to the NASDAQ listing rules.

Under NASDAQ listing rules, a company whose stock is listed on NASDAQ, such as the Company, is required to obtain stockholder approval prior to certain issuances of common stock or securities convertible into or exchangeable for common stock, in connection with an acquisition, if such issuance (i) equals 20% or more of the common stock or voting power of the company outstanding before the transaction or (ii) in connection with the acquisition of assets of another company where any director, officer or a “substantial shareholder” (generally defined as a 5% or greater shareholder) has a 5% or greater interest (or such persons collectively have a 10% or greater interest), directly or indirectly, in the consideration to be paid in the transaction, and the present or potential issuance of common shares could result in an increase in outstanding common shares or voting power of 5% or more.

Immediately after the completion of the Transaction, the number of outstanding shares of Common Stock and the outstanding voting power of the Company will exceed 20% of the shares of Common Stock outstanding before such issuance and issuances to certain stockholders will result in an increase in such stockholders’ outstanding common shares or voting power of 5% or more. For this reason, the Company must obtain the approval of its stockholders, in accordance with the NASDAQ listing rules, for the issuance of shares of Common Stock in connection with such conversion. Accordingly, the Company is asking its stockholders to approve the issuance of shares of Common Stock in the Transaction.

Effects of the Share Issuance Proposal on Stockholders

The issuance of the Transaction Shares will result in (i) an additional 7,500,000 shares of Common Stock and (ii) additional shares of Common Stock valuing $300,000 which, based on closing per share price on the Record Date would result in an additional [●] shares. After giving effect to all shares of Common Stock issued in or in connection with the Transaction, Company stockholders immediately before completion of the Transaction will hold approximately [●]% of the issued and outstanding Common Stock and Sellers will hold approximately [●]% of the issued and outstanding Common Stock.

Because the shares of Common Stock issued to the Sellers will be issued in a transaction registered under the Securities Act, the Sellers, other than the Sellers who are affiliates of the Company, may be able to resell their shares. Subsequent resales of such shares of Common Stock may cause the market price of our Common Stock to decline. The issuance would also increase the number of shares of Common Stock outstanding, which may have the effect of reducing the Company’s loss per share.

The OPKO Transaction Shares and Institute Transaction Shares will be issued in a transaction exempt from the registration requirements of the Securities Act. We have agreed, as soon as practicable after closing the Transaction, to register for resale the Transaction Shares issued to OPKO and the Institute.

Consequences if Stockholder Approval is Not Obtained

If the Company’s stockholders do not approve the Share Issuance Proposal, the shares of Common Stock will not be issued unless the Company’s stockholders subsequently approve the Share Issuance Proposal by the required vote under the NASDAQ listing rules.

The Share Issuance Proposal is conditioned upon and subject to the approval of the Transaction Proposal. If the Transaction Proposal is not approved, the Share Issuance Proposal will have no effect, even if approved by our stockholders.

Vote Required

The affirmative vote of a majority of the votes cast affirmatively or negatively at the Special Meeting by the holders of our Common Stock is required to approve the Share Issuance Proposal.

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THE SHARE ISSUANCE PROPOSAL

PROPOSAL THREE

PROPOSAL THREE: THE DIRECTOR PROPOSAL

At the Special Meeting, one director will be voted on to serve until the 2020 annual meeting of stockholders or until a successor for such director is elected and qualified, or until the death, resignation or removal of such director. There is only one nominee for the Board of Directors in this special election.

Dr. Vinogradov has agreed to serve, if elected, and the Board has no reason to believe that the nominee will be unavailable or will decline to serve. In the event, however, that the nominee is unable or declines to serve as a director at the time of the annual meeting, the proxies will be voted for any nominee who is designated by the current Board. Unless otherwise instructed, the proxy holders will vote the proxies received by them “FOR” the following nominee:

Alexey Vinogradov, 48, currently serves as Business Development Director and Operations Director at Cantreva LLC, a Russian company with extensive specialized experience of delivering services in the field of renewable energy (solar, wind, hydro power), performing works on a “turnkey” basis, since September 2017. Dr. Vinogradov previously served as General Manager at Togas Middle East LLC in Dubai, UAE from May 2015 to May 2017. Prior to that, Dr. Vinogradov served as branch manager at Togas Group LLC in Russia from March 2012 to November 2016. We believe Dr. Vinogradov’s experience in business communication, international business development and financial analytics provides him with the appropriate set of skills to serve as a member of our Board. Dr. Vinogradov has been nominated pursuant to the terms of the Share Purchase Agreement.

The following is a biographical description of each of the members of our board of directors and our executive officers:

⁽¹⁾       Member of the Audit Committee

⁽²⁾       Member of the Compensation Committee

⁽³⁾       Member of the Nominating and Corporate Governance Committee

Jeffrey F. Eisenberg was appointed our Chief Executive Officer on October 26, 2017, after serving as Chief Operating Officer since December 2, 2016, and has served as a member of our Board since July 2016. Mr. Eisenberg previously worked at Noven Pharmaceuticals, Inc. (“Noven”), a subsidiary of Hisamitsu Pharmaceutical, Inc., where he held various positions of increasing responsibility, most recently serving from 2009-2016 as Noven’s president, chief executive officer and as a member of its board of directors. Mr. Eisenberg obtained his J.D. at Columbia University Law School and a B.S. in Economics from the Wharton School, University of Pennsylvania. We believe Mr. Eisenberg’s significant life science executive experience and leadership experience in the areas of R&D, operations, manufacturing/quality, business development, strategic partnering, product development, commercialization, and human resources provides him with the appropriate set of skills to serve as a member of our Board.

Dr. Curtis A. Lockshin initially joined us on a part-time basis in March 2014 as our Vice President of Research & Operations and was appointed our Chief Scientific Officer effective January 1, 2017. Dr. Lockshin has held several management positions at development and commercial stage biotechnology companies, with experience including discovery, preclinical and clinical development, as well as commercial manufacturing. Since May 2013, he has held the position of president and chief executive officer of Guardum Pharmaceuticals LLC (“Guardum”), a wholly owned subsidiary of PJSC Pharmsynthez, our controlling stockholder, a position which he continues to hold in addition to his position with us. Dr. Lockshin does not receive a salary for these services but did receive medical benefits and was covered under Guardum’s health plan through July 31, 2018. In addition, Dr. Lockshin has served as an officer or consultant of several biotechnology companies on a part-time basis, including as an officer of a series of related companies following multiple mergers beginning as chief executive officer and director of SciVac Therapeutics, Inc. and its subsidiary SciVac, Ltd., from September 2014 until July 2016. After SciVac Therapeutics, Inc.’s merger with VBI Vaccines, Inc. in July 2016, Dr. Lockshin served as chief technical officer of the merged company until December 2016. Dr. Lockshin is currently serving as a member of the board of directors of Phio Pharmaceuticals Corporation, a publicly traded clinical-stage RNAi company, a position he has held since April 2013. Dr. Lockshin has an S.B. in Life Sciences and a Ph.D. in Biological Chemistry from the Massachusetts Institute of Technology. Since April 2004, Dr. Lockshin has also served as a member of the board of directors of the Ruth K. Broad Biomedical Research Foundation, a Duke University Support Corporation that supports basic research related to Alzheimer’s disease and neurodegeneration via intramural, extramural and international grants.

James Parslow was appointed our Chief Financial Officer on April 3, 2017. Mr. Parslow most recently served as Chief Financial Officer, Treasurer and Secretary of World Energy Solutions, Inc., a publicly-traded business-to-business e-commerce company brokering energy and environmental commodities, from 2006 until its acquisition by EnerNOC, Inc. in 2015. Since 2015, he has served as an independent consultant providing interim chief financial officer services to multiple emerging technology companies. Mr. Parslow is a Certified Public Accountant with 30 years of experience serving private and public companies in the biotech, alternative energy, online auction, and high-tech manufacturing industries. He holds an A.B. in Economics and Accounting from the College of the Holy Cross and an M.B.A. with a concentration in Finance from Bentley University.

James E. Callaway was appointed to the Board on August 14, 2017. Dr. Callaway has over 30 years of experience in the execution of product development operations for biotherapeutics and currently serves as CEO of KalGene, a privately-held preclinical company focused on delivery of a proprietary development candidate to alter the course of Alzheimer’s Disease. Dr. Callaway is a seasoned CEO within the venture-backed biotech community and over the course of his career he has built and operated several companies, transforming each from research companies to clinical stage operating entities. Since 2016, he has also served as a Corporate Strategy Consultant at Callaway Innovations. From 2012 until 2016, Dr. Callaway was President and Chief Executive Officer of ArmaGen, Inc. and from 2008 until 2012, served as President and CEO of CEBIX, Inc. Prior to these efforts, Dr. Callaway held multiple senior leadership positions at Elan Pharmaceuticals, including simultaneously acting as Head of Development and overseeing the complex partnership with Wyeth Pharmaceuticals in the Alzheimer’s disease immunotherapy program. He has developed antibodies for a wide-range of therapeutic applications over the past two decades, including treatments of multiple sclerosis (Tysabri®: pharmaceutical development), Alzheimer’s disease (bapineuzumab: Program Executive), and blood-brain barrier transport, and has worked with the United States Food and Drug Administration on multiple orphan drug development programs. We believe Dr. Callaway’s significant life sciences executive, leadership and strategic experience in the area of biotherapeutics provides him with the appropriate set of skills to serve as a member of our Board.

Firdaus Jal Dastoor, FCS, was initially appointed as a member of our Board in January 2014 pursuant to terms of the agreement of our acquisition of Xenetic U.K. He has been employed by the Cyrus Poonawalla Group, a conglomerate in India with interests in horse racing and breeding, biotech, engineering and hotels, in business development strategies and operational roles since October 1981. Mr. Dastoor is currently a Group Director in charge of Finance and Corporate Affairs and Company Secretary of the Serum Institute of India Private Limited at the Cyrus Poonawalla Group, one of our significant stockholders. He is a Fellow Member of The Institute of Company Secretaries of India since 1990. Mr. Dastoor is on the board of several private companies operating in the fields of engineering products, life sciences and biotech, international trade, financial services and quality standards certifications. Mr. Dastoor received a B.A. in Commerce from the University of Poona. We believe Mr. Dastoor’s knowledge of investments in the life sciences and biotechnology industries, and his finance and business development background provide him with the appropriate set of skills to serve as a member of our Board.

Dmitry Genkin was appointed to the Board on August 14, 2017. Dr. Genkin currently serves on the Company’s Scientific Advisory Board and previously served on the Company’s Board of Directors from 2004-2016. He has the Russian equivalent of an MD in Internal Therapy and studied drug delivery under Professor Gregory Gregoriadis at The School of Pharmacy, University of London in 1992, as well as the Department of Clinical Pharmacology at Karolinska Hospital, Stockholm from 1992 until 1993. Since 2005, Dr. Genkin has served as Executive Chairman of PJSC Pharmsynthez, a public company and Xenetic’s majority stockholder. Prior to that time, Dr. Genkin headed a number of Russia’s largest pharmaceutical companies including Pharmavit, which had 27% of the Russian pharmaceutical market. In 1998, he was awarded the silver medal by the Russian Natural Science Academy. We believe Dr. Genkin’s significant life sciences, biotechnology and international background provide him with the appropriate set of skills to serve as a member of our Board.

Roman Knyazev has served as a member of our Board since April 2014. Mr. Knyazev has served in various positions at Rusnano Moscow since 2009, most recently as its Investment Director. He also serves on the boards of directors of Nanolek, PETAR, PJSC Pharmsynthez, and SynBio LLC. Mr. Knyazev is a Fellow of the Kauffman Fellows Program. We believe Mr. Knyazev’s experience investing in clinical stage biotechnology companies provides him with the appropriate set of skills to serve as a member of our Board.

Dr. Roger Kornberg has served as a member of our Board since February 2016. Dr. Kornberg is a member of the U.S. National Academy of Sciences and the Winzer Professor of Medicine in the Department of Structural Biology at Stanford University. He earned his B.S. in chemistry from Harvard University in 1967 and his Ph.D. in chemical physics from Stanford in 1972. He became a postdoctoral fellow at the Laboratory of Molecular Biology in Cambridge, England and then an assistant professor of biological chemistry at Harvard Medical School in 1976, before moving to his present position as professor of structural biology at Stanford Medical School in 1978. In 2006, Dr. Kornberg was awarded the Nobel Prize in Chemistry in recognition for his studies of the molecular basis of Eukaryotic Transcription, the process by which DNA is copied to RNA. Dr. Kornberg is also the recipient of several awards, including the 2001 Welch Prize, the highest award granted in the field of chemistry in the United States, and the 2002 Leopald Mayer Prize, the highest award granted in the field of biomedical sciences from the French Academy of Sciences. We believe Dr. Kornberg’s prior experience serving on the boards of directors of large organizations as well as his scientific background provides him with the appropriate set of skills to serve as a member of our Board.

Adam Logal was appointed to the Board in August 2017. Mr. Logal has over 16 years of experience in the biopharmaceuticals industry. Since April 2014, Mr. Logal has served as Senior Vice President, Chief Financial Officer, Chief Accounting Officer and Treasurer of OPKO Health, Inc. and from March 2007 until April 2014 served as OPKO’s Vice President of Finance, Chief Accounting Officer and Treasurer. Mr. Logal served as a director of VBI Vaccines, Inc., a publicly-traded company, from May 2015 through October 2018 and served as its Audit Committee Chairman. Prior to joining OPKO, Mr. Logal served in various financial management roles at Nabi Biopharmaceuticals, a commercial stage biopharmaceutical company. Mr. Logal is a strategic finance executive with extensive experience in SEC compliance and reporting, domestic and international finance, strategic planning, cash flow management, budgeting, taxation, treasury and business development. We believe Mr. Logal’s extensive financial experience with public companies in the life sciences industry provides him with appropriate set of skills to serve as a member of our Board.

There are no family relationships among any of our directors, the director nominee and executive officers and, to the best of our knowledge, none of our directors, the director nominee or executive officers has, during the past ten years, been involved in any legal proceedings which are required to be disclosed pursuant to the rules and regulations of the SEC.

Committees of the Board

The Board has three standing committees: an Audit Committee, a Compensation Committee, and a Nominating and Corporate Governance Committee. The Board also has two special committees: an Expense Management and Financing Oversight Committee and a Strategic Alternatives Committee. The Expense Management and Financing Oversight Committee was formed in October 2017. The Strategic Alternatives Committee was formed in March 2018. The Company has adopted charters to govern the conduct, authority and responsibilities of each of the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee. The Board has not determined, if elected at the Special Meeting, on what committees Dr. Vinogradov will serve.

Audit Committee

The Audit Committee of the Board of Directors was established by the Board in accordance with Section 3(a)(58)(A) of the Exchange Act, to oversee the Company’s corporate accounting and financial reporting processes and audits of its financial statements. For this purpose, the Audit Committee performs several functions. The Audit Committee evaluates the performance of and assesses the qualifications of the independent auditors; determines and approves the engagement of the independent auditors; determines whether to retain or terminate the existing independent auditors or to appoint and engage new independent auditors; reviews and approves the retention of the independent auditors to perform any proposed permissible non-audit services; monitors the rotation of partners of the independent auditors on the Company’s audit engagement team as required by law; reviews and approves or rejects transactions between the Company and any related persons; confers with management and the independent auditors regarding the effectiveness of internal control over financial reporting; establishes procedures, as required under applicable law, for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters and the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters; and meets to review the Company’s annual audited financial statements and quarterly financial statements with management and the independent auditor, including a review of the Company’s disclosures under the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the Company’s Annual Report to Stockholders on Form 10-K.

For the fiscal year 2018, the Audit Committee was composed of three directors: Mr. Dastoor, Dr. Callaway, and Mr. Logal (chair). The Audit Committee met five times during fiscal year 2018. The Board has adopted a written Audit Committee charter that is available to stockholders on the Company’s website at http://ir.xeneticbio.com/.

The Board of Directors reviews the NASDAQ listing standards definition of independence for Audit Committee members on an annual basis and has determined that all current members of our Audit Committee are independent (as independence is currently defined in Rule 5605(c)(2)(A)(i) and (ii) of the NASDAQ listing standards).

The Board of Directors has also determined that Mr. Logal qualifies as an “audit committee financial expert,” as defined in applicable SEC rules. The Board made a qualitative assessment of Mr. Logal’s level of knowledge and experience based on a number of factors, including his formal education and experience as a chief financial officer.

Report of the Audit Committee of the Board of Directors

The Audit Committee has reviewed and discussed the audited financial statements for the fiscal year ended December 31, 2018 with management of the Company. The Audit Committee has discussed with the independent registered public accounting firm the matters required to be discussed by Auditing Standard No. 1301, Communications with Audit Committees, as adopted by the Public Company Accounting Oversight Board (“PCAOB”). The Audit Committee has also received the written disclosures and the letter from the independent registered public accounting firm required by applicable requirements of the PCAOB regarding the independent accountants’ communications with the audit committee concerning independence, and has discussed with the independent registered public accounting firm the accounting firm’s independence. Based on the foregoing, the Audit Committee has recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

Mr. Adam Logal, Chairman

Dr. James E. Callaway

Mr. Firdaus Jal Dastoor, FCS

Compensation Committee

For the fiscal year 2018, the Compensation Committee was composed of three directors: Mr. Dastoor, Dr. Callaway (chair), and Mr. Logal. All current members of our Compensation Committee are independent (as independence is currently defined in Rule 5605(d)(2) of the NASDAQ listing standards). The Board has adopted a written Compensation Committee charter that is available to stockholders on the Company’s website at http://ir.xeneticbio.com/. The Compensation Committee of the Board acts on behalf of the Board to review, recommend for adoption and oversee our compensation strategy, policies, plans and programs, including:

The Compensation Committee determines salaries, incentives and other forms of compensation for the Chief Executive Officer and our executive officers and reviews and makes recommendations to the Board with respect to director compensation. The Compensation Committee meets without the presence of executive officers when approving or deliberating on executive officer compensation, but may invite the Chief Executive Officer to be present during the approval of, or deliberations with respect to, other executive officer compensation. The Compensation Committee reviews and approves the terms of offer letters, employment agreements, severance agreements, change-in-control agreements, indemnification agreements and other material agreements between us and our executive officers. In addition, the Compensation Committee administers our stock incentive compensation and equity-based plans.

Nominating and Corporate Governance Committee

The Nominating and Corporate Governance Committee of the Board is responsible for identifying, reviewing and evaluating candidates to serve as directors of the Company (consistent with criteria approved by the Board), reviewing and evaluating incumbent directors, recommending to the Board for selection candidates for election to the Board of Directors, making recommendations to the Board regarding the membership of the committees of the Board, and developing a set of corporate governance principles for the Company. For the fiscal year 2018, the Nominating and Corporate Governance Committee was composed of three directors: Dr. Kornberg, Dr. Callaway (chair), and Mr. Logal. All current members of the Nominating and Corporate Governance Committee are independent (as independence is currently defined in Rule 5605(a)(2) of the NASDAQ listing standards). The Nominating and Corporate Governance Committee met once during 2018. The Board has adopted a written Nominating and Corporate Governance Committee charter that is available to stockholders on the Company’s website at http://ir.xeneticbio.com/.

The Nominating and Corporate Governance Committee believes that candidates for director should have certain minimum qualifications, including the ability to read and understand basic financial statements, being over 21 years of age and having the highest personal integrity and ethics. The Nominating and Corporate Governance Committee also intends to consider such factors as possessing relevant expertise upon which to be able to offer advice and guidance to management, having sufficient time to devote to the affairs of the Company, demonstrated excellence in his or her field, having the ability to exercise sound business judgment and having the commitment to rigorously represent the long-term interests of the Company’s stockholders. However, the Nominating and Corporate Governance Committee retains the right to modify these qualifications from time to time. Candidates for director nominees are reviewed in the context of the current composition of the Board, the operating requirements of the Company and the long-term interests of stockholders. In conducting this assessment, the Nominating and Corporate Governance Committee typically considers diversity, age, skills and such other factors as it deems appropriate, given the current needs of the Board and the Company, to maintain a balance of knowledge, experience and capability.

While we do not have a formal diversity policy with respect to Board composition, the Board believes it is important for the Board to have diversity of knowledge base, professional experience and skills, and the Nominating and Corporate Governance Committee takes these qualities into account when considering director nominees for recommendation to the Board.

The Nominating and Corporate Governance Committee will consider director candidates recommended by stockholders. A stockholder who wishes to suggest a prospective nominee for the Board of Directors should notify the Company’s Secretary or any member of the Nominating and Corporate Governance Committee in writing and include any supporting material the stockholder considers appropriate. In addition, the Company’s Amended and Restated Bylaws contain provisions addressing the process by which a stockholder may nominate an individual to stand for election to the Board of Directors at its Annual Meeting of Stockholders. In order to nominate a candidate for director, a stockholder must give timely notice in writing to the Company’s Secretary and otherwise comply with the provisions of our Amended and Restated Bylaws. To be timely, our Amended and Restated Bylaws provide that we must have received the notice not less than 90 days or more than 120 days prior to the one-year anniversary of the date of the previous year’s Annual Meeting of Stockholders (the “Anniversary”); provided, however, that in the event that the date of next year’s Annual Meeting is more than 30 days before or more than 30 days after the Anniversary, notice must be delivered not earlier than the close of business on the 120th day prior to next year’s Annual Meeting and not later than the close of business on the later of (i) the 90th day prior next year’s Annual Meeting or (ii) the close of business on the 10th day following the day on which public announcement of the date of next year’s Annual Meeting is first made by us. Information required by our Amended and Restated Bylaws to be in the notice includes: (A) all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case, pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including such person’s written consent to being named in the proxy statement/prospectus as a nominee and to serving as a director, if elected); (B) a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three (3) years, and any other material relationships, between or among such stockholder, the beneficial owner, if any, on whose behalf any such proposal or nomination is being made, and their respective affiliates and associates, on the one hand, and each proposed nominee, and his or her respective affiliates and associates, on the other hand, including, without limitation, all information that would be required to be disclosed pursuant to Item 404 of Regulation S-K promulgated under the Securities Act of 1933, as amended, if such stockholder, such beneficial owner, or any affiliate or associate thereof, were the “registrant” for purposes of such rule and the nominee were a director or executive officer of such registrant; (C) to the extent known by the stockholder, the name and address of any other security holder of the Company who owns, beneficially or of record, any securities of the Company and who supports any nominee proposed by such stockholder; and (D) a questionnaire and a representation and agreement, completed and signed by such person, as required by our Amended and Restated Bylaws.

Stockholder nominations must be made in accordance with the procedures outlined in, and include the information required by, our Amended and Restated Bylaws and must be addressed to our Corporate Secretary, c/o Xenetic Biosciences, Inc., 40 Speen Street, Suite 102, Framingham, Massachusetts 01701. You can obtain a copy of our Amended and Restated Bylaws by writing to the Corporate Secretary at this address.

Independence of The Board of Directors

As required under the NASDAQ listing standards, a majority of the members of a listed company’s board of directors must qualify as “independent,” as affirmatively determined by the Board of Directors. The Board consults with advisors to ensure that the Board’s determinations are consistent with relevant securities and other laws and regulations regarding the definition of “independent,” including those set forth in pertinent listing standards of NASDAQ, as in effect from time to time.

Consistent with these considerations, after review of all relevant identified transactions or relationships between each director, or any of his or her family members, and the Company, its senior management and its independent auditors, the Board affirmatively determined that the following directors were independent directors within the meaning of the applicable NASDAQ listing standards for the period during which they served as a member of the Board during fiscal year 2018: Dr. Callaway, Mr. Dastoor, Dr. Kornberg, and Mr. Logal. In addition, the Board has determined that Dr. Vinogradov will be an independent director within the meaning of the applicable NASDAQ listing standards.

During fiscal year 2018, all members of our Audit Committee, Nominating and Corporate Governance Committee, and Compensation Committee were independent (as independence is currently defined in Rule 5605 of the NASDAQ listing standards).

Board Leadership Structure

Prior to August 2017, we combined the positions of Chief Executive Officer and Board Chair. As of August 2017, we separated the roles of Chief Executive Officer and Board Chair in recognition of the differences between the two roles. The Board of Directors is currently chaired by independent director, Adam Logal, and our current Chief Executive Officer, Jeffrey Eisenberg, is our only employee-director. The Chief Executive Officer is responsible for setting the strategic direction for the Company and the day to day leadership and performance of the Company, while the Board Chair is responsible for leading the Board in the execution of its fiduciary duties. The Board Chair presides over meetings of the full Board. While we recognize that different board leadership structures may be appropriate for companies in different situations, we believe our current leadership structure is the optimal structure for the Company at this time.

Role of the Board in Risk Oversight

Our management is principally responsible for defining the various risks facing the Company, formulating risk management policies and procedures, and managing our risk exposures on a day-to-day basis. The Board’s principal responsibility in this area is to ensure that sufficient resources, with appropriate technical and managerial skills, are provided throughout the Company to identify, assess and facilitate processes and practices to address material risk and to monitor our risk management processes by informing itself concerning our material risks and evaluating whether management has reasonable controls in place to address the material risks. The involvement of the Board in reviewing our business strategy is an integral aspect of the Board’s assessment of management’s tolerance for risk and its determination of what constitutes an appropriate level of risk for the Company.

Stockholder Communications With The Board Of Directors

Historically, we have not provided a formal process related to stockholder communications with the Board. All communications to our Board, our Board committees or any individual director, must be in writing and addressed to our Corporate Secretary, c/o Xenetic Biosciences, Inc., 40 Speen Street, Suite 102, Framingham, Massachusetts 01701. All communications will be reviewed by the Secretary and, unless otherwise indicated in such communication, submitted to the Board or an individual director, as appropriate.

Code of Business Conduct and Ethics

We have adopted the Xenetic Biosciences, Inc. Code of Business Conduct and Ethics that applies to all of our employees, officers and directors, including our principal executive officer, principal financial officer and principal accounting officer. The Code of Business Conduct and Ethics is available on our website, www.xeneticbio.com, under “Investors” at “Corporate Governance.” If we make any substantive amendments to the Code of Business Conduct and Ethics or grant any waiver from a provision of the Code of Business Conduct and Ethics to any executive officer or director, we intend to promptly disclose the nature of the amendment or waiver on our website, to the extent required by the applicable rules and exchange requirements.

Meetings of The Board of Directors

The Board of Directors met five times during the last fiscal year. Each Board member attended 75% or more of the aggregate number of meetings of the Board and of the committees on which she or he served that were held during the portion of the last fiscal year for which she or he was a director or committee member, except as follows: Dr. Kornberg attended 40% of the Board meetings during 2018. At the Company’s last annual meeting of stockholders, which was held in November of 2018, six of our Board members attended the meeting and were available to be heard by those present at the meeting.

Delinquent Section 16(a) Reports

Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who own more than ten percent of a registered class of our equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of our ordinary shares and other equity securities. Such persons are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.

To our knowledge, based solely on a review of the copies of such reports furnished to us and written representations that no other reports were required, during the fiscal year ended December 31, 2018, we believe that all Section 16(a) filing requirements applicable to our executive officers, directors and greater than 10% beneficial owners were complied with, except that one report, covering an aggregate of one transaction, was filed late by Dr. Dmitry Genkin.

Executive Compensation

Summary Compensation Table

The following table sets forth, for the years ended December 31, 2018 and 2017, the compensation information for Jeffrey Eisenberg, our Chief Executive Officer, Dr. Curtis Lockshin, our Chief Scientific Officer, and James Parslow, our Chief Financial Officer. We refer to Messrs. Eisenberg, Lockshin, and Parslow herein, collectively, as our “named executive officers.”

Outstanding Equity Awards at Fiscal Year-End

The following table sets forth certain information with respect to outstanding equity awards held by our named executive officers at December 31, 2018.

Employment Agreements with our Named Executive Officers

Employment Agreement with Mr. Eisenberg

We entered into an employment agreement with Mr. Eisenberg effective as of December 1, 2016 for him to serve as Chief Operating Officer (the “Original Agreement”). The Original Agreement was for an initial term of one year, and automatically renewed for successive one year periods unless either party gave notice to the other no later than 90 days prior to the expiration of the then-applicable term; provided, however, that we could terminate the Original Agreement at any time. Mr. Eisenberg’s annual salary under the Original Agreement was $300,000, and was subject to annual review and upward adjustment only by the Compensation Committee of the Board. Mr. Eisenberg was also eligible to receive a bonus equal to 35% of his annual salary based on the attainment of certain individual and/or Company goals established by the Board or a committee thereto. Mr. Eisenberg was also eligible to participate in our employee benefit, welfare and other plans, as may be maintained by us from time to time, on a basis no less favorable than those provided to other similarly situated executives of the Company. Mr. Eisenberg was also subject to certain customary confidentiality, non-solicitation and non-competition provisions.

Under the Original Agreement, if Mr. Eisenberg’s employment was terminated by us without “Cause” (as defined in the Original Agreement) or if he resigned for “Good Reason” (as defined in the Original Agreement), he was entitled to receive (i) six months of his then current base salary, paid over time in accordance with our payroll practices then in effect if he had been employed by us for six months or less, (ii) 12 months of his then current base salary, paid over time in accordance with our payroll practices then in effect if he had been employed by us for more than six months, (iii) a pro-rated annual bonus and (iv) payment of premiums for continued health benefits under COBRA for up to six months.

On October 26, 2017, the Company amended and restated the Original Agreement in order to employ Mr. Eisenberg as the Chief Executive Officer of the Company, effective as of the same date (the “Amended Agreement”). The terms of the Amended Agreement were substantially similar to the terms of the Original Agreement, except that Mr. Eisenberg is now eligible to receive a bonus equal to 50% of his annual salary based on the attainment of certain individual and/or Company goals established by the Board or a committee thereto, and if Mr. Eisenberg’s employment is terminated by us without “Cause” (as defined in the Amended Agreement) or if he resigns for “Good Reason” (as defined in the Amended Agreement), he will be entitled to receive (i) within thirty days following the date of termination, an amount equal to one times his then current base salary, (ii) a pro-rated annual bonus and (iii) payment of premiums for continued health benefits under COBRA for up to twelve months.

Employment Agreement with Mr. Parslow

We entered into an employment agreement with Mr. Parslow effective as of April 3, 2017 (the “Parslow Employment Agreement”). The Parslow Employment Agreement does not provide for a specified term of employment and Mr. Parslow’s employment will be on an at-will basis. Mr. Parslow will receive an initial annual base salary of $265,000 and is eligible to earn an annual cash incentive bonus, which is initially set at a target aggregate bonus amount of 35% of Mr. Parslow’s base salary, upon achievement of certain individual and/or Company performance goals set by the Compensation Committee. Mr. Parslow is also eligible to participate in the Company’s employee benefit, welfare and other plans, as may be maintained by the Company from time to time, on a basis no less favorable than those provided to other similarly-situated executives of the Company. Mr. Parslow is also subject to certain customary confidentiality, non-solicitation and non-competition provisions.

If Mr. Parslow’s employment is terminated by the Company without “cause” (as defined in the Parslow Employment Agreement) or Mr. Parslow resigns for “good reason” (as defined in the Parslow Employment Agreement), after six months of employment but before his first anniversary with the Company, he will be entitled to receive (i) six months of his then current base salary, paid over time in accordance with the Company’s payroll practices then in effect and (ii) payment of premiums for continued health benefits under COBRA for up to six months. If Mr. Parslow’s employment is terminated by the Company without “cause” (as defined in the Parslow Employment Agreement) or Mr. Parslow resigns for “good reason” (as defined in the Parslow Employment Agreement), after his first anniversary with the Company, he will be entitled to receive (i) one year of his then current base salary, paid over time in accordance with the Company’s payroll practices then in effect and (ii) payment of premiums for continued health benefits under COBRA for up to one year.

Employment Agreement with Dr. Lockshin

We entered into an employment agreement with Dr. Lockshin effective as of January 1, 2017 (the “Lockshin Employment Agreement”). The Lockshin Employment Agreement does not provide for a specified term of employment and Dr. Lockshin’s employment will be on an at-will basis. Dr. Lockshin will receive an initial annual base salary of $250,000 and is eligible to earn an annual performance-based cash incentive bonus, which is initially set at a target aggregate bonus amount of 35% of Dr. Lockshin’s base salary, upon achievement of certain individual and/or Company performance goals established by the Board or a committee thereto. Dr. Lockshin is also eligible to participate in the Company’s employee benefit, welfare and other plans, as may be maintained by the Company from time to time, on a basis no less favorable than those provided to other similarly-situated executives of the Company. Dr. Lockshin is also subject to certain customary confidentiality, non-solicitation and non-competition provisions.

If Dr. Lockshin’s employment is terminated by the Company without “Cause” (as defined in the Lockshin Employment Agreement) or Dr. Lockshin terminates his employment for “Good Reason” (as defined in the Lockshin Employment Agreement) and Dr. Lockshin executes and does not revoke a general release of claims against the Company, then he will be entitled to receive (i) one year of his then current base salary, paid over time in accordance with the Company’s payroll practices then in effect and (ii) payment of premiums for continued health benefits under COBRA for up to twelve months.

Potential Payments Upon Termination or Change of Control

Our named executive officers may be entitled to payments upon termination or change in control. The details of such payments are included in the description of their employment agreements above.

Director Compensation

Each of our non-employee, independent directors is currently entitled to receive an annual retainer of $50,000, payable in equal quarterly installments, an option to acquire 25,000 shares of the Company’s common stock upon initial appointment to the Board, and an additional option to acquire 25,000 shares each year thereafter on the date of the Company’s annual meeting of stockholders. All members of our board are reimbursed for their usual and customary expenses incurred in connection with their service on the Board, including out-of-pocket expenses, transportation, and airfare on the Company’s business.

Director Compensation Table

As our employee director during fiscal 2018, Mr. Eisenberg did not receive any compensation for his Board service during the last completed year. The following table sets forth information for the year ended December 31, 2018 regarding the compensation awarded to, earned by or paid to our non-employee directors:

_______________

In addition to the option awards described above, Mr. Dastoor holds a warrant to purchase 48,485 shares of our common stock at $7.92 per share. These warrants are fully vested and expire in December 2019. In addition, Dr. Genkin holds a warrant to purchase 30,304 shares of our common stock at $13.86 per share. These warrants are fully vested and expire in April 2021.

See “Certain Relationships and Related Transactions” below for compensation arrangements involving specific members of the Board.

Certain Relationships and Related Transactions

During the fiscal year ended December 31, 2018 and the fiscal year ended December 31, 2017, there was not, nor is there any currently proposed transaction or series of similar transactions to which Xenetic was or is to be a party in which the amount involved exceeded or exceeds the lesser of $120,000 or 1% of the average of our total assets at year end for the last two completed fiscal years and in which any executive officer, director or holder of more than 5% of any class of voting securities of Xenetic and members of that person’s immediate family had, has or will have a direct or indirect material interest, other than as set forth in “Executive Compensation” and “Director Compensation Table” above and disclosed below.

Policy Regarding Related Party Transactions

Our Board has adopted a written related party transaction policy to set forth the policies and procedures for the review and approval or ratification of related party transactions. Any transaction between the Company and its officers, directors, principal stockholders or affiliates is required to be on terms no less favorable to us than could be reasonably obtained in arms-length transactions with independent third-parties, and any such material related party transactions must also be reviewed and approved by a majority of the Board of Directors. All of the actions described in this section occurred prior to the adoption of this policy, except for the acquisition of the XCART Technology. On March 16, 2018, our Board formed the Strategic Alternatives Committee (the “SAC”) to evaluate an alternative transaction and other strategic alternatives for the Company should they arise. James Callaway, an independent outside director of the Company, was appointed Chair of the SAC. The SAC had primary oversight over the XCART Technology acquisition.

PJSC Pharmsynthez

Pharmsynthez (formerly, OJSC Pharmsynthez) is our largest and controlling stockholder with a share ownership of [43.5]% of the total issued and outstanding common stock as of the Record Date. In addition to its common stock ownership, Pharmsynthez holds outstanding warrants to purchase our common stock and approximately 1.5 million shares of our issued and outstanding Series B Preferred Stock as of the Record Date. Pharmsynthez was a related party of SynBio, which is related party of ours, and acquired 100% of SynBio in February 2017. The combined ownership of Pharmsynthez and SynBio was [51.4]% as of the Record Date. In addition, one of our directors, Dr. Dmitry Genkin, is the Executive Chairman of the board of directors of Pharmsynthez, a second director of ours, Mr. Roman Knyazev, is also a director of Pharmsynthez and one of our executive officers, Dr. Curtis Lockshin, is an officer of a wholly-owned subsidiary of Pharmsynthez. In November 2009, the Company entered into a collaborative research and development license agreement with Pharmsynthez (the “Pharmsynthez Arrangement”) pursuant to which the Company granted an exclusive license to Pharmsynthez to develop, commercialize and market six drug candidates based on the Company’s PolyXen and ImuXen technology in certain territories. In exchange, Pharmsynthez granted an exclusive license to the Company to use any preclinical and clinical data developed by Pharmsynthez, within the scope of the Pharmsynthez Arrangement, and to engage in further research, development and commercialization of drug candidates outside of certain territories at the Company’s own expense.

SynBio LLC

SynBio is one of our largest stockholders and owns approximately [7.9%] of our total issued and outstanding common stock as of the Record Date and all of our outstanding Series A Preferred Stock. In 2017, SynBio became a wholly-owned subsidiary of Pharmsynthez.

In August 2011, SynBio and the Company entered into a stock subscription and collaborative development of pharmaceutical products agreement (the “Co-Development Agreement”). The Company granted an exclusive license to SynBio to develop pharmaceutical products using certain molecule(s) based on SynBio’s technology and the Company’s proprietary technology (PolyXen, OncoHist and ImuXen) that prolongs the active life and/or improves the pharmacokinetics of certain therapeutic proteins and peptides (as well as conventional drugs). In return, SynBio granted an exclusive license to the Company to use the pre-clinical and clinical data generated by SynBio in certain agreed products and engage in the development of commercial candidates.

SynBio and the Company are each responsible for funding their own research activities. There are no milestone or other research-related payments due under the agreement other than fees for the supply of each company’s respective research supplies based on their technology, which, when provided, are due to mutual convenience and not representative of an ongoing or recurring obligation to supply research supplies. Serum Institute of India Limited (“Serum Institute”) has agreed to directly provide the research supplies to SynBio, where the Company is not liable for any failure to supply the research supplies as a result of any act or fault of Serum Institute. Upon successful commercialization of any resultant products, the Company is entitled to receive royalties on sales in certain territories and pay royalties to SynBio for sales outside those certain territories.

Through December 31, 2018, the Company and SynBio continued to engage in research and development activities with no resultant commercial products. The Company did not recognize revenue in connection with the Co-Development Agreement during the years ended December 31, 2018 and 2017.

Serum Institute

Serum Institute owns approximately [6.0%] of our total issued and outstanding common stock as of the Record Date. In addition to its common stock ownership, Serum Institute holds outstanding warrants to purchase our common stock. One of our directors, Firdaus Jal Dastoor, is currently a Group Director in charge of Finance and Corporate Affairs and Company Secretary of Serum Institute. In August 2011, we entered into a collaborative research and development agreement with Serum Institute providing Serum Institute an exclusive license to use our PolyXen technology to research and develop one potential commercial product, Polysialylated Erythropoietin (“PSA-EPO”). Serum Institute is responsible for conducting all preclinical and clinical trials required to achieve regulatory approvals within the certain predetermined territories at Serum Institute’s own expense. Royalty payments are payable by Serum Institute to us for net sales to certain customers in the Serum Institute sales territory. Royalty payments are payable by us to Serum Institute for net sales received by us over the term of the license. There are no milestone or other research-related payments due under the collaborative arrangement.

Through December 31, 2018, we continued to engage in research and development activities with no resultant commercial products. No royalty revenue or expense was recognized by us related to the Serum Institute arrangement during the years ended December 31, 2018 and 2017.

Director Fees and Consulting Services Agreement with Dr. Dmitry Genkin

Dr. Genkin provided research and consulting services to the Company, for which he was paid approximately $50,000 during the year ended December 31, 2017. The agreement was terminated on July 31, 2017 prior to Mr. Genkin being reappointed to the Board in August 2017.

XCART Technology

On March 1, 2019, we entered into the Transaction. In connection with the Transaction, on March 1, 2019, we entered into the Share Purchase Agreement with Hesperix pursuant to which the Company will complete the Hesperix Acquisition. Dr. Dmitry Genkin, one of our directors, is a director and significant shareholder of Hesperix. In addition, in connection with the Transaction, the Company has agreed to repay a $150,000 loan that Dr. Genkin entered into with Hesperix.

In addition, and in connection with the Transaction, Hesperix entered into the Hesperix Assignment Agreement with the Assignors, pursuant to which, the Assignors have agreed, among other things, to sell, assign, transfer, and convey unto Hesperix all of their individual right, title, and interest throughout the world in and to patents related to “Articles And Methods Directed To Personalized Therapy Of Cancer,” and the related know-how. Hesperix has agreed to pay each of IBCH and Pharmsynthez a royalty rate in the low single digit range based on the net sales of products in each country in which, in absence of the Hesperix Assignment Agreement, the manufacture, use, offer for sale, sale, or importation of such product would infringe a valid claim of a patent. Dr. Dmitry Genkin, one of our directors, is the Executive Chairman of the board of directors of Pharmsynthez. A second director of ours, Mr. Roman Knyazev, is also a director of Pharmsynthez and one of our executive officers, Dr. Curtis Lockshin is an officer of a wholly-owned subsidiary of Pharmsynthez.

Concurrent with the Share Purchase Agreement, we also entered into the OPKO Assignment Agreement pursuant to which the Company will acquire and accept all of OPKO’s right, title and interest in an Intellectual Property License Agreement entered into between the Institute and OPKO related to the XCART technology. Mr. Adam Logal, one of our directors, is Senior Vice President, Chief Financial Officer, Chief Accounting Officer and Treasurer of OPKO Health, Inc., the parent company of OPKO.

In total, we will issue 7.5 million shares of our common stock in the Transaction, including 4.875 million shares to be issued to the shareholders of Hesperix and 2.625 million shares of common stock to be issued in connection with the OPKO Assignment Agreement. The closing of the Transaction is subject to customary closing conditions as well as conditions regarding (i) the Company having adequate financing to fund its future working capital obligations following the closing and (ii) the Company obtaining necessary and appropriate stockholder approvals, evidencing among other matters, approval of the Share Purchase Agreement and the transactions contemplated thereunder, including the issuance of the Transaction Shares. Subject to the satisfaction of the closing conditions, the Transaction is expected to close in the first half of 2019.

Empery Asset Management

Empery Tax Efficient II, LP (“ETE II Fund”), Empery Asset Management, LP (“Empery Asset”), Ryan M. Lane, and Martin D. Hoe (collectively, “Empery Asset Management”) own approximately 9.96% of our total issued and outstanding common stock at March 31, 2019. On March 5, 2019 Empery Asset Management purchased 1,040,000 shares of our common stock, as well as prefunded warrants to purchase 509,000 shares of our common stock resulting in net proceeds to the Company of $2.7 million. In addition to its common stock and prefunded warrant ownership, Empery Asset Management holds outstanding warrants to purchase our common stock.

The Director Proposal is conditioned upon and subject to the approval of the Transaction Proposal and Share Issuance Proposal. If the Transaction Proposal or the Share Issuance Proposal are not approved, the Director Proposal will not be consummated and our current directors will continue to comprise our Board of Directors.

Vote Required

A plurality of the votes cast at the Special Meeting by the holders of our Common Stock is required to approve the Director Proposal.

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THE ELECTION OF DR. ALEXEY VINOGRADOV TO THE BOARD OF DIRECTORS

PROPOSAL FOUR

PROPOSAL FOUR: THE STOCK INCREASE PROPOSAL

Our Board of Directors has adopted a resolution (i) approving an amendment to Article III of our articles of incorporation that would increase the number of authorized shares of Common Stock, par value $0.001 per share, from 45,454,546 shares to 150,000,000 shares (the “Common Stock Amendment”) and (ii) directing that the Common Stock Amendment be submitted to the stockholders for approval at the Special Meeting.

The Proposed Common Stock Amendment

If the proposed Common Stock Amendment is approved by our stockholders and subsequently filed with the Nevada Secretary of State, Article III of the articles of incorporation would be amended and restated in its entirety to read:

“Section 1. Authorized Shares. The aggregate number of shares which the Corporation shall have authority to issue is one hundred and sixty million (160,000,000) shares, consisting of two classes to be designated, one hundred and fifty million (150,000,000) shall be designated as “Common Stock” and ten million (10,000,000) shares shall be designated as undifferentiated blank check “Preferred Stock,” with all of such shares have a par value of $.001 per share.

The Preferred Stock may be issued in one or more series, each series to be appropriately designated by an distinguishing letter or title, prior to the issuance of any shares thereof. The voting powers, designations, preferences, limitations, restrictions, and relative, participating, optional and other rights, and the qualifications, limitations, or restrictions thereof, of the Preferred Stock shall hereinafter be prescribed by resolution of the board of directors pursuant to Section 3 of this Article III.”

Only the number of shares of Common Stock the Company is authorized to issue would be affected by this Common Stock Amendment. Except for this change, the proposed Common Stock Amendment would not affect any other provision of the articles of incorporation. If approved by a majority of holders of our outstanding shares of Common Stock entitled to vote as of the Record Date, we will file the Common Stock Amendment, in substantially the form attached hereto as Appendix F, with the Nevada Secretary of State.

Reasons for the Common Stock Amendment

Our Board believes that an increase in the number of authorized shares of the Company’s Common Stock from 45,454,546 shares to 150,000,000 shares is in the best interests of our stockholders. Increasing the number of authorized shares of Common Stock will enable us to engage in capital raising transactions and other strategic transactions involving the issuance of equity securities. We have limited capital and in order for us to execute on our business plan, including the continued research and development relating to the Transaction described in this proxy statement/prospectus, and remain viable as a going concern, we must have the flexibility to engage in capital raising transactions until we are able to generate sufficient revenue and cash flow.

As discussed in more detail below in the section titled “Number of Shares of Common Stock Currently Outstanding and Subject to Issuance,” we significantly rely on our authorized Common Stock. If we do not increase the number of shares of our Common Stock authorized for issuance, we may be limited in future capital raising opportunities that would require the issuance of shares of our Common Stock. Increasing the number of authorized shares of Common Stock will enable us to issue Common Stock or securities convertible or exercisable into Common Stock to investors and other strategic partners. These transactions, if they can be successfully negotiated and consummated, will help us fund our business plan. You should be aware that these potential capital raising transactions or other strategic transactions involving the issuance of additional shares of Common Stock will have a dilutive effect on our existing stockholders, as further described in the section below titled “Effects of Increase.”

If the increase is not approved, we will be limited in our efforts to raise additional capital and engage in strategic transactions. In such event, our operations, financial condition and our ability to continue as a going concern may be materially and adversely affected.

Number of Shares of Common Stock Currently Outstanding and Subject to Issuance

As of the Record Date, we had [●] shares of Common Stock issued and outstanding, and excludes:

Effects of Increase

The additional authorized but unissued shares of Common Stock may generally be issued from time to time for such proper corporate purposes as may be determined by our Board or, as required by law or the rules of the Nasdaq Stock Market, with the approval and authorization of our stockholders. Our Board does not intend to solicit further stockholder approval prior to the issuance of additional shares of Common Stock, except as may be required by applicable law or by the rules of the Nasdaq Stock Market.

The possible future issuance of shares of our Common Stock or securities convertible or exercisable into our Common Stock could affect our current stockholders in a number of ways. The issuance of new shares of Common Stock will cause immediate dilution of the ownership interests and the voting power of our existing stockholders. New issuances of Common Stock may also affect the number of dividends, if any, paid to such stockholders and may reduce the share of the proceeds that they would receive upon the future liquidation, if any, of the Company.

In addition, the future issuance of shares of our Common Stock or securities convertible or exercisable into shares of our Common Stock could:

Anti-Takeover Effects

Although the Common Stock Amendment is not motivated by anti-takeover concerns and is not considered by our Board to be an anti-takeover measure, the availability of additional authorized shares of Common Stock could enable the Board to issue shares defensively in response to a takeover attempt or to make an attempt to gain control of our Company more difficult or time-consuming. For example, shares of Common Stock could be issued to purchasers who might side with management in opposing a takeover bid that the Board determines is not in the best interests of our stockholders, thus diluting the ownership and voting rights of the person seeking to obtain control of our Company. In certain circumstances, the issuance of Common Stock without further action by the stockholders may have the effect of delaying or preventing a change in control of the Company, may discourage bids for our Common Stock at a premium over the prevailing market price and may adversely affect the market price of our Common Stock. As a result, increasing the authorized number of shares of our Common Stock could render more difficult and less likely a hostile takeover of our Company by a third-party, or a tender offer or proxy contest, assumption of control by a holder of a large block of our stock, and the possible removal of our incumbent management. We are not aware of any proposed attempt to take over the Company or of any present attempt to acquire a large block of our Common Stock.

Vote Required

The affirmative vote of stockholders that represent a majority of the voting power entitled to vote on the Common Stock Amendment is required to approve the Stock Increase Proposal.

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THE STOCK INCREASE PROPOSAL.