Item 1A. Risk Factors.
We face a variety of risks and uncertainties in our business. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also become important factors that affect our business. If any of the following risks occurs, our business, financial statements and future growth prospects could be materially and adversely affected. Unless otherwise stated or the context otherwise requires, the following risks do not reflect the changes to our business that may occur i
f we consummate the proposed merger with Keryx. See also the Risk Factors section of our preliminary Registration Statement on Form S-4 filed with the U.S. Securities and Exchange Commission on October 1, 2018.
Risks Related to our Proposed Merger with Keryx
There can be no assurance that the proposed merger with Keryx will be consummated. The announcement and pendency of the merger, or the failure of the merger to be consummated, could have an adverse effect on our stock price, business, financial condition, results of operations or prospects.
On June 28, 2018, we, Alpha Therapeutics Merger Sub, Inc., a direct, wholly owned subsidiary of ours, or the Merger Sub, and Keryx Biopharmaceuticals, Inc., or Keryx, entered into an Agreement and Plan of Merger, which was amended on October 1, 2018, or the Merger Agreement, pursuant to which Merger Sub shall be merged with and into Keryx, with Keryx surviving as a wholly owned subsidiary of ours, or the Merger. Consummation of the Merger is subject to approval by our shareholders and Keryx’s shareholders, receipt of certain regulatory approvals and other conditions specified in the Merger Agreement. As a result, there can be no assurance that the Merger will be consummated.
Further, the announcement and pendency of the Merger could disrupt our business, in any of the following ways, among others:
|
•
|
our employees may experience uncertainty about their future roles with the combined company, which might adversely affect our ability to retain and hire employees;
|
|
•
|
the attention of our management may be directed toward completion of the Merger, integration planning and transaction-related considerations and may be diverted from our day-to-day business operations;
|
|
•
|
vendors, suppliers or others may seek to modify or terminate their business relationship with us;
|
|
•
|
we and our directors and Keryx could become subject to lawsuits relating to the Merger; and
|
|
•
|
we may experience negative reactions from our shareholders, patients enrolled in our studies and the medical community, among others.
|
49
These disruptions could be exacerbated by a delay in the completion of the Merger or termination of the Merger Agreement. Additionally, if the Merger is not consummated, we will have incurred significant costs and diverted the time and attention
of management. A failure to consummate the Merger may also result in negative publicity, litigation against us or our directors and officers, and a negative impression of the
C
ompany in the financial markets. The occurrence of any of these events individua
lly or in combination could have a material adverse effect on our financial statements and stock price.
We may be unable to fully realize the expected benefits from the Merger.
We expect to achieve substantial operating and capital synergies and cost savings as a result of the Merger. If we are unable to successfully integrate the businesses, or integrate them in a timely fashion, we may face material adverse effects including, but not limited to (i) diversion of the attention of management and key personnel and potential disruption of our ongoing business, (ii) the loss of employees, (iii) challenges of managing a larger combined company following the Merger, including challenges of conforming standards, controls, procedures and accounting and other policies and compensation structures, (iv) difficulties in achieving anticipated cost savings, (v) declines in our results of operations, financial condition or cash flows, (vi) a decline in the market price of our common stock, and (vii) potential liabilities, adverse consequences, increased expenses or other problems associated with the Merger and/or the resulting combined company. Many of these factors are outside of our control, and any one of them could result in increased costs, decreased expected revenues
and further diversion of management time and energy
, which could materially impact our business, financial statements and prospects.
In addition, following the Merger, we will become responsible for Keryx’s liabilities and obligations, including with respect to legal, financial, regulatory and compliance matters. These obligations will result in additional cost and investment by us and, if we have underestimated the amount of these costs and investments or if we fail to satisfy any such obligations, we may not realize the anticipated benefits of the transaction. Further, it is possible that there may be unknown, contingent or other liabilities or problems that may arise in the future, the existence and/or magnitude of which we were previously unaware. Any such liabilities or problems could have an adverse effect on our business, financial condition or results of operations. For example, the Centers for Medicare & Medicaid Services, or CMS, recently communicated to Medicare Part D sponsors that Keryx’s marketed product, Auryxia, is considered by CMS as a covered Part D drug when it is used for its FDA-approved indication for the control of serum phosphorus levels. CMS also indicated that it does not consider Auryxia covered under Part D when it is used solely for the treatment of iron deficiency anemia in patients with chronic kidney disease, or CKD, not on dialysis, which is Auryxia’s other FDA-approved indication. As a result, CMS currently expects Part D sponsors to utilize a prior authorization edit or other process for all Auryxia prescriptions for Medicare beneficiaries to ensure that Auryxia is being used for a Part D covered indication. Keryx expects Part D sponsors will implement a prior authorization edit for Auryxia no later than January 2019. Keryx is engaging in discussions with CMS and Part D sponsors on this matter as Keryx believes that Auryxia should qualify for coverage under Part D of the CMS regulations when it is used for the treatment of iron deficiency anemia in patients with CKD not on dialysis. While Keryx believes that the vast majority of the Part D prescriptions written for Auryxia today are for the control of serum phosphorus levels and therefore will continue to be covered by Part D plans with prior authorization, Keryx cannot predict the impact of these changes on Keryx’s operations and they could have a material adverse effect on Keryx’s results of operations going forward.
Even if we successfully consummate the Merger and integrate the businesses, there can be no assurance that the Merger will result i
n the realization of the full benefit of the anticipated synergies and cost savings or that these benefits will be realized within the expected time frames or at all. In addition, by engaging in the Merger, we may forego or delay pursuit of other opportunities that may have proven to have greater commercial potential.
If generic products that compete with Keryx’s marketed product, Auryxia, or any future product of the combined company are approved and launched, the combined company’s business, financial position or results of operations would be adversely affected.
Although composition and use of Auryxia are currently claimed by 14 issued patents that are listed in the FDA’s Orange Book, we cannot assure you that third parties will not attempt to invalidate or design around the patents or assert that they are invalid or otherwise unenforceable or not infringed and introduce generic equivalents of Auryxia or any future product of the combined company. Third parties may seek to introduce generic equivalents of Auryxia, provided they receive FDA approval and can show that their products do not infringe Keryx’s patents or that its patents are invalid or unenforceable. After the introduction of a generic competitor, a significant percentage of the prescriptions written for a product may be filled with the generic version, resulting in a loss in sales of the branded product. Generic competition for Auryxia or any future product of the combined company could have a material adverse effect on the combined company’s sales, results of operations and financial condition.
50
On October 31, 2018, Keryx received a Paragraph IV certification notice letter regarding an Abbreviated New Drug Application, or ANDA, submitted to the FDA by Lupin Atlantis Holdings SA, or Lupin, reque
sting approval to market, sell and use a generic version of the Auryxia tablets (210 mg iron per tablet). In its notice letter, Lupin alleges that Keryx’s U.S. Patents Nos. 5,753,706; 7,767,851; 8,093,423; 8,299,298; 8,338,642; 8,609,896; 8,754,257; 8,754,
258; 8,846,976; 8,901,349; 9,050,316; 9,328,133; 9,387,191; and 9,757,416, which cover the approved drug substance, drug product and/or methods of using Auryxia, are invalid, unenforceable and/or will not be infringed by Lupin’s manufacture, use or sale of
the product described in its ANDA. Keryx is currently reviewing the notice letter and intends to vigorously enforce its intellectual property rights relating to Auryxia. By statute, Keryx has 45 days from receipt of the notice letter to initiate a patent
infringement lawsuit against Lupin. Such a lawsuit would automatically preclude the FDA from approving Lupin’s ANDA until the earlier of 30 months from October 31, 2018 or entry of a district court decision finding the patents invalid, unenforceable or not
infringed.
On November 6, 2018, Keryx received a Paragraph IV certification notice letter regarding ANDA submitted to the FDA by Teva Pharmaceuticals USA, Inc., or Teva, requesting approval to market, sell and use a generic version of the Auryxia tablets (210 mg iron per tablet). In its notice letter, Teva alleges that Keryx’s U.S. Patents Nos. 7,767,851; 8,093,423; 8,299,298; 8,338,642; 8,609,896; 8,754,257; 8,754,258; 8,846,976; 8,901,349; 9,050,316; 9,328,133; 9,387,191; and 9,757,416, which cover the approved drug substance, drug product and/or methods of using Auryxia, are invalid, unenforceable and/or will not be infringed by Teva’s manufacture, use or sale of the product described in its ANDA. Keryx is currently reviewing the notice letter and intends to vigorously enforce its intellectual property rights relating to Auryxia. By statute, Keryx has 45 days from receipt of the notice letter to initiate a patent infringement lawsuit against Teva. Such a lawsuit would automatically preclude the FDA from approving Teva’s ANDA until the earlier of 30 months from November 6, 2018 or entry of a district court decision finding the patents invalid, unenforceable or not infringed.
Litigation to enforce or defend intellectual property rights is complex, costly and involves significant management time. If Keryx’s Orange Book listed patents are successfully challenged by Lupin, Teva or any other third party and a generic version of Auryxia is approved and launched, revenue from Auryxia could decline significantly.
While the Merger Agreement is in effect, we are subject to restrictions on our business activities.
While the Merger Agreement is in effect, we are subject to restrictions on our business activities and must generally operate our business in the ordinary course consistent with past practice, subject to certain exceptions. These restrictions could prevent us from pursuing attractive business opportunities that may arise prior to the consummation of the Merger and are generally outside the ordinary course of business, and otherwise have a material adverse effect on us. Although we may be able to pursue such activities with Keryx’s consent, Keryx may not be willing to provide its consent for us to do so.
A delay in completing the Merger may reduce or eliminate the expected benefits from the Merger.
The Merger is subject to a number of conditions, some of which are beyond our control, which could prevent, delay or otherwise materially adversely affect its completion. We cannot predict whether and when the conditions will be satisfied. A delay in completing the Merger could cause the combined company to not realize some or all of the synergies and other benefits it expects to achieve if the Merger is successfully completed within its expected time frame. Because the Merger Agreement contains certain restrictions on the conduct of our business, if the Merger is delayed, these restrictions could adversely affect our ability to execute business strategies or pursue attractive business opportunities. In addition, a delay could cause management to focus on completion of the Merger instead of on other opportunities that could be beneficial to us or our day-to-day business operations.
Failure to consummate the Merger could negatively impact our future stock price, operations and financial results.
If the Merger is not consummated for any reason, we may be subjected to a number of material risks, including the following:
|
•
|
our business may be adversely impacted by the failure to pursue other beneficial opportunities due to the focus of our management on the Merger;
|
|
•
|
the market price of our shares may decline to the extent that current market prices reflect a market assumption that the Merger will be consummated and will be beneficial to the value of our business after the Merger closes;
|
|
•
|
if the Merger Agreement is terminated under certain specified circumstances, we will be required to pay Keryx a termination fee of $22.0 million. We will also be required to pay Keryx the termination fee in the event we sign or consummate an Acquisition Proposal, as defined in the Merger Agreement, within twelve months following the termination of the Merger Agreement under certain circumstances;
|
|
•
|
we may have to pay certain costs related to the Merger, such as legal, accounting, financial advisory, printing and mailing fees, which must be paid regardless of whether the Merger is consummated;
|
51
|
•
|
we will need to
address the consequences of
any
operational decisions made since the signing of the Merger Agreement
that may have been impacted by
res
trictions on our operations imposed by the terms of the Merger Agreement, including decisions to delay or defer capital expenditures;
|
|
•
|
our management and personnel will need to return their focus to operating the Company on a stand‑alone basis, without any of the benefits expected to have been provided by the consummation of the Merger; and
|
|
•
|
negative reactions from shareholders, suppliers, employees, patients enrolled in our studies and the medical community.
|
The occurrence of any of the foregoing events individually or in combination could have a material adverse effect on our financial statements and stock price.
The issuance of shares of our common stock in connection with the Merger, and any future offerings of securities by us, will dilute our shareholde
rs’ ownership interest in Akebia and sales of shares of our common stock after the completion of the Merger may cause the market price of our common stock to decline.
The Merger will be financed by the issuance of additional shares of our common stock to shareholders of Keryx, comprising approximately 50.6% of our issued and outstanding shares of common stock, calculated based on the companies’ fully diluted market capitalizations as of the date of signing of the Merger Agreement and also taking into account the 4,000,000 additional Keryx shares expected to be issued to Baupost Group Securities, L.L.C., or Baupost, prior to consummation of the Merger, as more fully described elsewhere in this document. These issuances of additional shares of our common stock will dilute our existing shareholders’ ownership interest in the Company, and will reduce our existing shareholders’ ownership and voting interest in the Company following the consummation of the Merger. In addition, Keryx shareholders may decide not to hold the shares of our common stock they receive in the Merger and other Keryx shareholders, such as funds with limitations on the amount of stock they are permitted to hold in individual issuers, may be required to sell the shares of our common stock that they receive in the Merger. Such sales of our common stock could result in higher than average trading volume following the closing of the Merger and may cause the market price for our common stock to decline.
Following completion of the Merger, our curre
nt shareholders in the aggregate will not
have a majority ownership and voting interest in the C
ompany and the structure of our Board of Directors
will be different, which may result in our shareholders having less influence on our management and policies.
Our shareholders currently have the right to vote for the election of directors to our Board of Directors and on other matters affecting us. Immediately following the Merger, our shareholders and the Keryx shareholders are expected to own approximately 49.4% and 50.6%, respectively, of our issued and outstanding shares of common stock, calculated based on the companies’ fully diluted market capitalizations as of the date of signing of the Merger Agreement and also taking into account the 4,000,000 additional Keryx shares expected to be issued to Baupost prior to consummation of the Merger. In addition, the Merger Agreement provides that as of the closing of the Merger, we must take all necessary corporate action to cause an increase in the size of our Board of Directors to ten directors, comprised of four directors designated by our Board of Directors, each of whom will be a director of the Company immediately prior to the consummation of the Merger and be reasonably acceptable to Keryx, referred to as the Continuing Directors, and five directors designated by the Keryx Board of Directors, each of whom will be a director of Keryx immediately prior to the consummation of the Merger and be reasonably acceptable to us, referred to as the Keryx Designees. In addition, our Board of Directors and the Keryx Board of Directors will designate one additional independent director, who does not currently sit on the Boards of Directors of either Akebia or Keryx, who will serve as the Chairperson of our Board of Directors if and when the Merger is consummated. As a result, our shareholders may have less influence on our management and policies than they currently have.
Consummation of the Merger could result in limitations to our ability to utilize pre-change operating losses to offset future taxable income.
In general, under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change net operating losses, or NOLs, to offset future taxable income. As the Merger is structured as an all-stock merger, we expect the consummation of the transaction to create a limitation for both Akebia and Keryx’s pre-merger NOLs. Depending on the equity value of both Akebia and Keryx on the date the merger is consummated, the limitations could be restrictive enough to impact our ability to utilize our NOLs to offset future taxable income.
52
Risks Related to our Financial Position and Need for Additional Capital
We have incurred significant net losses since inception and anticipate that we will continue to incur significant and increasing net losses for the foreseeable future.
Investment in pharmaceutical product development is highly speculative because it entails upfront capital expenditures and significant risk that a product candidate will fail to gain marketing approval or become commercially viable. Since our inception, we have devoted most of our resources to research and development, including our preclinical and clinical development activities. We have financed our operations primarily through sales of equity securities and our strategic collaborations. To date, we have no products approved for commercial sale and have not generated any revenue from the sale of products. As a result, we are not profitable and have incurred net losses each year since our inception, including net losses of $83.5 million for the nine months ended September 30, 2018. As of September 30, 2018, we had an accumulated deficit of $454.3 million. We do not know whether or when we will generate product revenue or become profitable.
We expect to continue to incur significant expenses and increased operating losses for the foreseeable future. The amount of our future net losses will depend, in part, on the rate of our future expenditures, and our financial position will depend, in part, on our ability to obtain funding through equity or debt financings or strategic collaborations. We anticipate that our expenses will increase significantly if and as we:
|
•
|
conduct our development program of vadadustat for the treatment of anemia due to CKD including PRO
2
TECT, INNO
2
VATE, FO
2
RWARD-2 and TRILO
2
GY-2, and develop plans for and conduct the preclinical and clinical development of any other potential product candidates;
|
|
•
|
complete the Merger, subject to satisfying closing conditions, including obtaining applicable shareholder and regulatory approvals, integrate with Keryx following successful completion of the Merger, and seek to satisfy contractual and regulatory obligations following closing of the Merger;
|
|
•
|
seek marketing approvals for our product candidates that successfully complete clinical studies, and maintain such marketing approvals, including complying with any post-marketing regulatory requirements;
|
|
•
|
have our product candidates manufactured for clinical trials and for commercial sale;
|
|
•
|
establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval;
|
|
•
|
initiate additional preclinical, clinical or other studies for vadadustat and any other product candidates;
|
|
•
|
seek to discover and develop additional product candidates;
|
|
•
|
engage in transactions, including strategic transactions, merger, collaboration, acquisition and licensing arrangements, pursuant to which we would market and develop commercial products, or develop other product candidates and technologies;
|
|
•
|
make royalty, milestone or other payments under our license agreement with Janssen Pharmaceutica NV, or Janssen, and any future in-license agreements;
|
|
•
|
maintain, protect and expand our intellectual property portfolio;
|
|
•
|
attract and retain skilled personnel;
|
|
•
|
continue to create additional infrastructure and expend additional resources to support our operations as a public company, including any additional infrastructure and resources necessary to support a transition from our status as an emerging growth company; and
|
|
•
|
experience any delays or encounter issues with any of the above.
|
Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses. The net losses we incur may fluctuate significantly from quarter to quarter and year to year, such that a period-to-period comparison of our results of operations may not be a good indication of our future performance. In any particular quarter, the progress of our clinical development and our operating results could be below the expectations of securities analysts or investors, which could cause our stock price to decline.
53
Even if we succeed in receiving marketing appro
val for and are able to commercialize vadadustat, we will continue to incur substantial research and development and other expenditures to develop and market, if approved, any other product candidates as well as any costs relating to post-marketing require
ments for vadadustat
and any other product candidates that may receive marketing approval
. Our prior losses and expected future losses have had and will continue to have an adverse effect on our stockholders’ equity and working capital.
We have never generated any revenue from product sales, and we may never be profitable.
We have no products approved for commercial sale, have never generated any revenue from product sales, and do not anticipate generating any revenue from product sales unless and until we receive marketing approval for the commercial sale of a product candidate or in-license or acquire an approved product. Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict when, if at all, we will be able to achieve profitability. Our ability to generate revenue and achieve profitability depends significantly on our success in many factors, including the following:
|
•
|
completing research regarding, and preclinical and clinical development of, our product candidates;
|
|
•
|
seeking and obtaining marketing approvals for our product candidates for which we complete clinical studies and the timing of such approvals;
|
|
•
|
developing, commercializing and marketing any product candidate or product that may be in-licensed or acquired, including as a result of a successful completion of the Merger;
|
|
•
|
developing sustainable and scalable manufacturing processes for our product candidates;
|
|
•
|
establishing and maintaining supply and manufacturing relationships with third parties that can provide adequate products and services to support clinical development and the market demand for our product candidates, if approved;
|
|
•
|
launching and commercializing our product candidates, either directly or with a collaborator or distributor;
|
|
•
|
obtaining sufficient pricing and reimbursement for our product candidates from private and governmental payors;
|
|
•
|
obtaining market acceptance of our product candidates as viable treatment options;
|
|
•
|
the size of any market in which our product candidates receive approval and adequate market share in those markets;
|
|
•
|
addressing any competing technological and market developments;
|
|
•
|
identifying, assessing, acquiring and/or developing new product candidates;
|
|
•
|
negotiating favorable terms in any transaction into which we may enter, including collaboration, merger, acquisition and licensing arrangements;
|
|
•
|
maintaining, protecting and expanding our portfolio of intellectual property rights, including patents, trade secrets and know-how; and
|
|
•
|
attracting, hiring and retaining qualified personnel.
|
Our expenses could increase beyond expectations if we are required by the U.S. Food and Drug Administration, or FDA, the European Medicines Agency, or EMA, or other regulatory authorities, or if we otherwise believe it is necessary, to change our manufacturing processes or assays, to amend or replace our study protocols, to repeat any of our clinical trials, to perform studies in addition to, different from or larger than those currently expected, or if there are any delays in completing our clinical trials or the development of any of our product candidates. Even if our product candidates are approved for commercial sale, we anticipate incurring significant costs associated with commercializing any approved product candidate. In addition, our ability to generate revenue would be negatively affected if the size of our addressable patient population is not as significant as we estimate, the indication approved by regulatory authorities is narrower than we expect, or the patient population for treatment is narrowed by competition, physician choice, or payor or treatment guidelines. Even if we are able to generate revenues from the sale of any approved products, we may never generate revenue that is significant enough to become and remain profitable, and we may need to obtain additional funding to continue operations.
54
We will require substantial additional financing to achieve our goals. A failure to obtain this necessary capital when needed could force us to delay, limit, reduce or terminate our product development or commercialization efforts.
As of September 30, 2018, our cash and cash equivalents and available for sale securities were $390.1 million. We expect to continue to expend substantial amounts for the foreseeable future developing and commercializing vadadustat, if approved, and any other product candidates. These expenditures will include costs associated with research and development, potentially obtaining marketing approvals and having our products manufactured, as well as marketing and selling products approved for sale, if any. In addition, other unanticipated costs may arise, including as a result of our decision to include certain elements in our development programs. Because the outcome of our current and anticipated clinical trials is highly uncertain, we cannot reasonably estimate the actual amount of funding necessary to successfully complete the development and commercialization of our product candidates. Our future capital requirements depend on many factors, including:
|
•
|
significant costs associated with our global Phase 3 development program for vadadustat for the treatment of anemia due to CKD. As of September 30, 2018, we expect the remaining external aggregate contract research organization, or CRO, costs of PRO
2
TECT and INNO
2
VATE, which are designed to enroll up to 7,300 subjects, to be in the range of $250.0 million to $280.0 million; the estimated costs for PRO
2
TECT and INNO
2
VATE could increase significantly due to a number of factors, including changes in target enrollment and enrollment rates, accrual of major adverse cardiovascular events, or MACE, the addition of new investigative sites, modification of clinical trial protocols, performing other studies in support of the Phase 3 program, choosing to add third-party vendors to support the program, and any other factor that could delay completion of PRO
2
TECT and INNO
2
VATE;
|
|
•
|
the results of our meetings with the FDA, the EMA and other regulatory authorities and the consequential effect on study design, study size and resulting operating costs;
|
|
•
|
difficulties or delays in enrolling patients in our clinical trials;
|
|
•
|
the timing of, and the costs involved in, obtaining marketing approvals for vadadustat and any other product candidates that we may develop or acquire, if clinical studies are successful, including to fund the preparation and filing of regulatory submissions with the FDA, the EMA and other regulatory authorities;
|
|
•
|
the cost of conducting the FO
2
RWARD-2 and TRILO
2
GY-2 clinical studies;
|
|
•
|
the cost, timing and outcome of our efforts to obtain marketing approval for vadadustat in the United States, Europe and in other jurisdictions;
|
|
•
|
the scope, progress, results and costs of additional preclinical, clinical, or other studies for vadadustat, as well as any studies of any other product candidates;
|
|
•
|
the cost of securing and validating commercial manufacturing of vadadustat;
|
|
•
|
the cost and timing of future commercialization activities for our products, if approved for marketing, including product manufacturing, marketing, sales and distribution costs;
|
|
•
|
the costs involved in preparing, filing and prosecuting patent applications and maintaining, defending and enforcing our intellectual property rights, including litigation costs, and the outcome of such litigation; and
|
|
•
|
the extent to which we engage in transactions, including collaboration, merger, acquisition and licensing arrangements pursuant to which we would develop and market commercial products, such as the Merger, or develop other product candidates and technologies.
|
We expect our existing cash resources, including the timing of committed research and development funding from our collaborators, to fund our current operating plan through the first quarter of 2020. We have based these estimates on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. Furthermore, our development milestones may not be achieved, we may not receive the anticipated funding from our collaboration partners, and we may not secure other sources of financing. If and until we can generate a sufficient amount of revenue from our products, we expect to finance future cash needs through public or private equity or debt offerings, payments from our collaborators, strategic transactions, or a combination of these approaches. Even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital if market conditions are favorable or if we have specific strategic objectives.
Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates. Also, additional funds may not be available to us in sufficient amounts or on acceptable terms or at all. If we are unable to raise additional capital in sufficient amounts when needed or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our product candidates. Any of these events could significantly harm our business, financial condition and prospects.
55
Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to product candidates on unfavorable terms to us.
Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through public or private equity or debt offerings, payments from our collaborators, strategic transactions, or a combination of these approaches. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our common stockholders will be diluted, our fixed payment obligations may increase, any such securities may have rights senior to those of our common stock, and the terms may include liquidation or other preferences and anti-dilution protections that adversely affect the rights of our common stockholders. Debt financing, if available, may involve agreements that would restrict our operations and potentially impair our competitiveness, such as limitations on our ability to incur additional debt, make capital expenditures, declare dividends, acquire, sell or license intellectual property rights, and other operating restrictions that could adversely impact our ability to conduct our business. If we raise additional funds through strategic transactions with third parties, we may have to do so at an earlier stage than otherwise would be desirable. In connection with any such strategic transactions, we may be required to relinquish valuable rights to our product candidates, future revenue streams, research programs or product candidates or grant licenses on terms that are not favorable to us. If we are unable to raise additional funds through equity or debt financing when needed, we may be required to delay, limit, reduce or terminate our product development or commercialization efforts for vadadustat, or any other product candidates that we develop or acquire, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Risks Related to our Business and the Clinical Development, Regulatory Review and Approval of Vadadustat and our Other Product Candidates
We depend heavily on the success of one product candidate, vadadustat, which is currently in Phase 3 development. Clinical drug development involves a lengthy and expensive process with an uncertain outcome. We will incur additional costs in connection with, and may experience delays in completing, or ultimately be unable to complete, the development and commercialization of vadadustat and any other product candidates.
The risk of failure in drug development is high. We currently have only one product candidate, vadadustat, in clinical development, and our business depends almost entirely on the successful clinical development, marketing approval and commercialization of vadadustat, which may never occur. Before obtaining marketing approval from regulatory authorities for the sale of any product candidate, we must complete preclinical development and conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates in humans. Clinical trials are expensive, difficult to design and implement, can take several years to complete, and their outcomes are inherently uncertain. Failure can occur at any time during the clinical trial process. Further, the results of preclinical studies and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials, and interim results of a clinical trial do not necessarily predict final results. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their product candidates. It is impossible to predict when or if any of our product candidates will prove effective or safe in humans or will receive marketing approval.
We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval or commercialize our product candidates. Our clinical trials may take longer to complete than currently anticipated, or may be delayed, suspended, required to be repeated, prematurely terminated or may not successfully demonstrate safety and/or efficacy for a variety of other reasons, such as:
|
•
|
the costs are greater than we anticipate;
|
|
•
|
the number of patients required for clinical trials of our product candidates may be larger than we anticipate;
|
|
•
|
enrollment in our clinical trials and accrual of MACE events may be slower than we anticipate, or participants may drop out of these clinical trials at a higher rate than we anticipate;
|
|
•
|
our third-party contractors may fail to comply with regulatory requirements, perform effectively, or meet their contractual obligations to us in a timely manner, or at all, or we may fail to communicate effectively or provide the appropriate level of oversight of such third-party contractors;
|
|
•
|
the supply or quality of our starting materials, drug substance and drug product necessary to conduct clinical trials of our product candidates may be insufficient or inadequate;
|
|
•
|
regulators, international data monitoring committees, or IDMCs, institutional review boards, or IRBs, safety committees, or ethics committees, may require that we suspend or terminate our clinical trials for various reasons, including noncompliance with regulatory requirements, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using our product candidate, or a finding that the participants are being exposed to unacceptable health risks;
|
56
|
•
|
clinical trials of our product candidates may produce negative or inconclusive results, and we may decide, or re
gulators may require us, to conduct additional clinical trials, repeat a clinical trial or abandon product development programs;
|
|
•
|
lack of adequate funding to continue a clinical trial, including unforeseen costs due to enrollment delays, requirements to conduct additional clinical trials or repeat a clinical trial and increased expenses associated with the services of our CROs and other third parties;
|
|
•
|
failure to initiate, delay of or failure to complete a clinical trial as a result of an Investigational New Drug Application, or IND, being placed on clinical hold by the FDA, EMA, the Japanese Pharmaceuticals and Medical Devices Agency, or PMDA, or other regulatory authorities, or for other reasons;
|
|
•
|
we may determine to change or expand a clinical trial, including after it has begun;
|
|
•
|
clinical trial sites and investigators deviating from the clinical protocol, failing to conduct the trial in accordance with regulatory requirements, or dropping out of a trial, or failure by us or our CROs to communicate effectively or provide the appropriate level of oversight of such clinical sites and investigators;
|
|
•
|
delay or failure in having subjects complete a clinical trial or return for post-treatment follow-up;
|
|
•
|
delay or failure in recruiting and enrolling suitable subjects to participate in a clinical trial;
|
|
•
|
inability, delay, or failure in identifying and maintaining a sufficient number of clinical trial sites, many of which may already be engaged in other clinical programs;
|
|
•
|
delay or failure in reaching agreement with the FDA, EMA, PMDA or other regulatory authorities on a clinical trial design upon which we are able to execute;
|
|
•
|
delay or failure in obtaining authorization to commence a clinical trial or inability to comply with conditions imposed by a regulatory authority regarding the scope or design of a clinical trial;
|
|
•
|
delays in reaching, or failure to reach, agreement on acceptable terms with prospective clinical trial sites and prospective CROs, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and clinical trial sites;
|
|
•
|
the FDA, EMA, PMDA or other regulatory authorities may require us to submit additional data or impose further requirements before permitting us to initiate a clinical trial;
|
|
•
|
failure to comply with good practice quality guidelines and regulations, or GXP, including good laboratory practice, or GLP, good clinical practice, or GCP, and current good manufacturing practice, or cGMP; or
|
|
•
|
changes in governmental regulations or administrative actions.
|
Many of the factors that cause or lead to a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of marketing approval for our product candidates. Further, the FDA, EMA, PMDA or other regulatory authorities may disagree with our clinical trial design and our interpretation of data from clinical trials, or may change the requirements for approval even after it has reviewed and commented on the design for our clinical trials.
If we are required to conduct additional clinical trials, repeat clinical trials or conduct other studies of our product candidates beyond those that we currently contemplate, if we are unable to successfully complete clinical trials of our product candidates or other studies, if the results of these trials or tests are not positive or are only modestly positive, or if there are safety concerns, we may:
|
•
|
be delayed in obtaining marketing approval for our product candidates;
|
|
•
|
not obtain marketing approval for our product candidates at all;
|
|
•
|
obtain approval for indications or patient populations that are not as broad as intended or desired;
|
|
•
|
obtain approval with labeling that includes significant use or distribution restrictions or safety warnings that would reduce the potential market for our products or inhibit our ability to successfully commercialize our products;
|
|
•
|
be subject to additional post-marketing restrictions and/or requirements; or
|
|
•
|
have the product removed from the market after obtaining marketing approval.
|
Our product development costs will also increase if we experience delays in preclinical and clinical development or receiving the requisite marketing approvals. Our preclinical studies or clinical trials may need to be restructured or may not be completed on schedule, or at all. Significant preclinical or clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do. This could impair our ability to successfully commercialize our product candidates and may harm our business and results of operations.
57
Even if we obtain favorable clinical results in our Phase 3 studies, we may not be able to obtain marketing approval for, or successfully commercialize,
vadadustat, or we may experience significant delays in doing so, any of which would materially harm our business.
The clinical trials of our product candidates are, and the manufacturing and marketing of our product candidates will be, subject to extensive and rigorous review and regulation by numerous government authorities in the United States, and in other countries where we and our collaborators intend to test and, if approved, market any product candidates. Before obtaining marketing approval for the commercial sale of any product candidate, we must demonstrate through extensive preclinical testing and clinical trials that the product candidate is safe and effective for use in each target indication. This process can take many years and marketing approval may never be achieved. Of the large number of drugs in development in the United States and in other jurisdictions, only a small percentage successfully complete the FDA’s and other jurisdictions’ marketing approval processes and are commercialized. Accordingly, even if we are able to obtain the requisite capital to continue to fund our development programs, we may be unable to successfully develop or commercialize vadadustat or any other product candidates.
We and Otsuka Pharmaceutical Co. Ltd., or Otsuka, our collaboration partner, are not permitted to market vadadustat in the United States until we receive approval from the FDA, in the European Union until we receive approval from the EMA, or in any other jurisdiction until the requisite approval from regulatory authorities in such jurisdiction is received. Mitsubishi Tanabe Pharma Corporation, or MTPC, our collaboration partner in Asia, will not be permitted to market vadadustat in Japan without approval from the PMDA or in any other jurisdiction until the requisite approval from regulatory authorities in such jurisdiction is received. As a condition to receiving marketing approval for vadadustat, we must complete Phase 3 studies and any additional preclinical or clinical studies required by the FDA, EMA, PMDA or other regulatory authorities. Vadadustat may not be successful in clinical trials or receive marketing approval. Further, vadadustat may not receive marketing approval even if it is successful in clinical trials.
Obtaining marketing approval in the United States and other jurisdictions is a complex, lengthy, expensive and uncertain process that typically takes many years and depends upon numerous factors, including the substantial discretion of the regulatory authorities. Even if our product candidates demonstrate safety and efficacy in clinical studies, the regulatory agencies may not complete their review processes in a timely manner, or we may not be able to obtain marketing approval. In addition, the safety concerns associated with injectable ESAs may affect the FDA’s, EMA’s, PMDA’s or other regulatory authorities’ review of the safety results of compounds in development for treatment of the same indications as injectable ESAs, including vadadustat. Further, the policies or regulations, or the type and amount of clinical data necessary to gain approval, may change during the course of a product candidate’s clinical development and may vary among jurisdictions. We have not obtained marketing approval for any product candidate, and it is possible that vadadustat and any other product candidates will never obtain marketing approval. The FDA may delay, limit or deny approval of vadadustat or any other product candidates for many reasons including, among others:
|
•
|
we may not be able to demonstrate that vadadustat is safe and effective in treating anemia due to CKD or that any other product candidate is safe and effective for its proposed indication(s) to the satisfaction of the FDA;
|
|
•
|
the FDA may require us to complete both the INNO
2
VATE clinical program and the PRO
2
TECT clinical program for vadadustat prior to filing our NDA even if one of these programs finishes in advance of the other;
|
|
•
|
the results of our clinical trials may not meet the level of statistical or clinical significance required by the FDA for marketing approval;
|
|
•
|
the FDA may disagree with the number, design, size, conduct or implementation of our clinical trials;
|
|
•
|
the FDA may not approve the formulation, labeling or specifications we request for vadadustat or any other product candidate;
|
|
•
|
the FDA may approve vadadustat or any other product candidate for use only in a small patient population or for fewer or more limited indications than we request;
|
|
•
|
the FDA may require that we conduct additional clinical trials or repeat one or more clinical trials;
|
|
•
|
the FDA may grant approval contingent on the performance of costly post-marketing clinical trials;
|
|
•
|
we, or our CROs or vendors, may fail to comply with GXP;
|
|
•
|
the CROs that we retain to conduct our clinical trials may not perform effectively or take actions that adversely impact our clinical trials, or we may fail to communicate effectively or provide the appropriate level of oversight of our CROs;
|
|
•
|
we or our third party manufacturers may fail to perform in accordance with the FDA’s cGMP requirements;
|
|
•
|
the FDA may disagree with inclusion of data obtained from certain regions outside the United States to support the NDA for potential reasons such as differences in clinical practice from United States standards;
|
|
•
|
the FDA may disagree with our interpretation of data from our preclinical studies and clinical trials;
|
58
|
•
|
the FDA could deem
that
our financial relationships with certain principal investigators constitute a conflict of interest, such that the data from those principal investigators may not
be used to support our applications;
|
|
•
|
an FDA Advisory Committee or other regulatory advisory group or authority could recommend non-approval or restrictions on approval;
|
|
•
|
the FDA’s decision-making regarding vadadustat and any other product candidates may be impacted by the results of competitors’ clinical trials;
|
|
•
|
the FDA may not approve the manufacturing processes or facilities of third party manufacturers with whom we contract; or
|
|
•
|
the policies or regulations of the FDA may significantly change in a manner that renders our clinical data insufficient for approval, or requires us to amend or submit new clinical protocols.
|
In addition, similar reasons may cause the EMA or PMDA or other regulatory authorities to delay, limit or deny approval of vadadustat or any other product candidate outside the United States.
If we experience delays in obtaining approval, or if we fail to obtain approval of our product candidates, the commercial prospects for our product candidates may be harmed and our ability to generate revenues will be materially impaired, which could have a material adverse effect on our business.
We may find it difficult to enroll patients in our clinical studies, which could delay or prevent clinical studies of our product candidates.
Identifying and qualifying patients to participate in clinical studies of our product candidates is critical to our success. The timing of our clinical studies depends, in part, on the speed at which we can recruit patients to participate in testing our product candidates. Patients may be unwilling to participate in our clinical studies of vadadustat or other product candidates because of concerns about adverse events observed with injectable ESAs, other investigational agents and commercial products in CKD or for other reasons, including competitive clinical studies for similar patient populations. In addition, patients currently receiving treatment with injectable ESAs may be reluctant to participate in a clinical trial with an investigational drug. Finally, competition for clinical trial sites may limit our access to subjects appropriate for studies of vadadustat and any other product candidates. As a result, the timeline for recruiting patients, conducting studies and obtaining marketing approval of vadadustat and any other product candidates may be delayed. These delays could result in increased costs, delays in advancing our development of vadadustat and any other product candidates, or termination of the clinical studies altogether.
We may not be able to identify, recruit and enroll a sufficient number of patients, or those with required or desired characteristics, to complete our clinical studies in a timely manner. Patient enrollment is affected by many factors, including:
|
•
|
severity of the disease under investigation;
|
|
•
|
design of the study protocol;
|
|
•
|
size and nature of the patient population;
|
|
•
|
eligibility criteria for, and design of, the study in question;
|
|
•
|
perceived risks and benefits of the product candidate under study, including as a result of adverse effects observed in similar or competing therapies;
|
|
•
|
proximity and availability of clinical study sites for prospective patients;
|
|
•
|
availability of competing therapies and clinical studies and clinicians’ and patients’ perceptions as to the potential advantages of the product candidate being studied in relation to available therapies or other product candidates in development;
|
|
•
|
efforts to facilitate timely enrollment in clinical studies;
|
|
•
|
clinical trial sites and investigators failing to perform effectively;
|
|
•
|
patient referral practices of physicians; and
|
|
•
|
ability to monitor patients adequately during and after treatment.
|
59
We may not be able to initiate or continue clinical studies if we cannot enroll a sufficient number of eligible patien
ts to participate in the clinical studies required by regulatory agencies. If we have difficulty enrolling a sufficient number of patients to conduct our clinical studies as planned, we may need to delay, limit or terminate on-going or planned clinical stu
dies, any of which could have a material adverse effect on our business.
We may not be able to conduct clinical trials in some jurisdictions outside of the United States.
We currently expect to seek marketing approval of vadadustat for the treatment of anemia due to CKD in markets outside the United States, including the European Union and Japan. Our ability to successfully initiate, enroll and complete a clinical study in any country outside of the United States is subject to numerous additional risks unique to conducting business in jurisdictions outside the United States, including:
|
•
|
difficulty in establishing or managing relationships with qualified CROs, physicians and clinical trial sites;
|
|
•
|
different local standards for the conduct of clinical studies;
|
|
•
|
difficulty in complying with various and complex import laws and regulations when shipping drug to certain countries; and
|
|
•
|
the potential burden of complying with a variety of laws, medical standards and regulatory requirements, including the regulation of pharmaceutical and biotechnology products and treatments.
|
Data obtained from studies conducted in the United States may not be accepted by the EMA, PMDA and other regulatory authorities outside of the United States. Also, certain jurisdictions require data from studies conducted in their country in order to obtain approval in that country. For example, in Japan, MTPC is conducting a Phase 3 program of vadadustat, which is separate from our global Phase 3 program of vadadustat.
If we have difficulty conducting our clinical studies in jurisdictions outside the United States as planned, we may need to delay, limit or terminate ongoing or planned clinical studies, any of which could have a material adverse effect on our business.
We may be delayed in obtaining, or be unable to obtain, marketing approval or reimbursement for vadadustat or any other product candidate in certain countries outside of the United States.
Regulatory authorities outside of the United States will require compliance with numerous and varying requirements. The approval procedures vary among jurisdictions and may involve requirements for additional testing, and the time required to obtain approval may differ from that required to obtain FDA approval. In addition, in many countries outside the United States, a drug product must be approved for reimbursement before it can be marketed or sold in that country. In some cases, the prices that we intend to charge for our products are also subject to approval. Approval by the FDA does not ensure approval by regulatory or reimbursement authorities outside the United States, and approval by one regulatory or reimbursement authority outside the United States does not ensure approval by the FDA or any other regulatory or reimbursement authorities. However, the failure to obtain approval or reimbursement in one jurisdiction may negatively impact our ability to obtain approval or reimbursement in another jurisdiction. The marketing approval process in countries outside of the United States may include all of the risks associated with obtaining FDA approval and, in some cases, additional risks. We may not obtain such regulatory or reimbursement approvals on a timely basis, if at all. We may not be able to file for marketing approvals and may not receive the necessary approvals to commercialize our product candidates in any market. Also, favorable pricing in certain countries depends on a number of factors, some of which are outside of our control.
Additionally, on June 23, 2016, the electorate in the United Kingdom voted in favor of leaving the European Union, commonly referred to as Brexit. On March 29, 2017, the United Kingdom formally notified the European Union of its intention to withdraw pursuant to Article 50 of the Lisbon
Treaty. Since a significant proportion of the regulatory framework in the United Kingdom is derived from European Union directives and regulations, the withdrawal could materially impact the regulatory regime with respect to the approval of our product can
didates
in the United Kingdom or the European Union. Any delay in obtaining, or an inability to obtain, any marketing approvals, as a result of Brexit or otherwise, would prevent us from commercializing our product candidates in the United Kingdom and/or the European Union and restrict our ability to generate revenue and achieve and sustain profitability. If any of these outcomes occurs, we may be forced to restrict or delay efforts to seek regulatory approval in the United Kingdom and/or European Union for our product candidates, which could significantly and materially harm our business.
60
Positive results from preclinical and clinical studies are not necessarily predictive of the results of any future clinical studies. Furthermore, initial success in our on
going clinical studies may not be indicative of results obtained when these studies are completed.
Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. Success in preclinical studies may not be predictive of similar results in humans during clinical trials, successful results from early or small clinical trials may not be replicated in later and larger clinical trials, and successful interim results from ongoing clinical studies may not be indicative of results obtained when those studies are completed. For example, our encouraging preclinical and clinical results for vadadustat thus far do not ensure that the results of any future clinical trials will demonstrate similar results. Our global Phase 3 development program for vadadustat is enrolling a larger number of subjects and will treat subjects for longer periods than our prior trials, which will result in a greater likelihood that adverse events may be observed. Many companies in the biopharmaceutical industry have suffered significant setbacks in late-stage clinical trials after achieving positive results in early stage development, and we may face similar setbacks. If the results of our ongoing or future clinical trials for vadadustat or any other product candidates are inconclusive with respect to efficacy, if we do not meet our clinical endpoints with statistical significance, or if there are safety concerns or adverse events, we may be prevented from or delayed in obtaining marketing approval for vadadustat or any other product candidates.
We may not be successful in our efforts to identify, acquire, discover, develop and commercialize additional products or product candidates, which could impair our ability to grow.
Although we continue to focus a substantial amount of our efforts on the development and potential commercialization of vadadustat, a key element of our long-term growth strategy is to acquire, develop and/or market additional products and product candidates. Research programs to identify product candidates require substantial technical, financial and human resources, regardless of whether product candidates are ultimately identified. Our research and development programs may initially show promise, yet fail to yield product candidates for clinical development or commercialization for many reasons, including the following:
|
•
|
the research methodology used may not be successful in identifying potential indications and/or product candidates;
|
|
•
|
we may not be able or willing to assemble sufficient resources to acquire or discover additional product candidates;
|
|
•
|
a product candidate may be shown to have harmful side effects, a lack of efficacy or otherwise does not meet applicable regulatory criteria;
|
|
•
|
product candidates we develop may nevertheless be covered by third-party patents or other exclusive rights;
|
|
•
|
the market for a product candidate may change during our program so that the continued development of that product candidate is no longer reasonable;
|
|
•
|
a product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; or
|
|
•
|
a product candidate may not be accepted as safe and effective by patients, the medical community, or third-party payors, if applicable.
|
If any of these events occurs, we may be forced to abandon our development efforts for one or more of our programs, or we may not be able to identify, discover, develop or commercialize additional product candidates, which would have a material adverse effect on our business.
Because we have limited financial and managerial resources, we focus on research programs and product candidates for specific indications. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential or a greater likelihood of success. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities.
Because our internal research capabilities are limited, we may be dependent upon other pharmaceutical and biotechnology companies, academic scientists, and other researchers to sell or license products or technology to us. The success of this strategy depends partly upon our ability to identify, select, and acquire promising product candidates and products. The process of proposing, negotiating and implementing a license or acquisition of a product candidate or an approved product is lengthy and complex. Other companies, including some with substantially greater financial, marketing and sales resources, may compete with us for the license or acquisition of a product candidate or an approved product. We have limited resources to identify and execute the acquisition or in-licensing of third-party products, businesses, and technologies and integrate them into our current infrastructure.
61
Moreover, we may devote resources to potential acquisitions or in-licensing opportunities that are never completed, or w
e may fail to realize the anticipated benefits of such efforts, including, for example, with respect to the Merger. Any product candidate that we acquire may require additional development efforts prior to commercial sale, including extensive clinical test
ing and approval by the FDA, EMA, PMDA or other regulatory authorities. All product candidates are prone to risks of failure typical of pharmaceutical product development, including the possibility that a product candidate will not be shown to be sufficien
tly safe and effective for approval by regulatory authorities. In addition, we cannot provide assurance that any products that we develop or approved products that we acquire will be manufactured profitably, achieve market acceptance or not require substan
tial post-marketing clinical trials.
Accordingly, there can be no assurance that we will ever be able to identify additional therapeutic opportunities for our product candidates or to acquire or develop suitable potential product candidates or approved products, which could materially adversely affect our future growth and prospects. We may focus our efforts and resources on potential product candidates or other programs that ultimately prove to be unsuccessful.
Our product candidates may cause undesirable side effects or have other properties that delay or prevent their marketing approval or limit their commercial potential.
Undesirable side effects caused by our product candidates or competing products in development that utilize a common mechanism of action could cause us or regulatory authorities to interrupt, delay or halt clinical trials, could result in a more restrictive label or the delay or the denial of marketing approval by the FDA or other regulatory authorities, and could lead to potential product liability claims. Results of our trials could reveal a high and unacceptable severity and prevalence of side effects or unexpected characteristics.
The subjects in our clinical studies have CKD, a serious disease that increases the risk of cardiovascular disease including heart attacks and stroke and, ultimately, may cause kidney failure. Many patients with CKD are elderly with comorbidities making them susceptible to significant health risks. Therefore, the likelihood of these subjects having adverse events, including serious adverse events, while participating in our studies is high. Serious adverse events considered related to vadadustat and any other product candidates could have a material adverse effect on the development of such product candidates and our business as a whole. Our understanding of adverse events in future clinical trials of our product candidates may change as we gather more information, and additional unexpected adverse events may be observed in future clinical trials.
If we or others identify undesirable side effects caused by our product candidates, either before or after receipt of marketing approval, a number of potentially significant negative consequences could result, including:
|
•
|
our clinical trials may be put on hold;
|
|
•
|
patient recruitment could be slowed, and enrolled patients may not want to complete the clinical trial;
|
|
•
|
we may be unable to obtain marketing approval for our product candidates or regulatory authorities may withdraw approvals of products;
|
|
•
|
regulatory authorities may require additional warnings on the label;
|
|
•
|
Risk Evaluation and Mitigation Strategies, or REMS, or FDA-imposed risk management plans that use risk minimization strategies to ensure that the benefits of certain prescription drugs outweigh their risks, may be required;
|
|
•
|
we could be sued and held liable for harm caused to patients; and
|
|
•
|
our reputation may suffer.
|
Any of these events could prevent us from achieving or maintaining marketing approval and, ultimately, market acceptance of our products, could substantially increase our costs, and could significantly impact our ability to successfully commercialize our product candidates and generate revenues.
Any product candidate for which we obtain marketing approval will be subject to extensive post-marketing regulatory requirements and could be subject to post-marketing restrictions or withdrawal from the market, and we may be subject to penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with our products, when and if any of them is approved.
Any marketing approvals that we receive for our product candidates
or any other product candidates or products
that we may develop or acquire may be subject to limitations on the approved indicated uses for which the product may be marketed or other conditions of approval, or contain requirements for potentially costly post-marketing studies and surveillance to monitor the safety and efficacy of the product, including REMS, or registries or observational studies. In addition, if the FDA or any other regulatory authority approves any of our product candidates, or any other product candidates or products that we may develop or acquire, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, as well as continued compliance with cGMPs and GCPs for any clinical trials that we conduct post-approval.
62
Moreover, the FDA and other regulatory authorities closely regulate the post-approval marketing and promotion of drugs to ensure drugs are marketed only for the approv
ed indications and in accordance with the provisions of the approved labeling. The FDA and other regulatory authorities impose stringent restrictions on companies’ communications regarding use of their products, and if we promote our products beyond their
approved indications or inconsistent with the approved label, we may be subject to enforcement actions or prosecution arising from such activities. Violations of the U.S. Federal Food, Drug, and Cosmetic Act, or the FD&C Act, relating to the promotion of p
rescription drugs may lead to investigations alleging violations of U.S. federal and state healthcare fraud and abuse and other laws, as well as state consumer protection laws, third party payor actions, shareholder actions and other lawsuits.
Post-approval discovery of previously unknown problems with an approved product, including adverse events of unanticipated severity or frequency or relating to manufacturing operations or processes, or failure to comply with regulatory requirements, may result in, among other things:
|
•
|
restrictions on the marketing, distribution, use or manufacturing of the product;
|
|
•
|
withdrawal of the product from the market, or product recalls;
|
|
•
|
restrictions on the labeling or marketing of a product;
|
|
•
|
fines, restitution or disgorgement of profits or revenues;
|
|
•
|
warning or untitled letters or clinical holds;
|
|
•
|
refusal by the FDA or other regulatory authorities to approve pending applications or supplements to approved applications filed by us, or suspension or revocation of product approvals;
|
|
•
|
product seizure or detention, or refusal to permit the import or export of products;
|
|
•
|
injunctions or the imposition of civil or criminal penalties.
|
Non-compliance with FDA, EMA, PMDA and other regulatory authorities’ requirements regarding safety monitoring or pharmacovigilance can also result in significant financial penalties.
The FDA’s policies and those of other regulatory authorities may change, and additional government regulations may be enacted. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or in other jurisdictions. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability, which would materially adversely affect our business.
Recent efforts to pursue regulatory reform may limit the FDA’s ability to engage in oversight and implementation activities in the normal course, and that could negatively impact our business.
Recently, there have been several executive actions taken, including the issuance of a number of executive orders, that could impose significant burdens on, or otherwise materially delay, the FDA’s ability to engage in routine regulatory and oversight activities such as implementing statutes through rulemaking, issuance of guidance, and review and approval of marketing applications. On January 30, 2017, an executive order, applicable to all executive agencies, including the FDA, was issued that requires that for each notice of proposed rulemaking or final regulation to be issued in fiscal year 2017, the agency shall identify at least two existing regulations to be repealed, unless prohibited by law. These requirements are referred to as the “two-for-one” provisions. This executive order includes a budget neutrality provision that requires the total incremental cost of all new regulations in the 2017 fiscal year, including repealed regulations, to be no greater than zero, except in limited circumstances. For fiscal years 2018 and beyond, the executive order requires agencies to identify regulations to offset any incremental cost of a new regulation. In interim guidance issued by the Office of Information and Regulatory Affairs within the Office of Management and on February 2, 2017, the administration indicates that the “two-for-one” provisions may apply not only to agency regulations, but also to significant agency guidance documents. It is difficult to predict how these requirements will be implemented, and the extent to which they will impact the FDA’s ability to exercise its regulatory authority. If these executive actions impose constraints on FDA’s ability to engage in oversight and implementation activities in the normal course, our business may be negatively impacted.
63
Risks Related to our Reliance on Third Parties
We rely on third parties to conduct preclinical and clinical studies for our product candidates. If they do not successfully carry out their contractual duties, comply with regulatory requirements or meet expected deadlines, we may not be able to obtain marketing approval for or commercialize vadadustat or any other product candidates, and our business could be substantially harmed.
We do not have the ability to independently conduct preclinical and clinical trials. We are currently relying, and expect to continue to rely, on third parties, such as CROs, clinical data management organizations, medical institutions and clinical investigators, to conduct our current and future preclinical studies and our clinical trials, including our global Phase 3 development program for vadadustat. The third parties on whom we rely may fail to perform effectively or terminate their engagement with us for a number of reasons, including the following:
|
•
|
if the quantity or accuracy of the data obtained by the third parties is compromised due to their failure to adhere to clinical trial protocols or to regulatory requirements, or if the third parties otherwise fail to comply with clinical trial protocols, perform effectively or meet expected deadlines;
|
|
•
|
if third parties experience staffing difficulties;
|
|
•
|
if we fail to communicate effectively or provide the appropriate level of oversight;
|
|
•
|
if third parties undergo changes in priorities or corporate structure or become financially distressed; or
|
|
•
|
if they form relationships with other entities, some of which may be our competitors.
|
Any of these events could cause our preclinical and clinical trials to be extended, delayed, suspended, required to be repeated or terminated, or we may receive untitled warning letters or be the subject of an enforcement action which could result in our failing to obtain marketing approval of vadadustat or any other product candidates on a timely basis, or at all, and would adversely affect our business operations. In addition, if the third parties on whom we rely may fail to perform effectively or terminate their engagement with us, we may need to enter into alternative arrangements, which could delay, perhaps significantly, development and commercialization of vadadustat and any other product candidates.
Even though we do not directly control the third parties on whom we rely to conduct our preclinical and clinical trials and therefore cannot guarantee the satisfactory and timely performance of their obligations to us, we are nevertheless responsible for ensuring that each of our clinical trials is conducted in accordance with the applicable protocol, legal and regulatory requirements, including GXP requirements, and scientific standards, and our reliance on these third parties, including CROs, will not relieve us of our regulatory responsibilities. If we or any of our CROs, their subcontractors, or clinical trial sites fail to comply with applicable GXP requirements, the clinical data generated in our clinical trials may be deemed unreliable or insufficient, our clinical trials could be put on hold, and/or the FDA, EMA or other regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. In addition, our clinical trials must be conducted with drug product that meets certain specifications and is manufactured under applicable cGMP regulations. These requirements include, among other things, quality control, quality assurance, and the satisfactory maintenance of records and documentation.
We also rely on other third parties to store and distribute drug supplies for our clinical trials. Any performance failure on the part of our distributors could delay clinical development or marketing approval of our product candidates or commercialization of our products, resulting in additional costs and depriving us of potential product revenue. In addition, we are using an active comparator in our PRO
2
TECT and INNO
2
VATE clinical programs. If our distributors are unable to obtain sufficient supply of the active comparator for any reason, or supply active comparator to clinical trial sites in a timely manner, our clinical trials may be extended, delayed, suspended or terminated.
We rely on third parties to conduct all aspects of our product manufacturing. If they do not successfully carry out their contractual duties, comply with regulatory requirements or meet expected deadlines, we may not be able to obtain marketing approval for or commercialize vadadustat or any other product candidates, and our business could be substantially harmed.
We do not have any manufacturing facilities and do not expect to independently manufacture our product candidates for research and preclinical and clinical studies or, if our product candidates are approved, for commercial purposes. We currently rely on third party manufacturers to produce all of our preclinical and clinical material supply. We expect to continue to rely on existing or alternative third party manufacturers to supply our ongoing and planned preclinical and clinical trials and for commercial production. We have not yet entered into binding agreements with third party manufacturers to manufacture commercial quantities of vadadustat, and we may not be able to negotiate binding agreements at commercially reasonable terms. Our reliance on third party manufacturers increases the risk that we will not have sufficient quantities of our product candidates or the ability to obtain such quantities at an acceptable cost or quality, which could delay, prevent or impair our development or commercialization efforts.
64
If any of our third-party manufacturers cannot perform as agreed, including a misappropriation of our proprietary information, or if they terminate their engagements with us, we may be forced to manufacture the materials ourselves, for which we
currently do not have the capabilities or resources, or enter into agreements with other third party manufacturers, which we may not be able to do on favorable or reasonable terms, if at all. In some cases, there may be a limited number of qualified replac
ement manufacturers, or the technical skills or technology required to manufacture a product candidate may be unique or proprietary to the original manufacturer and we may have difficulty transferring such skills or technology to another third party or a f
easible alternative may not exist. These factors would increase our reliance on such manufacturer or require us to obtain a license from such manufacturer in order to have another third party manufacture our product candidates. If we are required to change
manufacturers for any reason, we will be required to verify that the new manufacturer maintains facilities and procedures that comply with quality standards and with all applicable regulations and guidelines. The delays associated with the verification of
a new manufacturer could negatively affect our ability to develop and receive marketing approval for product candidates in a timely manner or within budget or, if vadadustat or any other product candidate is approved and marketed, a failure to satisfy pat
ient demand.
The facilities and processes used by our third party manufacturers to manufacture our product candidates will be inspected by the FDA, EMA and other regulatory authorities prior to or after we submit our marketing application. We do not control the manufacturing processes of, and are completely dependent on, our third party manufacturers for compliance with cGMP requirements for manufacture of certain starting materials, drug substance and finished drug product. If our third party manufacturers cannot successfully manufacture material that conforms to our specifications and regulatory requirements, we will not be able to secure and/or maintain marketing approval for our product candidates. In addition, we have no control over the ability of our third party manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA, EMA or other regulatory authorities do not approve these facilities for the manufacture of our product candidates, or if they withdraw any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain marketing approval for or market our product candidates, if approved. Moreover, the failure of our third party manufacturers to comply with applicable regulations could result in sanctions being imposed on us, including clinical holds, fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates or products, if approved, operating restrictions or criminal prosecutions, any of which could significantly and adversely affect the supply of our product candidates or products, if approved. Also, if our starting materials, drug substance or drug product are damaged or lost while in our third party manufacturers’ control, it may impact our ability to supply our products, if approved, or product candidates and we may incur significant financial harm. In addition, our product candidates and products, if approved, may compete with other product candidates and products for access to third party manufacturing facilities. Certain of these third party manufacturing facilities may be contractually prohibited from manufacturing our product candidates or products, if approved, due to exclusivity provisions in agreements with our competitors. There are a limited number of manufacturers that operate under cGMP regulations and are capable of manufacturing our product candidates and products, if approved, for us.
Our current and anticipated future dependence on third parties for the manufacture of our product candidates or our products, if approved, may adversely affect our ability to commercialize any drugs that receive marketing approval on a timely and competitive basis and any future profit margins.
If we are unable to obtain our product candidates or products, if approved, in sufficient quantities and at sufficient yields, we may experience delays in product development, preclinical or clinical studies, marketing approvals and commercial distribution.
Completion of our preclinical and clinical studies and commercialization of our product candidates require access to facilities to manufacture our product candidates at sufficient yields and at clinical and commercial scale. We have limited experience managing third parties in manufacturing our product candidates or products, if approved, in the volumes that will be necessary to support large-scale clinical trials or commercial sales. Our third party manufacturers may not meet our expectations as to scheduling, scale-up, reproducibility, yield, purity, cost, potency or quality.
Our reliance on third party manufacturers may adversely affect our operations or result in unforeseen delays or other problems beyond our control. Because of contractual restraints and the limited number of third party manufacturers with the expertise, required marketing approvals and facilities to manufacture our bulk starting materials, drug substance and finished drug product on a commercial scale, replacement of a third party manufacturer may be expensive and time-consuming and may cause interruptions in the production of our product candidates or products, if approved. A third party manufacturer may also encounter delays brought on by sudden internal resource constraints, labor disputes, or shifting regulatory protocols. In addition, a contract manufacturer may also require a substantial financial commitment, including but not limited to a commitment to fund the purchase of a new facility or equipment.
Any delay or interruption in our supply of product candidates or products, if approved, could cause delays in our product development, clinical trials, marketing approvals, commercial distribution, or have a material adverse effect on our business, financial condition, results of operations and cash flows.
65
Third party manufacturers may be unable to successfully scale-up manufacturing of our product candidates in sufficient quality and quantity, which would delay or prevent us f
rom developing our product candidates and commercializing approved products, if any.
In order to complete our development of and commercialize, if approved, vadadustat and any other product candidates, we will need to work with third party manufacturers to manufacture them in large quantities. Our current and future third party manufacturers may be unable to successfully achieve commercial scale production of vadadustat or increase the manufacturing capacity of any other product candidates for the conduct of clinical trials and commercialization in a timely or cost-effective manner, if at all. In addition, quality issues may arise during scale-up activities. Any changes in our manufacturing processes as a result of scaling up may result in the need to obtain additional marketing approvals. If our third party manufacturers are unable to achieve commercial scale production or there is a need for additional marketing approvals of vadadustat or any other product candidates, or if there are difficulties in increasing the manufacturing capacity for any other product candidates, the development, marketing approval and commercialization of that product candidate may be delayed or infeasible, or ongoing commercialization may be unsuccessful, any of which could significantly harm our business.
The loss of any of our manufacturers could materially harm our business.
We currently have redundant supply arrangements in place for the preclinical and clinical supply of vadadustat. We have not yet entered into binding agreements with third party manufacturers to manufacture commercial quantities of vadadustat. While we intend to put redundant supply arrangements in place for commercial manufacturing of vadadustat, we may be unsuccessful in doing so due to a number of factors, including that we may not be able to negotiate binding agreements at commercially reasonable terms. Even if we are ultimately successful in entering into redundant supply arrangements for commercial manufacturing of vadadustat, the timing of such arrangements is uncertain.
We do not know whether our third party manufacturers will be able to meet our demand, either because of the nature of our agreements with those third party manufacturers, our limited experience with those third party manufacturers or our relative importance as a customer to those third party manufacturers. It may be difficult for us to assess their ability to timely meet our demand in the future based on past performance. While our current third party manufacturers have generally met our demand for their products on a timely basis in the past, they may subordinate our needs in the future to their other customers.
If we are unsuccessful in implementing redundant supply arrangements for commercial quantities of vadadustat, or if any of our third party manufacturers is unable to fulfill the terms of their agreements with us, are subject to regulatory review, or cease their operations for any reason, it could result in delays to our marketing approval and risk that we would not have sufficient quantities of our product candidates, and if approved, products, for clinical trials and commercialization.
We depend on our collaborations with Otsuka and MTPC for the development and commercialization of vadadustat, and we may depend on collaborations with additional third parties for the development and commercialization of vadadustat and any other product candidates. If our collaborations are not successful or if our collaborators terminate their agreements with us, we may not be able to capitalize on the market potential of vadadustat or any other product candidates and our business could be materially harmed.
We entered into collaboration agreements with Otsuka to develop and commercialize vadadustat in the United States, Europe, China and certain other territories. We also entered into a collaboration agreement with MTPC to develop and commercialize vadadustat in Japan and certain other Asian countries. We may form or seek other strategic alliances, joint ventures, or collaborations, or enter into additional licensing arrangements with third parties that we believe will complement or augment our development and commercialization efforts with respect to vadadustat and any other product candidates. Our likely collaborators for any collaboration arrangements include large and mid-size pharmaceutical companies, regional and national pharmaceutical companies and biotechnology companies.
We may not be able to maintain our collaborations and our collaborations may not be successful due to a number of important factors, including the following:
|
•
|
collaborators may have significant discretion in determining the efforts and resources that they will apply to these collaborations;
|
|
•
|
collaborations may be terminated in accordance with the terms of the collaborations and, if terminated, may make it difficult for us to attract new collaborators or adversely affect how we are perceived in scientific and financial communities, and may result in a need for additional capital and expansion of our internal capabilities to pursue further development or commercialization of the applicable product candidates;
|
66
|
•
|
if permitted by the terms of the collaborations, collaborators may elect not to continue or renew development or commercialization programs based on clinical trial results,
changes in their strategic focus, availability of funding or other external factors such as a business combination that diverts resources or creates competing priorities;
|
|
•
|
if permitted by the terms of the collaborations, collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial, abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;
|
|
•
|
a collaborator with marketing and distribution rights to one or more products may not commit sufficient resources to their marketing and distribution;
|
|
•
|
if permitted by the terms of the collaboration, we and our collaborator may have a difference of opinion regarding the development or commercialization strategy for a particular product, and our collaborator may have ultimate decision making authority;
|
|
•
|
disputes may arise between a collaborator and us that cause the delay or termination of activities related to research, development or commercialization of vadadustat and any other product candidates, or that result in costly litigation or arbitration that diverts management attention and resources;
|
|
•
|
collaborations may not lead to development or commercialization of product candidates in the most efficient manner or at all;
|
|
•
|
a significant change in the senior management team, a change in the financial condition or a change in the business operations, including a change in control or internal corporate restructuring, of any of our collaborators, could result in delayed timelines, re-prioritization of our programs, decreasing resources or funding allocated to support our programs, or termination of the collaborations; and
|
|
•
|
collaborators may not comply with all applicable regulatory requirements.
|
If any of these events occurs, the market potential of our product candidates could be reduced, and our business could be materially harmed. We also cannot be certain that, following a collaboration, the benefits of the collaboration will outweigh the potential risks.
We may seek to establish additional collaborations and, if we are not able to establish them on commercially reasonable terms, we may have to alter our development and commercialization plans.
We will require substantial additional cash to fund the development and potential commercialization of vadadustat and any other product candidates. For some of our product candidates, including vadadustat, we may decide to enter into additional collaborations for their development and potential commercialization. Any of these relationships may require us to incur non-recurring and other charges, increase our near and long-term expenditures, issue securities that dilute our existing stockholders, or disrupt our management and business.
We may not be successful in entering into additional collaborations as a result of many factors including the following:
|
•
|
competition in seeking appropriate collaborators;
|
|
•
|
a reduced number of potential collaborators due to recent business combinations in the pharmaceutical industry;
|
|
•
|
inability to negotiate collaborations on acceptable terms;
|
|
•
|
inability to negotiate collaborations on a timely basis;
|
|
•
|
a potential collaborator’s evaluation of our product candidate;
|
|
•
|
a potential collaborator’s resources and expertise; and
|
|
•
|
restrictions due to an existing collaboration agreement.
|
If we are unable to enter into additional collaborations, we may have to curtail the development of the product candidate on which we are seeking to collaborate, reduce or delay its development program or other of our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to further develop our product candidates or bring them to market and generate product revenue.
67
Even if we enter into additional collaboration agreements and strategic partnerships or license our intellectual property, we may not be able to maintain them or they may be unsuccessful, which could delay our timelines or otherwise adversely affect our bu
siness.
Risks Related to our Intellectual Property
If our efforts to protect our proprietary technologies are not adequate, we may not be able to compete effectively in our market.
We rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to our technologies. We will only be able to protect our product candidates, proprietary technologies and their uses from unauthorized use by third parties to the extent that valid and enforceable patents or trade secrets cover them. Any disclosure to or misappropriation by third parties of our confidential proprietary information could enable competitors to quickly duplicate or surpass our technological achievements, thus eroding our competitive position in the market.
In July 2011, a third party filed an opposition to our issued European patents, European Patent No. 2044005, or the ’005 EP Patent. During the oral proceedings, which took place on April 10, 2013, the Opposition Division of the European Patent Office decided to maintain certain claims of the patent directed to a compound chosen from a group of eight compounds, including vadadustat, as well as claims to compositions and methods for treating various diseases including, but not limited to, anemia. Both parties appealed the decision of the Opposition Division. On February 27, 2018, we withdrew the ’005 EP Patent from appeal and filed a divisional patent application to pursue a focused claim set that includes claims for vadadustat, as well as pharmaceutical compositions and methods of treating anemia. We cannot be assured that such claims in the divisional application will be granted by the European Patent Office. If such claims are not granted, or the scope of the claims is significantly narrowed, we may not be able to adequately protect our rights, provide sufficient exclusivity, or preserve our competitive advantage.
Composition-of-matter patents on the active pharmaceutical ingredient are generally considered to be the strongest form of intellectual property protection for pharmaceutical products, as such patents provide protection without regard to any method of use. Method-of-use patents protect the use of a product for the specified method. A method-of-use patent does not prevent a competitor from making and marketing a product that is identical to our product for an indication that is outside the scope of the patented method. Moreover, even if competitors do not actively promote their product for our targeted indications, physicians may prescribe these products “off-label.” Although off-label prescriptions may infringe or contribute to the infringement of method-of-use patents, the practice is common and such infringement is difficult to prevent or prosecute.
The strength of patents in the biotechnology and pharmaceutical field involves complex legal and scientific questions and can be uncertain. The patent applications that we own or license may fail to result in issued patents in the United States or in other countries. Our competitors have taken, and we expect that they will continue to undertake, formal efforts to oppose the issuance of claims in our patent applications. We do not control decisions made by the United States Patent and Trademark Office, or US PTO, or equivalent bodies outside the United States. Even if our patents do successfully issue, third parties may challenge the validity, enforceability, inventorship, or scope of these patents, such actions may result in such patents being narrowed, invalidated or held unenforceable. Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property or prevent others from designing around our claims. If the breadth or strength of protection provided by the patents and patent applications we hold with respect to our product candidates is threatened, it could dissuade companies from collaborating with us to develop, and threaten our ability to commercialize, our product candidates. If we encounter delays in our clinical trials, the period of time during which we could market our product candidates under patent protection would be reduced. Since patent applications in the United States and most other countries are confidential for a period of time after filing, we cannot be certain that we were the first to file any patent application related to our product candidates. Furthermore, for applications in which all claims are entitled to a priority date before March 16, 2013, an interference proceeding can be provoked by a third-party or instituted by the US PTO to determine who was the first to invent any of the subject matter covered by the patent claims of our applications. For applications containing a claim not entitled to priority before March 16, 2013, there is greater level of uncertainty in the patent law with the passage of the America Invents Act of 2011, which brought into effect significant changes to the U.S. patent laws and introduced new procedures for challenging pending patent applications and issued patents. A primary change under this reform was creating a “first to file” system in the United States. This requires us to be cognizant of the time from invention to filing of a patent application.
In addition to the protection afforded by patents, we seek to rely on trade secret protection and confidentiality agreements to protect proprietary know-how processes, and any other elements of our drug discovery and development process and information or technology that are not covered by patents. Although we require all of our employees to assign their inventions to us, and require all of our employees, consultants, advisors, collaborators and any third parties who have access to our proprietary know-how, information or technology to enter into confidentiality agreements, we cannot be certain that our trade secrets and other confidential or proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Furthermore, the laws of some countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the United States and abroad. If we are unable to prevent unauthorized material disclosure of our intellectual property to third parties, we will not be able to establish or maintain a competitive advantage in the market, which could materially adversely affect our business, operating results and financial condition.
68
Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets w
ill be misappropriated or disclosed.
Because we rely on third parties to assist with research, development and manufacture of our product candidates, we must, at times, share trade secrets with them. We seek to protect our proprietary technology in part by entering into confidentiality agreements and, if applicable, services agreements, material transfer agreements, consulting agreements, research agreements or other similar agreements with our advisors, employees, third-party contractors, collaborators and consultants prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information, including our trade secrets. Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other confidential information increases the risk that such information becomes known by our competitors, is inadvertently incorporated into the technology of others, or is disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our know-how and trade secrets, a competitor’s discovery of our trade secrets or other unauthorized use or disclosure would impair our competitive position and may have a material adverse effect on our business.
In addition, these agreements typically restrict the ability of our advisors, employees, third-party contractors, and consultants to publish data potentially relating to our trade secrets, although our agreements may contain certain limited publication rights. For example, any academic institution with which we may collaborate will usually expect to be granted rights to publish data arising out of such collaboration. We often grant such rights, provided that we are notified in advance and given the opportunity to delay publication for a limited time period in order for us to secure patent protection of intellectual property rights arising from the collaboration and remove confidential or trade secret information from any such publication. In the future, we may also conduct joint research and development programs that may require us to share trade secrets under the terms of our research and development or similar agreements. Despite our efforts to protect our trade secrets, our competitors may discover our trade secrets, either through breach of our agreements with third parties, independent development or disclosure or publication of information by any of our employees, advisors, consultants, third-party contractors or collaborators. A competitor’s discovery of our trade secrets would impair our competitive position and have an adverse impact on our business.
Third-party claims of intellectual property infringement may be costly and time consuming and may delay or harm our drug discovery, development and commercialization efforts.
Our commercial success depends in part on our avoiding infringement of the patents and proprietary rights of third parties. The pharmaceutical and biotechnology industries are characterized by extensive litigation over patent and other intellectual property rights. We have in the past and may in the future become a party to, or be threatened with, future adversarial litigation or other proceedings regarding intellectual property rights with respect to our drug candidates. As the pharmaceutical and biotechnology industries expand and more patents are issued, the risk increases that our drug candidates may give rise to claims of infringement of the patent rights of others.
While our product candidates are in preclinical studies and clinical trials, we believe that the use of our product candidates in these preclinical studies and clinical trials in the United States falls within the scope of the exemptions provided by 35 U.S.C. Section 271(e), which provides that it shall not be an act of infringement to make, use, offer to sell, or sell within the United States or import into the United States a patented invention solely for uses reasonably related to the development and submission of information to the FDA. As our product candidates progress toward commercialization, the possibility of a patent infringement claim against us increases. We attempt to ensure that our product candidates and the methods we employ to manufacture them, as well as the methods for their use which we intend to promote, do not infringe other parties’ patents and other proprietary rights. There can be no assurance they do not, however, and competitors or other parties may assert that we infringe their proprietary rights in any event.
Third parties may hold or obtain patents or other intellectual property rights and allege in the future that the use of our product candidates infringes these patents or intellectual property rights, or that we are employing their proprietary technology without authorization. We do not believe that there are any currently issued U.S. patents that will prevent us from commercializing vadadustat; nor do we make any admission that any of such patents are valid, enforceable or infringed. Under U.S. law, a party may be able to patent a discovery of a new way to use a previously known compound, even if such compound itself is patented, provided the newly discovered use is novel and nonobvious. Such a method-of-use patent, however, if valid, only protects the use of a claimed compound for the specified methods claimed in the patent. This type of patent does not prevent persons from using the compound for any previously known use of the compound. Further, this type of patent does not prevent persons from making and marketing the compound for an indication that is outside the scope of the patented method. We are not aware of any valid U.S. patents issued to FibroGen, or any other person, that claim methods of using any of our product candidates for purposes of inhibiting hypoxia-inducible factor prolyl hydroxylases, or HIF-PHs, for the treatment of anemia due to CKD. For example, we are aware of certain patents that have been acquired by FibroGen directed to certain heterocyclic carboxamide compounds that are described as inhibitors of prolyl-4-hydroxylase. Those patents, however, are believed to have expired as of December 2014.
FibroGen has also filed other patent applications in the U.S. and other countries directed to purportedly new methods of using such previously known heterocyclic carboxamide compounds for purposes of treating or affecting specified conditions, and some of these applications have since issued as patents. To the extent any such patents issue or have been issued, we may initiate opposition or other legal proceedings with respect to such patents. We discuss the status of the opposition proceedings against FibroGen’s European ’823, ’153, ’155 and ’333 EP Patents in Part II, Item 1. Legal Proceedings of this Quarterly Report on Form 10-Q.
69
There may be other patents of FibroGen or patents of other third parties of which we are currently unaware with claims to compounds, materials, formulations, methods of manufacture or methods for treatment related to the use or manufactur
e of our drug candidates. Also, because patent applications can take many years to issue, there may be currently pending patent applications which may later result in issued patents that our product candidates may infringe.
Third parties, including FibroGen, may in the future claim that our product candidates and other technologies infringe upon their patents and may challenge our ability to commercialize vadadustat. Parties making claims against us may seek and obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize vadadustat or any other product candidates. If any third-party patents were held by a court of competent jurisdiction to cover the manufacturing process of any of our product candidates, any molecules formed during the manufacturing process or any final product itself, the holders of any such patents may be able to block our ability to commercialize such product candidate unless we obtained a license under the applicable patents, or until such patents expire or they are finally determined to be held invalid or unenforceable. Similarly, if any third-party patent were held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture or our intended methods of use, including patient selection methods, the holders of any such patent may be able to block or impair our ability to develop and commercialize the applicable product candidate unless we obtained a license or until such patent expires or is finally determined to be held invalid or unenforceable. We may also elect to enter into a license in order to settle litigation or in order to resolve disputes prior to litigation. Furthermore, even in the absence of litigation, we may need to obtain licenses from third parties to advance our research or allow commercialization of our product candidates. Should a license to a third-party patent become necessary, we cannot predict whether we would be able to obtain a license or, if a license were available, whether it would be available on commercially reasonable terms. If such a license is necessary and a license under the applicable patent is unavailable on commercially reasonable terms, or at all, our ability to commercialize our product candidates may be impaired or delayed, which could in turn significantly harm our business.
Further, defense of infringement claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, pay royalties or redesign our products, which may be impossible or require substantial time and monetary expenditure.
We are currently involved in opposition and invalidity proceedings and may in the future be involved in lawsuits or administrative proceedings to challenge the patents of our competitors or to protect or enforce our patents, which could be expensive, time consuming, and unsuccessful.
Competitors may infringe our patents or misappropriate our trade secrets or confidential information. To counter infringement or unauthorized use, we may be required to file infringement or misappropriation claims, which can be expensive and time-consuming. We may not be able to prevent infringement of our patents or misappropriation of our trade secrets or confidential information, particularly in countries where the laws may not protect those rights as fully as in the United States. In addition, in an infringement proceeding, a court may decide that a patent of ours is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated, held unenforceable, or interpreted narrowly and could put our patent applications at risk of not issuing.
In addition, there may be a challenge or dispute regarding inventorship or ownership of patents or applications currently identified as being owned by or licensed to us. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. Interference proceedings provoked by third parties or brought by the US PTO may be necessary to determine the priority of inventions with respect to our patents or patent applications.
Various administrative proceedings are also available for challenging patents, including interference, reexamination, inter partes review, and post-grant review proceedings before the US PTO or oppositions and other comparable proceedings in foreign jurisdictions. An unfavorable outcome in any current or future proceeding in which we are challenging third-party patents could require us to cease using the patented technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms or at all. Even if we are successful, participation in interference or other administrative proceedings before the US PTO or a foreign patent office may result in substantial costs and distract our management and other employees.
For example, we are currently involved in opposition or invalidation proceedings in the European Patent Office, the Japan Patent Office and the Canadian Federal Court. These proceedings may be ongoing for a number of years and may involve substantial expense and diversion of employee resources from our business. In addition, we may become involved in additional opposition proceedings or other legal or administrative proceedings in the future. For more information, see the other risk factors under “Risks Related to our Intellectual Property” and Part II, Item 1. Legal Proceedings of this Quarterly Report on Form 10-Q.
70
Furthermore, because of the substantial amount of discovery required in connection with in
tellectual property litigation and some administrative proceedings, there is a risk that some of our confidential information could be compromised by disclosure. In addition, there could be public announcements of the results of hearings, motions or other
interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance fees on any issued patent are due to be paid to the US PTO and foreign patent agencies in several stages over the lifetime of the patent. The US PTO and governmental patent agencies in other jurisdictions also require compliance with a number of procedural, documentary, fee payment (such as annuities) and other similar provisions during the patent application process. While an inadvertent lapse in many cases can be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees, and failure to properly legalize and submit formal documents. In such an event, our competitors might be able to enter the market, which would have a material adverse effect on our business.
We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties.
We have received confidential and proprietary information from potential collaborators, prospective licensees and other third parties. In addition, we employ individuals who were previously employed at other biotechnology or pharmaceutical companies. We may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed confidential information of these third parties or our employees’ former employers. We may also be subject to claims that former employees, collaborators or other third parties have an ownership interest in our patents or other intellectual property. We may be subject to ownership disputes in the future arising, for example, from conflicting obligations of consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against these claims, litigation could result in substantial cost and be a distraction to our management and employees.
We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on our product candidates in all countries throughout the world would be prohibitively expensive. Consequently, the breadth of our intellectual property rights in some countries outside the United States may be less extensive than those in the United States. In addition, the laws of some countries do not protect intellectual property rights to the same extent as laws in the United States. As a result, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other countries. Competitors may use our technologies in countries where we have not obtained patent protection to develop their own products and, further, may infringe our patents in territories where we have patent protection, but enforcement is not as strong as in the United States. These products may compete with our products and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in certain countries. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property, particularly those relating to pharmaceutical and biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in countries outside of the United States could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing, and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.
71
Risks Re
lated to Commercialization
Our future commercial success depends upon attaining significant market acceptance of our product candidates, if approved, among physicians, patients, third-party payors and others in the medical community.
Even if we obtain marketing approval for vadadustat or any other product candidates, these product candidates may not gain market acceptance among physicians, patients, third-party payors, and others in the medical community in the United States or in other countries. In addition, market acceptance of any approved product depends on a number of other factors, including:
|
•
|
the safety and efficacy of the product, as demonstrated in clinical trials and in the post-marketing setting;
|
|
•
|
the prevalence of the disease treated by our product;
|
|
•
|
the clinical indications for which the product is approved and the product label approved by regulatory authorities, including any warnings or limitations that may be required on the label as a consequence of potential safety risks associated with the product;
|
|
•
|
the countries in which marketing approvals are obtained;
|
|
•
|
the claims we and our collaborators are able to make regarding the safety and efficacy of our products;
|
|
•
|
the success of our physician and patient communications and education programs;
|
|
•
|
acceptance by physicians and patients of the product as a safe and effective treatment and the willingness of the target patient population to try new therapies and of physicians to prescribe new therapies;
|
|
•
|
the cost, safety and efficacy of the product in relation to alternative treatments;
|
|
•
|
the timing of receipt of marketing approvals and product launch relative to competing products and potential generic entrants;
|
|
•
|
the availability of adequate coverage and reimbursement by third-party payors and governmental authorities, including patient cost-sharing programs such as copays and deductibles;
|
|
•
|
relative convenience and ease of administration;
|
|
•
|
the prevalence and severity of adverse side effects;
|
|
•
|
adverse publicity about our products or favorable publicity about competing products;
|
|
•
|
the effectiveness of our and our collaborators’ sales, marketing and distribution efforts; and
|
|
•
|
the restrictions on the use of our products together with other medications, if any.
|
Market acceptance of any of our product candidates, if approved, may also depend on factors specific to such candidates. If vadadustat is approved and included in the fixed reimbursement model for a bundle of dialysis services, or the bundle, we would be required to enter into contracts to supply vadadustat to specific dialysis clinics, instead of through third party payors, which we believe could be challenging. In May 2017, we entered into a license agreement, or the Vifor Agreement, pursuant to which we will grant Vifor (International) Ltd., or Vifor Pharma, an exclusive license to sell vadadustat solely to Fresenius Kidney Care Group LLC, or FKC, in the United States, subject to FDA approval and inclusion in the bundle. Under the Vifor Agreement, FKC is not obligated to utilize vadadustat in its clinics. In addition, even if FKC chooses to utilize in vadadustat its clinics in the United States, it is not restricted from utilizing other therapies for anemia due to CKD. The Vifor Agreement does not restrict us from entering into supply agreements with other dialysis clinics, such as DaVita, one of the largest operators of dialysis clinical in the United States; however, the dialysis clinics may not choose to contract with us for vadadustat or they may choose to contract with us for a limited supply of vadadustat. Although we currently believe it likely that vadadustat will be included in the bundle, if vadadustat is not included in the bundle, then the Vifor Agreement will not become effective, and patients would access vadadustat via contracts we negotiate with third party payors for reimbursement of vadadustat, which would be subject to the risks and uncertainties described above.
Market acceptance is critical to our ability to generate significant revenue. In addition, any product candidate, if approved and commercialized, may achieve only limited market acceptance or none at all. If any of our approved products is not accepted by the market to the extent that we expect, we may not be able to generate significant revenue and our business would suffer.
72
If we
are unable to establish sales, marketing and distribution capabilities or to enter into additional agreements with third parties to market and sell our product candidates, we may not be successful in commercializing our product candidates if they are appro
ved.
We are currently collaborating with Otsuka to develop and commercialize vadadustat in the United States, Europe, China and certain other jurisdictions and with MTPC to develop and commercialize vadadustat in Japan and certain other Asian countries. We do not have a sales or marketing infrastructure, and we have not yet sold, marketed or distributed any products. To achieve commercial success for any product for which we may obtain marketing approval, we will need to establish a sales and marketing organization or make arrangements for sales and marketing services, either by establishing our own or entering into additional geographic collaborations.
There are risks involved with establishing our own sales, marketing and distribution capabilities, including the following:
|
•
|
potential inability to recruit, train and retain adequate numbers of effective sales and marketing personnel;
|
|
•
|
potential inability of sales personnel to obtain access to physicians or persuade adequate numbers of physicians to prescribe our products, if approved;
|
|
•
|
potential lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and
|
|
•
|
costs and expenses associated with creating an independent sales and marketing organization.
|
If the commercial launch of a product candidate for which we recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.
If we are unable to establish our own sales, marketing and distribution capabilities for the United States and Latin America and, as a result, we must enter into arrangements with third parties to perform these services, our profitability, if any, is likely to be lower than if we were to market, sell and distribute any products that we develop ourselves. In addition, we may not be successful in entering into arrangements with third parties to sell, market and distribute our product candidates or may be unable to do so on terms that are favorable to us. We likely will have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our products effectively. If we do not establish sales, marketing and distribution capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing our product candidates.
We will be dependent on Otsuka, MTPC and any future commercialization partners to commercialize vadadustat, when and if it is approved. If Otsuka, MTPC or any future commercialization partner fails to perform under our agreements, our future results could be materially harmed.
We and Otsuka share the obligations to commercialize vadadustat in the United States, subject to obtaining marketing approval from the FDA; however, we are dependent on Otsuka to commercialize vadadustat in Europe, China and certain other territories and on MTPC to commercialize vadadustat in Japan and certain other Asian countries in the event we receive marketing approval in the applicable territories. If either of these collaborators fails to perform their obligations diligently under their agreements with us, including failing to diligently commercialize vadadustat in their territories, our sales potential in these regions may be materially harmed, and we may not have an adequate remedy for such harm under our agreements with either company. Furthermore, if a contractual dispute with either Otsuka or MTPC were to arise, it could result in costly litigation for us and jeopardize important revenue streams, which could materially harm our financial condition.
Coverage and reimbursement may be limited or unavailable in certain market segments for our product candidates, if approved, which could make it difficult for us to sell any approved products profitably.
Market acceptance and sales of any approved products will depend significantly on the availability of adequate coverage and reimbursement from third-party payors and may be affected by existing and future healthcare reform measures. Government authorities and third-party payors decide which drugs they will cover, as well as establish formularies or implement other mechanisms to manage utilization of products and determine reimbursement levels. Coverage and reimbursement by a third-party payor may depend upon a number of factors, including the third-party payor’s determination that use of a product is:
|
•
|
a covered benefit under its health plan;
|
|
•
|
safe, effective and medically necessary;
|
|
•
|
appropriate for the specific patient; and
|
73
Obt
aining coverage and reimbursement approval for a product from a government or other third-party payor is a time consuming and costly process that could require us to provide supporting scientific, clinical and cost-effectiveness data for the use of our pro
ducts to the payor. In the United States, there are multiple government and private third party payors with varying coverage and reimbursement levels for pharmaceutical products. Within Medicare, for oral drugs dispensed by pharmacies and also administered
in facilities, coverage and reimbursement may vary depending on the setting. The Centers for Medicare & Medicaid Services, or CMS, local Medicare administrative contractors and/or Medicare Part D plans may have some responsibility for determining the medi
cal necessity of such drugs, and therefore coverage, for different patients. Different reimbursement methodologies may apply and CMS may have some discretion in interpreting their application in certain settings. Medicaid reimbursement of drugs will also v
ary by state. Private third party payor reimbursement policies may also vary and may or may not be consistent with Medicare reimbursement methodologies. Manufacturers of outpatient prescription drugs may be required to provide discounts or rebates under go
vernment healthcare programs or to certain government or private purchasers in order to obtain coverage of such products under federal healthcare programs such as Medicaid.
Additionally, we may be required to enter into contracts with third-party payors offering rebates or discounts on our products in order to obtain favorable formulary status. We may not be able to agree upon commercially reasonable terms with such third-party payors or provide data sufficient to obtain favorable coverage and reimbursement for many reasons, including that we may be at a competitive disadvantage relative to companies with more extensive product lines. We cannot be sure that coverage or adequate reimbursement will be available for any of our product candidates. Even if we obtain coverage for any approved product, third-party payors may not establish adequate reimbursement amounts, which may reduce the demand for our product, and prompt us to have to reduce pricing for the products. If reimbursement is not available or is limited, we may not be able to commercialize certain of our products. In addition, in the United States third-party payors are increasingly attempting to contain healthcare costs by limiting both coverage reimbursement levels for new drugs. As a result, significant uncertainty exists as to whether and how much reimbursement third-party payors will provide for newly approved drugs, which, in turn, will put downward pressure on the pricing of drugs.
In addition, if vadadustat is approved and we are successful in entering into contracts to supply vadadustat to dialysis clinics, such facilities often receive fixed reimbursement for services, drugs and supplies included in the bundle. At this time, we believe that vadadustat, if approved, will likely be included in the bundle. We may be unable to sell vadadustat, if approved, to dialysis providers on a profitable basis if CMS significantly reduces the level of reimbursement for dialysis services and providers choose to use alternative therapies or look to negotiate their contracts with us. Our profitability may also be affected if our costs of production increase faster than increases in reimbursement levels. Patient and provider access to adequate coverage and reimbursement by government and private insurance plans is central to the acceptance of any products for which we receive marketing approval.
Price controls may be imposed, which may adversely affect our future profitability.
In some countries, including member states of the European Union, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take a significant amount of time after receipt of marketing approval for a product. In addition, there can be considerable pressure by governments and other stakeholders on prices and reimbursement levels, including as part of cost containment measures. Political, economic and regulatory developments may further complicate pricing negotiations, and pricing negotiations may continue after reimbursement has been obtained. Reference pricing used by various European Union member states and parallel distribution, or arbitrage between low-priced and high-priced member states, can further reduce prices, and even, in some instances, render commercialization in a market infeasible or disadvantageous from a financial perspective. In some countries, we or our collaborators may be required to conduct a clinical trial or other studies that compare the cost-effectiveness of our product candidates to other available products in order to obtain or maintain reimbursement or pricing approval. Publication of discounts by third-party payors or government authorities may lead to further pressure on the prices or reimbursement levels within the country of publication and other countries. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, the commercial launch of our product candidate could be delayed, possibly for lengthy periods of time, we or our collaborators may not launch at all in a particular country, we may not be able to recoup our investment in one or more product candidates, and there could be a material adverse effect on our business.
The impact of recent healthcare reform legislation and other changes in the healthcare industry on us is currently unknown, and may adversely affect our business model.
Our revenue prospects could be affected by changes in healthcare spending and policy in the United States, Europe, China, Japan and other countries. We operate in a highly regulated industry and new laws, regulations or judicial decisions, or new interpretations of existing laws, regulations or decisions related to healthcare availability or the method of delivery or payment for healthcare products and services could negatively impact our business, operations and financial condition.
74
The United States federal and state governments continue to propose and p
ass legislation intended to reduce the cost of healthcare. One of these reforms was the Health Care Reform Act, which included changes to the coverage and reimbursement of drugs under government healthcare programs, imposed new taxes on manufacturers of br
anded drugs, expanded health care coverage through Medicaid expansion, and implemented the individual health insurance mandate. Under the current administration, there have been ongoing efforts to modify or repeal all or certain provisions of the Health Ca
re Reform Act. For instance, tax reform legislation was enacted at the end of 2017 that eliminated the individual health insurance mandate
,
which is expected to increase the number of Americans without comprehensive health insurance. We cannot predict the
ultimate content, timing or effect of any changes to the Health Care Reform Act, and significant changes to, or repeal of, the Health Care Reform Act could have a material adverse effect on our business, financial condition and profitability.
Additional legislative actions to control U.S. healthcare costs include the Budget Control Act, which imposed 2% reductions in Medicare payments to providers beginning in 2013. Subsequent legislation extended these reductions through 2025. Any significant spending reductions affecting Medicare, Medicaid or other publicly funded or subsidized health programs that may be implemented, or any significant taxes or fees that may be imposed on us, as part of any broader deficit reduction effort or legislative replacement to the Budget Control Act, could have an adverse impact on potential revenues we may receive from any approved products.
It is likely that federal and state legislatures within the United States and foreign governments will continue to consider changes to existing healthcare legislation. We cannot predict the reform initiatives that may be adopted in the future or whether initiatives that have been adopted will be repealed or modified. The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare may adversely affect:
|
•
|
the demand for any products for which we may obtain marketing approval;
|
|
•
|
our ability to set a price that we believe is fair for our products;
|
|
•
|
our ability to obtain coverage and reimbursement approval for any approved product;
|
|
•
|
our ability to generate revenues and achieve or maintain profitability; and
|
|
•
|
the level of taxes that we are required to pay.
|
In the United States there is increasing scrutiny of drug prices, and federal or state reforms could impact our ability to establish what we believe is a fair price for our product candidates upon approval, and ultimately diminish our revenue prospects.
Recently, there has been considerable public and government scrutiny in the United States of pharmaceutical pricing and proposals to address the perceived high cost of pharmaceuticals. There have also been several recent state legislative efforts to address drug costs, which generally have focused on increasing transparency around drug costs or limiting drug prices or price increases. Adoption of new legislation at the federal or state level could affect demand for, or pricing of, our product candidates, if approved, and could diminish our ability to establish what we believe is a fair price for our products, ultimately diminishing our revenue for our products if they approved.
Even prior to approval of any of our product candidates, we are subject to a complex regulatory scheme that requires significant resources to ensure compliance. Failure to comply with applicable laws could subject us to government scrutiny or government enforcement, potentially resulting in costly investigations and/or fines or sanctions, or impacting our relationships with key regulatory agencies such as FDA or EMA.
Even before we obtain approval for vadadustat or any other product candidate, certain laws apply to us or may otherwise restrict our activities, including the following:
|
•
|
laws and regulations governing the conduct of preclinical and clinical studies in the United States and other countries in which we are conducting such studies;
|
|
•
|
laws and regulations in the United States and in countries in which we are interacting with health care providers, patients, patient organizations and other constituencies that prohibit promoting a drug prior to approval and/or reimbursement;
|
|
•
|
laws and regulations of countries outside the United States that prohibit pharmaceutical companies from promoting prescription drugs to the general public;
|
|
•
|
laws, regulations and industry codes that vary from country to country and govern our relationships with health care providers, patients, patient organizations, and other constituencies, prohibit certain types of gifts and entertainment, establish codes of conduct and, in some instances, require disclosure to, or approval by, regulatory authorities for us to engage in arrangements with such constituencies;
|
75
|
•
|
anti-corruption and anti-bribery laws, including the Foreign Corrupt Practices Act, or FCPA, the U.K. Bribery Act and various other anti-corruption laws in countries outside of the United States;
|
|
•
|
data privacy laws existing in the European Union and other countries in which we operate, including the U.S. Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and state privacy and data protection laws, as well as state consumer protection laws;
|
|
•
|
U.S. federal securities laws restricting the purchase or sale of any securities while in possession of material, non-public information; and
|
|
•
|
international trade laws, which are laws that regulate the sale, purchase, import, export, re-export, transfer and shipment of goods, products, materials, services and technology.
|
Compliance with these and other applicable laws and regulations requires us to expend significant resources. Failure to comply with these laws and regulations may subject us to penalties, damages, fines, the restructuring of our operations, or the imposition of a clinical hold, any of which could materially adversely affect our business and would result in increased costs and diversion of management attention.
Europe has enacted a new data privacy regulation, the General Data Protection Regulation, a violation of which could subject us to significant fines.
In May 2018, a new privacy regime, the General Data Protection Regulation, or GDPR, took effect across all member states of the European Economic Area, or EEA. The GDPR increases our obligations with respect to clinical trials conducted in the EEA by expanding the definition of personal data to include coded data, and requiring changes to informed consent practices and more detailed notices for clinical trial subjects and investigators. In addition, the GDPR increases the scrutiny that clinical trial sites located in the EEA should apply to transfers of personal data from such sites to countries that are considered to lack an adequate level of data protection, such as the United States. The GDPR imposes substantial fines for breaches of data protection requirements, which can be up to four percent of global turnover or 20 million Euros, whichever is greater, and it also confers a private right of action on data subjects for breaches of data protection requirements. Compliance with these directives is a rigorous and time-intensive process that may increase our cost of doing business, and the failure to comply with these laws could subject us to significant fines.
If any of our product candidates obtains marketing approval, we will be subject to additional healthcare laws, regulation and enforcement, and our failure to comply with those laws could have a material adverse effect on our results of operations and financial conditions.
If we obtain approval for any of our product candidates and begin commercializing them, our operations will be directly, or indirectly through our customers, subject to additional healthcare regulation and enforcement by the U.S. federal government, states and governments in countries outside of the United States in which we conduct our business. In addition to the laws mentioned above, the U.S. laws, and their non-U.S. equivalents, that may affect our ability to operate include:
|
•
|
the FD&C Act, which among other things, strictly regulates drug product marketing and promotion and prohibits manufacturers from marketing such products for off-label use;
|
|
•
|
the U.S. federal anti-kickback law, which prohibits, among other things, persons from soliciting, receiving or providing remuneration, directly or indirectly, to induce the referral for an item or service or the purchasing or ordering of a good or service for which payment may be made under U.S. federal healthcare programs such as Medicare and Medicaid;
|
|
•
|
U.S. federal false claims laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, information or claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent;
|
|
•
|
U.S. federal laws that require pharmaceutical manufacturers to report certain calculated product prices to the government or provide certain discounts or rebates to government authorities or private entities, often as a condition of reimbursement under government healthcare programs;
|
|
•
|
the so-called “federal sunshine” law, in the United States, which requires pharmaceutical and medical device manufacturers to report certain financial interactions to the federal government for re-disclosure to the public;
|
|
•
|
the U.S. federal law known as HIPAA, which, in addition to privacy protections, prohibits executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;
|
76
|
•
|
U.S. state law equivalents of the above U.S. federal laws, such as anti-kickback and false claims laws that may apply to items or services reimbursed by any third-party payor, including commercial insurers, and state gi
ft ban and transparency laws, which are not preempted by federal laws and often differ from state to state, thus complicating compliance efforts; and
|
|
•
|
U.S. state laws restricting interactions with healthcare providers and other members of the healthcare community or requiring pharmaceutical manufacturers to implement certain compliance standards.
|
Because of the breadth of these U.S. laws, and their non-U.S. equivalents, and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could be subject to challenge under one or more of such laws. In addition, recent healthcare reforms have strengthened these laws. For example, the Health Care Reform Act, among other things, amended the intent requirement of the U.S. federal anti-kickback law. A person or entity no longer needs to have actual knowledge of the statute or specific intent to violate the law. The Health Care Reform Act also amended the False Claims Act, such that violations of the anti-kickback statute are now deemed violations of the False Claims Act.
If our operations are found to be in violation of any of such laws or any other governmental regulations that apply to us, we may be subject to, on a corporate or individual basis, penalties, including civil and criminal penalties, damages, fines, the curtailment or restructuring of our operations, the exclusion from participation in healthcare programs in and out of the United States and even imprisonment, any of which could materially adversely affect our ability to operate our business and our financial results. In addition, the cost of implementing sufficient systems, controls, and processes to ensure compliance with all of the aforementioned laws could be significant.
We face substantial competition, which may result in others discovering, developing or commercializing products before, or more successfully than, we do.
The development and commercialization of new drugs is highly competitive and subject to rapid and significant technological change. Our future success depends on our ability to demonstrate and maintain a competitive advantage with respect to the development and commercialization of our product candidates. Our objective is to develop and commercialize new products with superior efficacy, convenience, tolerability and/or safety. In many cases, any approved products that we commercialize will compete with existing, market-leading products.
If vadadustat is approved and launched commercially, competing drugs may include EPOGEN
®
(epoetin alfa) and Aranesp
®
(darbepoetin alfa), both commercialized by Amgen, Procrit
®
(epoetin alfa) and Eprex
®
(epoetin alfa), both commercialized by Johnson & Johnson, and Mircera
®
(methoxy PEG-epoetin beta), commercialized by Vifor Pharma in the United States and Roche Holding Ltd. outside the United States. We may also face competition from potential new anemia therapies. In addition, there are several other HIF product candidates in various stages of active development for anemia indications that may be in direct competition with vadadustat if and when they are approved and launched commercially. These candidates are being developed by such companies as FibroGen, in collaboration with AstraZeneca PLC, or AstraZeneca, in the United States and China and with Astellas Pharma Inc., or Astellas, in Europe and Asia, Japan Tobacco International, GlaxoSmithKline plc and Bayer HealthCare AG. FibroGen together with Astellas and AstraZeneca are currently in Phase 3 global clinical development of their product candidate, roxadustat. Japan Tobacco International and Bayer HealthCare AG are currently in Phase 3 clinical development of their product candidates in Japan. GlaxoSmithKline plc is currently in Phase 3 global clinical development of its product candidate, daprodustat. Some of these product candidates may launch in certain markets as early as 2019. In addition, certain companies are developing potential new therapies for renal-related diseases that could potentially reduce injectable ESA utilization and thus limit the market potential for vadadustat if they are approved and launched commercially. Other new therapies are in development for the treatment of conditions inclusive of renal anemia that may impact the market for anemia-targeted treatment.
A biosimilar is a biologic product that is approved based on demonstrating that it is highly similar to an existing, FDA-approved branded biologic product. The patents for the existing, branded biologic product must expire in a given market before biosimilars may enter that market without risk of being sued for patent infringement. In addition, an application for a biosimilar product cannot be approved by the FDA until 12 years after the existing, branded product was approved under a Biologics License Application, or BLA. The patents for epoetin alfa, an injectable ESA, expired in 2004 in the European Union, and the remaining patents expired between 2012 and 2016 in the United States. Because injectable ESAs are biologic products, the introduction of biosimilars into the injectable ESA market in the United States will constitute additional competition for vadadustat if we are able to obtain approval for and commercially launch our product. Several biosimilar versions of injectable ESAs are available for sale in the European Union. In the United States, Pfizer’s biosimilar version of injectable ESAs, Retacrit
®
(epoetin alfa-epbx), was approved by the FDA in May 2018.
77
Many of our potential competitors have significantly greater financial, manufacturing, marketing, drug development, technical and human resources than we do. Large pharmaceutical companies, in particular, have extensive experience in clinic
al testing, obtaining marketing approvals, recruiting patients and manufacturing pharmaceutical products. Large and established companies such as Amgen and Roche, among others, compete in the market for drug products to treat anemia. In particular, these c
ompanies have greater experience and expertise in conducting preclinical testing and clinical trials, obtaining marketing approvals to market products, manufacturing such products on a broad scale and marketing approved products. These companies also have
significantly greater research and marketing capabilities than we do and may also have products that have been approved or are in late stages of development, and have collaborative arrangements in our target markets with leading companies and research inst
itutions. Established pharmaceutical companies may also invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make the product candidates that we are developing obsolete. Smaller and other ear
ly stage companies may also prove to be significant competitors. As a result of all of these factors, our competitors may succeed in obtaining patent protection and/or marketing approval, or discovering, developing and commercializing competitive products
before, or more effectively than, we do. If we are not able to compete effectively against potential competitors, our business will not grow and our financial condition and operations will suffer.
Risks Related to our Business and Industry
If we fail to attract, keep and motivate senior management and key personnel, we may be unable to successfully develop and commercialize, if approved, our product candidates.
Recruiting and retaining qualified scientific, clinical, medical, manufacturing and sales and marketing personnel is critical to our success. We are also highly dependent on our executives and certain members of our senior management. The loss of the services of our executives, senior managers or other key employees could impede the achievement of our research, development and commercialization objectives and seriously harm our ability to successfully implement our business strategy. Furthermore, replacing executives, senior managers and other key employees may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to successfully develop, gain marketing approval of and commercialize products. We may be unable to hire, train, retain or motivate these key personnel on acceptable terms given the intense competition among numerous biopharmaceutical companies for similar personnel.
We also experience competition for the hiring of personnel from universities and research institutions. In addition, we rely on contractors, consultants and advisors, including scientific and clinical advisors, to assist us in formulating and executing our research and development and commercialization strategy. Our contractors, consultants and advisors may become employed by companies other than ours and may have commitments with other entities that may limit their availability to us. If we are unable to continue to attract and retain high quality personnel, our ability to grow and pursue our business strategy will be limited.
Security breaches and unauthorized use of our IT systems and information, or the IT systems or information in the possession of our vendors, could damage the integrity of our clinical studies, impact our regulatory filings, compromise our ability to protect our intellectual property, and subject us to regulatory actions that could result in significant fines or other penalties.
We rely significantly upon information technology and any failure, inadequacy, interruption or security lapse of that technology, including any cyber security incidents, could harm our ability to operate our business effectively. In the ordinary course of our business, we and our third-party contractors maintain personal and other sensitive data on our and their respective networks, including our intellectual property and proprietary or confidential business information relating to our business and that of our clinical trial participants and business partners. In particular, we rely on CROs and other third parties to store and manage information from our clinical trials. The secure maintenance of this sensitive information is critical to our business and reputation.
Companies and other entities and individuals have been increasingly subject to a wide variety of security incidents, cyber-attacks and other attempts to gain unauthorized access to systems and information. These threats can come from a variety of sources, ranging in sophistication from individual hackers to state-sponsored attacks. Cyber threats may be broadly targeted, or they may be custom-crafted against our information systems or those of our vendors or third-party service providers. A security breach, cyber-attack or unauthorized access of our clinical data or other data could damage the integrity of our clinical trial data, impact our regulatory filings, cause significant risk to our business, compromise our ability to protect our intellectual property, and subject us to regulatory actions, including under the new General Data Protection Regulation discussed elsewhere in these risk factors, that could be expensive to defend and could result in significant fines or other penalties. Cyber-attacks can include malware, computer viruses, hacking or other unauthorized access or other significant compromise of our computer, communications and related systems. Although we take steps to manage and avoid these risks and to be prepared to respond to attacks, our preventive and any remedial actions may not be successful. Likewise, although we believe our vendors and service providers, such as our CROs, take steps to manage and avoid information security risks and respond to attacks, we may be vulnerable to attacks against our vendors or service providers, and we may not have adequate contractual remedies against such vendors and service providers in such event. In the recent past, cyber-attacks have become more prevalent and much harder to detect and defend against, and we might not anticipate or immediately detect such incidents and the damage caused by such incidents.
78
Such attacks, whether successful or unsuccessful, or other compromises with respect to our information security and the measures we implement to prevent, detect and respond to them
,
could result in our incurring significant
costs related to, for example, rebuilding internal systems, defending against litigation, responding to regulatory inquiries or actions, paying damages or fines, or taking other remedial steps with respect to third parties, divert the attention of our man
agement and key information technology resources, disrupt key business operations, harm our reputation and deter business partners from working with us. A compromise with respect to our information security could lead to public exposure of personal informa
tion of our clinical trial patients and others, and publicity about information security. Publicity about vulnerabilities and attempted or successful incursions could damage the integrity of our studies or delay their completion. For example, any loss of c
linical trial data could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. In addition, such attacks could compromise our ability to protect our trade secrets and proprietary informa
tion from unauthorized access or misappropriation and a loss of, or damage to, our data or applications or inappropriate public disclosure of confidential or proprietary information could subject us to liability and cause delays in our product research, de
velopment and commercialization efforts. We currently do not maintain cybersecurity insurance to protect against losses due to security breaches.
We are conducting global clinical trials in countries where corruption is prevalent. In addition, we are subject to a variety of import and export trade laws. Violations of any of these laws by our personnel or on the part of any of our vendors or agents, such as our CROs or CMOs, could have a material adverse impact on our clinical trials and our business and could result in criminal or civil fines and sanctions.
We are subject to complex laws that govern our international business practices. These laws include the FCPA, which prohibits U.S. companies and their intermediaries, such as CROs or CMOs, from making improper payments to foreign government officials for the purposes of obtaining or keeping business or to obtain any kind of advantage for the company. The FCPA also requires companies to keep accurate books and records and maintain adequate accounting controls. A number of past and recent FCPA investigations by the Department of Justice and the Securities and Exchange Commission have focused on the life sciences sector.
Compliance with the FCPA is expensive and difficult, particularly in countries in which c
orruption is a recognized problem. Some of the countries in which we are conducting clinical trials have a history of corruption, which increases our risks of FCPA violations. In addition, the FCPA presents unique challenges in the pharmaceutical industry because, in many countries, hospitals are operated by the government, and doctors and other hospital employees are considered foreign government officials. Certain payments made by pharmaceutical companies, or on their behalf by CROs, to hospitals in connection with clinical trials and other work have been deemed to be improper payments to government officials and have led to FCPA enforcement actions.
Additionally, the U.K. Bribery Act applies to our global activities and prohibits bribery of private individuals as well as public officials. The U.K. Bribery Act prohibits both the offering and accepting a bribe and imposes strict liability on companies for failing to prevent bribery, unless the company can show that it had “adequate procedures” in place to prevent bribery. There are also local anti-bribery and anti-corruption laws in countries where we are conducting clinical trials, and many of these also carry the risk of significant financial or criminal penalties.
We are also subject to trade control regulations and trade sanctions laws that restrict the movement of certain goods, currency, products, materials, services and technology to, and certain operations in, various countries or with certain persons. Our ability to transfer people and products among certain countries is subject to maintaining required licenses and complying with these laws and regulations.
The internal controls, policies and procedures, and training and compliance programs we have implemented to deter prohibited practices may not be effective in preventing our employees, contractors, consultants, agents or other representatives from violating or circumventing such internal policies or violating applicable laws and regulations. The failure to comply with laws governing international business practices may impact our clinical trials, result in substantial civil or criminal penalties for us and any such individuals, including imprisonment, suspension or debarment from government contracting, withdrawal of our products, if approved, from the market, or being delisted from The Nasdaq Global Market.
Our employees, independent contractors, principal investigators, CROs, consultants and vendors may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements and insider trading.
We are exposed to the risk that our employees, independent contractors, principal investigators, CROs, consultants and vendors may engage in fraudulent conduct or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct or unauthorized activities that violate applicable laws, including the following:
|
•
|
FDA and other healthcare authorities’ regulations, including those laws that require the reporting of true, complete and accurate information to regulatory authorities, and those prohibiting the promotion of unapproved drugs or approved drugs for an unapproved use;
|
|
•
|
quality standards, including GXP;
|
79
|
•
|
U.S. federal and state healthcare fraud and abuse laws and regulations and their non-U.S. equivalents;
|
|
•
|
anti-bribery and anti-corruption laws, such as the FCPA and the U.K. Bribery Act or country-specific anti-bribery or anti-corruption laws, as well as various import and export laws and regulations;
|
|
•
|
laws that require the reporting of true and accurate financial information and data; and
|
|
•
|
U.S. securities laws and regulations and their non-U.S. equivalents.
|
These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. It is not always possible to identify and deter misconduct by employees and third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, or if any such action is instituted against our employees, consultants, vendors or principal investigators, those actions could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, curtailment of our operations, disclosure of our confidential information and imprisonment, any of which could adversely affect our ability to operate our business and our results of operations.
We may encounter difficulties in managing our growth and expanding our operations successfully.
As we seek to advance our product candidates through clinical trials and commercialization, we will need to expand our clinical, medical, regulatory, manufacturing, marketing and sales capabilities or contract with third parties to provide these capabilities for us. We have entered into a number of strategic collaborations for the development and commercialization of vadadustat. As our operations expand, we expect that we will need to manage additional relationships with various strategic collaborators, consultants, vendors, suppliers and other third parties. Future growth will impose significant added responsibilities on members of management. Our future financial performance and our ability to commercialize vadadustat, if approved, and any other product candidates and to compete effectively will depend, in part, on our ability to manage any future growth effectively. To that end, we must be able to manage our development efforts and clinical trials effectively and hire, train, integrate and retain additional qualified personnel. We may not be able to accomplish these tasks, and our failure to accomplish any of them could prevent us from successfully growing our company.
If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our product candidates.
We face an inherent risk of product liability as a result of the clinical testing of our product candidates and will face an even greater risk if we commercialize any products. For example, we may be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability and breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates. Even a successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, product liability claims may result in:
|
•
|
decreased demand for any product candidates or products that we may develop;
|
|
•
|
injury to our reputation and significant negative media attention;
|
|
•
|
withdrawal of clinical trial participants;
|
|
•
|
significant costs to defend the related litigation;
|
|
•
|
a diversion of management’s time and our resources;
|
|
•
|
substantial monetary awards to study participants or patients;
|
|
•
|
product recalls or withdrawals, or labeling, marketing or promotional restrictions;
|
|
•
|
the inability to commercialize any product candidates that we may develop; and
|
|
•
|
a decline in our stock price.
|
80
Failure to obtain and retain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commerci
alization of products we develop. We currently carry product liability insurance that we believe is appropriate for our stage of development and may need to obtain higher levels prior to marketing any of our product candidates. Although we maintain product
liability insurance, any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. Our insuranc
e policies also have various exclusions, and we may be subject to a product liability claim for which we have insufficient or no coverage. If we have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations o
r that are not covered by our insurance, we may not have, or be able to obtain, sufficient capital to pay such amounts.
If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could harm our business.
We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and biological materials. Our operations also produce hazardous waste products. We generally contract with third parties for the use and disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from the use of hazardous materials by our employees, contractors or consultants, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties for failure to comply with such laws and regulations.
Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological, hazardous or radioactive materials.
In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Our failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.
Risks Related to our Common Stock
We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012. As a result, we intend to continue to take advantage of certain reduced disclosure requirements.
We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and may remain an emerging growth company for up to five years, until December 31, 2019. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include:
|
•
|
not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting;
|
|
•
|
reduced disclosure obligations regarding executive compensation; and
|
|
•
|
exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and obtaining shareholder approval of any golden parachute payments not previously approved.
|
Investors may find our common stock less attractive if we continue to rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of these accounting standards until they would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
81
Our stock price has been and may continue to be volatile
,
which could result in substantial losses for purchasers of our common stock an
d lawsuits against us and our officers and directors
.
Our stock price has been and will likely continue to be volatile. The stock market in general and the market for smaller pharmaceutical and biotechnology companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. Since our initial public offering in March 2014, the price of our common stock as reported on The Nasdaq Global Market has ranged from a low of $5.91 on August
25, 2015 to a high of $31.00 on June 20, 2014. The market price of shares of our common stock could be subject to wide fluctuations in response to many risk factors listed in this section, developments related to and results of our clinical studies and trials, developments related to our regulatory submissions, developments related to our ability to commercialize any approved product candidates, announcements by us or our competitors of significant mergers, acquisitions, licenses, strategic collaborations, joint ventures, collaborations or capital commitments, negative publicity around our product candidates, the results of competitive clinical trials, products or technologies, regulatory or legal developments in the United States and other countries, developments or disputes concerning patent applications, issued patents or other proprietary rights, the recruitment or departure of key personnel, the level of expenses related to any of our product candidates or clinical development programs, actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts, variations in our financial results or those of companies that are perceived to be similar to us, changes in the structure of healthcare pa
yment systems, market conditions in the pharmaceutical and biotechnology sectors, general economic, industry and market conditions
and others beyond our control.
As
a result
of this volatility, our shareholders
may not be able to
sell their common stock at
or above the price at which they purchased it.
In addition, companies that have experienced volatility in the market price of their stock have frequently been the subject of securities class action and shareholder derivative litigation, and we could be the target of such litigation in the future.
Provisions in our charter documents and Delaware law may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our stockholders, and may prevent attempts by our stockholders to replace or remove our current management.
Provisions in our Ninth Amended and Restated Certificate of Incorporation, Amended and Restated By-Laws and the Merger Agreement contain provisions that may have the effect of discouraging, delaying or preventing a change in control of us or changes in our management. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, because our Board of Directors is responsible for appointing certain members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our Board of Directors. Among other things, these provisions:
|
•
|
authorize “blank check” preferred stock, which could be issued by our Board of Directors without stockholder approval and may contain voting, liquidation, dividend and other rights superior to our common stock;
|
|
•
|
create a classified Board of Directors whose members serve staggered three-year terms;
|
|
•
|
specify that special meetings of our stockholders can be called only by our Board of Directors pursuant to a resolution adopted by a majority of the total number of directors;
|
|
•
|
prohibit stockholder action by written consent;
|
|
•
|
establish an advance notice procedure for stockholder approvals to be brought before an annual meeting of our stockholders, including proposed nominations of persons for election to our Board of Directors;
|
|
•
|
provide that our directors may be removed only for cause;
|
|
•
|
provide that vacancies on our Board of Directors may be filled only by a majority of directors then in office, even though less than a quorum;
|
|
•
|
require a supermajority vote of the holders of our common stock or the majority vote of our Board of Directors to amend our Amended and Restated By-Laws; and
|
|
•
|
require a supermajority vote of the holders of our common stock to amend the classification of our Board of Directors into three classes and to amend certain other provisions of our Ninth Amended and Restated Certificate of Incorporation.
|
These provisions, alone or together, could delay or prevent hostile takeovers, changes in control or changes in our management.
See “Risks Related to our Proposed Merger with Keryx” for information relating to the Merger Agreement.
82
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which pro
hibit a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless t
he merger or combination is approved in a prescribed manner.
Any provision of our Ninth Amended and Restated Certificate of Incorporation, our Amended and Restated By-Laws, the Merger Agreement or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.
Our ability to use net operating losses to offset future taxable income may be subject to certain limitations.
As described above in the
Risks Related to our Proposed Merger with Keryx
section, under Section 382 of the Code, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change net operating losses, or NOLs, to offset future taxable income. Future changes in our stock ownership, many of which are outside of our control, could result in an ownership change under Section 382 of the Code. Our NOLs may also be impaired under state law. Accordingly, we may not be able to utilize a material portion of our NOLs. Furthermore, our ability to utilize our NOLs is conditioned upon our attaining profitability and generating U.S. taxable income. As described above under “—Risks Related to our Financial Position and Need for Additional Capital,” we have incurred significant net losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future; thus, we do not know whether or when we will generate the U.S. income necessary to utilize our NOLs. A full valuation allowance has been provided for the entire amount of our NOLs.
Our Ninth Amended and Restated Certificate of Incorporation designates the state or federal courts located in the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our Ninth Amended and Restated Certificate of Incorporation provides that, subject to limited exceptions, the state and federal courts located in the State of Delaware will be the sole and exclusive forum for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (3) any action asserting a claim against us arising pursuant to any provision of the Delaware General Corporation Law, our Ninth Amended and Restated Certificate of Incorporation or our Amended and Restated By-Laws, or (4) any other action asserting a claim against us that is governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and to have consented to the provisions of our Ninth Amended and Restated Certificate of Incorporation described above. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and employees. Alternatively, if a court were to find these provisions of our Ninth Amended and Restated Certificate of Incorporation inapplicable to, or unenforceable with respect to, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business and financial condition.
We are currently subject to securities class action litigation in connection with the Merger, which could result in substantial costs and divert management's attention, and we could be subject to additional securities class action and derivative lawsuits.
A purported securities class action was filed against us alleging violation of federal securities laws in connection with the Merger. We believe such claims are without merit and will engage in a vigorous defense of such litigation. In addition, securities class action and derivative lawsuits have often been brought against companies for any of the risks described in this Quarterly Report on Form 10-Q following a decline in the market price of their securities. In connection with any securities litigation we could incur substantial costs, and such costs and any related settlements or judgments may not be covered by insurance. We could also suffer an adverse impact on our reputation and a diversion of management's attention and resources, which could have a material adverse effect on our business.
83