Forward-Looking Statements
Various statements made in this Annual Report on Form 10-K are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements include those which express plan, anticipation, intent, contingency, goals, targets or future development and/or otherwise are not statements of historical fact. We have based these forward-looking statements on our
current expectations and projections about future events and they are subject to risks and uncertainties known and unknown which could cause actual results and developments to differ materially from those expressed or implied in such statements.
These forward-looking statements include statements about the following:
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the status and anticipated timing of regulatory review and approval, if any, for our product candidates;
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our product development efforts, including results from clinical trials;
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anticipated dates of clinical trial initiation, completion and announcement of trial results by us and our collaborators;
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anticipated trial results and regulatory submission dates for our product candidates by us and our collaborators;
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analysis and interpretation of data by regulatory authorities;
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anticipated operating losses and capital expenditures;
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our intentions regarding the establishment of collaborations;
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anticipated efforts of our collaborators;
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estimates of the market opportunity and the commercialization plans for our product candidates;
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our intention to rely on third parties for manufacturing;
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the scope and duration of intellectual property protection for our products;
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the scope of third-party patent rights;
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our ability to raise additional capital; and
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our ability to acquire or in-license products or product candidates.
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In some cases, you can identify forward-looking statements by terminology such as may, will, should,
could, would, expect, plan, anticipate, believe, estimate, target, goal, continue, or the negative of such terms or other similar
expressions. Factors that might cause or contribute to differences include, but are not limited to, those discussed in Item 1A. Risk Factors of this Annual Report and discussed in our other Securities and Exchange Commission (SEC)
filings.
We urge you to carefully review and consider the disclosures found in these filings, all of which are available in the SEC EDGAR
database at www.sec.gov. Given the uncertainties affecting pharmaceutical companies in the development stage, you are cautioned not to place undue reliance on any such forward-looking statements, any of which may turn out to be wrong due to
inaccurate assumptions, unknown risks, uncertainties or other factors. We undertake no obligation to (and expressly disclaim any such obligation to) publicly update or revise the statements made herein or the risk factors that may relate thereto
whether as a result of new information, future events or otherwise.
The following discussions should be read in conjunction with our
audited financial statements and related notes thereto included elsewhere in this Annual Report and the risk factors in Item 1A of this Annual Report.
1
Our Company
We are a development stage biopharmaceutical corporation that was formed in 1993. Since inception,
we have specialized in the discovery and development of prescription pain management products and expect to commercialize products that are successfully developed. We have a number of product candidates in various stages of development, ranging from
preclinical studies to pivotal clinical trials. Our most advanced product candidate,
Entereg
®
(alvimopan), is designed to selectively block the unwanted effects of opioid analgesics
on the gastrointestinal (GI) tract. For the global development and commercialization of
Entereg
as a monotherapy, we are collaborating with Glaxo Group Limited (Glaxo) in two indications. We have a pending New Drug
Application (NDA) with the Food and Drug Administration (FDA) for
Entereg
for the proposed indication of acceleration of time to upper and lower gastrointestinal recovery following partial large or small bowel
resection surgery with primary anastomosis. The Prescription Drug User Fee (PDUFA) date for that NDA is May 10, 2008. We are also developing
delta
opioid agonists in collaboration with Pfizer Inc. (Pfizer). One of
the
delta
opioid agonists is in Phase 2a clinical testing and one is in Phase 1 clinical testing. We have additional product candidates in preclinical development for the treatment of moderate-to-severe pain conditions.
Entereg
®
(alvimopan)
Opioid analgesics provide pain relief by stimulating opioid receptors located in the central nervous system. There are, however, opioid
receptors throughout the body, including the GI tract. By binding to the receptors in the GI tract, opioid analgesics can slow gut motility and disrupt normal GI function that allows for the passage, absorption and excretion of ingested solid
materials. This disruption can cause patients to experience significant discomfort and abdominal pain and may result in their reducing or eliminating their pain medication.
Entereg
is a small molecule,
mu
-opioid receptor antagonist intended to block the adverse side effects of opioid analgesics on the GI tract
without affecting analgesia.
Entereg
has been under development for both acute and chronic conditions. The acute indication is for the management of post operative ileus (POI), a GI condition characterized by the slow return of
gut function that can result from GI or other surgeries. The chronic indication is for the treatment of opioid bowel dysfunction (OBD), which is a condition characterized by a number of GI symptoms, including constipation, that
often results from chronic use of opioid analgesics to treat persistent pain conditions.
In April 2002, we entered into a collaboration
agreement with Glaxo for the exclusive worldwide development and commercialization of
Entereg
for certain indications. We are responsible for the development of acute indications, such as POI, and Glaxo is responsible for the development of
chronic indications, such as OBD. In the United States, we and Glaxo are co-developing
Entereg
and intend to share profits that result from the sale of the product. For commercial sales of
Entereg
for POI in the United States, we would
receive 45% and Glaxo would receive 55% of the net sales less certain agreed upon costs, subject to certain adjustments. After the first three years, each partys share would become 50%. For commercial sales of
Entereg
for OBD in the
United States, we would receive 35% and Glaxo would receive 65% of the net sales less certain agreed upon costs, subject to certain adjustments. Under the collaboration agreement, we have the right to convert our right to receive a profit share for
OBD in the United States to a royalty on net sales of 20%. Outside the United States, Glaxo is responsible for the development and commercialization of
Entereg
, and we would receive royalties on net sales. We may receive additional milestone
payments under the collaboration agreement upon the successful achievement, if any, of certain clinical and regulatory objectives, including up to $40.0 million related to the POI indication and up to $25.0 million related to the OBD indication.
POI Development Program
Regulatory Overview
Our pending NDA with the FDA for
Entereg
is for the proposed indication of acceleration of time
to upper and lower gastrointestinal recovery following partial large or small bowel resection surgery with primary
2
anastomosis. The PDUFA date for that application has been extended from February 10, 2008 to May 10, 2008. On January 23, 2008, the FDAs
Gastrointestinal Drug Advisory Committee (GIDAC or the Committee) met to review
Entereg
for that proposed indication. The recommendations of the Committee are not binding on the FDA, but are considered by FDA as it
completes its review of the pending NDA. The Committee voted 9-6 that the overall benefits of treatment with
Entereg
outweighed potential risks for our proposed indication for short-term, in-hospital use. The Committee voted 13-0 with two
abstentions that the efficacy results from the submitted studies in POI were clinically meaningful. The Committee voted 8-6 with one abstention that based on the currently available cardiovascular events data observed in the long-term (12 month)
safety study in patients with OBD, Study 014, there were concerns for the use of alvimopan 12 mg capsules in the short-term proposed indication. The GIDAC also voted 14-0 with one abstention that our proposed risk management plan was not adequate to
address potential risks. Subsequent to the Committee meeting, we submitted a revised risk management program to the FDA in February 2008.
We originally filed an NDA for
Entereg
12 mg capsules for the management of POI in June 2004, which included four Phase 3 clinical studies (Study 302, 308, 313 and 306). An additional Phase 3 clinical study conducted in Europe,
Australia, and New Zealand by Glaxo evaluating
Entereg
in POI (Study 001) was submitted to the FDA in April 2005. In July 2005, we received our first approvable letter from the FDA for this pending NDA. In May 2006, we submitted a complete
response to the July 2005 approvable letter which included results from an additional clinical study in POI, Study 314. Following review of this complete response, the FDA issued a second approvable letter in November 2006. In August 2007, we
submitted a complete response to the November 2006 approvable letter which included data from a long-term (12-month) safety study conducted in patients with OBD, Study 014, and a risk management plan. In January 2008, the FDA reviewed the safety and
efficacy of
Entereg
for the proposed indication with the GIDAC. The current PDUFA date for this pending NDA is May 10, 2008. There can be no assurance that the FDA will approve the pending NDA for
Entereg
at the May 10, 2008
PDUFA date or ever.
In April 2007, we announced the results from Study 014, a Phase 3 long-term safety study of alvimopan (
Entereg
)
in patients taking opioids for chronic non-cancer pain and experiencing OBD, and the impact those results have on the current development program. Results from Study 014 showed numerically more myocardial infarctions and all cardiovascular serious
adverse events reported by patients treated with
Entereg
compared to placebo. The results of Study 014 also showed an imbalance in the incidence of neoplasms (benign, malignant, skin cancers and unspecified, including polyps), the incidence
of malignant neoplasms, and an increase in the incidence of fractures reported in patients receiving
Entereg,
compared to placebo. At that time, Glaxo put the OBD development program on-hold and withdrew the protocol for an additional Phase 3
safety and efficacy study in patients with OBD (Study 015). In addition, Glaxo stopped Study 101684, an extension of Study 008 in a cancer pain population and we stopped Study 228, a study of our product candidate that combines alvimopan and an
opioid analgesic. In June 2007, the FDA placed the alvimopan Investigational New Drug Applications (INDs) on clinical hold pending submission and analysis of additional information and notification by the FDA that clinical studies with
alvimopan may resume. We and Glaxo currently have no studies ongoing with alvimopan. Our request for removal of the clinical hold is currently pending. There can be no assurance the FDA will lift the clinical hold on the alvimopan INDs.
Clinical Overview
Our
Entereg
POI Phase 3 clinical program in support of the NDA submitted in June 2004 included four studies. Three of these studies (POI 14CL302, POI 14CL308 and POI 14CL313) were double-blind, placebo-controlled multi-center studies, each
designed to enroll patients scheduled to undergo certain types of major abdominal surgery and receiving opioids for pain relief. Under the protocols, patients were randomized into three arms to receive placebo, 6 mg or 12 mg doses of
Entereg
.
The primary endpoint in these three efficacy studies was time to recovery of GI function (GI3), a composite measure of the time to recovery of both upper and lower GI function, as defined by time to tolerability of solid foods, and time to first
flatus or first bowel movement, whichever occurred last. These studies also measured GI function by GI2, a composite measure of the time to recovery of both upper and lower GI function, as defined by tolerability of solid foods and time to first
bowel
3
movement, whichever occurred last. The fourth POI clinical study in our Phase 3 program, POI 14CL306, was a double-blind, placebo-controlled multi-center
observational safety study under which patients were randomized to receive either
Entereg
12 mg (413 patients) or placebo (106 patients). Glaxo also completed a Phase 3 study in Europe, Australia and New Zealand (Study 3B 767905/001), Study
001, evaluating
Entereg
in POI and measuring both GI3 and GI2 endpoints. Following our first approvable letter in July 2005 from the FDA, we completed an additional study in support of our POI NDA, Study 314, in bowel resection patients. The
primary endpoint of Study 314 was time to recovery of GI function as measured by GI2. We submitted the results of Study 314 to the FDA in May 2006 in a complete response to the FDAs July 2005 approvable letter.
At its January 23, 2008 meeting, the GIDAC voted 13 to 0 with two abstentions that the efficacy results from the submitted POI studies in support of
the NDA for
Entereg
were clinically meaningful. The minutes of the GIDAC report that the GI2 endpoint, where patients are ready to be discharged, was the most important endpoint.
OBD Clinical Development Program
In April 2007, we and Glaxo announced the preliminary results for Study 014 and also announced that the current development program for OBD was being put on-hold and the Special Protocol Assessment that had been submitted to the FDA for an
additional Phase 3 safety and efficacy study in patients with OBD (Study 015) was being withdrawn by Glaxo. At that time, Glaxo stopped Study 101684, an extension of Study 008 in a cancer pain population, which had 15 patients receiving treatment.
Additionally, on June 11, 2007, we and Glaxo announced that the FDA had placed the alvimopan INDs on clinical hold pending submission
and analysis of the complete clinical data from Study 014, Study 101684 and the final study reports from the two-year carcinogenicity studies in mice and rats. We and Glaxo submitted complete responses to the FDA requesting a release of the clinical
hold for all alvimopan INDs. In September 2007, we announced that the FDA had informed us that it needed additional time to complete its review of the submissions for release of the clinical hold on the alvimopan INDs and as a result, the clinical
hold for all alvimopan INDs remains in effect. The INDs will remain on clinical hold until the FDA has completed its review and notified us and Glaxo that clinical studies with alvimopan may resume. There can be no assurance that the FDA will lift
the clinical hold allowing us and Glaxo to resume clinical testing of alvimopan.
Study 014
. In April 2007,
we and Glaxo announced the preliminary results from Study 014. Study 014 was a Phase 3, double-blind, placebo-controlled (12 month) study designed to evaluate the long-term safety and tolerability of
Entereg
0.5 mg twice daily in patients
taking opioids for chronic non-cancer pain and experiencing OBD. A total of 805 patients were enrolled into the study and randomized 2:1; a total of 538 patients received alvimopan and 267 received placebo. Results from Study 014 showed
numerically more myocardial infarctions in patients treated with alvimopan as compared with patients treated with placebo and in all cardiovascular serious adverse events reported by patients treated with
Entereg
as compared with patients
treated with placebo. Study 014 also showed an imbalance in the incidence of neoplasms (benign, malignant, skin cancers and unspecified, including polyps), malignant neoplasms and fractures reported in patients receiving
Entereg
compared to
patients receiving placebo.
Other OBD Studies.
Glaxo has conducted several other clinical studies of
Entereg
for the treatment of OBD in patients taking opioid analgesics for persistent pain conditions. In September 2006, we and Glaxo announced the top-line results from two Phase 3 registration studies, Studies SB-767905/012 (Study 012) and
SB-767905/013 (Study 013) of alvimopan for the treatment of OBD in patients with chronic non-cancer pain. Study 012 enrolled 518 patients with chronic non-cancer pain who had experienced symptoms of OBD. This study achieved statistical significance
for the primary endpoint, the proportion of patients who had a weekly average of three or more spontaneous bowel movements (SBMs) and an increase from baseline of one or more SBMs a week over the 12-week treatment period in
patients treated with alvimopan 0.5 mg twice daily. Study 013 enrolled 485 patients with chronic non-cancer pain and had the same primary endpoint as Study 012. The Study 013 results were not statistically significant.
4
Combination Product Program
We have been developing an analgesic product candidate that combines alvimopan and an opioid analgesic. This combination is intended to produce the pain
relief of an opioid while reducing constipating side effects. During the second quarter of 2006, we commenced a Phase 2 dose ranging study in which alvimopan was co-administered with hydrocodone/APAP, Study 228. With the data from Study 014, we
suspended enrollment in Study 228 in rotator cuff surgery patients. During the second quarter 2007, we discontinued Study 228.
We also
filed an IND for a co-formulated hydrocodone/APAP and alvimopan product and have completed a Phase 1 pharmacokinetic study which showed comparable drug levels in the co-formulated product and co-administered products.
We are not currently conducting clinical studies in the Combination Product Program while the alvimopan INDs remain on clinical hold.
Delta Agonists
Through a proprietary
research platform based on cloned, human opioid receptors, we have identified a series of novel, orally active
delta
agonists that selectively stimulate the
delta
opioid receptor. The
delta
receptor is one of three opioid
receptors that modulate pain; the other receptors being the
mu
and
kappa
receptors. Today, all marketed opioid drugs interact with the
mu
receptors in the brain and spinal cord. On the basis of preclinical evaluation in animal
models of human conditions, one might expect a
delta
agonist to show effect in inflammatory pain, among other pain conditions. In addition,
delta
agonists are thought to modulate other biological processes that may manifest themselves
in disease states or conditions such as overactive bladder and depression.
On December 4, 2007, we entered into an exclusive
worldwide license and collaboration with Pfizer to develop and commercialize ADL5859 and ADL5747, proprietary
delta
opioid receptor agonist compounds for the treatment of pain. Additional
delta
compounds and additional indications for
those compounds may be added to the collaboration on terms specified in the agreement. The collaboration agreement provides for the establishment of a joint steering committee to guide the development and commercialization of the products. The
collaboration agreement also provides that we will be responsible for IND filings and Phase 1 and Phase 2a clinical studies and Pfizer will be responsible for subsequent worldwide development and all regulatory approvals and commercialization of the
products. The companies will share external development expenses in support of regulatory filings in the United States with 60% paid by Pfizer and 40% paid by us. Expenses for development activities required for regulatory filings outside the United
States are the responsibility of Pfizer. Upon commercialization of products, we will share in the net profits/net losses, as defined in the agreement, in the United States with 60% paid to Pfizer and 40% paid to us, and we will be entitled to
receive royalty payments for net sales (as defined in the agreement) of products outside of the United States. We retained an option to co-promote the products in the United States.
ADL5859 Clinical Development Program.
One of the
delta
compounds we are developing in collaboration with Pfizer is
ADL5859. We have conducted Phase 1 clinical testing of ADL5859 in single and multi-dose administration in healthy volunteers to investigate the safety, tolerability and pharmacokinetics of ADL5859. We are now in Phase 2a clinical testing of ADL5859
in studies designed to explore the analgesic efficacy of ADL5859.
Study 33CL230.
Study 33CL230 was a
randomized double-blind, single-dose, active and placebo controlled parallel group study of ADL5859 for the treatment of acute pain after surgical removal of impacted third molars. The active control in Study 33CL230 was ibuprofen. The study
enrolled 201 subjects. The primary endpoint for the study was a measure of pain relief. Top-line results from Study 33CL230 indicated that ADL5859 was generally well tolerated, but that ADL5859 showed no efficacy signal in this model.
5
Study 33CL232
. Study 33CL232 is a randomized placebo and active controlled
study being conducted to explore the analgesic efficacy of ADL5859 in subjects with pain associated with rheumatoid arthritis. Study 33CL232, which is expected to enroll approximately 60 subjects, is scheduled to complete a single-dose phase and a
multiple-dose phase of the study. The active control is naproxen. In the single-dose phase of the study, the primary outcome is the average difference between baseline and post-dose lower extremity pain intensity over six hours after repeated
treadmill walking. In the multiple-dose phase, the primary outcome is mean daily lower extremity pain intensity score over two weeks.
Study 33CL231
. Study 33CL231 is a randomized double-blind active and placebo controlled parallel group study of ADL5859 being conducted to explore the analgesic efficacy of ADL5859 in treating pain associated
with diabetic peripheral neuropathy. Study 33CL231 is expected to enroll approximately 210 subjects. Under the protocol, following a seven-day baseline period, subjects are to be randomized to receive a four week treatment of either placebo,
ADL5859, or an active control, duloxetine. The primary measure of efficacy for the study is the change in mean pain intensity score.
ADL5747 Clinical Development Program
We are also developing ADL5747 in collaboration with Pfizer. We are conducting Phase 1
clinical testing of ADL5747 in healthy volunteers to investigate the safety, tolerability and pharmacokinetics of ADL5747.
Discovery /
In-Licensing
Our pain research efforts initially focused on designing small molecules to target peripheral opioid receptors as a means
of avoiding the centrally mediated side effects of currently available opioid analgesics. While work continues on the selective targeting of peripheral opioid receptors, new research is using advancements in molecular biology and medicinal chemistry
to design molecules to avoid prototypical opioid receptor-induced side effects. In addition, our discovery research team is actively assessing other, non-opioid pain targets. The overall goal of these programs is to develop medications that produce
pain relief equal to or superior to traditional narcotics, while reducing or eliminating typical narcotic side effects.
We believe there
are opportunities to expand our product portfolio through the acquisition or in-licensing of products and/or product development candidates and intend to continue to explore and evaluate such opportunities.
Competitive Environment
We operate
in a highly regulated and competitive environment. Our competitors include fully integrated pharmaceutical companies and biotechnology companies, universities and public and private research institutions. Many of the organizations competing with us
have substantially greater capital resources, larger research and development staffs and facilities, greater experience in drug development and in obtaining regulatory approvals, and greater manufacturing and marketing capabilities than we do.
Commercialization
We
intend to maintain a strategic marketing group to support our research and development efforts and commercial activities. We do not currently have our own sales force to sell any products we may develop. We had previously built a 35-person sales
force intended to sell
Entereg
in the hospital market, but disbanded this sales force in December 2006.
In our collaboration
agreement with Glaxo for the POI indication for
Entereg
, we are required in the launch year to provide a limited number of full-time equivalent sales personnel to sell the product. We are planning to engage a third-party contract sales
organization to meet these requirements. We have a small manufacturing
6
organization to manage our relationships with third parties for the manufacture and supply of products for preclinical, clinical and commercial purposes. We
maintain commercial supply agreements with certain of these third-party manufacturers. We presently do not maintain our own manufacturing facilities.
In June 2004, we entered into a distribution agreement with Glaxo under which, upon our receipt of regulatory approvals, Glaxo will perform certain distribution and contracting services for
Entereg
on our
behalf for a fee. Outside the United States, we intend to rely on Glaxo for sales and marketing of
Entereg
and expect to supply Glaxo with bulk capsules for commercial sale for POI under a supply agreement we entered into with Glaxo in
September 2004.
As we develop additional product candidates, we may enter into strategic marketing or co-promotion agreements with, and
grant additional licenses to, pharmaceutical companies to gain access to additional markets both domestically and internationally.
Our
Strategy
Our goal is to build a profitable pharmaceutical company specializing in the discovery, development and commercialization of
prescription pain management products. We plan to pursue this objective by implementing the following strategies:
Focused Discovery
Efforts
. We have focused our discovery efforts principally on clinical conditions that can be treated by either stimulating or blocking opioid receptors. These conditions include POI and chronic OBD, as well as various pain conditions, including
inflammatory pain, itch and visceral pain. We have biological and chemical expertise to support drug discovery, including expertise in opioid receptors in analgesic pathways, cloned human opioid, orphan and chimeric receptors and the chemical
synthesis of compounds that do not readily cross the blood-brain barrier.
We also maintain increasing research efforts directed at the
discovery and development of compounds that exert analgesic effects by targeting certain non-opioid receptors.
Implementing a Strategy
that will Combine Third Party Alliances with our Internal Product Development and Marketing Efforts
. We have built certain capabilities in discovery, development and commercialization in connection with advancing our product candidates. In
addition, we have established and will continue to selectively establish collaborations with pharmaceutical companies and leading academic institutions to enhance our internal capabilities.
Implementing an In-Licensing/Acquisition Strategy
. We believe there are opportunities to expand our product portfolios by the acquisition or
in-licensing of products and/or product development candidates to complement our internal development efforts. We intend to explore in-licensing or acquisition of products or product candidates or technology, as well as acquisition of companies.
Background On Opioid Analgesia/Peripheral Receptors
Pain Transmission Signals
. When tissues such as the skin, muscles and joints become inflamed or are injured, receptors in those tissues are activated, and electrical signals are transmitted from the injured
tissues through nerve fibers into the spinal cord. Within the spinal cord, the electrical signals are received by a second set of nerve fibers that continue the transmission of the signal up the spinal cord and into the brain. Within the brain,
additional nerve fibers transmit the electrical signals to the pain centers of the brain where these signals are perceived as pain. Receptors are also present in internal, or visceral, organs such as the intestines, uterus, cervix and
bladder. These receptors also send signals via similar pathways to the brain when these organs are inflamed or distended, which are likewise perceived as pain.
7
Opioid Receptors Block Pain Transmission Signals
. Opioid receptors located on the surface of
nerves that modulate pain signals alter transmission of these pain signals when activated by drugs specific for those receptors. There are three major types of opioid receptors,
mu
,
kappa
and
delta.
Virtually all marketed opioid
analgesic drugs interact with
mu
-opioid receptors in the brain and spinal cord. When these central nervous system
mu
-opioid receptors are activated with opioid analgesics such as morphine, the perception of pain is reduced. However,
activating these opioid receptors in the central nervous system with morphine-like opioid analgesics often results in serious side effects such as sedation, decreased respiratory function and addiction. Because of the potential to cause addiction,
drugs that are able to activate
mu
-opioid receptors in the brain (morphine-like opioid analgesics) are regulated, or scheduled, under the Controlled Substances Act.
Peripheral Opioid Receptors in the GI Tract
. Just as there are opioid receptors on peripheral nerves that regulate the transmission of signals
into the spinal cord, there are also opioid receptors in the gastrointestinal tract that regulate functions such as motility and water secretion and absorption. Stimulation of these gastrointestinal
mu
-opioid receptors by morphine, or other
opioid analgesics, causes constipation associated with opioid bowel dysfunction. Scientists have shown that blocking these receptors with opioid receptor antagonist drugs during administration of morphine or other opioid analgesics may prevent or
reverse the effects of opioid bowel dysfunction. However, currently marketed opioid receptor antagonist drugs also cross the blood-brain barrier and enter the brain where they can block the primary pain relieving effects of opioid analgesics such as
morphine. These findings have created the opportunity to develop a new class of opioid antagonists, like
Entereg
, which, when taken with opioid analgesics, are designed to block the peripherally-mediated side effects of the opioid analgesics
but not the desired analgesic activity of opioid drugs because they are designed not to cross the blood-brain barrier.
Collaboration and Other
Agreements With Glaxo
In April 2002, we entered into a collaboration agreement with Glaxo for the exclusive worldwide development and
commercialization of
Entereg
for certain indications. Under the terms of the collaboration agreement, Glaxo paid us a non-refundable and non-creditable signing fee of $50 million during the quarter ended June 30, 2002. Additionally, in
the third quarter of 2004, we received and recognized $10 million as revenue under this agreement relating to achieving the milestone of acceptance for review of our NDA by the FDA. We may receive additional milestone payments under the
collaboration agreement upon the successful achievement, if any, of certain clinical and regulatory objectives, including up to $40 million related to the POI indication and up to $25 million related to the chronic OBD indication. The milestone
payments relate to substantive achievements in the development lifecycle and it is anticipated that these will be recognized as revenue if and when the milestones are achieved.
We and Glaxo have agreed to develop
Entereg
for a number of acute and chronic indications which would potentially involve the use of
Entereg
in in-patient and out-patient settings. In the United States, we and Glaxo are co-developing
Entereg
and intend to share profits that result from the sale of product. For commercial sales of
Entereg
for POI in the United
States, we would receive 45% and Glaxo would receive 55% of the net sales less certain agreed upon costs, and subject to certain adjustments. After the first three years each partys share would become 50%. For commercial sales of
Entereg
for OBD in the United States, we would receive 35% and Glaxo would receive 65% of the net sales less certain agreed upon costs, and subject to certain adjustments. Under the collaboration agreement, we have the right to
convert our right to receive a profit share for OBD in the United States to a royalty on net sales of 20%. We have overall responsibility for development activities for acute care indications such as POI, and Glaxo has overall responsibility for
development activities for chronic care indications such as OBD. Outside the United States, Glaxo is responsible for the development and commercialization of
Entereg
for all indications, and we would receive royalties on net sales, if any.
The term of the collaboration agreement varies depending on the indication and the territory. The term of the collaboration agreement for
the POI indication in the United States is ten years from the first commercial sale of
Entereg
in that indication, if any. Generally, the term for the OBD indication in the United States is fifteen
8
years from the first commercial sale of
Entereg
in that indication, if any. In the rest of the world, the term is generally fifteen years from the
first commercial sale of
Entereg
, if any, on a country-by-country and indication-by-indication basis.
Glaxo has certain rights to
terminate the collaboration agreement. Glaxo also has the right to terminate its rights and obligations with respect to the acute-care indications, or its rights and obligations for the chronic-care indications. Glaxo has the right to terminate the
collaboration agreement for breach of the agreement by us or for safety related reasons as defined in the collaboration agreement. Glaxos rights to terminate the acute-care indications or the chronic-care indications are generally triggered by
failure to achieve certain milestones within certain timeframes, adverse product developments or adverse regulatory events. For example, because the POI product was not commercially sold as of December 31, 2005, Glaxo now possesses the right to
terminate the collaboration agreement with respect to the POI product and the OBD chronic product.
In June 2004, we entered into a
distribution agreement with Glaxo under which, upon our receipt of regulatory approvals, Glaxo will perform certain distribution and contracting services for
Entereg
on our behalf for a fee. Outside of the United States, we intend to rely on
Glaxo for sales and marketing of
Entereg
, and expect to supply Glaxo with bulk capsules for sale under a supply agreement that we entered into with Glaxo in September 2004.
External expenses for research and development and marketing activities incurred in the United States by each company are reimbursed by the other party
pursuant to contractually agreed percentages. Contract reimbursement amounts owed to us by Glaxo are recorded gross on our Statements of Operations as cost reimbursement under collaborative agreement revenue. Amounts reimbursable to Glaxo by us are
recorded as research and development or marketing expense, as appropriate, on our Statements of Operations.
License and Collaboration Agreement with
Pfizer
On December 4, 2007, we entered into an exclusive worldwide license and collaboration with Pfizer to develop and
commercialize ADL5859 and ADL5747, proprietary
delta
opioid receptor agonist compounds for the treatment of pain. Additional
delta
compounds and additional indications for those compounds may be added to the collaboration on terms
specified in the agreement. The collaboration agreement provides for the establishment of a joint steering committee to guide the development and commercialization of the products. The collaboration agreement also provides that we will be
responsible for IND filings and Phase 1 and Phase 2a clinical studies and Pfizer will be responsible for subsequent worldwide development and all regulatory approvals and commercialization of the products. We retained an option to co-promote the
products in the United States.
We received an upfront payment of $30 million from Pfizer and reimbursement of $1.9 million for Phase 2
development costs for the compounds that we had incurred prior to entering into the collaboration agreement. The agreement also provides that we may receive milestone payments of up to $155 million for the first compound and $77.5 million for a
second compound. The milestones payments would become payable upon achievement of certain clinical, regulatory and commercial milestones defined in the agreement. The first milestone event defined is commencement of Phase 2b clinical testing. For
development expenses in support of regulatory filings in the United States, the companies share external development expenses with 60% paid by Pfizer and 40% paid by us. Expenses for development activities required for regulatory filings outside the
United States are the responsibility of Pfizer. Upon commercialization of products, we will share in the net profits/net losses, as defined in the agreement, in the United States with 60% paid to Pfizer and 40% paid to us, and we will be entitled to
receive royalty payments for net sales (as defined in the agreement) of products outside of the United States.
The agreement expires on a
country-by-country basis upon expiration of the royalty term in each country, which term is a minimum of ten years following first commercial sale of a licensed product. We and Pfizer each have the right to terminate the agreement upon a material
default of the other party. Pfizer has the right to
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terminate the agreement for certain clinical study results as set forth in the agreement. Following completion of Phase 2b studies for ADL5859 and ADL5747,
Pfizer has the right to terminate the agreement without cause upon one hundred eighty days written notice to us.
Other License Agreements
In November 1996, Roberts Laboratories Inc. (Roberts) licensed from Eli Lilly and Company (Eli Lilly) certain
intellectual property rights relating to
Entereg
. In June 1998, we entered into an option and license agreement with Roberts under which we licensed from Roberts the rights Roberts had licensed from Eli Lilly for
Entereg
. We have made
license and milestone payments under this agreement totaling $1.6 million. If
Entereg
receives regulatory approval, we are obligated to make a milestone payment of $0.9 million under this agreement, as well as royalties on commercial sales of
Entereg
. Our license to
Entereg
expires on the later of either the date of the last to expire of the licensed Eli Lilly patents or fifteen years from November 5, 1996.
In August 2002, we entered into a separate license agreement with Eli Lilly under which we obtained an exclusive license to six issued U.S. patents and
related foreign equivalents and know-how relating to peripherally selective opioid antagonists. We paid Eli Lilly $4.0 million upon signing the agreement and are subject to additional clinical and regulatory milestone payments and royalty payments
to Eli Lilly on sales, if any, of new products utilizing the licensed technology. Under this license agreement, we paid Eli Lilly $4.0 million upon acceptance for review of our NDA by the FDA, which payment was made in the third quarter of 2004.
We are a party to various license agreements that give us rights to use technologies and biological materials in our research and
development processes. We may not be able to maintain such rights on commercially reasonable terms, if at all. Failure by us or our licensors to maintain such rights could harm our business.
Intellectual Property
We seek United States and
international patent protection for important and strategic components of our technology. We also rely on trade secret protection for certain of our confidential and proprietary information, and we use license agreements both to access external
technologies and assets and to convey certain intellectual property rights to others. Our commercial success will be dependent in part on our ability to obtain commercially valuable patent claims and to protect our intellectual property rights and
to operate without infringing upon the proprietary rights of others.
We have rights to patents related to
Entereg
which expire
between 2011 and 2020, including U.S. patents covering alvimopan which expire in 2011 and 2013. We expect that a patent covering
Entereg
will be eligible for patent term extension for a period of five years. We expect to file for patent term
extension upon FDA approval, if any, of
Entereg
. There can be no assurance that our application for patent term extension will be granted. The scope of intellectual property protection provided during the period of patent term extension has
been challenged in a number of legal cases. If we are granted patent term extension for an
Entereg
patent, we cannot be assured that any such extension will provide meaningful proprietary protection during the period of extension. One of the
Entereg
related U.S. patents claims the use of
Entereg
in post operative ileus and another claims the combination of alvimopan plus an opioid agonist; both of these patents expire in 2020. These expiration dates are based on the
presumption that the applicable maintenance fees are paid and the patents, if challenged, are not held to be invalid.
We filed a patent
application in 2004 claiming protection for our
delta
product candidates, ADL5859 and ADL5747. This patent application is currently pending.
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The patent positions of pharmaceutical, biopharmaceutical and biotechnology companies, including ours,
are generally uncertain and involve complex legal and factual questions. Our business could be negatively impacted by any of the following:
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the pending patent applications to which we have rights may not result in issued patents;
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the claims of any patents which are issued may not provide meaningful protection, may not provide a basis for commercially viable products or may not provide us
with any competitive advantages;
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we may not be successful in developing additional proprietary technologies that are patentable;
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our patents may be challenged by third parties; and
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others may have patents that relate to our technology or business that may prevent us from marketing our product candidates unless we are able to obtain a license
to those patents.
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In addition, patent law relating to the scope of claims in the technology field in which we operate is
still evolving. The degree of future protection for some of our rights, therefore, is uncertain. Furthermore, others may independently develop similar or alternative technologies, duplicate any of our technologies, and if patents are licensed or
issued to us, design around the patented technologies licensed to or developed by us. In addition, we could incur substantial costs in litigation if we have to defend ourselves in patent suits brought by third parties or if we initiate such suits.
With respect to proprietary know-how that is not patentable and for processes for which patents are difficult to enforce, we rely on trade
secret protection and confidentiality agreements to protect our interests. While we require all employees, consultants and potential business partners to enter into confidentiality agreements, we may not be able to protect adequately our trade
secrets or other proprietary information. Others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets.
Government Regulation
In the United States, pharmaceutical and diagnostic products intended for use
in humans are subject to rigorous FDA regulation. The process of completing clinical trials and obtaining FDA approvals for a new drug is likely to take a number of years and require the expenditure of substantial resources. There can be no
assurance that any of our products will receive FDA approval.
The drug approval process
The process of drug development is complex and lengthy and the activities undertaken before a new pharmaceutical product may be marketed in the United
States include:
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submission to the FDA of an IND, which must become effective before human clinical trials commence;
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adequate and well-controlled human clinical trials to establish the safety and efficacy of the product;
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submission to the FDA of a NDA; and
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FDA approval of the NDA prior to any commercial sale of the product.
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Preclinical studies include laboratory evaluation of product chemistry and formulation, as well as animal studies and other studies to assess the
potential safety and efficacy of the product candidate. The results of preclinical studies are then submitted to the FDA as a part of an IND and are reviewed by the FDA prior to the commencement of human clinical trials. Unless the FDA objects to,
or otherwise responds to, an IND submission, the IND becomes effective 30 days following its receipt by the FDA.
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Human clinical trials are typically conducted in three sequential phases that may overlap:
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Phase 1: The drug is initially introduced into healthy human subjects or patients and tested for safety, dosage tolerance, absorption, metabolism, distribution and
excretion. In addition, it is sometimes possible to conduct a preliminary evaluation of efficacy in Phase 1 trials for analgesia.
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Phase 2: This phase involves studies in a limited patient population to identify possible adverse effects and safety risks, to evaluate the efficacy of the product
for specific targeted diseases and to determine optimal dosage and tolerance.
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Phase 3: When Phase 2 evaluations demonstrate that a dosage range of the product is effective and has an acceptable safety profile, Phase 3 trials are undertaken to
further evaluate dosage, clinical efficacy and to further test for safety in an expanded patient population at geographically dispersed clinical study sites.
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After clinical trials have been completed, the sponsor must submit to the FDA the results of the preclinical and clinical testing, together with, among
other things, detailed information on the manufacture and composition of the product, in an NDA. The FDA reviews the NDA and, if and when it determines that the data submitted are adequate to show that the product is safe and effective for its
intended use, the FDA approves the NDA.
Other regulatory requirements
The FDA mandates that drugs be manufactured in conformity with current Good Manufacturing Practices (cGMP) regulations and at facilities
approved to manufacture such drugs. If approval of an NDA is granted, requirements for labeling, advertising, record keeping and adverse experience reporting will also apply. In addition, if our products are approved for marketing by the FDA, we
will be required to comply with several other types of state and federal laws applicable to pharmaceutical marketing. These laws include healthcare anti-kickback statutes and false claims statutes. Additionally, we may also be subject to regulations
under other federal, state and local laws, including the Occupational Safety and Health Act, the Environmental Protection Act, the Clean Air Act, national restrictions on technology transfer, import, export, and customs regulations. Failure to
comply with these requirements could result, among other things, in suspension of regulatory approval, recalls, injunctions, product seizures, non-coverage of our products under government health care programs or civil or criminal sanctions.
Whether or not FDA approval has been obtained, approvals of comparable governmental regulatory authorities in foreign countries must be
obtained prior to the commencement of clinical trials and subsequent sales and marketing efforts in those countries. The approval procedure varies in complexity from country to country, and the time required may be longer or shorter than that
required for FDA approval.
The federal Controlled Substances Act imposes various registration, record-keeping and reporting requirements,
procurement and manufacturing quotas, labeling and packaging requirements, security controls and a restriction on prescription refills on certain pharmaceutical products. A principal factor in determining the particular requirements, if any,
applicable to a product is its actual or potential abuse profile. A pharmaceutical product may be scheduled as a Schedule I, II, III, IV or V substance, with Schedule I substances considered to present the highest risk of substance abuse
and Schedule V substances the lowest. Because of the potential for abuse, drugs that are able to activate
mu-
opioid receptors in the brain (morphine-like opioid analgesics) are regulated, or scheduled, under the Controlled Substances Act. Any
of our products that contain one of our product candidates in combination with narcotic analgesics will be subject to such regulation.
Available
Information
We make available free of charge on or through our internet website at www.adolor.com, our Annual Report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the Exchange Act) as soon as
reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
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Employees
As of December 31, 2007, we had 108 full-time employees and one part-time employee. Most of our senior management and professional employees have had prior experience in pharmaceutical or biotechnology companies. None of our employees
are covered by collective bargaining agreements. We believe that our relations with our employees are good.
As further described herein, our
performance and financial results are subject to risks and uncertainties including, but not limited to, the following specific risks:
We are highly dependent on achieving success in the clinical testing, regulatory approval and commercialization of our lead product candidate, Entereg, which may never be approved for commercial use.
We have invested a significant portion of our time and financial resources since our inception in the development of
Entereg
, and our potential to
achieve revenues from product sales in the foreseeable future is dependent upon obtaining regulatory approval for and successfully commercializing
Entereg
, especially in the United States. Prior to commercialization of
Entereg
in the
United States for any indication, the FDA would have to approve
Entereg
for commercial sale.
Entereg
has been under development in two indications, POI and OBD. With respect to POI, we filed an NDA with the FDA in 2004 and have
received two approvable letters from the FDA. The FDA is currently reviewing our NDA for the acceleration of time to upper and lower gastrointestinal recovery following partial large or small bowel resection surgery with primary anastamosis and we
expect an FDA action on that application by the current PDUFA date of May 10, 2008. The FDAs GIDAC reviewed the safety and efficacy of
Entereg
for this short-term, in-hospital use on January 23, 2008. While the Committee voted
9 to 6 that the overall benefits of treatment with
Entereg
in the indication outweighed potential risks, the Committees recommendation is not binding on the FDA. The Committee expressed concerns by a vote of 8 to 6 with one abstention
that based on the currently available cardiovascular events data observed in the long-term (12 month) safety study in patients with OBD, Study 014, there were concerns for the use of alvimopan 12 mg capsules in the short-term proposed indication. At
the Committee meeting, there was concern expressed that follow-up in the POI studies was inadequate. The Committee also voted 14 to 0 with one abstention that our proposed risk management plan was not adequate to address the potential risks. These
concerns may make it more difficult for us to receive approval of our NDA for
Entereg
from the FDA; and even if we receive FDA approval, a risk management plan acceptable to the FDA may make it difficult for us to commercialize
Entereg
. There is no assurance that the FDA will approve our NDA for
Entereg
by the May 10, 2008 PDUFA date or ever.
With respect to OBD, the results from Study 014, a Phase 3 long-term safety study of alvimopan (
Entereg
) conducted by Glaxo in patients taking opioids for chronic non-cancer pain and experiencing OBD showed numerically more
myocardial infarctions and all cardiovascular serious adverse events reported by patients treated with
Entereg
compared to placebo, an imbalance in the incidence of neoplasms (benign, malignant, skin cancers and unspecified, including
polyps), malignant neoplasms and an increase in the incidence of fractures in patients receiving
Entereg
compared to placebo. Following these results, the alvimopan INDs were placed on clinical hold by the FDA and there is no assurance that
the clinical hold will be lifted by the FDA. The clinical hold would have to be lifted before additional clinical testing of
Entereg
in OBD could occur.
Even if we are able to achieve regulatory approval of Entereg for use in POI, a risk management plan may adversely affect the commercial prospects for Entereg.
The November 2006 approvable letter for the NDA for
Entereg
in POI indicated that we would need to develop a risk management plan. The GIDAC voted
unanimously that the risk management plan we submitted in our August 2007 complete response was inadequate. We submitted a revised risk management program in February 2008. There is no assurance that our revised risk management program will be
acceptable to the FDA. To address potential safety concerns, the FDA may require that a risk management plan have significant
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restrictions on use of
Entereg
which would make it more difficult, burdensome and costly to administer. There is a risk that a risk management plan
that would be acceptable to the FDA would materially adversely affect the commercial prospects for
Entereg
if it is approved for use in bowel resection surgery.
The FDA has placed the Entereg INDs on complete clinical hold and we will not be able to conduct additional clinical testing of Entereg until the FDA lifts this complete clinical hold.
In June 2007, the FDA placed the
Entereg
INDs on complete clinical hold. We and Glaxo submitted complete responses to the FDA requesting a release
of the clinical hold for all alvimopan INDs. The complete responses were received by the FDA on August 13, 2007. In September 2007, the FDA informed us that it needed additional time to complete its review of the submission for release of the
clinical hold on alvimopan and as a result, the clinical hold for all alvimopan INDs remains in effect. The FDA did not indicate a time frame within which its review would be completed. There can be no assurance that we will be able to provide
adequate data and analysis to satisfy the FDA that the clinical hold should be lifted. There can be no assurance that the FDA will lift the clinical hold on the alvimopan INDs and allow clinical testing of alvimopan to resume. Additional clinical
testing in OBD will be required to support any future NDA filing for use of
Entereg
in OBD. If the FDA does not lift the clinical hold, we and Glaxo will not be able to conduct any such additional clinical testing.
It is possible that Entereg may not be successfully developed for chronic use.
In April 2007, the current development plan for OBD was put on-hold while findings from the long-term safety study, Study 014, were evaluated. In June
2007, the FDA placed the
Entereg
INDs on clinical hold. Clinical studies with
Entereg
may not resume until the FDA has lifted the clinical hold. We may be unable to provide the FDA with the information the FDA requires to lift the
clinical hold. There is a risk that OBD clinical development remains on hold indefinitely or that further development of
Entereg
in OBD is not conducted. Results from Study 014 showed an increase in myocardial infarctions and all
cardiovascular serious adverse events reported by patients treated with
Entereg
compared to placebo. The results of Study 014 also showed an imbalance in the incidence of neoplasms (benign, malignant, skin cancers and unspecified, including
polyps), malignant neoplasms and an increase in the incidence of fractures in patients receiving
Entereg
compared to placebo. These findings may make it difficult to design and conduct further clinical investigations that would have the
potential to lead to FDA approval in this indication. Even if we are able to design studies acceptable to the FDA, it may be difficult to recruit patients to OBD studies.
In addition, in September 2006, we along with Glaxo announced the results from two identically designed Phase 3 registration studies in OBD in patients with chronic non-cancer pain conducted by Glaxo (Studies 012 and
013). Study 012 achieved statistical significance in its primary endpoint while Study 013 did not achieve statistical significance in its primary endpoint. We also announced top-line results from a Phase 2b investigation of alvimopan in patients
with cancer pain treated with opioid analgesics. The results in the primary endpoints for this Phase 2b study were not statistically significant. These mixed efficacy results may make it more difficult to achieve a positive Phase 3 study in OBD.
If we are unable to successfully commercialize Entereg, our ability to generate revenues will be impaired and our business will be
harmed.
We have not yet commercialized any products or technologies, and we may never do so. If
Entereg
is not approved by
the FDA, our ability to achieve revenues from product sales will be impaired and our stock price may be materially and adversely affected. FDA approval is contingent on many factors, including clinical trial results and the evaluation of those
results. Even if
Entereg
is approved by the FDA for marketing, we will not be successful unless
Entereg
gains market acceptance. The degree of market acceptance of
Entereg
will depend on a number of factors, including:
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the breadth of the indication for which
Entereg
may receive approval;
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the risk management plan;
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the interpretation by the medical community of the safety and clinical efficacy of
Entereg;
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the potential advantages of
Entereg
over competitive products; and
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the pricing and reimbursement policies of government and third-party payors, such as insurance companies, health maintenance organizations and other plan
administrators.
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Physicians, patients, payors or the medical community in general may be unwilling to accept, utilize or
recommend
Entereg
.
We are dependent on our collaborators to perform their obligations under our collaboration agreements.
In April 2002, we and Glaxo entered into a collaboration agreement for the exclusive worldwide development and commercialization of
Entereg
for certain indications. We and Glaxo agreed to develop
Entereg
for a number of indications, both acute and chronic, which would potentially involve the use of
Entereg
in in-patient and out-patient settings. In the
United States, we have the right to co-develop and to co-promote
Entereg
with Glaxo, and share development expenses and commercial returns, if any, pursuant to contractually agreed percentages. We have overall responsibility for the
development of acute care indications such as POI, and Glaxo has overall responsibility for the development of chronic care indications such as OBD.
In December 2007, we entered into an exclusive worldwide license and collaboration with Pfizer to develop and commercialize ADL5859 and ADL5747, proprietary
delta
opioid receptor agonist compounds for the
treatment of pain. Additional
delta
compounds and additional indications for those compounds may be added to the collaboration on terms specified in the agreement. The collaboration agreement provides for the establishment of a joint steering
committee to guide the development and commercialization of the products. The collaboration agreement also provides that we will be responsible for IND filings and Phase 1 and Phase 2a clinical studies and Pfizer will be responsible for subsequent
worldwide development and all regulatory approvals and commercialization of the products.
Any failure by our collaborators to perform
their obligations under the respective agreements could negatively impact our product candidates being jointly developed and could lead to our loss of potential revenues from product sales and milestones that may otherwise become due under our
collaboration agreements and may also delay our achievement, if any, of profitability. Both of our collaboration partners, Glaxo and Pfizer, have extensive experience in the successful commercialization of product candidates and we rely heavily on
their expertise. Our success will largely depend upon the success of our collaborations with Glaxo for
Entereg
and Pfizer for ADL5859 and ADL5747 to develop, gain regulatory approvals and commercialize our product candidates.
Any termination of our collaboration agreement by Glaxo or termination of our collaboration agreement by Pfizer could have a material adverse impact on
our ability to develop, obtain regulatory approval for or commercialize our product candidates being developed under the collaborations. Any termination of our collaboration agreements will terminate the funding we receive under the relevant
collaboration agreement and may materially adversely impact our ability to fund further development efforts and may materially adversely impact our rate of development for our development programs.
Our delta agonist program may not lead to successful drug candidates.
To date there have been no selective
delta
agonist compounds successfully developed and approved by the FDA. We are developing our
delta
agonists, ADL5859 and ADL5747, in collaboration with Pfizer. These product candidates are in clinical development. Drug development is a highly uncertain process and our
delta
product candidates may not be safe or effective and we may not be
successful in our
delta
agonist development program. Development of
delta
agonists may not lead to commercially successful drugs.
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Patient enrollment may be slow and patients may discontinue their participation in clinical
studies, which may negatively impact the results of these studies, and extend the timeline for completion of our and our collaborators development programs for our product candidates.
The time required to complete clinical trials is dependent upon, among other factors, the rate of patient enrollment. Patient enrollment is a function of
many factors, including:
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the size of the patient population;
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the nature of the clinical protocol requirements;
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the diversion of patients to other trials or marketed therapies;
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the ability to recruit and manage clinical centers and associated trials;
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the proximity of patients to clinical sites; and
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the patient eligibility criteria for the study.
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We are subject to the risk that patients enrolled in our and our collaborators clinical studies for our product candidates may discontinue their participation at any time during the study as a result of a number
of factors, including withdrawing their consent or experiencing adverse clinical events which may or may not be related to our product candidates under evaluation. We are subject to the risk that if a large number of patients in any one of our
studies discontinue their participation in the study, the results from that study may not be positive or may not support an NDA for regulatory approval of our product candidates.
We may suffer significant setbacks in advanced clinical trials, even after promising results in earlier trials.
Product candidates that appear to be promising at earlier stages of development may not reach the market or be marketed successfully for a number of
reasons, including, but not limited to, the following:
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researchers may find during later preclinical testing or clinical trials that the product candidate is ineffective or has harmful side effects;
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the number and types of patients available for extensive clinical trials may vary;
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new information about the mechanisms by which a drug candidate works may adversely affect its development;
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one or more competing products may be approved for the same or a similar disease condition, raising the hurdles to approval of the product candidate;
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the product candidate may fail to receive necessary regulatory approval or clearance; or
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competitors may market equivalent or superior products.
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Our stock price may be volatile, and your investment in our stock could decline in value.
The
market price for our common stock has been highly volatile and may continue to be highly volatile in the future. For example, since January 1, 2006, the closing price of our common stock reached a low of $3.16 per share on November 17,
2007 and a high of $27.45 per share on March 2, 2006.
The market price for our common stock is highly dependent on the success of our
product development efforts, and in particular, clinical trial results and regulatory review results.
The following additional factors may
have a significant impact on the market price of our common stock:
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developments concerning our collaborations, including our collaboration with Glaxo and our collaboration with Pfizer;
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announcements of technological innovations or new commercial products by our competitors or us;
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developments concerning proprietary rights, including patents;
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publicity regarding actual or potential medical results relating to products under development by our competitors or us;
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regulatory developments in the United States and foreign countries;
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economic and other external factors or other disasters or crises;
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period-to-period fluctuations in our financial results; and
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the general performance of the equity markets and, in particular, the biopharmaceutical sector of the equity markets.
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Following periods of volatility and decline in the market price of a particular companys securities, securities class action litigation has often
been brought against that company.
We have been named in a purported class action lawsuit and related derivative lawsuits.
On April 21, 2004, a lawsuit was filed in the United States District Court for the Eastern District of Pennsylvania against us, one of
our directors and certain of our officers seeking unspecified damages on behalf of a putative class of persons who purchased our common stock between September 23, 2003 and January 14, 2004. The complaint alleges violations of
Section 10(b) and section 20(a) of the Exchange Act, in connection with the announcement of the results of certain studies in our Phase 3 clinical trials for
Entereg
, which allegedly had the effect of artificially inflating the price of
our common stock. This suit has been consolidated with three subsequent actions asserting similar claims under the caption:
In re Adolor Corporation Securities Litigation,
No. 2:04-cv-01728. On December 29, 2004, the district court
issued an order appointing the Greater Pennsylvania Carpenters Pension Fund as Lead Plaintiff. The appointed Lead Plaintiff filed a consolidated amended complaint on February 28, 2005. The complaint purported to extend the class period,
so as to bring claims on behalf of a putative class of Adolor shareholders who purchased stock between September 23, 2003 and December 22, 2004. The complaint also adds as defendants our Board of Directors, asserting claims against them
and the other defendants for violation of Section 11 and Section 15 of the Securities Act of 1933 (Securities Act) in connection with our public offering of stock in November 2003. We and our management and director defendants
moved to dismiss the complaint on April 29, 2005. The plaintiffs responded to the motion to dismiss on June 28, 2005, and the defendants reply was filed on August 12, 2005. We believe that the allegations are without merit and
intend to vigorously defend the litigation.
On August 2, 2004, two shareholder derivative lawsuits were filed in the United States
District Court for the Eastern District of Pennsylvania, purportedly on behalf of us, against our directors and certain of our officers seeking unspecified damages for various alleged breaches of fiduciary duty and waste. The allegations are similar
to those set forth in the class action complaints, involving the announcement of the results of certain studies in our Phase 3 clinical trials for
Entereg
. On November 12, 2004, the derivative plaintiff filed an amended complaint. On
December 13, 2004, we filed a motion challenging the standing of the Derivative Plaintiff to file the derivative litigation on its behalf. On December 13, 2004, our directors and officers moved to dismiss the complaint for failure to state
a claim. Plaintiffs responded to ours and our directors and officers motions on January 27, 2005. We and our directors and officers filed reply briefs on February 18, 2005.
We may become involved in additional litigation of this type in the future. Litigation of this type is often extremely expensive, highly uncertain and
diverts managements attention and resources.
If we continue to incur operating losses for a period longer than anticipated, we
may be unable to continue our operations.
We believe our existing cash, cash equivalents and short-term investments as of
December 31, 2007 of $167.2 million will be sufficient to fund operations into 2010. We have generated operating losses since we
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began operations in November 1994. We expect to continue to generate such losses and will need additional funds that may not be available in the future. We
have not commercialized any products and, as of December 31, 2007, we have incurred a cumulative net loss of $424.9 million. During the calendar years ended December 31, 2007 and 2006, we incurred operating losses of $56.5 million and
$79.3 million, and net losses of $48.4 million and $69.7 million, respectively. We expect to incur substantial losses for at least the next several years and expect that these losses will increase as we expand our research and development and sales
and marketing activities. If we fail to obtain the capital necessary to fund our operations, we will be forced to curtail our operations and we will be unable to develop products successfully. We do not know whether additional financing will be
available when needed, or that, if available, we will obtain financing on terms favorable to our stockholders or to us. If adequate funds are not available on acceptable terms, our ability to fund our operations, products or technologies or
otherwise respond to competitive pressures could be significantly delayed or limited, and we may have to reduce or cease our operations. If additional funds become available, there can be no assurance that we can predict the time and costs required
to complete development programs or that we will not substantially exceed our budgets.
We have limited commercial manufacturing
capability and expertise. If we are unable to contract with third parties to manufacture our products in sufficient quantities, at an acceptable cost and in compliance with regulatory requirements, we may be unable to obtain regulatory approvals, or
to meet demand for our products.
Completion of our clinical trials and commercialization of our product candidates require access
to, or development of, facilities to manufacture a sufficient supply of our product candidates. We have depended and expect to continue to depend on third parties for the manufacture of our product candidates for preclinical, clinical and commercial
purposes. We may not be able to contract for the manufacture of sufficient quantities of the products we develop, or even to meet our needs for preclinical or clinical development. Our products may be in competition with other products for access to
facilities of third parties and suitable alternatives may be unavailable. Consequently, our products may be subject to manufacturing delays if outside contractors give other products greater priority than our products. It is difficult and expensive
to change contract manufacturers for pharmaceutical products, particularly when the products are under regulatory review in an NDA process. Our dependence upon others for the manufacture of our products may adversely affect our future profit margin
and our ability to commercialize products, if any are approved, on a timely and competitive basis.
To receive regulatory approval for a
product, our contract manufacturers will be required to obtain approval for their manufacturing facilities to manufacture that product, and there is a risk that such approval may not be obtained. We are required to submit, in an NDA, information and
data regarding chemistry, manufacturing and controls which satisfies the FDA that our contract manufacturers are able to make that product in accordance with cGMP. Under cGMPs, we and our manufacturers will be required to manufacture our products
and maintain records in a prescribed manner with respect to manufacturing, testing and quality control activities. We are dependent on our third-party manufacturers to comply with these regulations in the manufacture of our products and these
parties may have difficulties complying with cGMPs. The failure of any third-party manufacturer to comply with applicable government regulations could substantially harm and delay or prevent regulatory approval and marketing of our products.
We maintain a relationship with Torcan Chemical Ltd. for the supply of the active pharmaceutical ingredient (API) in
Entereg
. We maintain a relationship with Pharmaceutics International Inc. for the supply of
Entereg
finished capsules, and a relationship with Sharp Corporation for the packaging of
Entereg
finished capsules. We also rely upon
these parties for the performance of scale-up and other development activities, and for the maintenance and testing of product pursuant to applicable stability programs.
We also expect to depend on third parties to manufacture product candidates we may acquire or in-license, and will need to develop our own internal capabilities and external relationships in that regard.
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If we are unable to fully develop sales, marketing and distribution capabilities or enter into
agreements with third parties to perform these functions, we will not be able to commercialize products.
We currently have no
internal distribution capability, limited marketing capabilities, and no internal sales capabilities. In order to commercialize products, if any are approved, we must internally develop sales, marketing and distribution capabilities or make
arrangements with third parties to perform these services. If we obtain regulatory approval, we intend to sell some products directly in certain markets and rely on relationships with established pharmaceutical companies to sell products in certain
markets. To sell any of our products directly, we must fully develop a marketing and field sales force with technical expertise, as well as supporting distribution capabilities. We may not be able to establish in-house sales and distribution
capabilities or relationships with third parties. To the extent that we enter into co-promotion or other licensing arrangements, our product revenues may be lower than if we directly marketed and sold our products, and any revenues we receive will
depend upon the efforts of third parties, which efforts may not be successful.
We have limited experience in conducting and managing
the clinical trials necessary to obtain regulatory approval and depend on third parties to conduct our clinical trials.
We have
limited experience in managing clinical trials, and delays or terminations of clinical trials we are conducting or may undertake in the future could impair our development of product candidates. Delay or termination of any clinical trials could
result from a number of factors, including adverse events, enrollment requirements, rate of enrollment, competition with other clinical trials for eligible patients and other factors. We are subject to the risk that subjects enrolled in our clinical
studies may discontinue their participation at any time during the study as a result of a number of factors, including withdrawing their consent or experiencing adverse clinical events which may or may not be judged related to our product candidates
under evaluation.
We contract with third parties to conduct our clinical trials, and are subject to the risk that these third parties fail
to perform their obligations properly and in compliance with applicable FDA and other governmental regulations. The failure of any third party to comply with any governmental regulations would substantially harm our development efforts and delay or
prevent regulatory approval of our product candidates.
Our ability to enter into new collaborations and to achieve success under
existing collaborations is uncertain.
We have entered into, and may in the future enter into, collaborative arrangements, including
our arrangements with Glaxo and Pfizer, for the marketing, sale and distribution of our product candidates, which require, or may require, us to share profits or revenues. We may be unable to enter into additional collaborative licensing or other
arrangements that we need to develop and commercialize our product candidates. Moreover, we may not realize the contemplated benefits from such collaborative licensing or other arrangements. These arrangements may place responsibility on our
collaborative partners for preclinical testing, human clinical trials, the preparation and submission of applications for regulatory approval, or for marketing, sales and distribution support for product commercialization. These arrangements may
also require us to transfer certain material rights or issue our equity securities to corporate partners, licensees and others. Any license or sublicense of our commercial rights may reduce our product revenue. Moreover, we may not derive any
revenues or profits from these arrangements.
We cannot be certain that any of these parties, including Glaxo and Pfizer, will fulfill
their obligations in a manner consistent with our best interests. Collaborators may also pursue alternative technologies or drug candidates, either on their own or in collaboration with others, that are in direct competition with us.
Our quarterly operating results may fluctuate significantly depending on the initiation of new corporate collaboration agreements, the activities under
current corporate collaboration agreements or the termination of existing corporate collaboration agreements.
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Because our product candidates are in development, there is a high risk that further development
and testing will demonstrate that our product candidates are not suitable for commercialization.
We have no products that have
received regulatory approval for commercial sale. All of our product candidates, including
Entereg
, are in development, and we face the substantial risks of failure inherent in developing drugs based on new technologies. Our product
candidates must satisfy rigorous standards of safety and efficacy before the FDA and foreign regulatory authorities will approve them for commercial use. There can be no assurance that these standards will remain consistent over time, further
complicating our ability to obtain marketing approvals. To satisfy these standards, we will need to conduct significant additional research, animal testing, or preclinical testing, and human testing, or clinical trials.
Preclinical testing and clinical development are long, expensive and uncertain processes. Failure can occur at any stage of testing. Success in
preclinical testing and early clinical trials does not ensure that later clinical trials will be successful. Based on results at any stage of clinical trials, we may decide to discontinue development of our product candidates. Even if we obtain
approval and begin marketing a product, on-going clinical trials, including for other indications, may result in additional information that could affect our ability or decision to continue marketing the drug.
We intend to explore opportunities to expand our product portfolio by acquiring or in-licensing products and/or product development candidates. Although
we conduct extensive evaluations of product candidate opportunities as part of our due diligence efforts, there can be no assurance that our product development efforts related thereto will be successful or that we will not become aware of issues or
complications that will cause us to alter, delay or terminate our product development efforts.
The concept of developing
peripherally acting opioid antagonist drugs is relatively new and may not lead to commercially successful drugs.
Peripherally
acting compounds given to patients as potential drugs are designed to exert their effects outside the brain and spinal cord, in contrast to centrally acting compounds which are designed to exert their effects on the brain or spinal cord. We are
developing
Entereg
as a peripherally acting
mu-
opioid antagonist. An opioid antagonist is designed to block the effects of the opioid at the receptor level; in the case of
Entereg
, it is designed to block the unwanted effects of
opioid analgesics on the gastrointestinal tract. Since there are no products on the market comparable to our product candidates, we do not have any historical or comparative sales data to rely upon to indicate that peripherally acting opioid
antagonist drugs will achieve commercial success in the marketplace. Market acceptance of our product candidates will depend on a number of factors, including:
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perceptions by members of the health care community, including physicians, of the safety and efficacy of our product candidates;
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cost-effectiveness of our product candidates relative to competing products;
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availability of government or third-party payor reimbursement for our product candidates;
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effectiveness of marketing and distribution efforts by us and our collaborators; and
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the risk management plan.
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Other
products that are currently sold for pain management are already recognized as safe and effective and have a history of successful sales in the United States and elsewhere. Our new products in this area, if any, will be competing with drugs that
have been approved by the FDA and have demonstrated commercial success in the United States and elsewhere. Drugs that have been on the market have safety and efficacy profiles that are generally better characterized than new drugs.
As our products are used commercially, unintended side effects, adverse reactions or incidents of misuse may occur that could result in additional
regulatory controls, changes to product labeling, adverse publicity and reduced sales of our products.
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During research and development, the use of pharmaceutical products, such as ours, is limited principally
to clinical trial patients under controlled conditions and under the care of expert physicians. The commercial use of our products could identify undesirable or unintended side effects that have not been evident in our clinical trials.
Reduction in the use of opioid analgesics would reduce the potential market for Entereg.
If the use of drugs or techniques which reduce the requirement for
mu-
opioids increases, the demand for
Entereg
would be decreased. Various
techniques to reduce the use of opioids are used in an attempt to reduce the impact of opioid side effects. The use of local anesthetics in epidural catheters during and after surgery with the continuation of the epidural into the post-operative
period can reduce or eliminate the use of opioids. Non-steroidal inflammatory agents may also reduce total opioid requirements. Continuous infusion of local anesthetic into a wound or near major nerves can reduce the use of opioids in limited types
of procedures and pain states. Novel analgesics which act at non-
mu-
opioid receptors are under development. Many companies have developed and are developing analgesic products that compete with opioids or which, if approved, would compete
with opioids. If these analgesics reduce the use of opioids, it would have a negative impact on the potential market for
Entereg
.
If competitors develop and market products that are more effective, have fewer side effects, are less expensive than our product candidates or offer other advantages, our commercial opportunities will be limited.
Other companies have product candidates in development to treat the conditions we are seeking to ultimately treat and they may develop effective and
commercially successful products. Our competitors may succeed in developing products either that are more effective than those that we may develop, or that they market before we market any products we may develop.
We believe that Progenics Pharmaceuticals, Inc. is developing methylnaltrexone for the treatment of indications like those being targeted by us in both
the acute and chronic settings. There are products already on the market for use in treating irritable bowel syndrome which may be evaluated for utility in opioid induced bowel dysfunction. There may be additional competitive products about which we
are not aware. If our competitors are able to reach the commercial market before we do, this could have a material adverse effect on our ability to ultimately reach the commercial market and sell our products.
Our competitors include fully integrated pharmaceutical companies and biotechnology companies, universities and public and private research institutions.
Many of the organizations competing with us have substantially greater capital resources, larger research and development staffs and facilities, greater experience in drug development and in obtaining regulatory approvals, and greater manufacturing
and marketing capabilities than we do. These organizations also compete with us to:
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attract qualified personnel;
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attract partners for acquisitions, joint ventures or other collaborations; and
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license proprietary technology.
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Our business could suffer if we cannot attract, retain and motivate skilled personnel and cultivate key academic collaborations.
We are a small company, and our success depends on our continued ability to attract, retain and motivate highly qualified management and scientific personnel. We may not be successful in attracting or retaining
qualified individuals. Our success also depends on our ability to develop and maintain important relationships with leading academic institutions and scientists. Competition for personnel and academic collaborations is intense. In particular, our
product development programs depend on our ability to attract and retain highly skilled chemists, biologists and clinical development personnel. If we lose the services of any of these personnel it could
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impede significantly the achievement of our research and development objectives. In addition, we will need to hire additional personnel and develop
additional academic collaborations as we continue to expand our research and development activities. We do not know if we will be able to attract, retain or motivate personnel or maintain relationships. We do not maintain key man life insurance on
any of our employees.
Companies and universities that have licensed technology and product candidates to us are sophisticated
entities that could develop similar products to compete with products we hope to develop.
Licensing product candidates from other
companies, universities or individuals does not prevent such parties from developing competitive products for their own commercial purposes, nor from pursuing patent protection in areas that are competitive with us. The individuals who created these
technologies are sophisticated scientists and business people who may continue to do research and development and seek patent protection in the same areas that led to the discovery of the product candidates that they licensed to us. The development
and commercialization by us of successful products is also likely to attract additional research by our licensors and by other investigators who have experience in developing products for the pain management market. By virtue of their previous
research activities, these companies, universities or individuals may be able to develop and market competitive products in less time than might be required to develop a product with which they have no prior experience.
If we breach our licensing agreements, we will lose significant benefits and may be exposed to liability for damages.
We may breach our license agreements and may thereby lose rights that are important. We are subject to various obligations with respect to license
agreements, including development responsibilities, royalty and other payments and regulatory obligations. If we fail to comply with these requirements or otherwise breach a license agreement or contract, the licensor or other contracting party may
have the right to terminate the license or contract in whole or in part or change the exclusive nature of the arrangement. In such event, we would not only lose all or part of the benefit of the arrangement but also may be exposed to potential
liabilities for breach in the form of damages or other penalties.
Because we are not certain we will obtain necessary regulatory
approvals to market our products in the United States and foreign jurisdictions, we cannot predict whether or when we will be permitted to commercialize any of our products.
The pharmaceutical industry is subject to stringent regulation by a wide range of authorities. We cannot predict whether we will obtain regulatory
clearance for any product candidate we develop. We cannot market a pharmaceutical product in the United States until it has completed rigorous preclinical testing and clinical trials and the FDAs extensive regulatory premarket approval
process. Satisfaction of regulatory requirements typically takes many years, is dependent upon the type, complexity and novelty of the product and requires the expenditure of substantial resources for research and development, testing,
manufacturing, quality control, labeling and promotion of drugs for human use. Since neither the FDA nor international regulatory authorities have approved peripherally restricted narcotic antagonist drugs or
delta
agonist drugs for
marketing, there is additional uncertainty as to whether our research and clinical approaches to developing new products for the pain management market will lead to drugs that the FDA will consider safe and effective for indicated uses. Before
receiving FDA approval to market a product, we must demonstrate that the product candidate is safe and effective in the patient population that is intended to be treated. Outside the United States, our ability to market a product is also contingent
upon receiving a marketing authorization from the appropriate regulatory authorities, and is subject to similar risks and uncertainties.
We do not know whether our current or future preclinical and clinical studies will demonstrate sufficient safety and efficacy necessary to obtain the requisite regulatory approvals, or will result in marketable products. Any failure to
adequately demonstrate the safety and efficacy of our product candidates will prevent receipt of
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FDA and foreign regulatory approvals and, ultimately, commercialization of our product candidates. Regulatory authorities may refuse or delay approval as a
result of many other factors, including changes in regulatory policy during the period of product development and regulatory interpretations of clinical benefit and clinical risk. Regulatory clearance that we may receive for a product candidate will
be limited to those diseases and conditions for which we have demonstrated in clinical trials that the product candidate is safe and efficacious. Even if we receive regulatory approval for our product candidates, we must comply with applicable FDA
post marketing regulations governing manufacturing, promotion, labeling, and reporting of adverse events and other information, as well as other regulatory requirements. Failure to comply with applicable regulatory requirements could subject us to
criminal penalties, civil penalties, recall or seizure of products, withdrawal of marketing approval, total or partial suspension of production or injunction, as well as other regulatory actions against our product or us.
If we market products in a manner that violates health care fraud and abuse laws, or if we violate government price reporting laws, we may be
subject to civil or criminal penalties.
In addition to FDA restrictions on marketing of pharmaceutical products, several other
types of state and federal health care fraud and abuse laws have been applied to restrict certain marketing practices in the pharmaceutical industry in recent years. These laws include anti-kickback statutes and false claims statutes.
The federal health care program anti-kickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting, or receiving
remuneration to induce or in return for purchasing, leasing, ordering or arranging for the purchase, lease or order of any health care item or service reimbursable under Medicare, Medicaid or other federally financed health care programs. This
statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers and formulary managers on the other. Although there are a number of statutory exemptions and regulatory safe harbors
protecting certain common activities from prosecution, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not
qualify for an exemption or safe harbor. Our practices may not in all cases meet all of the criteria for safe harbor protection from anti-kickback liability.
Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, or knowingly making, or causing to be made, a false statement
to get a false claim paid.
Recently, several pharmaceutical and other health care companies have been prosecuted under these laws for a
variety of alleged promotional and marketing activities, such as allegedly providing free trips, free goods, sham consulting fees and grants, and other monetary benefits to customers; reporting to pricing services inflated average wholesale prices
that were then used by federal programs to set reimbursement rates; engaging in off-label promotion that caused claims to be submitted to Medicaid for non-covered off-label uses; and submitting inflated best price information to the Medicaid Rebate
Program to reduce liability for Medicaid rebates. The majority of states also have statutes or regulations similar to the federal anti-kickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state
programs, or, in several states, apply regardless of the payor. Sanctions under these federal and state laws may include civil monetary penalties, exclusion of a manufacturers products from reimbursement under government programs, criminal
fines and imprisonment.
Because of the breadth of these laws and the narrowness of the safe harbors, it is possible that some of our
business activities could be subject to challenge under one or more of such laws.
If
Entereg
receives marketing approval for POI,
we will be required to submit pricing data to the federal government as a condition of selling the product to healthcare facilities of the Department of Veterans Affairs (VA), the Department of Defense (DoD), and other
federal agencies and of having the product covered under Medicaid. These price reports are used to determine the amount of discounts that the manufacturer must
23
provide to the VA and DoD healthcare networks. Pharmaceutical manufacturers have been prosecuted under false claims laws for knowingly submitting inaccurate
pricing information to the government to reduce their liability for providing discounts. The rules governing the calculation of these reported prices are complex. It is possible that our methodologies for calculating these prices could be challenged
under false claims laws or other laws.
The federal Controlled Substances Act might impose significant restrictions, licensing and
regulatory requirements on the manufacturing, distribution and dispensing of certain of our product candidates.
The federal
Controlled Substances Act imposes significant restrictions, licensing and regulatory requirements on the manufacturing, distribution and dispensing of controlled substances. Therefore, we must determine whether the Drug Enforcement Administration
(DEA) would consider any of our product candidates to be a controlled substance.
Facilities that conduct research, manufacture
or distribute controlled substances must be registered to perform these activities and have the recordkeeping, reporting security, control and accounting systems required by the DEA to prevent loss and diversion. Failure to maintain compliance,
particularly as manifested in loss or diversion, can result in significant regulatory action, including civil, administrative or criminal penalties. In addition, many individual state laws also impose separate regulatory restrictions and
requirements, including licenses, recordkeeping and reporting. We believe that it is unlikely that any of our product candidates, other than those which may act on the central nervous system, may be subject to regulation as controlled substances.
We have been developing products that contain alvimopan and an opioid. For products that contain alvimopan and an opioid, we would be
required to comply with the restrictions, licensing and regulatory requirements relating to controlled substances.
We may not obtain
FDA approval to conduct clinical trials that are necessary to satisfy regulatory requirements.
Clinical trials are subject to
oversight by institutional review boards and the FDA and:
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must conform with the FDAs good clinical practice regulations;
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must meet requirements for institutional review board oversight;
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must meet requirements for informed consent;
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are subject to continuing FDA oversight; and
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may require large numbers of test subjects.
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Before commencing clinical trials in humans, we must submit to the FDA an IND application. The FDA may decide not to permit the clinical trial to go forward. In addition, we, or the FDA, may suspend ongoing clinical trials at any time if
the subjects participating in the trials are exposed to unacceptable health risks, or if the FDA finds deficiencies in the IND application or the conduct of the trials.
It is difficult and costly to protect our intellectual property rights, and we cannot ensure the protection of these rights; we may be sued by others for infringing their intellectual property.
Our commercial success will depend in part on obtaining patent protection on our products and their uses and successfully defending
these patents against third-party challenges. The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involve complex legal, scientific and factual questions. Accordingly, we cannot predict the breadth of
claims allowed in our patents or those of our collaborators. The patents and patent applications relating to our products, product candidates and technologies may be challenged, invalidated or circumvented by third parties and might not protect us
against competitors with similar products or technology.
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Others have filed and in the future are likely to file patent applications covering products and
technologies that are similar, identical or competitive to ours, or important to our business. We cannot be certain that any patent application owned by a third party will not have priority over patent applications filed or in-licensed by us, or
that we or our licensors will not be involved in interference proceedings before the United States Patent and Trademark Office.
Although
no third party has asserted a claim of infringement against us, others may hold proprietary rights that will prevent our product candidates from being marketed unless we can obtain a license to those proprietary rights. Patent disputes in our
industry are frequent and can preclude commercialization of products. Any patent related legal action against our collaborators or us claiming damages and seeking to enjoin commercial activities relating to our products and processes could subject
us to potential liability for damages and require our collaborators or us to obtain a license to continue to manufacture or market the affected products and processes. We cannot predict whether we or our collaborators would prevail in any of these
actions or that any license required under any of these patents would be made available on commercially acceptable terms, if at all. There has been, and we believe that there will continue to be, significant litigation in the industry regarding
patent and other intellectual property rights. If we become involved in litigation, it could consume substantial managerial and financial resources.
The results of patent litigation among third parties may cause changes to the ways patents are interpreted, enforced and/or challenged. These changes may adversely affect our ability to protect our products.
We rely on trade secrets to protect technology in cases when we believe patent protection is not appropriate or obtainable. However, trade
secrets are difficult to protect. While we require employees, academic collaborators and consultants to enter into confidentiality agreements, we may not be able to adequately protect our trade secrets or other proprietary information. Our research
collaborators and scientific advisors have rights to publish data and information in which we have rights. If we cannot maintain the confidentiality of our technology and other confidential information in connection with our collaborations, our
ability to receive patent protection or protect our proprietary information may be imperiled.
We are a party to various license agreements
that give us rights to use specified technologies in our research and development processes. If we are not able to continue to license such technology on commercially reasonable terms, our product development and research may be delayed. In
addition, we generally do not fully control the prosecution of patents relating to in-licensed technology, and accordingly are unable to exercise the same degree of control over this intellectual property as we exercise over our internally developed
technology.
Our ability to generate revenues will be diminished if we fail to obtain acceptable prices or an adequate level of
reimbursement for our products from third-party payors.
Our ability to commercialize pharmaceutical products, alone or with
collaborators, may depend in part on the extent to which reimbursement for the products will be available from:
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government and health administration authorities; or
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private health insurers and third-party payors.
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The continuing efforts of government and third-party payors to contain or reduce the costs of health care through various means may limit our commercial opportunity. For example, in some foreign markets, pricing and
profitability of prescription pharmaceuticals are subject to government control. In the United States, we expect that there will continue to be a number of federal and state proposals to implement pharmaceutical pricing and cost control measures
under government health care programs such as Medicare and Medicaid. Increasing emphasis on managed care in the United States will continue to put pressure on the pricing of pharmaceutical products. Significant uncertainty exists as to the
reimbursement status of newly approved health care products. Cost control initiatives could adversely affect our and our collaborators ability to commercialize our products,
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decrease the price that any of our collaborators or we would receive for any products in the future, and may impede patients ability to obtain
reimbursement under their insurance programs for our products.
Many hospitals establish formularies, which are lists of drugs approved for
use in the hospital. If we fail to secure and maintain formulary coverage for our products on favorable terms or are significantly delayed in doing so, we will have difficultly achieving market acceptance of our products and our business will be
materially adversely affected.
If we engage in an acquisition, reorganization, or business combination, we will incur a variety of
risks that could adversely affect our business operations or our stockholders.
From time to time we have considered, and we will
continue to consider in the future, if and when any appropriate opportunities become available, strategic business initiatives intended to further the development of our business. These initiatives may include acquiring businesses, technologies or
products or entering into a business combination with another company. If we do pursue such a strategy, we could, among other things:
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issue equity securities that would dilute our current stockholders percentage ownership;
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incur substantial debt that may place strains on our operations;
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spend substantial operational, financial and management resources in integrating new businesses, technologies and products;
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assume substantial actual or contingent liabilities; or
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merge with, or otherwise enter into a business combination with, another company in which our stockholders would receive cash or shares of the other company or a
combination of both on terms that our stockholders may not deem desirable.
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We are not in a position to predict what, if
any, collaborations, alliances or other transactions may result or how, when or if these activities would have a material effect on us or the development of our business.
If product liability lawsuits are successfully brought against us, we may incur substantial liabilities and may have to limit or cease commercialization of our products.
The testing and marketing of medical products entail an inherent risk of product liability. If we cannot successfully defend ourselves against product
liability claims, we may incur substantial liabilities or be required to limit or cease commercialization of our products. We currently carry clinical trial insurance at a level we believe is commercially reasonable but do not carry product
liability insurance. Our corporate collaborators or we may not be able to obtain insurance at a reasonable cost, if at all. There is no assurance that our clinical trial insurance will be adequate to cover claims that may arise.
We enter into various agreements where we indemnify third parties such as manufacturers and investigators for certain product liability claims related to
our products. These indemnification obligations may cause us to pay significant sums of money for claims that are covered by these indemnifications.
If we use biological and hazardous materials in a manner that causes injury or violates laws, we may be liable for damages.
Our research and development activities involve the controlled use of potentially harmful biological materials as well as hazardous materials, chemicals and various radioactive compounds. We use radioactivity in
conducting biological assays and we use solvents that could be flammable in conducting our research and development activities. We cannot completely eliminate the risk of accidental contamination or injury from the use, storage, handling or disposal
of these materials. We do not maintain a separate insurance policy for these types of risks. In the event of contamination or injury, we could be held liable for damages that result, and any
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liability could exceed our resources. We are subject to federal, state and local laws and regulations governing the use, storage, handling and disposal of
these materials and specified waste products. The cost of compliance with these laws and regulations could be significant.
Certain
provisions of our charter documents and under Delaware law may make an acquisition of us, which may be beneficial to our stockholders, more difficult.
Provisions of our amended and restated certificate of incorporation and restated bylaws, as well as provisions of Delaware law, could make it more difficult for a third party to acquire us, even if doing so would
benefit our stockholders.
We have shares of our common stock and preferred stock available for future issuance without stockholder
approval. The existence of unissued common stock and preferred stock may enable our Board of Directors to issue shares to persons friendly to current management or to issue preferred stock with terms that could render more difficult or discourage a
third-party attempt to obtain control of us by means of a merger, tender offer, proxy contest or otherwise, which would protect the continuity of our management.
Our amended and restated certificate of incorporation provides for our Board of Directors to be divided into three classes, with the term of one such class expiring each year, and we have eliminated the ability of our
stockholders to consent in writing to the taking of any action pursuant to Section 228 of the Delaware General Corporation Law.
In
addition, we adopted a shareholder rights plan, the effect of which may be to make an acquisition of us more difficult.
Under our
collaboration agreement with Glaxo and under our agreement with Pfizer, there are certain limitations on Glaxos and Pfizers ability to acquire our securities. These limitations make it more difficult for Glaxo or Pfizer to acquire us,
even if such an acquisition would benefit our stockholders. The limitations do not prevent Glaxo or Pfizer, among other things, from acquiring our securities in certain circumstances following initiation by a third party of an unsolicited tender
offer to purchase more than a certain percentage of any class of our publicly traded securities.