RISK FACTORS
Investing in our securities involves a high degree of risk. You should carefully consider the risks described below, as
well as the other information in this prospectus and incorporated by reference herein, including our financial statements and the related notes, before deciding whether to invest in our common stock.
The occurrence of any of the events or developments described below could harm our business, financial condition, results of operations and prospects. In such an event, the market price of our common
stock could decline, and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may harm our business,
financial condition, results of operations and prospects.
Risks Related to Our Financial Position and Need for Additional Capital
We have a limited operating history, expect to incur further losses as we grow and may be unable to achieve
or sustain profitability. Our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern.
From the date of our formation in June 2013, until the consummation of the Napo merger on July 31, 2017, our operations have been
primarily limited to the research and development of our animal prescription drug product candidate, Canalevia, to treat various forms of diarrhea in dogs, our non-prescription product, Neonorm Calf,
to help dairies and calf farms proactively retain fluid in calves, the ongoing commercialization of Neonorm Foal, our antidiarrheal for newborn horses, and Equilevia, our product for total gut health
in high-performance equine athletes. Since the consummation of the Merger on July 31, 2017, our operations have been primarily focused on research, development and the ongoing commercialization
of our lead prescription drug product candidate, Mytesi, which is approved by the U.S. FDA for the symptomatic relief of noninfectious diarrhea in adults with HIV/AIDS on antiretroviral therapy. As a
result, we have limited meaningful historical operations upon which to evaluate our business and prospects or to successfully overcome the risks and uncertainties frequently encountered by companies
in emerging fields such as the gastrointestinal health industry in general. We also have not generated any material revenue to date, and expect to continue to incur significant research and
development and other expenses. Our net loss and comprehensive loss for the year ended December 31, 2017 was $22.0 million. As of June 30, 2018, we had an accumulated deficit of
$75.8 million. We expect to continue to incur losses for the foreseeable future, which will increase significantly from historical levels as we expand our product development activities, seek
necessary approvals for our human and veterinary drug product candidates, conduct species-specific formulation studies for our non-prescription products and begin commercialization activities. Even if
we succeed in developing and broadly commercializing one or more of our products or product candidates beyond Mytesi, we expect to continue to incur losses for the foreseeable future, and we may never
become profitable. If we fail to achieve or maintain profitability, then we may be unable to continue our operations at planned levels and be forced to reduce or cease operations.
As
more fully discussed in Note 1 to our consolidated financial statements for the year ended December 31, 2017 and the quarter ended June 30, 2018, we believe there
is substantial doubt about our ability to continue as a going concern as we do not currently have sufficient cash resources to fund our operations through August 13, 2019, or one year from the
filing date of our Form 10-Q. Our financial statements do not include any adjustments that may result from the outcome of this uncertainty. If we are unable to continue as a viable entity, our
stockholders may lose their entire investment.
We currently generate limited revenue from the sale of products and may never become profitable.
We are a natural-products pharmaceuticals company focused on the development and commercialization of novel, sustainably derived
gastrointestinal products for human prescription use
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primarily
and also for animals on a global basis. Napo, our wholly-owned subsidiary, began the commercial pre-launch activities of our first FDA approved product, Mytesi, in February 2017.
Accordingly, we have only generated limited revenue from product sales. There is no guarantee that our ongoing commercialization efforts for Neonorm Calf for preweaned dairy calves in the United
States and Neonorm Foal for newborn horses in the United States will be successful or that we will be able to generate a consistent revenue stream from the sale of any of these products in the future.
Further, in order to commercialize our other prescription drug product candidates, we must receive regulatory approval from the FDA in the United States and other regulatory agencies in various
jurisdictions. Other than Mytesi, we have not yet received any regulatory approvals for our prescription drug product candidates. In addition, certain of our non-prescription products, such as Neonorm
Calf, may be subject to regulatory approval outside the United States prior to commercialization in other countries. Accordingly, until and unless we receive any necessary regulatory approvals, we
cannot market or sell our products in many regions. Moreover, even if we receive the necessary approvals, we may not be successful in generating revenue from sales of our products as we do not have
any meaningful experience marketing or distributing our products. Accordingly, we may never generate any material revenue from our operations.
Raising additional capital may cause dilution to our stockholders, including purchasers of our common stock
in this offering, restrict our operations or require us to relinquish rights to our technologies or product candidates.
Unless and until we can generate a substantial amount of revenue from our products or product candidates, we expect to finance our future cash
needs through public or private equity offerings, debt financings or collaborations, licensing arrangements and government funding arrangements. In addition, we may seek additional capital due to
favorable market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future operating plans.
To
the extent that we raise additional capital through the sale of common stock, convertible securities or other equity securities, your ownership interest may be materially diluted, and
the terms of these securities could include liquidation or other preferences and anti-dilution protections that could adversely affect your rights as a stockholder. In addition, debt financing, if
available, would result in increased fixed payment obligations and may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring
additional debt, making capital expenditures or declaring dividends, which could adversely affect our ability to conduct our business. In addition, securing additional financing would require a
substantial amount of time and attention from our management and may divert a disproportionate amount of their attention away from day-to-day activities, which may adversely affect our management's
ability to oversee the development of our product candidates.
If
we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable
rights to our technologies, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us.
Our ability to continue as a going concern requires that we obtain sufficient funding to finance our
operations.
Our ability to continue as a going concern requires that we obtain sufficient funding to finance our operations. If we are unable to obtain
sufficient funding, our business, prospects, financial condition and results of operations will be materially and adversely affected and we may be unable to continue as a going concern. If we are
unable to continue as a going concern, we may have to liquidate our assets and may receive less than the value at which those assets are carried on our audited financial statements, and it is likely
that investors will lose all or a part of their investment. If we seek additional
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financing
to fund our business activities in the future and there remains substantial doubt about our ability to continue as a going concern, investors or other financing sources may be unwilling to
provide additional funding to us on commercially reasonable terms or at all.
Risks Related to Our Business
We expect to incur significant additional costs as we continue commercialization efforts for current
prescription drug candidates, or other product candidates, and undertake the clinical trials necessary to obtain any necessary regulatory approvals, which will increase our losses.
We commenced sales of Neonorm for preweaned dairy calves in the United States under the brand name Neonorm Calf at the end of 2014, and Napo
commenced sales of Mytesi for adults with HIV/AIDS on antiretroviral therapy in February 2017. We will need to continue to invest in developing our internal and third-party sales and distribution
network and outreach efforts to key opinion leaders in the gastrointestinal health industry, including physicians, as applicable. We will also need to conduct clinical trials for Mytesi in order to
broaden Mytesi to additional indications.
We
are actively identifying additional products for development and commercialization, and will continue to expend substantial resources for the foreseeable future to develop Mytesi, a
second generation anti-secretory agent, and Canalevia for the MUMS indication of chemotherapy-induced diarrhea in dogs. These expenditures will include costs associated
with:
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identifying additional potential prescription drug product candidates and non-prescription products;
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formulation studies;
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conducting pilot, pivotal and toxicology studies;
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completing other research and development activities;
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payments to technology licensors;
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maintaining our intellectual property;
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obtaining necessary regulatory approvals;
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establishing commercial supply capabilities; and
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sales, marketing and distribution of our commercialized products.
We
also may incur unanticipated costs in connection with developing and commercializing our products. Because the outcome of our development activities and commercialization efforts is
inherently uncertain, the actual amounts necessary to successfully complete the development and commercialization of our current or future products and product candidates may be greater than we
anticipate.
Because
we anticipate incurring significant costs for the foreseeable future, if we are not successful in broadly commercializing any of our current or future products or product
candidates or raising additional funding, including potential business development and/or strategic partnerships, to pursue our research and development efforts, we may never realize the benefit of
our development efforts and our business may be harmed.
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We will need to raise substantial additional capital in the future in the event that we conduct clinical
trials for new indications and we may be unable to raise such funds when needed and on acceptable terms, which would force us to delay, limit, reduce or terminate one or more of our product
development programs.
We are forecasting continued losses and negative cash flows as we continue to fund our operating and marketing activities and research and
development programs, and we will not have sufficient cash on hand to fund our operating plan through March 31, 2019 and to complete the development of all the current products in our pipeline,
or any additional products we may identify. We will need to seek additional funds sooner than planned through public or private equity or debt financings or other sources such as strategic
collaborations. Any such financings or collaborations may result in dilution to our stockholders, the imposition of debt covenants and repayment obligations or other restrictions that may harm our
business or the value of our common stock. We may also seek from time to time to raise additional capital based upon favorable market conditions or strategic considerations such as potential
acquisitions or potential license arrangements.
Our
future capital requirements depend on many factors, including, but not limited to:
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the scope, progress, results and costs of researching and developing our current and future prescription drug product candidates and
non-prescription products;
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the timing of, and the costs involved in, obtaining any regulatory approvals for our current and any future products;
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the number and characteristics of the products we pursue;
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the cost of manufacturing our current and future products and any products we successfully commercialize;
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the cost of commercialization activities for Mytesi, Neonorm, Equilevia and Canalevia, if approved, including sales, marketing and distribution
costs;
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the expenses needed to attract and retain skilled personnel;
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the costs associated with being a public company;
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our ability to establish and maintain strategic collaborations, distribution or other arrangements and the financial terms of such agreements;
and
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the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing possible patent claims, including litigation costs
and the outcome of any such litigation.
Additional
funds may not be available when we need them on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timely basis, we may be required to
delay, limit, reduce or terminate one or more of our product development programs or future commercialization efforts.
We are substantially dependent on the success of our current lead prescription drug product candidate,
Mytesi, and cannot be certain that necessary approvals will be received for planned Mytesi follow-on indications or that these product candidates will be successfully commercialized, either by us or
any of our partners.
Other than Mytesi, we currently do not have regulatory approval for any of our prescription drug product candidates, including Canalevia. Our
current efforts are primarily focused on the ongoing commercialization of Mytesi, and development efforts related to Mytesi and Canalevia. With regard to Mytesi, we are focused on the commercial
launch of the product in the United States as well as on development efforts related to a follow-on indication for Mytesi in CTD, an important supportive care indication for patients undergoing cancer
treatment. Mytesi is also in development for rare disease indications for infants and children with congenital diarrheal disorders and short bowel syndrome; for
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IBS
(Mytesi has demonstrated benefit to IBS-D patients in published Phase 2 studies); for supportive care for IBD; and as a second-generation anti-secretory agent for use in cholera patients.
Mytesi has received orphan-drug designation for SBS. Accordingly, our near term prospects, including our ability to generate material product revenue, obtain any new financing if needed to fund our
business and operations or enter into potential strategic transactions, will depend heavily on the success of Mytesi and potential follow-on indications.
Substantial
time and capital resources have been previously devoted by third parties in the development of crofelemer, the active pharmaceutical ingredient, or API, in Mytesi and
Canalevia, and the development of the botanical extract used in Equilevia and Neonorm. Both crofelemer and the botanical extract used in Equilevia and Neonorm were originally developed at Shaman
Pharmaceuticals, Inc. ("Shaman"), by certain members of our management team, including Lisa A. Conte, our chief executive officer and president, and Steven R. King, Ph.D., our executive vice
president of sustainable supply, ethnobotanical research and intellectual property and secretary. Shaman spent significant development resources before voluntarily filing for bankruptcy in 2001
pursuant to Chapter 11 of the U.S. Bankruptcy Code. The rights to crofelemer and the botanical extract used in Equilevia and Neonorm, as well as other intellectual property rights, were
subsequently acquired by Napo from Shaman in 2001 pursuant to a court approved sale of assets. Ms. Conte founded Napo in 2001 and was the current interim chief executive officer of Napo and a
member of Napo's board of directors prior to the Merger. While at Napo, certain members of our management team, including Ms. Conte and Dr. King, continued the development of crofelemer.
In 2005, Napo entered into license agreements with Glenmark and Luye Pharma Group Limited for rights to various human indications of crofelemer in certain territories as defined in the respective
license agreements with these licensees. Subsequently, after expending significant sums developing crofelemer, including trial design and on-going patient enrollment in the final pivotal
Phase 3 trial for crofelemer for non-infectious diarrhea in adults with HIV/AIDS on antiretroviral therapy, in late 2008, Napo entered into a collaboration agreement with Salix
Pharmaceuticals, Inc., or Salix, for development and commercialization rights to
certain indications worldwide and certain rights in North America, Europe, and Japan, to crofelemer for human use. In January 2014, Jaguar entered into the Napo License Agreement pursuant to which
Jaguar acquired an exclusive worldwide license to Napo's intellectual property rights and technology, including crofelemer and the botanical extract used in Equilevia and Neonorm, for all veterinary
treatment uses and indications for all species of animals. In February 2014, most of the executive officers of Napo, and substantially all Napo's employees, became Jaguar's employees. In March 2016,
Napo settled with Salix for the return of all commercial rights to crofelemer. Following the merger of Jaguar and Napo in July 2017, Napo became Jaguar's wholly-owned subsidiary. If we are not
successful in the development and commercialization of Mytesi, Neonorm, Equilevia and Canalevia, our business and our prospects will be harmed.
The
successful development and commercialization of Mytesi, Equilevia and Neonorm, and, if approved, Canalevia will depend on a number of factors, including the
following:
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our ability to demonstrate to the satisfaction of the FDA and any other regulatory bodies, the safety and efficacy of Canalevia for
chemotherapy-induced diarrhea in dogs;
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our ability and that of our contract manufacturers to manufacture supplies of Mytesi, Neonorm, Equilevia and Canalevia
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our ability to successfully continue commercial efforts associated with Mytesi, whether alone or in collaboration with others;
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our ability to successfully launch Canalevia, assuming approval is obtained, and Equilevia, whether alone or in collaboration with others;
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the availability, perceived advantages, relative cost, relative safety and relative efficacy of our prescription drug product candidates and
non-prescription products compared to alternative and competing treatments;
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the acceptance of our prescription drug product candidates and non-prescription products as safe and effective by physicians, veterinarians,
patients, animal owners and the human and animal health community, as applicable;
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our ability to achieve and maintain compliance with all regulatory requirements applicable to our business; and
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our ability to obtain and enforce our intellectual property rights and obtain marketing exclusivity for our prescription drug product
candidates and non-prescription products, and avoid or prevail in any third-party patent interference, patent infringement claims or administrative patent proceedings initiated by third parties or the
U.S. Patent and Trademark Office ("USPTO").
Many
of these factors are beyond our control. Accordingly, we may not be successful in developing or commercializing Mytesi, Neonorm, Equilevia, Canalevia or any of our other potential
products. If we are unsuccessful or are significantly delayed in developing and commercializing Mytesi, Neonorm, Equilevia, Canalevia or any of our other potential products, our business and prospects
will be harmed and you may lose all or a portion of the value of your investment in our common stock.
If we are not successful in identifying, licensing, developing and commercializing additional product
candidates and products, our ability to expand our business and achieve our strategic objectives could be impaired.
Although a substantial amount of our efforts is focused on the commercial performance of Mytesi, a key element of our strategy is to identify,
develop and commercialize a portfolio of products to serve the gastrointestinal health market. Most of our potential products are based on our knowledge of medicinal plants. Our current focus is
primarily on product candidates
whose active pharmaceutical ingredient or botanical extract has been successfully commercialized or demonstrated to be safe and effective in human or animal trials. In some instances, we may be unable
to further develop these potential products because of perceived regulatory and commercial risks. Even if we successfully identify potential products, we may still fail to yield products for
development and commercialization for many reasons, including the following:
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competitors may develop alternatives that render our potential products obsolete;
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an outside party may develop a cure for any disease state that is the target indication for any of our planned or approved drug products;
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potential products we seek to develop may be covered by third-party patents or other exclusive rights;
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a potential product may on further study be shown to have harmful side effects or other characteristics that indicate it is unlikely to be
effective or otherwise does not meet applicable regulatory criteria;
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a potential product may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and
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a potential product may not be accepted as safe and effective by physicians, veterinarians, patients, animal owners, key opinion leaders and
other decision-makers in the gastrointestinal health market, as applicable.
While
we are developing specific formulations, including flavors, methods of administration, new patents and other strategies with respect to our current potential products, we may be
unable to
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prevent
competitors from developing substantially similar products and bringing those products to market earlier than we can. If such competing products achieve regulatory approval and
commercialization prior to our potential products, our competitive position may be impaired. If we fail to develop and successfully commercialize other potential products, our business and future
prospects may be harmed and we will be more vulnerable to any problems that we encounter in developing and commercializing our current potential products.
Mytesi faces significant competition from other pharmaceutical companies, both for its currently approved
indication and for planned follow-on indications, and our operating results will suffer if we fail to compete effectively.
The development and commercialization of products for human gastrointestinal health is highly competitive and our success depends on our ability
to compete effectively with other products in the market. During the ongoing commercialization of Mytesi for its currently approved indication, and during the future commercialization of Mytesi for
any planned follow-on indications, if such follow-on indications receive regulatory approval, we expect to compete with major pharmaceutical and biotechnology companies that operate in the
gastrointestinal space, such as Sucampo AG, Takeda Pharmaceuticals, Allergan, Inc., Ironwood Pharmaceuticals, Inc., Synergy Pharmaceuticals Inc., Heron Therapeutics, Inc.,
Sebela Pharmaceuticals, Inc. and Salix Pharmaceuticals.
Many
of our competitors and potential competitors in the human gastrointestinal space have substantially more financial, technical and human resources than we do. Many also have more
experience in the development, manufacture, regulation and worldwide commercialization of human gastrointestinal health products.
For
these reasons, we cannot be certain that we and Mytesi can compete effectively.
We may be unable to obtain, or obtain on a timely basis, regulatory approval for our existing or future human
or animal prescription drug product candidates under applicable regulatory requirements, which would harm our operating results.
The research, testing, manufacturing, labeling, approval, sale, marketing and distribution of human and animal health products are subject to
extensive regulation. We are typically not permitted to market our prescription drug product candidates in the United States until we receive approval of the product from the FDA through the filing of
an NDA or NADA, as applicable. To gain approval to market a prescription drug, we must provide the FDA with safety and efficacy data from pivotal trials that adequately demonstrate that our
prescription drug product candidates are safe and effective for the intended indications. Likewise, to gain approval to market an animal prescription drug for a particular species, we must provide the
FDA with safety and efficacy data from pivotal trials that adequately demonstrate that our prescription drug product candidates are safe and effective in the target species
(
e.g.
dogs) for the intended indications. In addition, we must provide manufacturing data evidencing that we can produce our product candidates
in accordance with cGMP. For the FDA, we must also provide data from toxicology studies, also called target animal safety studies, and in some cases environmental impact data. In addition to our
internal activities, we will partially rely on contract research organizations ("CROs"), and other third parties to conduct our toxicology studies and for certain other product development activities.
The results of toxicology studies, other initial development activities, and/or any previous studies in humans or animals conducted by us or third parties may not be predictive of future results of
pivotal trials or other future studies, and failure can occur at any time during the conduct of pivotal trials and other development activities by us or our CROs. Our pivotal trials may fail to show
the desired safety or efficacy of our prescription drug product candidates despite promising initial data or the results in previous human or animal studies conducted by others. Success of a
prescription drug product candidate in prior animal studies, or in the treatment of humans, does not ensure success in subsequent studies. Clinical trials in humans and pivotal trials in animals
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sometimes
fail to show a benefit even for drugs that are effective because of statistical limitations in the design of the trials or other statistical anomalies. Therefore, even if our studies and
other development activities are completed as planned, the results may not be sufficient to obtain a required regulatory approval for a product candidate.
Regulatory
authorities can delay, limit or deny approval of any of our prescription drug product candidates for many reasons, including:
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if they disagree with our interpretation of data from our pivotal studies or other development efforts;
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if we are unable to demonstrate to their satisfaction that our product candidate is safe and effective for the target indication and, if
applicable, in the target species;
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if they require additional studies or change their approval policies or regulations;
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if they do not approve of the formulation, labeling or the specifications of our current and future product candidates; and
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if they fail to approve the manufacturing processes of our third-party contract manufacturers.
Further,
even if we receive a required approval, such approval may be for a more limited indication than we originally requested, and the regulatory authority may not approve the
labeling that we believe is necessary or desirable for successful commercialization.
Any
delay or failure in obtaining any necessary regulatory approval for the intended indications of our human or animal product candidates would delay or prevent commercialization of
such product candidates and would harm our business and our operating results.
The results of our earlier studies of Mytesi may not be predictive of the results in any future clinical
trials and species-specific formulation studies, respectively, and we may not be successful in our efforts to develop or commercialize line extensions of Mytesi.
Our product pipeline includes a number of potential indications of Mytesi, our lead prescription product. The results of our studies and other
development activities and of any previous studies conducted by us or third parties may not be predictive of future results of these clinical studies and formulation studies, respectively. Failure can
occur at any time during the conduct of these trials and other development activities. Even if our formulation/clinical studies and other development activities are completed as planned, the results
may not be sufficient to pursue a particular line extension for Mytesi. Further, even if we obtain promising results from our clinical trials, we may not successfully commercialize any line extension.
Because line extensions are developed for a particular market, we may not be able to leverage our experience from the commercial launch of Mytesi in new markets. If we are not successful in developing
and successfully commercializing these line extension products, we may not be able to grow our revenue and our business may be harmed.
Development of prescription drug products is inherently expensive, time-consuming and uncertain, and any
delay or discontinuance of our current or future pivotal trials would harm our business and prospects.
Development of prescription drug products for human and animal gastrointestinal health remains an inherently lengthy, expensive and uncertain
process, and our development activities may not be successful. We do not know whether our current or planned pivotal trials for any of our product candidates will begin or conclude on time, and they
may be delayed or discontinued for a variety of reasons, including if we are unable to:
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address any safety concerns that arise during the course of the studies;
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complete the studies due to deviations from the study protocols or the occurrence of adverse events;
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add new study sites;
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address any conflicts with new or existing laws or regulations; or
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reach agreement on acceptable terms with study sites, which can be subject to extensive negotiation and may vary significantly among different
sites.
Further,
we may not be successful in developing new indications for Mytesi and may be subject to the same regulatory regime as prescription drug products in jurisdictions outside the
United States. Any delays in completing our development efforts will increase our costs, delay our development efforts and approval process and jeopardize our ability to commence product sales and
generate revenue. Any of these occurrences may harm our business, financial condition and prospects. In addition, factors that may cause a delay in the commencement or completion of our development
efforts may also ultimately lead to the denial of regulatory approval of our product candidates which, as described above, would harm our business and prospects.
We will partially rely on third parties to conduct our development activities. If these third parties do not
successfully carry out their contractual duties, we may be unable to obtain regulatory approvals or commercialize our current or future human or animal product candidates on a timely basis, or at all.
We will partially rely upon CROs to conduct our toxicology studies and for other development activities. We intend to rely on CROs to conduct
one or more of our planned pivotal trials. These CROs are not our employees, and except for contractual duties and obligations, we have limited ability to control the amount or timing of resources
that they devote to our programs or manage the risks associated with their activities on our behalf. We are responsible for ensuring that each of our studies is conducted in accordance with the
development plans and trial protocols presented to regulatory authorities. Any deviations by our CROs may adversely affect our ability to obtain regulatory approvals, subject us to penalties or harm
our credibility with regulators. The FDA and foreign regulatory authorities also require us and our CROs to comply with regulations and
standards, commonly referred to as good clinical practices ("GCPs"), or good laboratory practices ("GLPs"), for conducting, monitoring, recording and reporting the results of our studies to ensure
that the data and results are scientifically valid and accurate.
Agreements
with CROs generally allow the CROs to terminate in certain circumstances with little or no advance notice. These agreements generally will require our CROs to reasonably
cooperate with us at our expense for an orderly winding down of the CROs' services under the agreements. If the CROs conducting our studies do not comply with their contractual duties or obligations,
or if they experience work stoppages, do not meet expected deadlines, or if the quality or accuracy of the data they obtain is compromised, we may need to secure new arrangements with alternative
CROs, which could be difficult and costly. In such event, our studies also may need to be extended, delayed or terminated as a result, or may need to be repeated. If any of the foregoing were to
occur, regulatory approval, if required, and commercialization of our product candidates may be delayed and we may be required to expend substantial additional resources.
Even if we obtain regulatory approval for planned follow-on indications of Mytesi, or for Canalevia or our
other product candidates, they may never achieve market acceptance. Further, even if we are successful in the ongoing commercialization of Mytesi, we may not achieve commercial success.
If we obtain necessary regulatory approvals for planned follow-on indications of Mytesi or for Canalevia or our other product candidates, such
products may still not achieve market acceptance and
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may
not be commercially successful. Market acceptance of Mytesi and Canalevia, and any of our other products depends on a number of factors, including:
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the safety of our products as demonstrated in our target human and animal studies;
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the indications for which our products are approved or marketed;
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the potential and perceived advantages over alternative treatments or products, including generic medicines and competing products currently
prescribed by physicians or veterinarians, as applicable, and, in the case of animal products, products approved for use in humans that are used extra-label in animals;
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the acceptance by physicians, veterinarians, companion animal owners and production animal owners, as applicable, of our products as safe and
effective;
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the cost in relation to alternative treatments and willingness on the part of physicians, veterinarians, patients and animal owners, as
applicable, to pay for our products;
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the prevalence and severity of any adverse side effects of our products;
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the relative convenience and ease of administration of our products; and
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the effectiveness of our sales, marketing and distribution efforts.
Any
failure by Mytesi, Canalevia and Equilevia or any of our other products to achieve market acceptance or commercial success would harm our financial condition and results of
operations.
Human and animal gastrointestinal health products are subject to unanticipated post-approval safety or
efficacy concerns, which may harm our business and reputation.
The success of our commercialization efforts will depend upon the perceived safety and effectiveness of human and animal gastrointestinal health
products, in general, and of our products, in particular. Unanticipated safety or efficacy concerns can subsequently arise with respect to approved prescription drug products, such as Mytesi, or
non-prescription products, such as Neonorm, which may result in product recalls or withdrawals or suspension of sales, as well as product liability and other claims. Any safety or efficacy concerns,
or recalls, withdrawals or suspensions of sales of our products could harm our reputation and business, regardless of whether such concerns or actions are justified.
Future federal and state legislation may result in increased exposure to product liability claims, which
could result in substantial losses.
Under current federal and state laws, companion and production animals are generally considered to be the personal property of their owners and,
as such, the owners' recovery for product liability claims involving their companion and production animals may be limited to the replacement value of the animal. Companion animal owners and their
advocates, however, have filed lawsuits from time to time seeking non-economic damages such as pain and suffering and emotional distress for harm to their companion animals based on theories
applicable to personal injuries to humans. If new legislation is passed to allow recovery for such non-economic damages, or if precedents are set allowing for such recovery, we could be exposed to
increased product liability claims that could result in substantial losses to us if successful. In addition, some horses can be worth millions of dollars or more, and product liability for horses may
be very high. While we currently have product liability insurance, such insurance may not be sufficient to cover any future product liability claims against us.
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If we fail to retain current members of our senior management, or to identify, attract, integrate and retain
additional key personnel, our business will be harmed.
Our success depends on our continued ability to attract, retain and motivate highly qualified management and scientific personnel. We are highly
dependent upon our senior management, particularly Lisa A. Conte, our president and Chief Executive Officer. The loss of services of any of our key personnel would cause a disruption in our ability to
develop our current or future product pipeline and commercialize our products and product candidates. Although we have offer letters with these key members of senior management, such agreements do not
prohibit them from resigning at any time. We currently do not maintain "key man" life insurance on any of our senior management team. The loss of Ms. Conte or other members of our current
senior management could adversely affect the timing or outcomes of our current and planned studies, as well as the prospects for commercializing our products.
In
addition, competition for qualified personnel in the human and animal gastrointestinal health fields is intense, because there are a limited number of individuals who are trained or
experienced in the field. We will need to hire additional personnel as we expand our product development and commercialization activities. Even if we are successful in hiring qualified individuals, as
we are a growing organization, we do not have a track record for integrating and retaining individuals. If we are not successful in identifying, attracting, integrating or retaining qualified
personnel on acceptable terms, or at all, our business will be harmed.
We are dependent on two suppliers for the raw material used to produce the active pharmaceutical ingredient
in Mytesi and Canalevia and the botanical extract in Neonorm and Equilevia. The termination of either of these contracts would result in a disruption to product development and our business will be
harmed.
The raw material used to manufacture Mytesi, Canalevia, Neonorm and Equilevia is crude plant latex ("CPL"), derived from the
Croton lechleri
tree, which is found in countries in South America, principally Peru. The ability of our contract suppliers to harvest CPL is governed
by the terms of their respective agreements with local government authorities. Although CPL is available from multiple suppliers, we only have contracts with two suppliers to obtain CPL and arrange
the shipment to our contract manufacturer. Accordingly, if our contract suppliers do not or are unable to comply with the terms of our respective agreements, and we are not able to negotiate new
agreements with alternate suppliers on terms that we deem commercially reasonable, it may harm our business and prospects. The countries from which we obtain CPL could change their laws and
regulations regarding the export of the natural products or impose or increase taxes or duties payable by exporters of such products. Restrictions could be imposed on the harvesting of the natural
products or additional requirements could be implemented for the replanting and regeneration of the raw material. Such events could have a significant impact on our cost and ability to produce Mytesi,
Canalevia, Neonorm, Equilevia and anticipated line extensions.
We are dependent upon third-party contract manufacturers, both for the supply of the active pharmaceutical
ingredient in Mytesi and Canalevia and the botanical extract in Neonorm and Equilevia, as well as for the supply of finished products for commercialization.
We have contracted with third parties for the formulation of API and botanical extract into finished products for our studies. We have also
entered into memorandums of understanding with Indena S.p.A. for the manufacture of CPL received from our suppliers into the API in Canalevia to support our regulatory filings, as well as the
botanical extract in Neonorm and agreed to negotiate a commercial supply agreement. Indena S.p.A. has never manufactured either such ingredient to commercial scale. Glenmark is the current
manufacturer of crofelemer, the active API in Canalevia, for Mytesi, and the manufacturer on file for the NDA to which we have a right of reference. As announced in October of 2015, we have entered an
agreement with Patheon, a provider of drug
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development
and delivery solutions, under which Patheon provides enteric-coated tablets to us. We also may contract with additional third parties for the formulation and supply of finished products,
which we will use in our planned studies and commercialization efforts.
We
will be dependent upon our contract manufacturers for the supply of the API in Mytesi and Canalevia. We currently have sufficient quantities of the botanical extract used in Neonorm
and Equilevia to support initial commercialization of Neonorm and Equilevia. However, we will require additional quantities of the botanical extract if our ongoing commercialization of Neonorm or our
commercial launch of Equilevia is successful. If we are not successful in reaching agreements with third parties on terms that we consider commercially reasonable for manufacturing and formulation, or
if our contract manufacturer and formulator are not able to produce sufficient quantities or quality of API, botanical extract or finished product under their agreements, it could delay our plans and
harm our business prospects.
The
facilities used by our third-party contractors are subject to inspections, including by the FDA, and other regulators, as applicable. We also depend on our third-party contractors to
comply with cGMP. If our third-party contractors do not maintain compliance with these strict regulatory requirements, we and they will not be able to secure or maintain regulatory approval for their
facilities, which would have an adverse effect on our operations. In addition, in some cases, we also are dependent on our third-party contractors to produce supplies in conformity to our
specifications and maintain quality control and quality assurance practices and not to employ disqualified personnel. If the FDA or a comparable foreign regulatory authority does not approve the
facilities of our third-party contractors if so required, or if it withdraws any such approval in the future, we may need to find alternative manufacturing or formulation facilities, which could
result in delays in our ability to develop or
commercialize our human and animal products, if at all. We and our third-party contractors also may be subject to penalties and sanctions from the FDA and other regulatory authorities for any
violations of applicable regulatory requirements. The USDA and the European Medicines Agency (the "EMA"), employ different regulatory standards than the FDA, so we may require multiple manufacturing
processes and facilities for the same human or animal product candidate or any approved product. We are also exposed to risk if our third-party contractors do not comply with the negotiated terms of
our agreements, or if they suffer damage or destruction to their facilities or equipment.
If we are unable to establish sales capabilities on our own or through third parties, we may not be able to
market and sell our current or future human or animal products and product candidates, if approved, and generate product or other revenue.
We currently have limited sales, marketing or distribution capabilities, and prior to Napo's launch of Mytesi for the symptomatic relief of
noninfectious diarrhea in adults with HIV/AIDS on antiretroviral therapy, and our launch of Neonorm for preweaned dairy calves, we had no experience in the sale, marketing and distribution of human or
animal health products. There are significant risks involved in building and managing a sales organization, including our potential inability to attract, hire, retain and motivate qualified
individuals, generate sufficient sales leads, provide adequate training to sales and marketing personnel and effectively oversee a geographically dispersed sales and marketing team. Any failure or
delay in the development of our internal sales, marketing and distribution capabilities and entry into adequate arrangements with distributors or other partners would adversely impact the
commercialization of Mytesi, Neonorm, Equilevia and, if approved, Canalevia. If we are not successful in commercializing Mytesi, Neonorm, Equilevia, Canalevia or any of our other line extension
products, either on our own or through one or more distributors, or in generating upfront licensing or other fees, we may never generate significant revenue and may continue to incur significant
losses, which would harm our financial condition and results of operations.
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Changes in distribution channels for animal health prescription drugs may make it more difficult or expensive
to distribute our animal health prescription drug products.
In the United States, animal owners typically purchase their animal health prescription drugs from their local veterinarians who also prescribe
such drugs. There is a trend, however, toward increased purchases of animal health prescription drugs from Internet-based retailers, "big-box" retail stores and other over-the-counter distribution
channels, which follows an emerging shift in recent years away from the traditional veterinarian distribution channel. It is also possible that
animal owners may come to rely increasingly on Internet-based animal health information rather than on their veterinarians. We currently expect to market our animal health prescription drugs directly
to veterinarians, so any reduced reliance on veterinarians by animal owners could harm our business and prospects by making it more difficult or expensive for us to distribute our animal health
prescription drug products.
Legislation
has been or may be proposed in various states that would require veterinarians to provide animal owners with written prescriptions and disclosures that the animal owner has
the right to fill the prescriptions through other means. If enacted, such legislation could lead to a reduction in the number of animal owners who purchase their animal health pharmaceuticals directly
from veterinarians, which also could harm our business.
Consolidation of our customers could negatively affect the pricing of our animal health products.
Veterinarians will be our primary customers for our prescription animal health drug products. In recent years, there has been a trend towards
the consolidation of veterinary clinics and animal hospitals. If this trend continues, these large clinics and hospitals could attempt to leverage their buying power to obtain favorable pricing from
us and other animal health product companies. Any downward pressure on the prices of any of our animal health products could harm our operating results and financial condition.
We will need to increase the size of our organization and may not successfully manage such growth.
As of July 31, 2018, we had 46 employees. Our ability to manage our growth effectively will require us to hire, train, retain, manage and
motivate additional employees and to implement and improve our operational, financial and management systems. These demands also may require the hiring of additional senior management personnel or the
development of additional expertise by our senior management personnel. If we fail to expand and enhance our operational, financial and management systems in conjunction with our potential future
growth, it could harm our business and operating results.
Research and development with respect to our animal health products and product candidates relies on
evaluations in animals, which is controversial and may become subject to bans or additional regulations.
The evaluation of our animal health products and product candidates in target animals is required to develop, formulate and commercialize our
animal health products and product candidates. Although our animal testing will be subject to GLPs and GCPs, as applicable, animal testing in the human pharmaceutical industry and in other industries
continues to be the subject of controversy and adverse publicity. Some organizations and individuals have sought to ban animal testing or encourage the adoption of additional regulations applicable to
animal testing. To the extent that such bans or regulations are imposed, our research and development activities with respect to animal health products, and by extension our operating results and
financial condition, could be harmed. In addition, negative publicity about animal practices by us or in our industry could harm our reputation among potential customers.
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If approved, our animal health prescription drug product candidates may be marketed in the United States only
in the target animals and for the indications for which they are approved, and if we want to expand the approved animals or indications, it will need to obtain additional approvals, which may not be
granted.
If our animal health prescription drug product candidates are approved by regulatory authorities, we may market or advertise them only in the
specific species and for treatment of the specific indications for which they were approved, which could limit use of the products by veterinarians and animal owners. Under the Animal Medicinal Drug
Use Clarification Act of 1994, veterinarians are permitted to prescribe extra-label uses of certain approved animal drugs and approved human drugs for animals under certain conditions. While
veterinarians may in the future prescribe and use human-approved products or use our products for extra-label uses, we may not promote our animal health products for extra-label uses. We note that
extra-label uses are uses for which the product has not received approval. If the FDA determines that any of our marketing activities constitute promotion of an extra-label use, we could be subject to
regulatory enforcement, including seizure of any misbranded or mislabeled drugs, and civil or criminal penalties, any of which could have an adverse impact on our reputation and expose us to potential
liability. We will continue to spend resources ensuring that our promotional claims for our animal health products and product candidates remain
compliant with applicable FDA laws and regulations, including materials we post or link to on our website. For example, in 2012, our Chief Executive Officer received an "untitled letter" from the FDA
while at Napo regarding preapproval promotion statements constituting misbranding of crofelemer, which was then an investigational drug. These statements were included in archived press releases
included on Napo's website. Napo was required to expend time and resources to revise its website to remove the links in order to address the concerns raised in the FDA's letter.
If our human or animal prescription drug product candidates are approved by regulatory authorities, the
misuse or extra-label use of such products may harm our reputation or result in financial or other damages.
If our human or animal prescription drug product candidates are approved by regulatory authorities, there may be increased risk of product
liability if physicians, veterinarians, patients, animal owners or others, as applicable, attempt to use such products extra-label, including the use of our products for indications or in species for
which they have not been approved. Furthermore, the use of an approved human or animal drug for indications other than those indications for which such products have been approved may not be
effective, which could harm our reputation and lead to an increased risk of litigation. If we are deemed by a governmental or regulatory agency to have engaged in the promotion of any approved human
or animal product for extra-label use, such agency could request that we modify our training or promotional materials and practices and we could be subject to significant fines and penalties, and the
imposition of these sanctions could also affect our reputation and position within the gastrointestinal health industry. Any of these events could harm our reputation and our operating results.
We may not maintain the benefits associated with MUMS designation, including market exclusivity.
Although we have received MUMS designation for Canalevia for the treatment of CID in dogs, we may not maintain the benefits associated with MUMS
designation. MUMS designation is a status similar to "orphan drug" status for human drugs. When we were granted MUMS designation for Canalevia for the indication of CID in dogs, we became eligible for
incentives to support the approval or conditional approval of the designated use. This designation does not allow us to commercialize a product until such time as we obtain approval or conditional
approval of the product.
Because
Canalevia has received MUMS designation for the identified particular intended use, we are eligible to obtain seven years of exclusive marketing rights upon approval (or
conditional approval) of Canalevia for that intended use and become eligible for grants to defray the cost of our clinical work. Each designation that is granted must be unique,
i.e.
, only one
designation can be granted for a
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particular
API in a particular dosage form for a particular intended use. The intended use includes both the target species and the disease or condition to be treated.
At
some point, we could lose MUMS designation. The basis for a lost designation can include but is not limited to, our failure to engage with due diligence in moving forward with a
non-conditional approval, or a competing product has received conditional approval or approval prior to our product candidate for the same indication or species. In addition, MUMS designation may be
withdrawn for a variety of reasons such as where the FDA determines that the request for designation was materially defective, or if the manufacturer is unable to assure sufficient quantity of the
prescription drug product to meet the needs of animals with the rare disease or condition. If this designation is lost, it could have a negative impact on the product and us, which includes but is not
limited to, market exclusivity related to MUMS designation, or eligibility for grants as a result of MUMS designation.
The market for our human or animal products, and the gastrointestinal health market as a whole, is uncertain
and may be smaller than we anticipate, which could lead to lower revenue and harm our operating results.
It is very difficult to estimate the commercial potential of any of our human or animal products because the gastrointestinal health market
continues to evolve and it is difficult to predict the market potential for our products. The market will depend on important factors such as safety and efficacy compared to other available
treatments, changing standards of care, preferences of physicians and veterinarians, as applicable, the willingness of patients and companion and production animal owners, as applicable, to pay for
such products, and the availability of competitive alternatives that may emerge either during the product development process or after commercial introduction. If the market potential for our human or
animal products is less than we anticipate due to one or more of these factors, it could negatively impact our business, financial condition and results of operations. Further, the willingness of
patients and companion and production animal owners to pay for our products may be less than we anticipate, and may be negatively affected by overall economic conditions. Moreover, with respect to our
animal health products, the current penetration of animal insurance in the United States is low, animal owners are likely to have to pay out-of-pocket, and such owners may not be willing or able to
pay for our products.
Insurance coverage for Mytesi for its current approved indication could decrease or end, or Mytesi might not
receive insurance coverage for any approved follow-on indications, which could lead to lower revenue and harm our operating results.
For its current approved indication, Mytesi is currently covered by all of the top 10 commercial insurance plans, representing more than
245 million U.S. lives. In 50% of these plans it is currently on Tier 3 with no restrictions, and in 50% it is currently on Tier 3 with a prior authorization required. In the top
10 Managed Medicare plans, which represent 24 million covered lives, Mytesi is currently covered on 10% of plans. Mytesi is currently covered on Medicaid in all 50 states. However, the nature
or extent of coverage for Mytesi by any of these plans or programs could change or be terminated, or Mytesi might not receive insurance coverage for any approved follow-on indications. Either outcome
could lead to significantly lower revenue and significantly harm our operating results.
We may engage in future acquisitions that increase our capital requirements, dilute our stockholders, cause
us to incur debt or assume contingent liabilities and subject us to other risks.
We may evaluate various strategic transactions, including licensing or acquiring complementary products, technologies or businesses. Any
potential acquisitions may entail numerous risks, including increased operating expenses and cash requirements, assimilation of operations and products, retention of key employees, diversion of our
management's attention and uncertainties in our ability to maintain key business relationships of the acquired entities. In addition, if we undertake acquisitions, we may
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issue
dilutive securities, assume or incur debt obligations, incur large one-time expenses and acquire intangible assets that could result in significant future amortization expense. Moreover, we may
not be able to locate suitable acquisition opportunities and this inability could impair our ability to grow or obtain access to technology or products that may be important to the development of our
business.
Certain of the countries in which we plan to commercialize our products in the future are developing
countries, some of which have potentially unstable political and economic climates.
We may commercialize our products in jurisdictions that are developing and emerging countries. This may expose us to the impact of political or
economic upheaval, and we could be subject to unforeseen administrative or fiscal burdens. At present, we are not insured against the political and economic risks of operating in these countries. Any
significant changes to the political or economic climate in any of the developing countries in which we operate or plan to sell products either now or in the future may have a substantial adverse
effect on our business, financial condition, trading performance and prospects.
Fluctuations in the exchange rate of foreign currencies could result in currency transactions losses.
As we expand our operations, we expect to be exposed to risks associated with foreign currency exchange rates, since our contract manufacturers
are in foreign countries. We will also be further affected by fluctuations in exchange rates in the future to the extent that sales are denominated in currencies other than U.S. dollars. We do not
currently employ any hedging or other strategies to minimize this risk, although we may seek to do so in the future.
There are other gastrointestinal-focused human pharmaceutical companies, and we face competition in the
marketplaces in which we operate or plan to operate.
Our commercial success in the human drug arena remains dependent on maintaining or establishing a competitive position in the market for the
current, approved specialty indication of Mytesi as well as for planned Mytesi follow-on indications. In the IBS-D market in particular, several competitors have commercially available products
approved for our planned IBS-D indication. The availability of our competitors' products could limit the demand, and the price we are able to charge, for any drug candidate we develop. The inability
to compete with existing or subsequently introduced drug candidates would have a material adverse impact on our business, financial condition and prospects.
Our obligations to CVP are secured by a security interest in substantially all of our veterinary related
assets, so if we default on those obligations, CVP could foreclose on our assets.
Our obligations under the secured promissory notes (the "CVP Notes") issued to Chicago Venture Partners, L.P. ("CVP") are secured by a
security interest in substantially all of our veterinary related assets, including intellectual property, as provided in the Security Agreement, dated June 29, 2017, between the Company and
CVP, the Security Agreement, dated December 8, 2017, between the Company and CVP, the Security Agreement dated February 26, 2018 between the Company and CVP and the Security Agreement
dated March 21, 2018 between the Company and CVP. As a result, if we default on our obligations under the loan and security agreement, CVP could foreclose on its security interests and
liquidate some or all of these assets, which would harm our veterinary related business, financial condition and results of operations and could require us to reduce or cease operations.
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Napo's obligations to the holders of the Kingdon Notes are secured by a security interest in substantially
all of Napo's assets, so if we default on those obligations, the convertible note holders could foreclose on Napo's assets.
Napo's obligations under the convertible promissory notes (the "Kingdon Notes") issued pursuant to the Amended and Restated Note Purchase
Agreement, dated March 31, 2017, in the amount of $10 million, by and among Kingdon Associates, M. Kingdon Offshore Master Fund L.P., Kingdon Family Partnership, L.P. and
Kingdon Credit Master Fund L.P. (collectively, the "Kingdon Purchasers") and Napo and the related transaction documents are secured by a security interest in substantially all of Napo's assets,
including Napo intellectual property. As a result, if we default under our obligations under the Kingdon Notes or the transaction documents, the holders of such Kingdon Notes, acting through their
appointed agent, could foreclose on their security interests and liquidate some or all of these assets, which would harm our business, financial condition and results of operations and could require
us to reduce or cease operations.
Risks Related to Intellectual Property
We cannot be certain that our patent strategy will be effective to protect against competition
Our commercial success depends in large part on obtaining and maintaining patent, trademark and trade secret and other exclusivity protection of
our human or animal products, both prescription and non-prescription, our current human or animal product candidates and any future human or animal product candidates, and their respective components,
formulations, methods used to manufacture them and methods of treatment, as well as successfully defending our patents and other intellectual property rights against third-party challenges. Our
ability to stop unauthorized third parties from making, using, selling, offering to sell or importing our products or our product candidates is dependent upon the extent to which we have rights under
valid and enforceable patents, trade secrets and other similar intellectual property that cover these activities. The patent prosecution process is expensive and time-consuming, and we may not be able
to prepare, file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of
inventions made in the course of development and commercialization activities in time to obtain patent protection on them.
We
have a portfolio of United States and foreign issued patents and pending applications related to our products and product candidates. We have five issued United States patents listed
in the FDA's Orange Book for Mytesi of which three are in force, as the expiration date of US 7,341,744, has been adjusted to 2019. We plan to rely on US 7,341,744, as protection for Canalevia. We
plan to rely on certain of these issued patents as protection for Canalevia. The strength of patents in the field of pharmaceuticals and animal health involves complex legal and scientific questions
and can be uncertain. We cannot be certain that pending applications will issue as patents. For those patents that are already issued and even if other patents do successfully issue, third parties may
challenge their validity, enforceability or scope, which may result in such patents being narrowed, invalidated or held unenforceable. Furthermore, even if they are unchallenged, our patents may not
adequately protect our intellectual property or prevent others from designing around their claims. If the patents we have are not maintained or their scope is significantly narrowed or if we are not
able to obtain issued patents from pending applications, our business and prospects would be harmed.
Recent
patent reform legislation could increase the uncertainties and costs surrounding the prosecution of any patent applications and the enforcement or defense of any patents that
issue. On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to U.S. patent law.
These include provisions that affect the way patent applications are prosecuted, redefine prior art, may affect patent litigation, and switch the U.S. patent system from a "first-to-invent" system to
a "first-to-file" system.
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Under
a "first-to-file" system, assuming the other requirements for patentability are met, the first inventor to file a patent application generally will be entitled to the patent on an
invention regardless of whether another inventor had made the invention earlier. The USPTO has developed new regulations and procedures to govern administration of the Leahy-Smith Act, and many of the
substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first-to-file provisions, became effective on March 16, 2013. Among some of the other changes to
the patent laws are changes that limit where a patentee may file a patent infringement suit and that provide opportunities for third parties to challenge any issued patent in the USPTO. The
Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our patents and any other
patents that issue, all of which could harm our business and financial condition.
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 and annuity fees on any issued patent and, in certain jurisdictions, pending applications, are due to be paid to the USPTO
and foreign patent agencies in several stages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary,
fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the
applicable rules, there are situations in which noncompliance 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 failure to respond to official actions within prescribed time limits,
non-payment of fees and failure to properly legalize and submit formal documents. If we fail to maintain the patents and patent applications covering our prescription drug products, prescription drug
product candidates and non-prescription products, our competitors might be able to enter the market, which would harm our business.
Third parties may initiate legal proceedings alleging that we are infringing their intellectual property
rights, which would be costly, time-consuming and, if successfully asserted against us, delay or prevent the development and commercialization of our current or future products and product candidates.
Our research, development and commercialization activities may infringe or otherwise violate or be claimed to infringe or otherwise violate
patents owned or controlled by other parties. There may be patents already issued of which we are unaware that might be infringed by a
product or one of our current or future prescription drug product candidates or non-prescription products. Moreover, it is also possible that patents may exist that we are aware of, but that we do not
believe are relevant to our current or future prescription drug product candidates or non-prescription products, which could nevertheless be found to block our freedom to market these products.
Because patent applications can take many years to issue and may be confidential for 18 months or more after filing, there may be applications now pending of which we are unaware and which may
later result in issued patents that may be infringed by our current or future prescription drug product candidates or non-prescription products. We cannot be certain that our products, current or
future prescription drug product candidates or non-prescription products will not infringe these or other existing or future third-party patents. In addition, third parties may obtain patents in the
future and claim that use of our technologies infringes upon these patents.
To
the extent we become subject to future third-party claims against us or our collaborators, we could incur substantial expenses and, if any such claims are successful, we could be
liable to pay substantial damages, including treble damages and attorney's fees if we or our collaborators are found
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to
be willfully infringing a third party's patents. If a patent infringement suit were brought against us or our collaborators, we or they could be forced to stop or delay research, development,
manufacturing or sales of the human or animal prescription drug or non-prescription product that is the subject of the suit. Even if we are successful in defending such claims, infringement and other
intellectual property claims can be expensive and time-consuming to litigate and divert management's attention from our business and operations. As a result of or in order to avoid potential patent
infringement claims, we or our collaborators may be compelled to seek a license from a third party for which we would be required to pay license fees or royalties, or both. Moreover, these licenses
may not be available on acceptable terms, or at all. Even if we or our collaborators were able to obtain such a license, the rights may be nonexclusive, which could allow our competitors access to the
same intellectual property. Any of these events could harm our business and prospects.
Our proprietary position depends upon patents that are formulation or method-of-use patents, which do not
prevent a competitor from using the same human or animal drug for another use.
Composition-of-matter patents on the API in prescription drug products are generally considered to be the strongest form of intellectual
property protection because such patents provide protection without regard to any particular method of use or manufacture or formulation of the API used. The composition-of-matter patents for
crofelemer, the API in Mytesi and Canalevia, have expired, and the issued patents and applications relevant to our products and product candidates cover formulations and methods of use for crofelemer.
Method-of-use
patents protect the use of a product for the specified method and formulation patents cover formulations of the API or botanical extract. These types of patents do not
prevent a competitor from developing or marketing an identical product for an indication that is outside the scope of the patented method or from developing a different formulation that is outside the
scope of the patented formulation. Moreover, with respect to method-of-use patents, even if competitors do not actively promote their product for our targeted indications or uses for which we may
obtain patents, physicians may recommend that patients use our products extra-label, and veterinarians may recommend that animal owners use these products extra-label, or animal owners may do so
themselves. Although extra-label use 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.
We may be involved in lawsuits to protect or enforce our patents, which could be expensive, time-consuming
and unsuccessful, and third parties may challenge the validity or enforceability of our patents and they may be successful.
We intend to rely upon a combination of regulatory exclusivity periods, patents, trade secret protection, and confidentiality agreements to
protect the intellectual property related to Mytesi, our current prescription drug product candidates, non-prescription products and our development programs.
If
the breadth or strength of protection provided by any patents, patent applications or future patents we may own, license, or pursue with respect to any of our current or future
product candidates or products is threatened, it could threaten our ability to commercialize any of our current or future human or animal product candidates or products. Further, if we encounter
delays in our development efforts, the period of time during which we could market any of our current or future product candidates or products under any patent protection we obtain would be reduced.
Given
the amount of time required for the development, testing and regulatory review of new product candidates or products, patents protecting such candidates might expire before or
shortly after such product candidates or products are commercialized. Patent term extension has been applied for US 7,341,744 to account for regulatory delays in obtaining human marketing approval for
crofelemer. The FDA and the USPTO have confirmed that US 7,341,744 is eligible for an extension of 1075 days
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and
we await issuance of the patent term extension certificate. With respect to requests for patent term extensions, the applicable authorities, including the USPTO and the FDA, and any equivalent
regulatory authority in other countries, may not agree with our assessment of whether such extensions are available, and may refuse to grant extensions to patents, or may grant more limited extensions
than requested. If this occurs, our competitors may take advantage of our investment in development and trials by referencing our clinical and preclinical data and launch their product earlier than
might otherwise be the case.
Even
where laws provide protection or we are able to obtain patents, costly and time-consuming litigation may be necessary to enforce and determine the scope of our proprietary rights,
and the outcome of such litigation would be uncertain. Moreover, any actions we may bring to enforce our intellectual property against our competitors could provoke them to bring counterclaims against
us, and some of our competitors have substantially greater intellectual property portfolios than we have. To counter infringement or unauthorized use of any patents we may obtain, we may be required
to file infringement claims, which can be expensive and time-consuming to litigate. In addition, if we or one of our future collaborators were to initiate legal proceedings against a third party to
enforce a patent covering one of our products, current product candidates, or one of our future products, the defendant could counterclaim that the patent is invalid or unenforceable. In patent
litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are commonplace and challenges to validity of patents in certain foreign jurisdictions is common as
well. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, non-enablement or lack of statutory subject
matter. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant material information from the USPTO, or made a
materially misleading statement, during prosecution. Under the Hatch-Waxman Act, a competitor seeking to market a generic form of Mytesi before the expiration of any of the patents listed in the FDA's
Orange Book for Mytesi could file (and could have filed after December 31, 2016) an ANDA with a certification under 21 U.S.C. § 3559j)(2)(A)(iv) that each of these
patents (except for those which the ANDA filer states it will market only after its expiration) is either invalid, unenforceable or not infringed. We may assert the patents in Hatch-Waxman litigation
against the party filing the ANDA to keep the competing product off of the market until the patents expire but there is a risk that we will not succeed. The party filing the ANDA may also counterclaim
in the litigation that the patents are not valid or unenforceable, and the court may find one or more claims of our patents invalid or unenforceable. If this occurs, a competing generic product could
be marketed prior to expiration of our patents listed in the Orange Book, which would harm our business.
Third
parties may also raise similar validity claims before the USPTO in post-grant proceedings such as
ex parte
reexaminations,
inter partes
review, or
post-grant review, or oppositions or similar proceedings outside the United States, in parallel with litigation or even outside
the context of litigation. The outcome following legal assertions of invalidity and unenforceability is unpredictable. If a defendant were to prevail on a legal assertion of invalidity or
unenforceability, we would lose at least part, and perhaps all, of any future patent protection on one or more of our products or our current or future product candidates. Such a loss of patent
protection could harm our business. We cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution or other basis for a finding of
invalidity. Litigation proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees. Furthermore, because of the substantial amount of
discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. 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
unsuccessful, it could have an adverse effect on the price of our common stock. Finally, we may not be able to prevent, misappropriation of our trade secrets or confidential
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information,
particularly in countries where the laws may not protect those rights as fully as in the United States.
If we are unable to prevent disclosure of our trade secrets or other confidential information to third
parties, our competitive position may be impaired.
We also rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable or for which we
have not filed patent applications, processes for which patents are difficult to enforce and other elements of our product development processes that involve proprietary know-how, information or
technology that is not covered by patents. Although we require all of our employees to assign their inventions to us, and endeavor to execute confidentiality agreements with all of our employees,
consultants, advisors and any third parties who have access to our proprietary know-how, information or technology, we cannot be certain that we have executed such agreements with all parties who may
have helped to develop our intellectual property or had access to our proprietary information, or that our agreements will not be breached. We cannot guarantee that our trade secrets and other
confidential 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. If we are unable to prevent disclosure of our intellectual property to third parties, we may not be able to maintain a competitive advantage in our market, which would harm our business.
Any
disclosure to or misappropriation by third parties of our confidential proprietary information could enable competitors to quickly duplicate or surpass our technological
achievements, and erode our competitive position in our market.
Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to
protect our products.
As is the case with other human or animal pharmaceutical product companies, our success is heavily dependent on intellectual property,
particularly patents. Obtaining and enforcing patents in the human and animal health industries involves both technological and legal complexity. Therefore, obtaining and enforcing patents is costly,
time-consuming and inherently uncertain. In
addition, the United States has recently enacted and implemented wide-ranging patent reform legislation. The U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the
scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain
patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the U.S. Congress, the federal courts, and the
USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce patents that we have licensed or that we might
obtain in the future.
We may not be able to protect our intellectual property rights throughout the world, which could impair our
business.
Filing, prosecuting and defending patents on human and animal drug products, product candidates and non-prescription products throughout the
world would be prohibitively expensive. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export
otherwise infringing products to territories where we may obtain patent protection, but where patent enforcement is not as strong as that in the United States. These products may compete with our
products in jurisdictions where we do not have any issued or licensed patents and any future patent claims or other intellectual property rights may not be effective or sufficient to prevent them from
so competing.
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Many
companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries,
particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to animal health products, which could make
it difficult for us to stop the infringement of our future patents, if any, or patents we have in licensed, or marketing of competing products in violation of our proprietary rights generally.
Further, the laws of some foreign 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. Proceedings to enforce our future patent rights, if any, in foreign jurisdictions could result in
substantial cost and divert our efforts and attention from other aspects of our business.
Our business could be harmed if we fail to obtain certain registered trademarks in the United States or in
other countries.
Our registered and pending U.S. trademarks include NEONORM®, MYTESI®, NAPO®, Napo Logo®,
CANALEVIA, EQUILEVIA, JAGUAR ANIMAL HEALTH, and the Jaguar Animal Health logo. We also own pending applications for the CANALEVIA mark in a number of foreign countries. We have not yet filed
applications for our company name or our logo in the U.S. During trademark registration proceedings, we may receive rejections of our trademark applications. If so, we will have an opportunity to
respond, but we may be unable to overcome such rejections. In addition, the USPTO and comparable agencies in many foreign jurisdictions may permit third parties to oppose pending trademark
applications and to seek to cancel registered trademarks. If opposition or cancellation proceedings are filed against any of our trademark applications or any registered trademarks, our trademarks may
not survive such proceedings. Moreover, any name we propose to use with our prescription drug product candidates in the United States, including CANALEVIA, must be approved by the FDA, regardless of
whether we have registered or applied to register as a trademark. The FDA typically conducts a review of proposed prescription drug product names, including an evaluation of potential for confusion
with other product names. If the FDA objects to any of our proposed proprietary product names, we may be required to expend significant additional resources in an effort to identify a suitable
substitute name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA.
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 third parties. In addition, we employ individuals who were previously employed at
other biotechnology, pharmaceutical or animal health companies. We may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise improperly
used or disclosed confidential information of these third parties or our employees' former employers. Litigation may be necessary to defend against any such claims. Even if we were successful in
defending against any such claims, such litigation could result in substantial cost and be a distraction to our management and employees.
Risks Related to Government Regulation
Even if we receive any of the required regulatory approvals for our current or future prescription drug
product candidates and non-prescription products, we will be subject to ongoing obligations and continued regulatory review, which may result in significant additional expense.
If the FDA or any other regulatory body approves any of our current or future prescription drug product candidates, or if necessary, our
non-prescription products, the manufacturing processes, clinical development, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion
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and
recordkeeping for the product may be subject to extensive and ongoing regulatory requirements. These requirements could include, but are not limited to, submissions of efficacy and safety and
other post-marketing information and reports, establishment registration, and product listing, compliance with new rules promulgated under the FSMA, as well as continued compliance with cGMP, GLP and
GCP for any studies that we conduct post-approval. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with our contract
manufacturers or manufacturing processes, or failure to comply with regulatory requirements, are reportable events to the FDA and may result in, among other
things:
-
-
restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, revised labeling, or voluntary or
involuntary product recalls;
-
-
additional clinical studies, fines, warning letters or holds on target animal studies;
-
-
refusal by the FDA, or other regulators to approve pending applications or supplements to approved applications filed by us or our strategic
collaborators related to the unknown problems, or suspension or revocation of the problematic product's license approvals;
-
-
product seizure or detention, or refusal to permit the import or export of products; and
-
-
injunctions and/or the imposition of civil or criminal penalties.
The
FDA or other regulatory agency's policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product
candidates or require certain changes to the labeling or additional clinical work concerning safety and efficacy of the product candidates. 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 abroad. If we are slow or unable to adapt to changes in existing requirements or
the adoption of new requirements or policies, or if we 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 harm our business. In addition, failure to comply with these regulatory requirements could result in significant penalties.
In
addition, from time to time, we may enter into consulting and other financial arrangements with veterinarians, who prescribe or recommend our products, once approved. As a result, we
may be subject to state, federal and foreign healthcare and/or veterinary medicine laws. If our financial relationships with veterinarians are found to be in violation of such laws that apply to us,
we may be subject to penalties.
The issuance by the FDA of protocol concurrences for our pivotal studies does not guarantee ultimate approval
of our NADA.
A pivotal study protocol is submitted to the FDA by a drug sponsor for purposes of obtaining FDA review of the protocol. Prior FDA review of the
protocol for a pivotal study makes it more likely that the study design will generate information the sponsor needs to demonstrate to the satisfaction of the FDA whether the drug is safe and effective
for its intended use. It creates an expectation by the sponsor that the FDA should not later alter its perspectives on these issues unless public or animal health concerns appear that were not
recognized at the time of protocol assessment. Even if the FDA issues a protocol concurrence, ultimate approval of an NADA by the FDA is not guaranteed because a final determination that the
agreed-upon protocol satisfies a specific objective, such as the demonstration of efficacy, or supports an approval decision, will be based on a complete review of all the data submitted to the FDA
including the outcome of the study for which protocol concurrence was received.
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Any of our current or future prescription drug product candidates or non-prescription products may cause or
contribute to adverse medical events that we would be required to report to regulatory authorities and, if we fail to do so, we could be subject to sanctions that would harm our business.
If we are successful in commercializing any of our current or future prescription drug product candidates or non-prescription products, certain
regulatory authorities will require that we report certain information about adverse medical events if those products may have caused or contributed to those adverse events. The timing of our
obligation to report would be triggered by the date we become aware of the adverse event as well as the nature of the event. We may fail to report adverse events we become aware of within the
prescribed timeframe. We may also fail to appreciate that we have become aware of a reportable adverse event, especially if such event is not reported to us as an adverse event or if it is an adverse
event that is unexpected or removed in time from the use of our products. If we fail to comply with our reporting obligations, the regulatory authorities could take action including, but not limited
to, criminal prosecution, seizure of our products, facility inspections, removal of our products from the market, recalls of certain lots or batches, or cause a delay in approval or clearance of
future products.
Legislative or regulatory reforms with respect to animal health may make it more difficult and costly for us
to obtain regulatory clearance or approval of any of our current or future product candidates and to produce, market, and distribute our products after clearance or approval is obtained.
From time to time, legislation is drafted and introduced in the U.S. Congress or other jurisdictions in which we intend to operate that could
significantly change the statutory provisions governing the testing, regulatory clearance or approval, manufacture, and marketing of regulated products. In addition, the FDA's regulations and guidance
are often revised or reinterpreted by the FDA and such other regulators in ways that may significantly affect our business and our products and product candidates. Similar changes in laws or
regulations can occur in other countries. Any new regulations or revisions or reinterpretations of existing regulations in the United States or in other countries may impose additional costs or
lengthen review times of any of our current or future products and product candidates. We cannot determine what effect changes in regulations, statutes, legal interpretation or policies, when and if
promulgated, enacted or adopted may have on our business in the future. Such changes could, among other things, require:
-
-
changes to manufacturing methods;
-
-
additional clinical trials or testing;
-
-
new requirements related to approval to enter the market;
-
-
recall, replacement, or discontinuance of certain products; and
-
-
additional record keeping or the development of certain regulatory required hazard identification plans.
Each
of these would likely entail substantial time and cost and could harm our financial results. In addition, delays in receipt of or failure to receive regulatory clearances or
approvals for any future products would harm our business, financial condition, and results of operations.
We believe that our non-prescription products are not subject to regulation by regulatory agencies in the
United States, but there is a risk that regulatory bodies may disagree with our interpretation, or may redefine the scope of their regulatory reach in the future, which would result in additional
expense and could delay or prevent the commercialization of these products.
The FDA retains jurisdiction over all animal prescription drug products however, in many instances, the Federal Trade Commission will exercise
primary or concurrent jurisdiction with FDA on
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non-prescription
products as to post marketing claims made regarding the product. On April 22, 1996, the FDA published a statement in the Federal Register, 61 FR 17706, that it believes that
the Dietary Supplement and Health Education Act ("DSHEA"), does not apply to animal health supplement products, such as our non-prescription products. Accordingly, the FDA's Center for Veterinary
Medicine only regulates those animal supplements that fall within the FDA's definition of an animal drug, animal food or animal feed additive. The Federal Food Drug and Cosmetic Act defines food as
"articles used for food or drink for man or other animals and articles used as components of any such article." Animal foods are not subject to pre-market approval and are designed to provide a
nutritive purpose to the animals that receive them. Feed additives are defined as those articles that are added to an animal's feed or water as illustrated by the guidance documents. Our
non-prescription products are not added to food, are not ingredients in food nor are they added to any animal's drinking water. Therefore, our non-prescription products do not fall within the
definition of a food or feed additive. In light of the pronouncement by the FDA that the DSHEA was not intended to apply to animals, the FDA seeks to regulate such supplements as food or food
additives depending on the intended use of the product. The intended use is demonstrated by how the article is included in a food, or added to the animals' intake
(
i.e.,
through its drinking water). If the intended use of the product does not fall within the proscribed use making the product a food, it
cannot be regulated as a food. There is no intent to make our non-prescription products a component of an animal food, either directly or indirectly. A feed additive is a product that is added to a
feed for any reason including the top dressing of an already prepared feed. Some additives, such as certain forage, are deemed to be Generally Recognized as Safe, or GRAS, and therefore, not subject
to a feed Additive Petition approval prior to use. However, the substances deemed GRAS are generally those that are recognized as providing nutrients as a food does. We do not believe that our
non-prescription products fit within this framework either. Finally, a new animal drug refers to drugs intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease in
animals. Our non-prescription Neonorm Foal and Neonorm Calf products
are chemically distinct from crofelemer and not intended to diagnose, cure, mitigate, treat or prevent disease and therefore, do not fit within the definition of an animal drug. Additionally, because
a previously marketed human formulation of the botanical extract in our non-prescription products was regulated as a human dietary supplement subject to the DSHEA (and not regulated as a drug by the
FDA), we do not believe that the FDA would regulate the animal formulation used in our non-prescription products in a different manner. We do not believe that our non-prescription products fit the
definition of an animal drug, food or food additive and therefore are not regulated by the FDA at this time.
However,
despite many such unregulated animal supplements currently on the market, the FDA may choose in the future to exercise jurisdiction over animal supplement products in which
case, we may be subject to new animal drug regulations thereby inhibiting our ability to launch or to continue marketing our non-prescription products. In the past, the FDA has redefined or attempted
to redefine some non-prescription non-feed products as falling within the definition of drug, feed or feed additive and therefore subjected those products to the relevant regulations. We have not
discussed with the FDA its belief that the FDA currently does not exercise jurisdiction over our non-prescription products. Should the FDA assert regulatory authority over our non-prescription
products, we would take commercially reasonable steps to address the FDA's concerns, potentially including but not limited to, seeking registration for such products, reformulating such products to
further distance such products from regulatory control, or ceasing sale of such products. Further, the Animal and Plant Health Inspection Service, an agency of the USDA, may at some point choose to
exercise jurisdiction over certain non-prescription products that are not intended for production animals. We do not believe we are currently subject to such regulation, but could be in the future. If
the FDA or other regulatory agencies, such as the USDA, try to regulate our non-prescription products, we could be required to seek regulatory approval for our non-prescription products, which would
result in additional expense and could delay or prevent the commercialization of these products.
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Even if Napo receives the required regulatory approvals for Napo's current or future prescription drug
product candidates and non-prescription products, Napo will be subject to ongoing obligations and continued regulatory review, which may result in significant additional expense.
If the FDA or any other regulatory body approves any of Napo's current or future prescription drug product candidates, or if necessary, Napo's
non-prescription products, the manufacturing processes, clinical development, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the
product is subject to extensive and ongoing regulatory requirements. These requirements could include, but are not limited to, submissions of efficacy and safety and other post-marketing information
and reports, establishment registration, and product listing, compliance with new rules promulgated under the FSMA, as well as continued compliance with cGMP, GLP and GCP for any studies that Napo
conducts post-approval. Later
discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with Napo's contract manufacturers or manufacturing processes, or failure
to comply with regulatory requirements, are reportable events to the FDA and may result in, among other things:
-
-
restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, revised labeling, or voluntary or
involuntary product recalls;
-
-
additional clinical studies fines, warning letters or holds on studies;
-
-
refusal by the FDA, or other regulators to approve pending applications or supplements to approved applications filed by Napo or Napo's
strategic collaborators related to the unknown problems, or suspension or revocation of the problematic product's license approvals;
-
-
product seizure or detention, or refusal to permit the import or export of products; and
-
-
injunctions or the imposition of civil or criminal penalties.
The
FDA or other regulatory agency's policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of Napo's product
candidates or require certain changes to the labeling or require additional clinical work concerning safety and efficacy of the product candidates. Napo 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 abroad. If Napo is slow or unable to adapt to changes in existing requirements
or the adoption of new requirements or policies, or if Napo is not able to maintain regulatory compliance, Napo may lose any marketing approval that Napo may have obtained and Napo may not achieve or
sustain profitability,
which would harm Napo's business. In addition, failure to comply with these regulatory requirements could result in significant penalties.
In
addition, from time to time, Napo may enter into consulting and other financial arrangements with physicians and other healthcare practitioners, who prescribe or recommend Napo's
products, once approved. As a result, Napo may be subject to state, federal and foreign healthcare laws, including but not limited to anti-kickback laws. If Napo's financial relationships with
physicians or other healthcare practitioners are found to be in violation of such laws that apply to Napo, Napo may be subject to penalties.
Any of Napo's current or future prescription drug product candidates may cause or contribute to adverse
medical events that Napo would be required to report to regulatory authorities and, if Napo fails to do so, Napo could be subject to sanctions that would harm Napo's business.
If Napo is successful in commercializing any of Napo's current or future prescription drug product candidates, certain regulatory authorities
will require that Napo report certain information about adverse medical events if those products may have caused or contributed to those adverse events. The timing of Napo's obligation to report would
be triggered by the date Napo becomes aware of the
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adverse
event as well as the nature of the event. Napo may fail to report adverse events Napo becomes aware of within the prescribed timeframe. Napo may also fail to appreciate that Napo has become
aware of a reportable adverse event, especially if it is not reported to Napo as an adverse event or if it is an adverse event that is unexpected or removed in time from the use of Napo's products. If
Napo fails to comply with Napo's reporting obligations, the regulatory authorities could take action including, but not limited to, criminal prosecution, seizure of Napo's products, facility
inspections, removal of Napo's products from the market, recalls of certain lots or batches, or cause a delay in approval or clearance of future products.
Legislative or regulatory reforms make it more difficult and costly for Napo to obtain regulatory clearance
or approval of any of Napo's current or future product candidates and to produce, market, and distribute Napo's products after clearance or approval is obtained.
From time to time, legislation is drafted and introduced in the U.S. Congress or other jurisdictions in which Napo intends to operate that could
significantly change the statutory provisions governing the testing, regulatory clearance or approval, manufacture, and marketing of regulated products. In addition, the FDA's regulations and guidance
are often revised or reinterpreted by the FDA and such other regulators in ways that may significantly affect Napo's business and Napo's products and product candidates. Similar changes in laws or
regulations can occur in other countries. Any new regulations or revisions or reinterpretations of existing regulations in the United States or in other countries may impose additional costs or
lengthen review times of any of Napo's current or future products and product candidates. Napo cannot determine what effect changes in regulations, statutes, legal interpretation or policies, when and
if promulgated, enacted or adopted may have on Napo's business in the future. Such changes could, among other things, require:
-
-
changes to manufacturing methods;
-
-
additional clinical trials or testing;
-
-
new requirements related to approval to enter the market;
-
-
recall, replacement, or discontinuance of certain products; and
-
-
additional record keeping or the development of certain regulatory required hazard identification plans.
Each
of these would likely entail substantial time and cost and could harm Napo's financial results. In addition, delays in receipt of or failure to receive regulatory clearances or
approvals for any future products would harm Napo's business, financial condition, and results of operations.
We and our employees and contractors are subject, directly or indirectly, to federal, state and foreign
healthcare fraud and abuse laws, including false claims laws. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.
Our operations are subject to various federal, state and foreign fraud and abuse laws. These laws may constrain our operations, including the
financial arrangements and relationships through which we market, sell and distribute our products.
U.S.
federal and state laws that affect our ability to operate include, but are not limited to:
-
-
The federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully soliciting, receiving,
offering or paying any remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in kind in return for, the purchase, recommendation, leasing or
furnishing of an item or service reimbursable under a federal healthcare program, such as the Medicare or Medicaid programs;
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-
-
Federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from
knowingly presenting, or causing to be presented, claims for payment or approval from Medicare, Medicaid, or other government payers that are false or fraudulent;
-
-
Section 242 of HIPAA codified at 18 U.S.C. § 1347, which created new federal criminal statutes that prohibit a person
from knowingly and willfully executing a scheme or from making false or fraudulent statements to defraud any healthcare benefit program (i.e., public or private);
-
-
Federal transparency laws, including the so-called federal "sunshine" law, which requires the tracking and disclosure to the federal government
by pharmaceutical manufacturers of direct and indirect payments and other transfers of value to physicians and teaching hospitals as well as ownership and investment interests that are held by
physicians and their immediate family members; and
-
-
State law equivalents of each of these federal laws, such as anti-kickback and false claim laws that may apply to items or services reimbursed
by any third-party payer, including commercial insurers; state laws that require pharmaceutical companies to comply with their industry's voluntary compliance guidelines and the applicable compliance
guidance promulgated by the federal government or otherwise restrict certain payments that may be made to healthcare providers and other potential referral sources; state laws that require drug
manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; state laws that prohibit giving gifts to
licensed healthcare professionals; and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may
not have the same effect, thus complicating compliance efforts in certain circumstances, such as specific disease states.
In
particular, activities and arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, waste, and other abusive practices. These
laws and regulations may restrict or prohibit a wide range of activities or other arrangements related to the development, marketing or promotion of products, including pricing and discounting of
products, provision of customer incentives, provision of reimbursement support, other customer support services, provision of sales commissions or other incentives to employees and independent
contractors and other interactions with healthcare practitioners, other healthcare providers and patients.
Because
of the breadth of these laws and the narrow scope of the statutory or regulatory exceptions and safe harbors available, our business activities could be challenged under one or
more of these laws. Relationships between pharmaceutical manufacturers and health care providers are an area of heightened scrutiny by the government. We engage in various activities, including the
frequent conduct of speaker programs to educate physicians, the provision of reimbursement advice and support to customers, and the provision of customer and patient support services, that have been
the subject of government scrutiny and enforcement action within the pharmaceutical industry. Government expectations and industry best practices for compliance continue to evolve and past activities
may not always be consistent with current industry best practices. Further, there is a lack of government guidance as to whether various industry practices comply with these laws, and government
interpretations of these laws continue to evolve, all of which creates compliance uncertainties. Any non-compliance could result in regulatory sanctions, criminal or civil liability and serious harm
to our reputation. Although we have a compliance program designed to ensure that our employees' and commercial partners' activities and interactions with healthcare professionals and patients are
appropriate, ethical, and consistent with all applicable laws, regulations, guidelines, policies and standards, it is not always possible to identify and deter misconduct, and the precautions we take
to detect and prevent this activity may not be effective in preventing such conduct, mitigating risks, or
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reducing
the chance of governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations.
If
a government entity opens an investigation into possible violations of any of these laws (which may include the issuance of subpoenas), we would have to expend significant resources
to defend ourselves against the allegations. Allegations that we, our officers, or our employees violated any one of these laws can be made by individuals called "whistleblowers" who may be our
employees, customers, competitors or other parties. Government policy is to encourage individuals to become whistleblowers and file a complaint in federal court alleging wrongful conduct. The
government is required to investigate all of these complaints and decide whether to intervene. If the government intervenes and we are required to pay money back to the government, the whistleblower,
as a reward, is awarded a percentage. If the government declines to intervene, the whistleblower may proceed on her own and, if she is successful, she will receive a percentage of any judgment or
settlement amount the company is required to pay. The government may also initiate an investigation on its own. If any such actions are instituted against us, those actions could have a significant
impact on our business, including the imposition of significant fines, and other sanctions that may materially impair our ability to run a profitable business. In particular, if our operations are
found to be in violation of any of the laws described above or if we agree to settle with the government without admitting to any wrongful conduct or if we are found to be in violation of any other
governmental regulations that apply to us, we, our officers and employees may be subject to sanctions, including civil and criminal penalties, damages, fines, exclusion from participation in
government health care programs, such as Medicare and Medicaid, imprisonment, the curtailment or restructuring of our operations and the imposition of a corporate integrity agreement, any of which
could adversely affect our business, results of operations and financial condition.
Risks Related to Our Common Stock
Our failure to meet the continued listing requirements of The NASDAQ Capital Market could result in a
delisting of our common stock.
Our common stock is listed on The NASDAQ Capital Market, which imposes, among other requirements a minimum bid requirement. The closing bid
price for our common stock must remain at or above $1.00 per share to comply with NASDAQ's minimum bid requirement for continued listing. If the closing bid price for our common stock is less than
$1.00 per share for 30 consecutive business days, NASDAQ may send us a notice stating that we will be provided a period of 180 days to regain compliance with the minimum bid requirement or else
NASDAQ may make a determination to delist our common stock.
The
delisting of our common stock from NASDAQ may make it more difficult for us to raise capital on favorable terms in the future. Such a delisting would likely have a negative effect on
the price of our common stock and would impair your ability to sell or purchase our common stock when you wish to do so. Further, if we were to be delisted from The NASDAQ Capital Market, our common
stock would cease to be recognized as covered securities and we would be subject to regulation in each state in which it offers its securities.
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We have a material weakness in our internal control over financial reporting related to the accounting for
income taxes, and if we fail to remediate the material weakness, or experience any additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls
in the future, we may not be able to accurately report our financial condition or results of operations which may adversely affect investor confidence in us and, as a result, the value of our common
stock.
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in
Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Preparing
our consolidated financial statements involves a number of complex manual and automated processes, which are dependent upon individual data input or review and require
significant management judgment. One or more of these elements may result in errors that may not be detected and could result in a material misstatement of our consolidated financial statements. If we
fail to maintain the adequacy of our internal controls over financial reporting, our business and operating
results may be harmed and we may fail to meet our financial reporting obligations. If material weaknesses in our internal control are discovered or occur, our consolidated financial statements may
contain material misstatements and we could be required to restate our financial results.
In
connection with the audit of our financial statements as of and for the year ended December 31, 2017, we identified a material weakness in our internal control over financial
reporting, as defined in the standards established by the Public Company Accounting Oversight Board of the United States. Our management has determined that we had a material weakness in our internal
control over financial reporting as of December 31, 2017 because we did not adequately and timely review the accounting for income taxes. While the Company utilizes the assistance of an
external income tax specialist to prepare its annual tax provision, management has concluded there to be a material weakness in the design of the Company's income tax controls in that the Company's
policy that governs the data validation controls over data provided to and received from the external income tax specialist and the management review controls were not designed with appropriate levels
of precision and were not undertaken in a timely manner.
We
are enhancing our internal controls, processes and related documentation necessary to remediate our material weakness. We may not be able to complete our remediation, evaluation and
testing in a timely fashion. If we are unable to remediate this material weakness, or if we identify one or more other material weaknesses in our internal control over financial reporting, we will
continue to be unable to conclude that our internal controls are effective. If we are unable to confirm that our internal control over financial reporting is effective we could lose investor
confidence in the accuracy and completeness of our financial reports, which could cause the price of our common stock to decline.
If our shares become subject to the penny stock rules, it would become more difficult to trade our shares.
The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally
equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or authorized for quotation on certain automated quotation systems,
provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. If we do not retain a listing on The NASDAQ Capital Market and
if the price of our common stock is less than $5.00, our common stock will be deemed a penny stock. The penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise
exempt from those rules, to deliver a standardized risk disclosure document containing specified information. In addition, the penny stock rules require that before effecting any transaction in a
penny stock not otherwise exempt from those rules, a broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive (i) the
purchaser's written acknowledgment of the receipt of a risk disclosure statement;
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(ii) a
written agreement to transactions involving penny stocks and (iii) a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of
reducing the trading activity in the secondary market for our common stock, and therefore stockholders may have difficulty selling their shares.
The price of our common stock could be subject to volatility related or unrelated to our operations, and
purchasers of our common stock could incur substantial losses.
The trading price of our common stock could be subject to wide fluctuations in response to various factors, some of which are beyond our
control. These factors include those discussed previously in this "Risk Factors" section of this report and others, such as:
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delays in the commercialization of Mytesi, Neonorm, Canalevia, Equilevia or our other current or future prescription drug product candidates
and non-prescription products;
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any delays in, or suspension or failure of, our current and future studies;
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announcements of regulatory approval or disapproval of any of our current or future product candidates or of regulatory actions affecting our
company or our industry;
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manufacturing and supply issues that affect product candidate or product supply for our studies or commercialization efforts;
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quarterly variations in our results of operations or those of our competitors;
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changes in our earnings estimates or recommendations by securities analysts;
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the payment of licensing fees or royalties in shares of our common stock;
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announcements by us or our competitors of new prescription drug products or product candidates or non-prescription products, significant
contracts, commercial relationships, acquisitions or capital commitments;
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announcements relating to future development or license agreements including termination of such agreements;
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adverse developments with respect to our intellectual property rights or those of our principal collaborators;
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commencement of litigation involving us or our competitors;
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any major changes in our board of directors or management;
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new legislation in the United States relating to the prescription, sale, distribution or pricing of gastrointestinal health products;
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product liability claims, other litigation or public concern about the safety of our prescription drug product or product candidates and
non-prescription products or any such future products;
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market conditions in the human or animal industry, in general, or in the gastrointestinal health sector, in particular, including performance
of our competitors; and
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general economic conditions in the United States and abroad.
In
addition, the stock market, in general, or the market for stocks in our industry, in particular, may experience broad market fluctuations, which may adversely affect the market price
or liquidity of our common stock. Any sudden decline in the market price of our common stock could trigger securities class-action lawsuits against us. If any of our stockholders were to bring such a
lawsuit against us, we could incur substantial costs defending the lawsuit and the time and attention of our
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management
would be diverted from our business and operations. We also could be subject to damages claims if we were found to be at fault in connection with a decline in our stock price.
No active market for our common stock exists or may develop, and you may not be able to resell our common
stock when you wish to sell them or at a price that you consider attractive or satisfactory.
Prior to our initial public offering in May 2015, there was no public market for shares of our common stock. The listing of our common stock on
The NASDAQ Capital Market does not assure that a meaningful, consistent and liquid trading market exists. Although our common stock is listed on The NASDAQ Capital Market, trading volume in our common
stock has been limited and an active trading market for our shares may never develop or be sustained. If an active market for our common stock does not develop, you may be unable to sell your shares
when you wish to sell them or at a price that you consider attractive or satisfactory. The lack of an active market may also adversely affect our ability to raise capital by selling securities in the
future, or impair our ability to license or acquire other product candidates, businesses or technologies using our shares as consideration.
Holders of the pre-funded warrants will not have rights of common stockholders until such warrants are
exercised.
The pre-funded warrants being offered do not confer any rights of common stock ownership on their holders, such as voting rights or the right to
receive dividends, but rather merely represent the right to acquire shares of common stock at a fixed price.
If securities or industry analysts do not publish research or reports about our company, or if they issue
adverse or misleading opinions regarding us or our stock, our stock price and trading volume could decline.
The trading market for our common stock depends in part on the research and reports that industry or financial analysts publish about us or our
business. We do not influence or control the reporting of these analysts. If one or more of the analysts who do cover us downgrade or provide a negative outlook on our company or our industry, or the
stock of any of our competitors, the price of our common stock could decline. If one or more of these analysts ceases coverage of our company, we could lose visibility in the market, which in turn
could cause the price of our common stock to decline.
You may be diluted by conversions of outstanding convertible notes, Series A Preferred shares, and
exercises of outstanding options and warrants.
As of June 30, 2018, we had (i) 3,314,955 shares of common stock issuable upon conversion of outstanding preferred stock as of
June 30, 2018 with a weighted-average conversion price of $2.775 per share; (ii) 2,870,138 shares of common stock issuable upon exercise of outstanding options as of June 30, 2018
with a weighted-average exercise price of $14.85 per share; (iii) 209,531 shares of common stock issuable upon exercise of outstanding inducement options as of June 30, 2018 with a
weighted-average exercise price of $1.75 per share; (iv) 941,347 shares of common stock issuable upon exercise of outstanding warrants as of June 30, 2018 with a weighted-average
exercise price of $4.70 per share; (v) 185,417 shares of common stock issuable upon exercise of outstanding warrants as of June 30, 2018 with a weighted-average exercise price of $0.90
per share; (vi) 33,918 shares of common stock issuable upon exercise of outstanding warrants as of June 30, 2018 with a weighted-average exercise price of $1.23 per share;
(vii) up to 720,721 shares of common stock issuable upon conversion of outstanding convertible promissory notes in the aggregate principal amount of $10,000,000 issued after June 30,
2018, convertible at a price of $13.875 per share; (viii) 38,675 shares of common stock issuable pursuant to a convertible promissory note issued to Chicago Venture Partners, L.P.
("CVP"), in the aggregate principal amount of $580,127, convertible at a price of $15 per share of common stock; (ix) 670,586 shares of common stock, issuable upon exercise of a warrant issued
on August 28, 2018 to Pacific Capital Management, LLC with an exercise price that is the lower of (i) $0.85 per share and
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(ii) the
average of the closing sales price of the common stock for the 30 consecutive trading days commencing on September 4, 2018; (x) 185,417 shares of common stock issuable
upon exercise of warrants issued on September 11, 2018 to L2 Capital, LLC with an exercise price of $0.90 per share; (xi) 33,918 shares of common stock issuable upon
exercise of warrants issued on September 11, 2018 to Charles C. Conte with an exercise price of $1.23 per share; (xii) up to 706,765 shares of common stock issuable upon conversion of a
convertible promissory note delivered to L2 Capital, LLC on September 11, 2018 in the aggregate principal amount of $445,000 with an exercise price of $0.85 per share; and
(xiii) up to 176,691 shares of common stock issuable upon conversion of a convertible promissory note delivered to Charles C. Conte on September 11, 2018 in the aggregate principal
amount of $111,250 with an exercise price of $0.85 per share.
The
exercise of such options and warrants or conversion of the convertible promissory notes and preferred stock will result in further dilution of your investment. In addition, you may
experience additional dilution if we issue common stock in the future. As a result of this dilution, you may receive significantly less in net tangible book value than the full purchase price you paid
for the shares in the event of liquidation.
If shares of our non-voting common stock are converted into shares of our voting common stock, your voting
power will be diluted.
As of June 30, 2018, we had 8,736,579 shares of voting common stock and 2,686,749 shares of voting common stock issuable upon conversion
of non-voting common stock outstanding. Generally, holders of our non-voting common stock have no voting power (other than in connection with a change of control of our company) and have no right to
participate in any meeting of stockholders or to have notice thereof. However, shares of our non-voting common stock that are converted into voting common stock will have all the voting rights of the
voting common stock. Shares of our non-voting common stock are convertible into shares of our voting common stock (i) at the option of the respective holders thereof, at any time or
(ii) automatically, without any payment of additional consideration by the holder thereof, (x) upon a transfer of such shares to any person or entity that is neither an affiliate of
Nantucket nor an investment fund, investment vehicle or other account, that is, directly or indirectly, managed or advised by Nantucket or any of its affiliates pursuant to a sale of such stock to a
third-party for cash, or (y) upon the subsequent release or transfer of such shares to the registered pre-Merger legacy stockholders of Napo's outstanding shares of common stock as of
July 31, 2017 (the "Napo Legacy Stockholders"). Upon conversion of any non-voting common stock, your voting power will be diluted in proportion to the decrease in your ownership of the total
outstanding voting common stock.
We will have broad discretion to use the net proceeds from this offering, and may use them in ways that do
not enhance our operating results or the market price of our common stock.
Our management will have broad discretion regarding the use of the net proceeds from this offering, and we could spend the net proceeds in ways
our stockholders may not agree with or that do not yield a favorable return, if at all. We intend to use the net proceeds from this offering for general corporate and working capital purposes. We may
also use a portion of the net proceeds to acquire additional product candidates or complementary assets or businesses; however, we currently have no agreements or commitments to complete any such
transaction. Our use of these proceeds may differ substantially from our current plans. If we do not invest or apply the net proceeds from this offering in ways that improve our operating results or
our prospects, our stock price could decline.
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Purchasers in this offering will experience immediate and substantial dilution in the book value of their
investment.
The public offering price per share of our voting common stock will be substantially higher than the net tangible book value per share of our
voting common stock immediately after the offering. At the public offering price of $ per share, purchasers of our voting common stock will incur an estimated immediate dilution
of
$ per share in the net tangible book value of their purchased shares. Conversely, the shares of voting common stock that our existing stockholders currently own will receive an
increase
in net tangible book value of per share. For a further description of the dilution that you will experience immediately after this offering, see the section in this prospectus titled
"Dilution."
Provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may
consider favorable and may lead to entrenchment of management.
Our third amended and restated certificate of incorporation, as amended, and amended and restated bylaws contain provisions that could delay or
prevent changes in control or changes in our management without the consent of our board of directors. These provisions to include the following:
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a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a
majority of our board of directors;
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no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;
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the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the
resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;
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the ability of our board of directors to authorize the issuance of shares of preferred stock and to determine the terms of those shares,
including preferences and voting rights, without stockholder approval, which could adversely affect the rights of our common stockholders or be used to deter a possible acquisition of our company;
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the ability of our board of directors to alter our bylaws without obtaining stockholder approval;
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the required approval of the holders of at least 75% of the shares entitled to vote at an election of directors to adopt, amend or repeal our
bylaws or repeal the provisions of our third amended and restated certificate of incorporation, as amended, regarding the election and removal of directors;
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a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our
stockholders;
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the requirement that a special meeting of stockholders may be called only by the chairman of the board of directors, the chief executive
officer, the president or the board of directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; and
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advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to
be acted upon at a stockholders' meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer's own slate of directors or otherwise
attempting to obtain control of us.
These
provisions could inhibit or prevent possible transactions that some stockholders may consider attractive.
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We
are also subject to the anti-takeover provisions contained in Section 203 of the Delaware General Corporation Law. Under Section 203, a corporation generally may not
engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other exceptions, the board of directors has
approved the transaction.
Our amended and restated bylaws designate the Court of Chancery of the State of Delaware as the sole and
exclusive forum for certain 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 other employees.
Our amended and restated bylaws provide that, unless we consent in writing to an alternative forum, the Court of Chancery of the State of
Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by
any director, officer or other employee to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, (iv) any
action asserting a claim that is governed by the internal affairs doctrine or (v) any action to interpret, apply, enforce or determine the validity of our certificate of incorporation or
bylaws. Any person purchasing or otherwise acquiring any interest in any shares of our capital stock shall be deemed to have notice of and to have consented to this provision of our amended and
restated bylaws. This choice-of-forum provision may limit our stockholders' ability to bring a claim in a judicial forum that they find favorable for disputes with us or our directors, officers or
other employees, which may discourage such lawsuits. Alternatively, if a court were to find this provision of our amended and restated bylaws inapplicable 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 harm our business and financial condition.
We do not intend to pay dividends on our common stock, and your ability to achieve a return on your
investment will depend on appreciation in the market price of our common stock.
We currently intend to invest our future earnings, if any, to fund our growth and not to pay any cash dividends on our common stock. Moreover,
so long as Nantucket or any of its affiliates owns any shares of our non-voting common stock, we cannot pay dividends on our common stock or non-voting common stock without obtaining the prior written
consent of Nantucket. Because we do not intend to pay dividends and may be required to obtain written consent if we were to do so, your ability to receive a return on your investment will depend on
any future appreciation in the market price of our common stock. We cannot be certain that our common stock will appreciate in price.
Our principal stockholders own a significant percentage of our voting stock and will be able to exert
significant control over matters subject to stockholder approval.
As of August 31, 2018, our executive officers, directors, holders of 5% or more of our capital stock and their respective affiliates
beneficially owned in the aggregate approximately 73.25% of the outstanding shares of our voting common stock. As a result of their stock ownership, these stockholders may have the ability to
influence our management and policies, and will be able to significantly affect the outcome of matters requiring stockholder approval such as elections of directors, amendments of our organizational
documents or approvals of any merger, sale of assets or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our common stock that you may
feel are in your best interest as one of our stockholders.
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The requirements of being a public company, including compliance with the reporting requirements of the
Exchange Act and the requirements of the Sarbanes-Oxley Act, may strain our resources, increase our costs and distract management, and we may be unable to comply with these requirements in a timely or
cost-effective manner.
Our initial public offering had a significant, transformative effect on us. Prior to our initial public offering, our business operated as a
privately-held company, and we were not required
to comply with public reporting, corporate governance and financial accounting practices and policies required of a publicly-traded company. As a publicly-traded company, we incur significant
additional legal, accounting and other expenses compared to historical levels. In addition, new and changing laws, regulations and standards relating to corporate governance and public disclosure,
including the Dodd-Frank Wall Street Reform and Consumer Protection Act and the rules and regulations thereunder, as well as under the Sarbanes-Oxley Act, the JOBS Act and the rules and regulations of
the SEC and The NASDAQ Capital Market, may result in an increase in our costs and the time that our board of directors and management must devote to our compliance with these rules and regulations.
These rules and regulations have substantially increased our legal and financial compliance costs and diverted management time and attention from our product development and other business activities.
The
Sarbanes-Oxley Act requires, among other things, that we assess the effectiveness of its internal control over financial reporting annually and the effectiveness of our disclosure
controls and procedures quarterly. In particular, Section 404 of the Sarbanes-Oxley Act, or Section 404, requires us to perform system and process evaluation and testing of our internal
control over financial reporting to allow management to report on, and our independent registered public accounting firm potentially to attest to, the effectiveness of our internal control over
financial reporting. We have needed to expend time and resources on documenting our internal control over financial reporting so that we are in a position to perform such evaluation when required. As
an "emerging growth company," we expect to avail ourselves of the exemption from the requirement that our independent registered public accounting firm attest to the effectiveness of our internal
control over financial reporting under Section 404. However, we may no longer avail itself of this exemption when we cease to be an "emerging growth company." When our independent registered
public accounting firm is required to undertake an assessment of our internal control over financial reporting, the cost of our compliance with Section 404 will correspondingly increase. Our
compliance with applicable provisions of Section 404 requires that we incur substantial accounting expense and expend significant management time on compliance-related issues as we implement
additional corporate governance practices and comply with reporting requirements. Moreover, if we are not able to comply with the requirements of Section 404 applicable to us in a timely
manner, or if we or our independent registered public accounting firm identifies deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market
price of our stock could decline and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources.
We are an "emerging growth company" and we cannot be certain if the reduced disclosure requirements
applicable to "emerging growth companies" will make our common stock less attractive to investors.
We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and we may take advantage
of certain exemptions and relief from various reporting requirements that are applicable to other public companies that are not "emerging growth companies." In particular, while we are an "emerging
growth company" (i) we will not be required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, (ii) we will be subject to reduced
disclosure obligations regarding executive compensation in our periodic reports and proxy statements and (iii) we will not be required to hold
nonbinding advisory votes on executive compensation or stockholder approval of any golden parachute payments not previously
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approved.
In addition, the JOBS Act provides that an emerging growth company can delay its adoption of any new or revised accounting standards, but 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. In addition, investors may find
our common stock less attractive if we rely on the exemptions and relief granted by the JOBS Act. 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 decline and/or become more volatile.
We
may remain an "emerging growth company" until as late as December 31, 2020 (the fiscal year-end following the fifth anniversary of the closing of our initial public offering,
which occurred on May 18, 2015), although we may cease to be an "emerging growth company" earlier under certain circumstances, including (i) if the market value of our common stock that
is held by non-affiliates exceeds $700.0 million as of any June 30, in which case we would cease to be an "emerging growth company" as of December 31 of such year, (ii) if
our gross revenue exceeds $1.07 billion in any fiscal year or (iii) if we issue more than $1.0 billion of non-convertible debt over a three-year period.
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BUSINESS
Overview
We are a commercial stage pharmaceutical company focused on developing novel, sustainably derived gastrointestinal products on a global basis.
Our wholly-owned subsidiary, Napo, focuses on developing and commercializing proprietary human gastrointestinal pharmaceuticals for the global marketplace from plants used traditionally in rainforest
areas. Our Mytesi (crofelemer) product is a first-in-class anti-secretory agent, approved by the FDA for the symptomatic relief of noninfectious diarrhea in adults with HIV/AIDS on antiretroviral
therapy. The full launch of Mytesi began in April 2018with the support of a full complement of patient and healthcare practitioner programswhen Napo's direct sales force of
18 sales representatives, a national sales director and one regional sales director became fully deployed.
Jaguar
was founded in San Francisco, California as a Delaware corporation on June 6, 2013. The Company was a majority-owned subsidiary of Napo Pharmaceuticals, Inc. ("Napo"
or the "Former Parent") until the close of the Company's initial public offering on May 18, 2015. On July 31, 2017, with the merger of Jaguar and Napo, Napo began operating as a
wholly-owned subsidiary of Jaguar focused on human health and the ongoing commercialization of, and development of follow-on indications for, Mytesi.
We
believe that Jaguar is poised to realize a number of value adding eventsincluding continued commercial growth of Mytesi for the current HIV-diarrhea indication, an
expanded pipeline of important human follow-on indications, and a second-generation anti-secretory agent, upon which to build global partnerships. As previously announced, Jaguar, through Napo, now
controls commercial
rights for Mytesi for all indications, territories and patient populations globally, and crofelemer manufacturing is being conducted at a new, multimillion-dollar commercial manufacturing facility
that has been FDA-inspected and approved. Additionally, several of the drug product candidates in Jaguar's Mytesi pipeline are backed by Phase 2 and/or proof of concept evidence from completed
human clinical trials. The current approved indication in HIV-related diarrhea is a chronic approval, with a safety package that supports chronic use of Mytesi for follow-on indications as well.
Mytesi
Mytesi is a novel, first-in-class anti-secretory agent which has a basic normalizing effect locally on the gut, and this mechanism of action has
the potential to benefit multiple gastrointestinal disorders. Mytesi is in development for multiple possible follow-on indications, including cancer therapy-related diarrhea; orphan-drug indications
for infants and children with congenital diarrheal disorders and short bowel syndrome (SBS); supportive care for inflammatory bowel disease (IBD); irritable bowel syndrome (IBS); and as a
second-generation anti-secretory agent for use in cholera patients. Mytesi has received orphan-drug designation for SBS.
As
of the second quarter of 2018, Napo has a fully deployed direct sales organization consisting of 18 Mytesi field sales representatives strategically positioned to cover U.S.
geographies with the highest potential (and a national sales director and one regional sales director). Additionally, in June 2018, we hired Robert J. Griffing, a seasoned industry veteran with a
broad range of experience that includes commercializing supportive care and HIV treatments, as chief commercial officer for Napo. With support provided by concomitant marketing, promotional
activities, patient empowerment programs and medical education initiatives described below, we expect a proportional response in the number of patients treated with Mytesi.
The
goal of Napo's internal sales team is to deliver a frequent and consistent selling message to targeted, high-volume prescribers of antiretroviral therapies (ART) and to
gastroenterologists who see large numbers of HIV patients. In December 2017 we released the results of a survey of 350 people
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living
with HIV and AIDS regarding the topic of "Talking to Your Doctor About Symptoms". The survey results show that diarrhea remains prevalent in those living with HIV/AIDS, as 27% of respondents
living with HIV/AIDS reported that they currently have diarrhea, while 56% reported that they have had diarrhea in the past. Additionally, the results of a recent Napo-sponsored survey of 271 U.S.
board certified gastroenterologists indicate that the number one GI complaint for people living
with HIV/AIDS is diarrhea, and 93% of U.S. gastroenterologists see patients with HIV/AIDS in their practice.
Key
to the success of our sales representatives in growing Mytesi is differentiating and targeting the right doctorsthose HIV specialists who are high prescribers of ART
medications and those gastrointestinal doctors who see large populations of people living with HIV/AIDS. The target list of prescribers for our sales reps includes a pool of approximately 3,100 high
volume ART prescribing HIV specialists, and gastroenterologists who see the largest number of people living with HIV/AIDs, and we've strategically placed our sales force in the US geographies with the
highest potential, including San Francisco, Los Angeles/Palm Springs, Miami/southern Florida, northern Florida, New York, New Jersey, Pennsylvania, Delaware, Maryland, DC, Houston, northern Texas,
Chicago, St. Louis, Indianapolis, Kansas City, Alabama, Mississippi, Louisiana, North Carolina/South Carolina and Atlanta. Areas not accessible by direct sales representation are able to be
reached with Napo's dedicated telesales representative.
In
June 2018, Napo entered into an agreement with RedHill Biopharma, a specialty biopharmaceutical company primarily focused on late clinical-stage development and commercialization of
proprietary drugs for gastrointestinal diseases and cancer, to establish a U.S. co-promotion program for Mytesi. RedHill's specialized, GI-focused field sales force is promoting Mytesi to health care
practitioners in 36 U.S. territories that contain significant numbers of HIV patients and health care practitioners that are not currently covered by Napo's field sales force. In these geographies,
RedHill sales representatives will target gastroenterologists who see large populations of people living with HIV, along with nurse practitioners and physician assistants. RedHill field
representatives will also target lower-level prescribers of anti-retroviral infectious disease specialists in regions currently covered by Napo's sales force. Four RedHill inside sales representatives
will actively target health care practitioners in other regions not covered by the Napo or RedHill field representatives. We believe this co-promotion program will play a significant role in extending
the reach of our commercial efforts into the GI medical community in support of the treatment of people living with HIV (PLWH) with Mytesi. Under the terms of the Agreement, RedHill will be
compensated based on performance, and the program can be extended by agreement between the two companies.
Napo
has completed the training of 39 health care practitioners (HCPs) and 14 patient advocates as part of the Napo Speakers Bureau program and plans to train an additional eight HCPs in
2018. Medical education presentations led by participating HCPsa group that includes HIV/AIDS specialists, infectious disease specialists, gastroenterologists, colorectal surgeons, and
nurse practitionersfocus on the prevalence and pathophysiology of gastrointestinal consequences of HIV infection and on the latest treatment options for HIV-related diarrhea.
Presentations given by patient advocate members provide information to PLWH about the prevalence of diarrhea in PLWH and offer guidance about talking to HCPs regarding diarrhea-related concerns.
As
previously announced, Napo has planned 1,400 medical education events consisting of HCP peer-to-peer programs, patient programs, and advisory boards to better understand physician and
patient attitudes and behaviors related to non-infectious diarrhea in those living with HIV that are on ART. Through August 24, 2018, 39% of programs have targeted HCP peer-to-peer events and
55% patients.
On
July 24, 2018, we announced the results of an analysis conducted to examine whether the rate of HIV-associated diarrhea has changed over time. The analysis of data, sourced
from the National
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Institutes
of Health (NIH) clinicaltrials.gov database, revealed that 18% of HIV patients experience diarrhea and the rates have not declined significantly over time. The analysis includes data from
38 U.S. clinical trials from 2008-2016 in more than 21,000 patients. The results were reported at the International AIDS 2018 Conference (AIDS 2018) on Tuesday, July 24 in Amsterdam,
Netherlands. The poster is available on the AIDS 2018 website at this link: https://programme.aids2018.org//PAGMaterial/eposters/4900.pdf.
With
the introduction of newer antiretroviral (ARV) drug therapy, there has been a reduction in the severity of ARV-induced diarrhea. However, a significant portion of this patient
population still suffers from diarrhea caused by HIV enteropathy, which is due to direct and indirect effects of HIV on the intestinal mucosa. Chronic diarrhea remains a significant complaint of
people living with HIV/AIDS, particularly those who are older and have lived the virus in their gut for 10+ years. According to data from the U.S. Centers for Disease Control and Prevention, currently
more than 50% of people living with HIV are over age 50; by 2020 this figure will increase to 70%.
New
crofelemer (Mytesi) data from a supplemental analysis of the ADVENT trial was featured in a poster presentation at the 9th International Aids Society (IAS) Conference on HIV
Science held in July 2017 in Paris, France. The presentation was titled
Long-Term Crofelemer Use Gives Clinically Relevant Reductions in HIV-Related
Diarrhea
. IAS features the latest HIV science, including basic, clinical and prevention research, and brings together a broad cross section of HIV professionals from around the
world with a focus on implementationmoving scientific advances into practice. The results indicate that at the end of the study period, more than 50% of the patients treated had complete
resolution of their diarrhea; and 83% had at least a 50% reduction in diarrhea. Entry criteria required at least 7 watery stools in a week, and the average was 20 (with some patients having as high at
67 stools in a week).
In
October 2017, Napo launched a national campaigncalled "Keep your pants on... Unless you don't want to"to highlight the need to recognize and treat diarrhea
in PLWH. The campaign, which launched initially to the 10,000 participants in the AIDS Walk Los Angeles event on October 15, 2017, was designed to raise awareness and to engage PLWH in a fun
and light way to discuss a topic that can be embarrassing. The campaign integrated live third-party events, including the Greater Palm Springs Pride event taking place in November 2017, with social
media on the web, Twitter, and Facebook.
Additionally
in Q4 2017, Napo launched a print and digital advertising campaign titled "Enough is Enough" to target PLWH who are tired of planning their lives around diarrhea as well as
HIV physicians and gastroenterologists. The campaign is centered around national HIV magazines, local HIV publications, and publications targeting physicians.
As
of August 24, 2018, Napo has launched its first integrated social digital campaign targeting patients living with HIV who are interested in information on non-infectious
diarrhea (who are on ART) coupled with activating healthcare providers. Phase I of this campaign is focused on contextual and native display ads focused on informing patients of options that
may assist them with getting on with their daily lives for the long term and restoring their confidence with relief from HIV-related diarrhea. Phase II will kick off with improving the user
experience (UX) once patients land on Mytesi.com coupled with an email marketing campaign to appropriate patients and healthcare providers.
Napo
is pursuing AIDS Drug Assistance Program (ADAP) formulary listing in states where Mytesi is not currently on ADAP formulary, and Mytesi is now on the ADAP formulary in
29 states. The ADAP program provides Mytesi free of charge to patients who qualify and copay support for some patients who have insurance coverage.
As
we announced April 10, 2018, Napo has signed an agreement with the ADAP Crisis Task Force. The agreement establishes a reduced price that will be provided by Napo ADAPs in all
U.S. states and
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territories
for purchases of Mytesi. Formed in 2002, the Task Force negotiates reduced drug prices for all ADAPs. ADAPs provide life-saving HIV treatments to low income, uninsured, and underinsured
individuals living with HIV/AIDS in all 50 states and the territories. Task Force membership is currently comprised of representatives from Arizona, California, Florida, Illinois, Massachusetts, New
York, North Carolina, Tennessee, Texas, Virginia, and Washington state HIV/AIDS divisions. Per the terms of the agreement, all state ADAPs are guaranteed the same reduced price for the drug. ADAPs
provide HIV-related services and approved medications to more than half a million people in the U.S. each year, and we expect this agreement to help further expand the number of patients able to
benefit from the novel, first-in-class anti-secretory mechanism of action of Mytesi.
Mytesi
is currently reimbursed by Medicaid in all 50 states. It is also currently covered on 100% of the top 10 commercial insurance plan national formularies, representing more than
245 million U.S. lives. Additionally, Napo operates a co-pay coupon program, which helps ensure that the majority of participating patients do not have a Mytesi co-pay greater than $25.
Information about the NapoCares Patient Assistance Program, which assists patients with benefit verification, prior authorization, and claims appeals, can be found at mytesi.com/mytesi-savings.html.
Pipeline within a productcrofelemer
According to the World Health Organization, there are nearly 1.7 billion cases of diarrheal disease globally every year. Although not all
types of diarrhea are secretory in nature, we view the current, initial approval of Mytesi as the opening of the door to an important pipelineunderscored by the current approval by the
FDA of the Chemistry, Manufacturing and Controls (CMC) for this natural product, as well as acknowledgement by the FDA of the safety of the product for chronic use for the approved indication.
Crofelemer
is in development for cancer therapy-related diarrhea (CTD). Diarrhea continues to be an area of concern for patients undergoing cancer treatment. Novel targeted agents, such
as epidermal growth factor receptor antibodies and tyrosine kinase inhibitors, may block natural chloride secretion regulation pathways in the normal gastrointestinal mucosa, thereby leading to
secretory diarrhea. We recognize the importance of supportive care for patients being treated with these cancer-related therapies, analogous to the supportive care of managing diarrhea in people
living with HIV/AIDS. An investigator-initiated trial (IIT) titled
HALT-D: DiarrHeA Prevention and ProphyLaxis with Crofelemer in HER2 Positive Breast Cancer Patients Receiving
Trastuzumab, Pertuzumab, and Docetaxel or Paclitaxel with or without Carboplatin
is underway in conjunction with Georgetown University. An IIT titled
An
Open-Label Study to Characterize the Incidence and Severity of Diarrhea in Patients with Early-Stage HER2+ Breast Cancer Treated with Neratinib and Intensive Loperamide
Prophylaxis
is underway at the University of California, San Francisco. Diarrhea leading to patient discomfort is also a problem with traditional chemotherapy, radiation, and
novel immunotherapy agents, such as checkpoint inhibitors. Napo is aiming to file a protocol for a pivotal trial with the FDA in the second half of 2018, with principal and participating
investigators from leading cancer centers in the U.S.
Two
investigator-initiated trials of Mytesi are underway in breast cancer patients suffering from CTD, one funded by Genentech-Roche with Herceptin (enrolling patients), and one funded
by Puma with neratinib (enrolling patients).
According
to data appearing in "Treatment Guidelines for CID" (chemotherapy-induced diarrhea) in the April 2004 issue of
Gastroenterology and Endoscopy
News
, diarrhea is the most common adverse event reported in chemotherapy patients. Approved third-party supportive care products for chemotherapy-induced nausea and vomiting
(CINV) include Sustol, Aloxi, Akynzeo and Sancuso. According to Transparency Market Research, sales of therapeutics for the prevention of CINV approximated $620 million in 2013, and sales of
such therapeutics are expected to reach $1 billion in 2020.
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Diarrhea
has been reported as the most common side effect of the recently approved CDK 4/6 inhibitor abemaciclib and the pan-HER TKI neratinib, with occurrence ranging from 86% to >95%
and grade 3 over 40%, in published studies. Diarrhea in this patient population has the potential to cause dehydration, potential infections, and non-adherence to treatment. A novel anti-diarrheal
like Mytesi may hold promise for treating secretory diarrheaand therefore also support long-term cancer treatment adherencein this population.
As
we announced on January 22, 2018, Napo has accepted a request for support submitted by Dr. Mohamad Miqdady, Chief of Pediatric Gastroenterology, Hepatology and Nutrition
at Sheikh Khalifa Medical City (SKMC) in Abu Dhabi, for an investigator-initiated trial of crofelemer, the active pharmaceutical ingredient in Mytesi, for congenital diarrheal disorders (CDDs) in
children.
CDDs
are a group of rare, chronic intestinal channel diseases, with onset in early infancy, that are characterized by severe, lifelong diarrhea and a lifelong need for nutritional intake
either parenterally or with a feeding tube. CDDs are related to specific genetic defects inherited as autosomal recessive traits. The incidence of CDDs is prevalent in regions where consanguineous
marriages (related by blood) is part of the culture. CDDs are directly associated with serious secondary conditions including dehydration, metabolic acidosis, and failure to thrive, prompting the need
for immediate therapy to prevent death and limit lifelong disability.
SKMC
is the Abu Dhabi public health system's flagship institution and the largest hospital in the United Arab Emirates (UAE), consisting of a 586-bed tertiary hospital, 14 outpatient
specialty clinics, and the Abu Dhabi Blood Bank, all of which are accredited by Joint Commission International, the oldest and largest healthcare standards-setting and accrediting body in the United
States. Dr. Miqdady is American Board certified in Pediatric Gastroenterology, Hepatology and Nutrition, and he is a member of Napo's Scientific Advisory Board.
Napo
intends to submit documentation in the first half of 2019 to the FDA for the planned formulation of crofelemer appropriate for feeding tube administration to support this
investigation.
As
announced on June 5, 2017, Napo has received orphan-drug designation from the FDA for pediatric short bowel syndrome (SBS). The Orphan Drug Act provides for granting special
status to a drug or biological product to treat a rare disease or condition upon request of a sponsor. Orphan-drug designation qualifies the sponsor of the drug for various development incentives,
including extended exclusivity, tax credits for qualified clinical testing, and relief of filing fees.
Jaguar's
and Napo's portfolio development strategy involves meeting with Key Opinion Leaders (KOLs) to identify indications that are potentially high-value because they address important
medical needs that are significantly or globally unmet, obtain input on protocol practicality and protocol generation, and then strategically sequencing indication development priorities,
second-generation product pipeline development, and partnering goals on a global basis, as well as identifying possible opportunities for a Special Protocol Assessment (SPA) from the FDA. When
granted, SPA provides that, upon request, FDA will evaluate within 45 days certain protocols to assess whether they are adequate to meet scientific and regulatory requirements identified by the
sponsor. In 2007, under the SPA process, Napo obtained agreement with the FDA for the design of the pivotal study protocol for the currently approved indication of crofelemer (Mytesi) for the
symptomatic relief of noninfectious diarrhea in adults with HIV/AIDS on antiretroviral therapy. The 2007 SPA agreement was an important milestone for Napo, allowing Napo to address and mitigate
regulatory uncertainty prior to the completion of its final Phase 3 trial of crofelemer for its currently approved indication.
In
October 2017, Napo established a scientific advisory board for each potential follow-on indication currently planned for Mytesi. Napo has developed relationships with physicians and
patient advocates around the world who are recognized specialists and key opinion leaders (KOLs) in the
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planned
Mytesi follow-on indications. The two charts below provide the names, credentials and affiliations of current Napo scientific advisory board members and KOL advisors to Napo.
As
we announced on May 10, 2017, Dr. Pravin Chaturvedi, a highly experienced drug development veteran who has spent more than 25 years in the pharmaceutical/biotech
industry, has been appointed chair of Napo's scientific advisory boards. From 2006 to 2013, Dr. Chaturvedi served as Napo's Chief Scientific Officer and has remained a scientific adviser to the
company since 2014. His track record of successful development includes participating in and/or leading successful development efforts for seven drugs, including crofelemer (Mytesi).
We
are confident that our scientific advisory boards will provide expert, actionable input regarding all aspects of development, including trial design, for Mytesi for our follow-on
indicationseach of which addresses a significant, global, unmet medical need. We also expect that our scientific advisory board members will serve as speakers for our medical education
programs, authors on Napo abstracts and publications, and as a resource for media inquiries.
Napo's
HIV Scientific Advisory Board has focused primarily on physician education, and community and global awareness regarding the importance and availability of solutions for neglected
comorbidities,
such as the first-in-class anti-secretory mechanism of action of Mytesi for its currently approved indication.
HIV Physicians Scientific Advisory Board
Napo Scientific Advisory Board (SAB) Members
|
|
|
Dr. Roscoe Moore Jr., DVM, MPH, Ph.D., DSc.
|
|
Former Assistant United States Surgeon General and a Rear Admiral (Retired) in the U.S. Public Health Service. Dr. Moore was involved in the creation of PEPFAR (the U.S. President's Emergency Plan for
AIDS Relief)
|
David Asmuth, MD
|
|
Infectious diseases specialist and Professor of Medicine, UC Davis Health
|
Gary Blick, MD, AAHIVS
|
|
Founder of Health Care Advocates International and BEAT AIDS Project Zimbabwe
|
Christine Wanke, MD
|
|
Director of the Nutrition and Infection Unit; Associate Chair and Professor, Department of Public Health and Community
Medicine; Professor, Department of Medicine, Tufts University School of Medicine; Professor, Sackler School of Biomedical Science; Professor, Friedman School of Nutrition Science and Policy
|
Pravin Chaturvedi, PhD
|
|
Chair of Napo's Scientific Advisory Boards; 25+ years drug development experience in pharmaceutical/biotech field;
Successfully developed crofelemer (Mytesi) (first pivotal adaptive design)
|
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Cancer Therapy-Related Diarrhea Scientific Advisory Board
|
|
|
Lee Schwartzberg, MD, FACP
|
|
Executive Director of the West Cancer Center, a multispecialty oncology practice affiliated with the University of Tennessee; Chief, Division of Hematology/Oncology, the University of Tennessee Health
Science Center
|
Eric Roeland, M.D.
|
|
Attending Physician, Center for Palliative Care, Harvard Medical School
|
Hope Rugo, MD
|
|
Clinical Professor of Medicine, Director Breast Oncology and Clinical Trials Education, Division of Hematology and Oncology,
University of California San Francisco
|
Pravin Chaturvedi, PhD
|
|
Chair of Napo's Scientific Advisory Boards; 25+ years drug development experience in pharmaceutical/biotech field;
Successfully developed crofelemer (Mytesi) (first pivotal adaptive design)
|
IBD Scientific Advisory Board
|
|
|
Corey Siegel, MD, MS
|
|
Associate Professor of Medicine; Associate Professor of The Dartmouth Institute; Director of the Inflammatory Bowel Disease Center at the Dartmouth-Hitchcock Medical Center
|
Pravin Chaturvedi, PhD
|
|
Chair of Napo's Scientific Advisory Boards; 25+ years drug development experience in pharmaceutical/biotech field;
Successfully developed crofelemer (Mytesi) (first pivotal adaptive design)
|
Pediatric Indications (SBS and CDD) Scientific Advisory Board
|
|
|
Mohammed Miqdady, MD
|
|
Chief of Pediatric Gastroenterology, Hepatology & Nutrition at Sheikh Khalifa Medical City in Abu Dhabi
|
Christopher Duggan, MD
|
|
Senior Physician, Division of Gastroenterology, Hepatology and Nutrition / Director, Center for Nutrition / Medical Director,
Center for Advanced Intestinal Rehabilitation, Boston Children's Hospital; Professor of Pediatrics, Harvard Medical School; Professor in the Departments of Nutrition and Global Health and Population, Harvard TH Chan School of Public
Health
|
Martin Martin, MD
|
|
Professor, Department of Pediatrics, David Geffen School of Medicine at UCLA
|
Sue Rhee, MD
|
|
Division Chief, Pediatric Gastroenterology, Hepatology and Nutrition Pediatric gastroenterologist and liver specialist, UCSF
Benioff Children's Hospital
|
Pravin Chaturvedi, PhD
|
|
Chair of Napo's Scientific Advisory Boards; 25+ years drug development experience in pharmaceutical/biotech field;
Successfully developed crofelemer (Mytesi) (first pivotal adaptive design)
|
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Key Opinion Leader (KOL) Advisors to Napo (on an as-needed basis)
KOL Advisors: Cancer Therapy-Related Diarrhea
|
|
|
Herbert DuPont, MD
|
|
Professor and Director, Center for Infectious Diseases, University of Texas Houston School of Public Health
|
KOL Advisors: HIV-Related Diarrhea
|
|
|
Patrick Clay, PharmD
|
|
Consultant
|
Brooks D. Cash, MD, AGAF, FACG, FACP, FASGE
|
|
Division Director, Gastroenterology, Hepatology, and Nutrition Visiting Professor of Medicine, The University of Texas
McGovern Medical School
|
Paulo Pacheco, MD
|
|
Clinical Assistant Professor, Department of Medicine, New York University Langone Health
|
Elie Schochet, MD, FACS
|
|
Colorectal surgeon, Holy Cross Medical Group
|
KOL Advisors: Diarrhea Related to IBD
|
|
|
David Rubin, MD
|
|
Joseph B. Kirsner Professor of Medicine Section Chief, Gastroenterology, Hepatology and Nutrition Co-Director, Digestive Diseases Center, University of Chicago Medicine
|
Charles Bernstein, MD
|
|
Distinguished Professor of Medicine and Bingham Chair in Gastroenterology Research, University of Manitoba
|
William Sandborn, MD
|
|
Director, Inflammatory Bowel Disease Center Chief, Division of Gastroenterology Professor of Medicine, US San Diego
Health
|
Scott Lee, MD
|
|
Associate Professor of Medicine, Digestive Health Center, University of Washington Medical Center
|
Edward Loftus, Jr., MD
|
|
Consultant, Division of Gastroenterology and Hepatology, Department of Internal Medicine, Mayo Clinic
|
Douglas Wolf, MD
|
|
Medical Director of IBD Research at Atlanta Gastroenterology Associates. Clinical Assistant Professor of Medicine, Emory
University School of Medicine
|
KOL Advisors: Pediatric Indications (SBS and CDD)
|
|
|
Jay Thiagarajah, MD, PhD
|
|
Attending Physician, Division of Gastroenterology, Hepatology and Nutrition, Boston Children's Hospital. Instructor of Pediatrics, Harvard Medical School
|
James Goldenring, M.D., Ph.D.
|
|
Professor of Surgery, Vanderbilt University School of Medicine. Paul W. Sanger Chair in Experimental Surgery. Professor of
Cell and Developmental Biology
|
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KOL Advisors: Diarrhea Related to Infectious Diseases
|
|
|
Herbert DuPont, MD
|
|
Professor and Director, Center for Infectious Diseases, University of Texas Houston School of Public Health
|
Pradip Bardhan, MBBS, MD
|
|
Chief Physician at ICDDR,B, Bangladesh
|
KOL Advisors: Diarrhea Related to IBS
|
|
|
Anthony Lembo, MD
|
|
Director of the GI Motility and Functional Bowel Disorders Program at Beth Israel Deaconess Medical Center and Associate Professor of Medicine at Harvard Medical School
|
Doug Drossman, MD
|
|
Co-Director Emeritus, UNC Center for Functional GI and Motility Disorders Adjunct Professor of Medicine and Psychiatry,
University of North Carolina School of Medicine
|
William Chey, MD
|
|
Professor of Internal Medicine and Professor of Nutritional Sciences, University of Michigan School of Public
Health
|
According
to a 2017 report from Research and Markets, the combined global market for prescription and OTC gastrointestinal agents is expected to reach $21 billion by 2025. Jaguar
estimates that a first-in-class anti-secretory agent should be able to achieve a significant portion of the market share.
Our
management team has significant experience in gastrointestinal product development for both humans and animals. Napo was founded 29 years ago to perform drug discovery and
development by leveraging the knowledge of traditional healers working in rainforest areas. Ten members of the Jaguar and Napo team have been together for more than 15 years. Dr. Steven
King, our executive vice president of sustainable supply, ethnobotanical research and intellectual property, and Lisa Conte, our founder, president and CEO, have worked together for more than
29 years. Together, these dedicated personnel successfully transformed crofelemer, which is extracted from trees growing in the rainforest, to Mytesi, which is a natural, sustainably harvested,
FDA-approved drug.
There
are significant barriers to entry for Mytesi (crofelemer). Through Napo, we hold an extensive global patent portfolio. At the present time we hold approximately 140 issued
worldwide patents, with coverage in many cases that extends until 2031. These issued patents cover multiple indications including HIV-AIDS diarrhea, IBS, IBD, manufacturing, enteric protection from
gastric juices, among others. We also have approximately 40 pending patent applications worldwide in the human health areas that are being prosecuted.
Mytesi
is the first oral drug approved by the FDA under botanical guidance, which provides another barrier to entry from potential generic competition. The FDA requires that the
manufacturer of crofelemer use a validated proprietary bioassay to release the drug substance and drug product of Mytesi. While most generic products are fashioned to meet chemical release
specifications that are in the public domain, the specifics of this assay are not publicly available. There is no pathway by which a generic product can be developed for a drug approved under
botanical guidance. In addition, Mytesi is not systemically absorbed, so the classic approach of creating a generic drug by matching pharmacokinetic blood levels is not possible. A generic player
would have to conduct costly and risky clinical trials.
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While Jaguar's commercial and development efforts have evolved to focus primarily on Mytesi and human pipeline indications since its merger with Napo, the Company
is continuing limited initiatives related to Canalevia, its drug product candidate for treatment of chemotherapy-induced diarrhea ("CID") in dogs, and Equilevia, its non-prescription, personalized,
premium product for total gut health in equine athletes. CID in dogs is typically caused by the same mechanism of action as in humans, and hence the work in dogs serves as a preclinical proof of
concept for the human cancer therapy related diarrhea.
As
previously announced, Jaguar has received MUMS (Minor Use and Minor Species) designation status from the FDA for Canalevia for the indication of chemotherapy-induced diarrhea (CID) in
dogs. Jaguar has completed clinical and manufacturing activity for Canalevia for this indication. MUMS designation is modeled on the orphan-drug designation for human drug development and offers
possible financial incentives to encourage MUMS drug development, such as the availability of grants to help with the cost of developing the MUMS drug. Additionally, as announced on March 8,
2018, the FDA's Center for Veterinary Medicine (CVM) has indicated that Jaguar's Reasonable Expectation of Effectiveness (RxE) technical section is complete towards conditional approval of Canalevia
(crofelemer delayed-release tablets) for treatment of CID in dogs, based on CVM's review of the results of Jaguar's completed pilot study (CANA-001) of Canalevia for this indication. Jaguar has now
completed two of the four required technical sections of the Company's application for conditional approval of Canalevia for CID in dogs.
Crofelemer
is extracted from the
Croton lechleri
tree, which we sustainably harvest and manage through programs that we have been
developing over the past 28 years. This process has involved working with communities to plant trees, obtaining permits for export, and creating a supply network that is robust and reliable.
We
continue to have working relationships with partners that began in the 1990s. Additionally, through the establishment of a nonprofit called the Healing Forest Conservancy (HFC), our
team has created a long-term mechanism for benefit sharing that recognizes the intellectual contribution of indigenous populations. This program is intended to contribute to the continued strength and
effectiveness of the valued and strategically important relationships we have carefully cultivated over the past 28 years.
Product Pipeline
In addition to our Mytesi (crofelemer) product that is approved by the U.S. FDA for the symptomatic relief of noninfectious diarrhea in adults
with HIV/AIDS on antiretroviral therapy, we are also developing a pipeline of prescription drug product candidates to address unmet needs in gastrointestinal health through Napo. Mytesi (crofelemer)
is a novel, first-in-class anti-secretory agent which has a basic normalizing effect locally on the gut, and this mechanism of action has the potential to benefit multiple disorders. Clinical trials
demonstrated that nearly 80% of Mytesi users experienced an improvement in their diarrhea over a four-week period. At week 20 of the pivotal trial, over half the patients had no watery stools, or a
100% decrease, and 83% had at least a 50% decrease in watery stools. Our Mytesi pipeline currently includes prescription drug product candidates for four follow-on indications, several of which are
backed by Phase 2 evidence from completed Phase 2 trials. In addition, a second-generation proprietary anti-secretory agent is in development for cholera.
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Napo Prescription Drug Product Candidates
|
|
|
|
|
|
|
|
|
Product Candidates
|
|
Indication
|
|
Completed Milestones
|
|
Current Phase of
Development
|
|
Anticipated Near-Term
Milestones*
|
Mytesi
|
|
Cancer therapy-related diarrhea (CTD)
|
|
Two investigator-initiated
clinical trials funded by Genentech-Roche & Puma
|
|
Phase 2
|
|
Pivotal protocol
development with KOLs for discussions with FDA
|
Mytesi
|
|
Supportive care for IBD
|
|
Safety
|
|
Phase 2
|
|
Protocol development with
KOLs for discussions with FDA
|
|
|
|
|
Multiple Phase 2
studies completed in various secretory diarrheas (not IBD patients)
|
|
|
|
|
Formulation of crofelemer
|
|
Rare disease indications (SBS & CDD)
|
|
Phase 1
study
|
|
Phase 2
|
|
Formulation/IIT, Abu
Dhabi
|
|
|
|
|
Orphan-drug designation for
SBS
|
|
|
|
Pursue orphan-drug status
for CDD
|
Mytesi
|
|
Irritable Bowel Syndromediarrhea predominant (IBS-D)
|
|
Phase 1
study
|
|
Phase 2
|
|
Protocol development with
KOLs for discussions with FDA
|
|
|
|
|
Two Phase 2 studies
completed
|
|
|
|
Publication of supplemental
analysis of Phase 2 data
|
SB-300 (lechlemer)
|
|
Second-generation anti-secretory agent for multiple indications including cholera
|
|
Animal and human studies in
secretory diarrheas; successful cholera trial design for anti-secretory mechanism of action with crofelemer
|
|
Pre IND
|
|
CMC development for
SB-300
Pre-clinical and Phase 1/2 in 2019
|
-
*
-
Clinical
trials are funding dependent
Estimated Size of Mytesi Target Markets
We believe the medical need for Mytesi is significant, compelling, and unmet, and that doctors are looking for a drug product with a mechanism
of action that is distinct from the options currently available to resolve diarrhea. A growing percentage of HIV patients have lived with the virus in their gut for 10+ years, often causing gut
enteropathy and chronic or chronic-episodic diarrhea. According to data from the U.S. Centers for Disease Control and Prevention, by 2020 more than 70% of Americans with HIV are expected to be 50 and
older.
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|
|
|
|
|
Market
|
|
Number of
Competitors for
Mytesi's Approved/
Anticipated Labelled
Indication
|
|
Market Size/Potential
|
HIV-D
|
|
0
|
|
We estimate the U.S. market revenue potential for Mytesi to be approximately $100 million in gross annual sales
|
CTD
|
|
0
|
|
An estimated 650,000 U.S. cancer patients receive chemotherapy in an outpatient oncology clinic.(1) Comparable supportive care
(i.e. CINV) product sales of ~$620 million in 2013, which is projected to reach $1.0 billion by 2020(2)
|
IBD
|
|
0
|
|
Estimated 1,171,000 Americans have IBD(3)
|
IBS-D
|
|
3
|
|
Most IBS products have estimated revenue potential of greater than $1.0 billion(4)
|
CDD/SBS
|
|
0
|
|
Financial benefits of Orphan-drug Designation
|
Cholera (hydration maintenance) PRV (SB-300)
|
|
0
|
|
Priority review vouchers have recently sold for $125 million to $350 million(5)
|
-
(1)
-
Centers
for Disease Control and Prevention. Preventing Infections in Cancer Patients: Information for Health Care Providers
(cdc.gov/cancer/preventinfections/providers.htm)
-
(2)
-
Heron
Therapeutics, Inc. Form 10-K for the fiscal year ended December 31, 2016
-
(3)
-
Kappelman,
M. et al. Recent Trends in the Prevalence of Crohn's Disease and Ulcerative Colitis in a Commercially Insured US Population. Dig Dis Sci.
2013 Feb; 58(2): 519-525
-
(4)
-
Merrill
Lynch forecasts peak US sales of roughly $1.5 bn for Ironwood's Linzess
(http://247wallst.com/healthcare-business/2015/04/27/key-analyst-sees-nearly-30-upside-in-ironwood); Rodman & Renshaw estimate peak annual sales of Synergy Pharmaceuticals' Trulance at $2.3 bn
in 2021 (Source: https://www.benzinga.com/analyst-ratings/analyst-color/17/03/9224181/analyst-synergy-pharma-could-achieve-sustainable-profita)
-
(5)
-
In
Aug. 2015, AbbVie Inc. bought a priority review voucher from United Therapeutics Corp for $350 million
(http://www.reuters.com/article/us-abbvie-priorityreview/abbvie-buys-special-review-voucher-for-350-million-idUSKCN0QO1LQ20150819). In Feb. 2017 Sarpeta Therapeutics sold a priority review voucher to
Gilead Sciences, Inc. for $125 million (http://fortune.com/2017/02/21/sarepta-gilead-review-voucher/).
The
following diagram illustrates the mechanism of action of our human and animal gastrointestinal drug products and drug product candidates, which normalize chloride and water flow and
transit time of fluids within the intestinal lumen.
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Business Strategy
Our goal is to become a leading pharmaceutical company with first-in-class, sustainably derived products that address significant unmet
gastrointestinal medical needs globally. To accomplish this goal, we plan to:
Expand Mytesi by leveraging our significant gastrointestinal knowledge, experience and intellectual
property portfolio
Mytesi is a novel, first-in-class anti-secretory agent which has a basic normalizing effect locally on the gut, and this mechanism of action has
the potential to benefit multiple gastrointestinal disorders. Our Mytesi (crofelemer) product is approved by the U.S. FDA for the symptomatic relief of noninfectious diarrhea in adults with HIV/AIDS
on antiretroviral therapy. Jaguar, through Napo, controls commercial rights for Mytesi for all indications, territories and patient populations globally. Mytesi is in development for multiple possible
follow-on indications, including cancer therapy-related diarrhea; orphan-drug indications for infants and children with congenital diarrheal disorders and short bowel syndrome (SBS); supportive care
for inflammatory bowel disease (IBD); irritable bowel syndrome (IBS); and as a second-generation anti-secretory agent for use in cholera patients.
Our
management team collectively has more than 100 years of experience in the development of gastrointestinal prescription drug and non-prescription products. This experience
covers all aspects of product development, including discovery, preclinical and clinical development, GMP manufacturing, and regulatory strategy. Key members of this team successfully developed
Mytesi.
Establish and expand commercial capabilities in Mytesi sales and marketing efforts
As announced on August 7, 2017, we appointed Pete Riojas, a 29-year pharmaceutical industry veteran, to lead Mytesi sales nationally. As
of the second quarter of 2018, Napo has a fully deployed direct sales organization consisting of 18 Mytesi field sales representatives strategically positioned to cover U.S. geographies with the
highest potential (and two salesforce managers). Additionally, in June 2018, we hired Robert J. Griffing, a seasoned industry veteran with a broad range of experience that includes commercializing
supportive care and HIV treatments, as chief commercial officer for Napo. With support provided by concomitant marketing, promotional activities, patient empowerment programs, including an integrated
social digital campaign, and medical education initiatives described below, we expect a proportional response in the number of patients treated with Mytesi.
In
June 2018, as stated above, Napo entered into an agreement with RedHill Biopharma, a specialty biopharmaceutical company primarily focused on late clinical-stage development and
commercialization of proprietary drugs for gastrointestinal diseases and cancer, to establish a U.S. co-promotion program for Mytesi. RedHill's specialized, GI-focused field sales force will promote
Mytesi to health care practitioners in 36 U.S. territories that contain significant numbers of HIV patients and health care practitioners that are not currently covered by Napo's field sales force. In
these regions, RedHill sales representatives will target gastroenterologists who see large populations of people living with HIV, along with nurse practitioners and physician assistants. RedHill field
representatives will also target lower-level ART prescribing infectious disease specialists in regions currently covered by Napo's sales force. Four RedHill inside sales representatives will actively
target health care practitioners in other regions not covered by the Napo or RedHill field representatives. We believe this co-promotion program will play a significant role in extending the reach of
our commercial efforts into the GI medical community in support of the treatment of people living with HIV (PLWH) with Mytesi. Under the terms of the Agreement, RedHill will be compensated based on
performance, and the program can be extended by agreement between the two companies.
With
the goal of continuing to drive Mytesi sales and awareness nationwide, our plans for 2018 include the initiation of new and extensive sales and marketing programs, advertising and
promotional
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activities,
direct-to-patient hub-service activities, the expected publication of supplemental data, and an increased focus on patient empowerment and educational programs for the important and
neglected comorbidity of diarrhea in people living with HIV. Additionally, as stated above, we expect Napo's recently signed agreement with pharmacy services provider TPS to help streamline and expand
nationwide patient access to Mytesi. The core benefits of the program, named Mytesi
Direct, include streamlining prescription fulfillment for Mytesi in order to ensure that Mytesi users receive their prescription quickly, coordinating with other Napo
programssuch as the Mytesi Copay Savings Card and the NapoCares Patient Assistance Programto help ensure that patient out-of-pocket expenses for Mytesi are as
low as possible, and improving Mytesi refill adherence through the transmission of renewal reminders to patients.
Leverage our relationships with key opinion leaders regarding development of follow-on indications
To date, more than 30 key opinion leaders (KOLs) who are recognized specialists in HIV patient care, CTD, IBD, IBS, cholera, SBS, CDD and equine
gut health, are participating in our scientific advisory board or KOL advisory program in some manner.
Establish partnerships to support moving pipeline indications to pivotal clinical trials
Jaguar is actively pursuing development of a robust pipeline of potential follow-on indications for crofelemer, and the Company's goal is to
establish partnerships to support moving pipeline indications to pivotal clinical trials.
Strategically sequence the development of follow-on indications of Mytesi and seek
geographically-focused licensing opportunities
Although it is possible that we may enter into corporate partnering relationships related to Mytesi, our intention would be to retain all
commercialization and promotional rights in the U.S., so that we do not become primarily a royalty-collecting organization, and we are opposed to entering into any Mytesi partnering relationship that
would require splitting indications. We are seeking to put limited geographically-focused partnerships in place in the near term, while also considering possibilities for a worldwide partnership with
a leading global entity (excluding the US exclusive commercial rights) in the field of gastrointestinal care and cancer in the long term.
Reduce risks relating to product development
Risk reduction is a key focus of our product development planning. Mytesi is approved for chronic indication, providing us the ability to
leverage this corresponding safety data when seeking approval for planned follow-on indications that are also chronic or chronic episodic indications. Crofelemer manufacturing is being conducted at a
new, multimillion-dollar commercial manufacturing facility that has been FDA-inspected and approved. In an effort to reduce risk further, we have implemented the following approach: First, we meet
with key opinion leaders, typically at medical conferencesas we did in 2017 at Digestive Disease Week for IBS and IBD, the American Society of Clinical Oncology annual meeting, and the
Multinational Association of Supportive Care and Congress. Next, we confirm unmet medical needs with these key opinion leaders, and discuss the practicality of patient enrollment and trial
implementation. We then generate protocols to discuss with the FDA, seeking, when possible, special protocol assessments. Our goal, by the time we start devoting significant funds to a clinical trial,
is to have de-risked the program as much as we believe we possibly can, in particular the regulatory pathway. We believe this approach will lead to better long-term outcomes for our products in
development.
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We
believe that Jaguar is poised to realize a number of synergistic, value adding benefitsand an expanded pipeline of important human follow-on indications and a
second-generation anti secretory agent, upon which to build global partnerships.
In
May 2016, the New Drug Application ("NDA") and commercial rights for human applications of crofelemer (Mytesi) previously licensed to Salix Pharmaceuticals, Inc. ("Salix") were
transferred to Napo. The active pharmaceutical ingredient ("API") in Mytesi is crofelemer, our proprietary, patented gastrointestinal anti-secretory agent sustainably harvested from the rainforest.
Diarrhea
is a common adverse event seen with chemotherapy agents typically used in breast and colon cancers, and in particular in the more recently introduced therapeutic classes of
epidermal growth factor receptor ("EGFR") monoclonal antibodies and tyrosine kinase inhibitors ("TKI") often used for chronic adjuvant care management of cancer. The increased need for and use of
these agents has made diarrhea one of the most disabling issues for cancer patients.
We
will seek partnerships outside the United States for the above indications, while focusing on development, and commercial access in the United States directly. We are also focused on
investigating
SB-300 for various gastrointestinal indications. SB-300 is a proprietary Jaguar pharmaceutical product, a standardized botanical extract distinct from crofelemer, also sustainably derived from the
Croton lechleri
tree.
We
believe SB-300, which has the same mechanism of action as crofelemer and is significantly less costly to produce, may support efforts to receive a priority review voucher from the
U.S. FDA for a cholera indication. Priority review vouchers are granted by the FDA to drug developers as an incentive to develop treatments for neglected diseases and rare pediatric diseases.
Additionally, we believe SB-300 represents a long-term pipeline opportunity as a second-generation anti-secretory agent, on a global basis, for multiple gastro-intestinal
diseasesespecially in resource-constrained countries where cost of goods is a factor, in part, because requirements often exist in such regions for drug prices to decrease annually.
The
Company has published Phase 2 data on crofelemer for the treatment of devastating dehydration in cholera patients from the renowned International Centre for Diarrhoeal Disease
Research (icddr,b) in Bangladesh, and Napo plans to follow the same study design for a trial conducted in association with icddr,b in support of development of SB-300 for the potential cholera-related
indication.
Our
portfolio development strategy is based on identifying indications that are potentially high-value because they address important medical needs that are significantly or globally
unmet, and then strategically sequencing indication development priorities, second-generation product pipeline development, and partnering goals on a global basis.
Our
technology for proprietary gastrointestinal disease products is central to the product pipelines of both veterinary and human indications. Crofelemer is also the API in Canalevia,
our lead prescription drug product candidate, intended for the treatment of chemotherapy-induced diarrhea in dogs. We expect our first veterinary prescription product launch will be Canalevia for
chemotherapy-induced diarrhea, an interesting commercial synergy with the pursuit of follow-on indications for Mytesi.
Mytesi Clinical Data
Mytesi has been clinically demonstrated to have:
-
-
Minimal absorption, with plasma concentrations below the level of detection
-
-
No clinically relevant drug-drug interactions
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-
-
No effect on viral load or CD4 counts
-
-
Adverse events comparable to those with placebo
The
efficacy of Mytesi 125-mg delayed-release tablets twice daily was evaluated in a randomized, double-blind, 24-week, multicenter study (the ADVENT trial) comprised of a
placebo-controlled (1 month) treatment period and a placebo-free (5 month) treatment period. The study enrolled HIV-positive patients on stable ART with a history of diarrhea for
1 month or more. In the Mytesi 125mg bid group, more than twice as many patients (18% vs. 8% on placebo, p<0.01) achieved the highly rigorous endpoint defined as reduction to
£
2 watery stools per week for 2 out of the 4 weeks in the placebo-controlled period (the average baseline in the ADVENT population was 20 watery
stools per week).
In
a supplemental analysis of the ADVENT study population, 78% of patients in the Mytesi 125mg BID group experienced a decrease in watery stools at week 4. Among these patients that
experienced a decrease, 61% had at least a 50% decrease in watery stools. At week 20, 89% of patients in the Mytesi BID group experienced a decrease in watery stools. Among these patients that
experienced a decrease, 83% had at least a 50% decrease in watery stools, and over half of patients had no watery stools at all (100% decrease).
Products in Development
Cancer Therapy-Related Diarrhea (CTD)
CTD is a common problem with a relevant mechanism for crofelemer
|
|
|
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|
|
|
|
|
National Cancer Institute Criteria for Grading Severity of Diarrhea
|
|
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Grade 1
|
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Grade 2
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Grade 3
|
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Grade 4
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Patients without a colostomy
|
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Increase of <4 stools per day over pretreatment
|
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Increase of 4 to 6 stools per day or nocturnal stools
|
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Increase of
³
7 stools per day or incontinence; need for parenteral support for hydration
|
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Physiologic consequences requiring intensive care; hemodynamic collapse
|
Diarrhea
is a common adverse event seen with chemotherapy agents in the therapeutic classes of epidermal growth factor receptor ("EGFR") tyrosine kinase inhibitors ("TKI's") and EGFR
monoclonal antibodies (for breast, lung, and other malignancies). The increased need for and use of these agents has made diarrhea one of the most disabling issues for cancer patients. Crofelemer
offers the potential for an appropriate mechanism of action against this likely secretory diarrhea and has prompted interest among physicians concerned about this diarrheal symptom, stimulating the
aforementioned investigator-initiated trials. Diarrhea is also a common adverse event seen with chemotherapy agents used in colorectal and gastric cancers, and chronic maintenance chemotherapy. There
are currently no anti-diarrhea agents approved generally for chemotherapy-induced diarrhea.
A
study titled
HALT-D: DiarrHeA Prevention and ProphyLaxis with Crofelemer in HER2 Positive Breast Cancer Patients Receiving Trastuzumab, Pertuzumab, and
Docetaxel or Paclitaxel with or without Carboplatin
is currently enrolling patients in conjunction with Georgetown University. The primary objective of the study is to
characterize the incidence and severity of diarrhea in patients receiving investigational therapy in the setting of prophylactic anti-diarrheal management.
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A
second study, titled
An open label study to characterize the incidence and severity of diarrhea in patients with early stage HER2+ breast cancer treated with
adjuvant trastuzumab and neratinib followed by neratinib monotherapy, and intensive anti-diarrhea prophylaxis
, is currently enrolling patients in conjunction with the
University of California at San Francisco. The study is designed to evaluate crofelemer as a salvage anti-diarrheal therapy used with the investigational breast cancer agent neratinib. The primary
objective is to characterize the incidence and severity of diarrhea in patients with early stage breast cancer receiving adjuvant trastuzumab and neratinib followed by 1 year of neratinib
monotherapy in the setting of prophylactic anti-diarrheal management. The secondary objectives are to evaluate the activity of crofelemer as a rescue anti-diarrheal medication; to assess neratinib
adherence, holds, delays, and early discontinuation throughout the course of study therapy, which includes patients receiving neratinib for >1 year; and to assess overall toxicity including
constipation and cardiac toxicity with concomitant neratinib and trastuzumab.
Irritable Bowel SyndromeDiarrhea Predominant (IBS-D)
Diarrhea is a common symptom of irritable bowel syndrome (IBS), a frustrating, underdiagnosed and undertreated condition. IBS-D is a subtype
characterized mainly by loose or watery stools at least 25 percent of the time. According to the U.S. FDA, studies estimate that IBS affects 10 to 15 percent of adults in the United
States.
Abdominal
pain is the key symptom of IBS, and the pain, which is associated with a change in stool frequency or consistency, can be severe. To improve the diagnosis and outcomes for IBS
patients and to update clinicians on the latest research, Dr. William Chey, a gastroenterologist and professor of medicine and nutrition sciences at the University of Michigan, along with an
international team of collaborators, compiled
Rome IV
, an updated compendium of diagnostic criteria on functional GI disorders such IBS.
Rome IV
contains a
chapter titled Centrally Mediated Disorders of Gastrointestinal Pain.
Although
new agents for IBS-D have come on the market, there is an unmet medical need for long-term, safe management of the abdominal pain associated with IBS-D. We recognize that
patients suffering from IBS-D may require a poly-pharmacy approach to lifetime management of their disease. Mytesi, which represents a novel mechanistic approach with the benefit of a long-term safety
profile, could possibly be an important addition to the treatment of IBS-D, if approved for this indication.
Mytesi
has been demonstrated to be safe for chronic use, and two studies provide statistically significant results of crofelemer use for abdominal pain in women.
The
largest group of IBS sufferers are those with the subtype referred to as IBS-M (mixed diarrhea and constipation). IBS-M is also referred to as IBS-A, because the condition often
involves frequent alternating between IBS-D and IBS-C (constipation predominant). IBS-M is distressing for patients as well as difficult to diagnose and manage, and is often associated with pain and
urgency as well as significant abdominal distension and bloating. No approved drugs currently exist for IBS-M. Leading gastroenterologists have stated that IBS-C drugs may cause diarrhea in an IBS-M
patient, and an IBS-D drug may cause significant constipation. Since Mytesi has not caused constipation in clinical trials or real world experience, we therefore believe an opportunity exists for an
IBS-M indication for Mytesi. Resultingly, and due to the demonstrated safety of Mytesi for chronic use and its demonstrated benefit for abdominal pain in women, Napo is considering expanding
development efforts to evaluate the IBS-M indication.
Crofelemer
has been tested in safety studies and two significant Phase 2 studies for IBS-D as detailed below.
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Phase 2aa randomized double-blind placebo-controlled, dose-ranging (placebo, 125 mg, 250 mg, and 500
mg bid) study over a 12-week treatment period in 246 patients with d-IBS (Rome II criteria), including both males and females, whose average age was 50 years old.
n=245
subjects
61 placebo
62 125 mg crofelemer BID
59 250 mg crofelemer BID
62 500 mg crofelemer BID
IBS
symptoms (pain, urgency, stool frequency and consistency, and adequate relief) were self-reported by the patients via an interactive voice response system. Patients needed to exhibit
active disease during the two-week baseline period as defined by a mean daily stool frequency greater than or equal to 2/day, pain score greater than or equal to 1 and stool consistency greater than
or equal to 3 (5-point Lickert scale for pain and consistency) to be enrolled. Patients received treatment for 12 weeks followed by a two-week treatment free period.
The
protocol-specified primary efficacy measure was daily stool consistency. Statistical analysis of the primary endpoint found no significant differences between placebo and any of the
crofelemer dose groups (p
³
0.1434) and no significant dose relationship was seen with regard to change from Baseline to Month 3 in stool consistency scores
(p = 0.1165) in the ITT population.
A
supplementary analysis of Rome Foundation-defined stool consistency and abdominal pain showed positive results. Responders were subjects who had stool consistency score of
³
4 for < 25% of days in a given week and
³
30% improvement in abdominal pain scores a given week
(i.e., Rome Foundation-defined stool consistency and abdominal pain responders).
When
we look at a supplemental analysis at a reduction in a composite abdominal pain/stool consistency endpoint, the regulatory endpoint in accordance with FDA guidance, we see at the
125 mg dose bid a significant 15% difference with just women patients compared to placebo; and a significant 11% when we include both men and women. The current D-IBS products on the market have a
7-8% reduction (Viberzi and Xifaxan).
In
this analysis, Rome Foundation-defined stool consistency and abdominal pain responders were significantly more likely during the entire 3 months in the 125 mg BID group
when compared with placebo (24.2% versus 13.1%, p = 0.0399) and there was a statistical trend in favor of crofelemer 125 mg BID during Months 1 through 2 (27.4% versus 16.4%, p =
0.0640). Similar positive effects of crofelemer 125 mg BID were observed in female subjects (n = 183). When the supplementary analysis was applied to the female patients, crofelemer at a
dose of 125 mg BID was superior to placebo at Month 3 (26.1% vs 10.9%, p=0.0337).
-
-
Results: The 125mg bid of crofelemer exhibited a consistent response during each month among most efficacy endpoints in women with d-IBS
reaching statistical significance (p<0.05) for pain.
-
-
Crofelemer had little effect on the stool consistency score, though there was a trend toward reduced stool frequency.
-
-
Treatment benefits were not apparent in men, although relatively few men enrolled in the trial (13-16/group).
-
-
As with previous trials of crofelemer, no drug-related serious adverse events were reported. Adverse event rates were similar across all dose
groups, although in the two highest doses (250
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Safety:
Crofelemer at doses of 125, 250 and 500 mg had a safety profile that was generally similar to placebo among men and
women with d-IBS.
Phase 2A Randomized, double-blind, placebo-controlled study to assess the safety and efficacy of crofelemer for the symptomatic treatment of
diarrhea predominant irritable bowel syndrome (d-IBS) in 240 female subjects 18 years or older with active d-IBS according to the Rome II criteria for the diagnosis of
d-IBS.
The
study consisted of a 2-week screening period and a 12-week blinded treatment period followed by a 4-week treatment-free follow-up period. During the 12-week treatment period 240
subjects were given 125 mg of crofelemer BID or placebo BID and recorded daily assessments of their IBS symptoms in the interactive voice response system.
The
primary endpoint was the change from baseline for overall percentage of abdominal pain/discomfort free days (PFDs). On a daily basis, respondents recorded the intensity of their
abdominal pain/discomfort for that day using the 5-pint Likert scale: 0=none, 1=mild, 2=moderate, 3=intense, 4=severe. Any day that a score of zero (0) was recorded was considered a PFD.
Stool
consistency and abdominal pain endpoints were analyzed using definitions of symptom improvement from a recent FDA guidance on IBS endpoints (March 2010) and recommendations of the
Rome Foundation (letter dated 28 June 2010) concerning the IBS endpoints described in this guidance.
Results:
The overall increase in pain-free days (protocol-specified primary endpoint) for subjects in the crofelemer group
was not statistically significant when compared with subjects in the placebo group (p = 0.5107)
A
supplementary analysis of abdominal pain showed positive results. Responders were subjects who had
³
30% improvement in abdominal pain scores
a given week (i.e., FDA-defined abdominal pain responders; this definition of abdominal pain responders was presented in the March 2010 guidance on IBS endpoints).
In
this analysis, abdominal pain responders were significantly more likely during Months 1 through 2 (58.3% versus 45.0%, p = 0.0303) and during the entire 3 months (54.2%
versus 42.5%, p = 0.0371) in the crofelemer group when compared to placebo.
Safety:
The overall safety profile for crofelemer 125 mg BID for 12 weeks was comparable to that observed with placebo
and was consistent with the IBS population under study.
Rare Pediatric Disease Indications: Congenital Diarrheal Disorders and Short Bowel Syndrome (SBS)
Congenital diarrheal disorders (CDD) are a group of rare, chronic intestinal channel diseases, occurring in early infancy, that are
characterized by severe, lifelong diarrhea and a
lifelong need for nutritional intake either parenterally or with a feeding tube. CDDs are related to specific genetic defects inherited as autosomal recessive traits, and the incidence of CDDs is much
more prevalent in regions where consanguineous marriage is part of the culture. CDDs are directly associated with serious secondary conditions including dehydration, metabolic acidosis, and failure to
thrive, prompting the need for immediate therapy to prevent death and limit lifelong disability.
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Potential Orphan-Drug: Congenital Diarrheal Disorders (CDD) & Short Bowel Syndrome (SBS)
We
have completed safety studies of crofelemer in children as young as 3 months of age, and Napo has accepted a request for support submitted by
Dr. Mohamad Miqdady, Chief of Pediatric Gastroenterology, Hepatology and Nutrition at Sheikh Khalifa Medical City (SKMC) in Abu Dhabi, for an investigator-initiated trial of crofelemer, the
active pharmaceutical ingredient in Mytesi, for CDD in children.
A
pre-clinical study in mice, conducted by an independent third-party investigator, is underway to support possible orphan-drug designation for crofelemer for Congenital Diarrheal
Disorders (CDD). This animal model study is examining the effects of crofelemer on diarrhea caused by microvillous inclusion disease (MVID), a very rare autosomal recessive disorder which belongs to
the CDD category.
SBS
is a complex condition characterized by malabsorption of fluids and nutrients due to congenital deficiencies or surgical resection of small bowel segments. Consequently, patients
suffer from symptoms such as debilitating diarrhea, malnutrition, dehydration and imbalances of fluids and salts. This could be due to either a genetic disorder or premature birth. In countries such
as the United Arab Emirates and Saudi Arabia, SBS occurs with much higher incidence. Napo recently visited with medical centers in this region.
We
have received orphan-drug status for Mytesi (crofelemer) for the SBS pediatric indication and are pursuing orphan-drug status for CDD. The mission of the FDA Office of Orphan Products
Development is to advance the evaluation and development of products (drugs, biologics, devices, or medical foods) that demonstrate promise for the diagnosis and/or treatment of rare diseases or
conditions.
IBDSupportive Care:
Key opinion leaders ("KOLs") identified an unmet need to treat diarrhea in IBD patients, particularly in specific subsets of patients. KOLs felt
all IBD patients who undergo ileal pouch-anal anastomosis (IPAA) surgery suffer severe, chronic diarrhea following the procedure. Because this is a highly-motivated patient population with a low
placebo-responder risk, we believe a relatively small proof-of-concept trial is the appropriate next step from a development standpoint.
KOLs
felt crofelemer's novel mechanism of action may also prove to be an effective treatment for diarrhea that results from bile acid malabsorption, which has been shown to occur in
approximately 30% of patients with IBD.
Additionally,
KOLs felt crofelemer's novel mechanism of action may prove to be an effective treatment for diarrhea experienced by patients receiving IV infusions of Entyvio, a Takeda
Pharmaceuticals prescription medicine used in adults with moderate to severe ulcerative colitis or Crohn's disease. Secretory diarrhea occurs when the intestine does not complete absorption of
electrolytes and water from luminal contents. This can happen when a nonabsorbable, osmotically active substance is ingested ("osmotic diarrhea") or when electrolyte absorption is impaired ("secretory
diarrhea").
Secretory
diarrhea can result from bacterial toxins, luminal secretagogues (such as bile acids or laxatives), reduced absorptive surface area caused by disease or resection, circulating
secretagogues (such as various hormones, drugs, and poisons), and medical problems that compromise regulation of intestinal function. These studies in acute diarrhea support the normalizing aspect of
the mechanism of action, regardless of the cause of the diarrhea, and are supportive of the supportive care indication under development in IBD patients.
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Mytesi
has safety studies that support chronic use for the current approved indication, and has demonstrated statistically significant results in multiple supportive
care settings, though not specifically in IBD patients. Next steps would include a Phase 2 proof of concept study for supportive care in patients with IBD.
Phase 2A study of crofelemer in 184 persons in a double-blind, placebo-controlled study for the
symptomatic treatment of acute diarrhea among travelers to Jamaica and Mexico.
The
study was designed to evaluate the effectiveness of crofelemer in the treatment of travelers' diarrhea.
A
total of 184 persons from the United States who acquired diarrhea in Jamaica or Mexico were enrolled in a double-blind, placebo-controlled study examining the effectiveness of three
doses of crofelemer in reducing illness. Subjects were treated with 125 mg, 250 mg, or 500 mg crofelemer or a matching placebo four times a day for 2 days. Subjects kept daily diaries of
symptoms and were seen each day for 3 days. Of the subjects, 169 (92%) were included in the efficacy analysis.
The
most common etiological agent identified was enterotoxigenic Escherichia coli, found in 19% of subjects. The mean time interval from taking the first dose of medication until passage
of the last unformed stool during 48-hour therapy (TLUS48) was 38.7 hours for the placebo group.
TLUS48
was shortened by crofelemer:
Treatment
failures were seen in 29.3% in the placebo group compared with 7.3% (p = 0.01), 4.3 (p = 0.002), and 9.8 (p = 0.026) in the three treatment groups.
Crofelemer was well tolerated at all doses.
The
study provided statistically significant results of crofelemer use for shortening the duration of travelers' diarrhea. This antisecretory approach works directly against the
pathophysiology of travelers' diarrhea and is not likely to potentiate invasive forms of diarrhea or to produce posttreatment constipation.
Cholera/General Watery Diarrhea
According to the Centers for Disease Control and Prevention of the U.S. Department of Health & Human Services, Cholera is an acute,
diarrheal illness caused by infection of the intestine with the bacterium
Vibrio cholerae
. An estimated 3-5 million cases and over 100,000 deaths
occur each year around the world. The infection is often mild or without symptoms, but can sometimes be severe. Approximately one in 10 (5-10%) of infected persons will have severe disease
characterized by profuse watery diarrhea, vomiting, and leg cramps. In these people, rapid loss of body fluids leads to dehydration and shock. Without treatment, death can occur within hours. At this
time, for example, the largest cholera outbreak in recorded history is occurring in Yemen.
We
are investigating SB-300 for the indication of cholera/general watery diarrhea. SB-300 is a distinct and proprietary Napo pharmaceutical formulation of a standardized botanical
extract, also sustainably derived from the
Croton lechleri
tree. We believe SB-300 represents a long-term pipeline opportunity as a second-generation
anti-secretory agent, on a global basis, for multiple gastro-intestinal diseases. Additionally, we believe SB-300, which has the same mechanism of action as crofelemer and is
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significantly
less costly to produce, may support efforts to receive a priority review voucher from the U.S. FDA for a cholera indication. Priority review vouchers are granted by the FDA to drug
developers as an incentive to develop treatments for neglected diseases and rare pediatric diseases. If approved for this indication, SB-300 could serve as long-term pipeline anti-secretory agent for
cholera/general watery
diarrhea in geographies where cost of goods is a critical factor, for example, in resource-constrained regions and countries in which a requirement exists for drug prices to decrease annually.
We
have initiated CMC and have multiple animal and human studies in secretory diarrheas with SB-300. We have also completed a successful trial design for cholera with
an anti-secretory mechanism of action, published studies with crofelemer in patients with cholera and other acute severe watery diarrhea disease.
Phase 2 study of crofelemer in the treatment acute, severely dehydrating watery diarrhea with confirmed cholera
with the use of an antibiotic (azithromycin) and oral rehydration therapy in 100 adult patients between 18 and 55 in Bangladesh.
A
total of 100 adult patients, from Bangladesh, between the ages of 18 and 55, with acute, severely dehydrating watery diarrhea with confirmed cholera were treated with crofelemer on a
background of an antibiotic (azithromycin) and oral rehydration therapy. After a four-hour period of rapid rehydration therapy, patients were randomized 1:2:2 to placebo or 125 mg or 250 mg oral dose
of crofelemer. Crofelemer or placebo doses were administered about one hour after the oral administration of azithromycin (1 gm dose). The primary objective was to evaluate the safety and effects of
crofelemer on reducing the watery stool output normalized to body weight (mL/kg) in the first 24 hours on the background of azithromycin and rehydration therapy. Crofelemer was well tolerated
and there were no drug related adverse events in this study. Both doses of crofelemer produced approximately 25-30% reduction in median watery stool volumes in the 0-6 and 0-12 hour period
following initiation of therapy. Crofelemer showed a strong trend in the reduction of watery stool output in the 0-6 hour and 0-12 hour intervals (p=0.07). Upon exclusion of three
outlier patients, the crofelemer dose of 125 mg produced a statistically significant reduction in the normalized stool output (p=0.028) and the dose of 250 mg crofelemer showed a strong trend for
reduction of watery stool output (p=0.07).
In
another study, the effects of crofelemer were evaluated in patients with acute dehydrating watery diarrhea caused by various bacterial pathogens, such as enterotoxic strains of
Escherichia coli (ETEC) and Vibrio cholerae infection. Crofelemer was evaluated in adult Indian patients with acute watery diarrhea of less than 24-hour duration with suspected bacterial infections,
without the use of antibiotics. In this study, patients received oral doses of placebo or crofelemer at a dose of 250 mg every 6 hours
for 2 days on the background of oral rehydration therapy only. The use of antibiotics was prohibited in this study. A total of 98 patients were randomized into this study (47 in placebo group
and 51 in the crofelemer group). Primary endpoints for this study were changes in stool weight, frequency, consistency, duration of diarrhea. Secondary endpoints included the assessment of clinical
symptoms scored as total of 7-item GI index. Clinical success was defined as no diarrhea within 48 hours from study start date and treatment failure was defined as no
improvement/worsening of symptoms after 24 hours, fever, bloody stools or dehydration.
Results:
98 patients (51 crofelemer, 47 placebo) were enrolled in the study. 16 patients (4 in the crofelemer group and 12 in the
placebo group) used
antibiotics and were considered as treatment failures and were excluded from the "per protocol efficacy analysis". Groups were similar in age, weight, vital signs, stool frequency, consistency,
dehydration and GI index.
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The
crofelemer group had improvement over baseline and compared to placebo at day 3. More specifically, crofelemer showed superior effects in reducing stool weight (61% vs 11%), stool
frequency (65% vs 21%), reversion to soft stool (92% vs 49%) and improved the 7-item GI index (70% C vs 33% P), (all p<0.05).
Crofelemer
was well tolerated with no related serious adverse events or concerning changes in lab values. Progression to dehydration and report of fecal incontinence was more common in
placebo group (p<0.05).
Conclusions:
Clinical success (cessation of diarrhea within 48 hours of 1st dose) was achieved in 79% of crofelemer patients
compared
to 28% placebo patients (p<0.05).
Other Product Potential Future Indications
Institutional Diarrhea
Patients in medical institutions such as hospitals often experience diarrhea following infection with
Clostridium
difficile
, an anaerobic bacillus shed in feces. According to the Centers for Disease Control and Prevention of the U.S. Department of Health & Human Services, any
surface, device, or material (e.g., commodes, bathing tubs, and electronic rectal thermometers) that becomes contaminated with feces may serve as a reservoir for the
C.
difficile
spores, which are transferred to patients mainly via the hands of healthcare personnel who have touched a contaminated surface or item. We believe development of an
approved formulation of crofelemer for use in
C. difficile
has the potential to help patients infected with
C.
difficile
leave the hospital sooner, help keep patients infected with
C. difficile
out of the hospital, and aid in controlling
C. difficile
contagion in institutional settings, which would also represent a significant economic benefit.
Competition
There are several significantly larger pharmaceutical companies competing with us in the gastrointestinal segment. These companies include
Valeant Pharmaceuticals International, Merck & Co., Inc., and Allergan plc as well as smaller pharmaceutical companies.
Diarrhea in adult patients living with HIV/AIDs.
We are not aware of any other FDA-approved drugs for the symptomatic relief of
diarrhea in HIV/AIDs
patients. HIV/AIDs patients also use loperamide and over the counter anti-diarrheal remedies such as Mylanta or Kaopectate to treat their diarrhea, but these medicines affect motility and can result
in rebound diarrhea.
Diarrhea predominant irritable bowel syndrome.
Two drugs were approved in 2015 for the treatment of diarrhea predominant irritable
bowel syndrome,
Allergan plc's Virbezi and Xifaxan which is marketed by Valeant Pharmaceuticals International. Also, Lotronex was approved by the FDA in 2000 but was withdrawn from the market and later
reintroduced in 2002 under a Risk Management Program. With the exception of Lotronex, the sponsors of Verbezi and Xifaxan employ extensive media and print promotion for the commercialization of these
products. We are seeking a partner to further the clinical development and commercialization of crofelemer for d-IBS. There are currently numerous trials on going for d-IBS.
Pediatric diarrhea.
Acute diarrhea in children is commonly treated by a change in diet, oral rehydration therapy and/or antibiotics,
assuming the
cause of the diarrhea is bacterial in nature. Children aged 12 and younger are advised not to use anti-motility drugs (loperamide for example) unless directed to do so by a physician. There are recent
clinical trials for probiotics and zinc sulfate. Other recent anti-diarrheal studies in children include a safety and tolerability study of Fidaxomicin for C difficile associated diarrhea.
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Chemotherapy induced diarrhea.
We are not aware of any FDA-approved drugs specifically indicated for chemotherapy induced diarrhea. A
recent
Phase IIb trial of elsiglutide for the treatment of chemotherapy induced diarrhea in colorectal cancer patients did not meet statistical significance. Opioids and over the counter drugs are
commonly used to treat chemotherapy induced diarrhea, but these drugs affect motility. Certain tyrosine-kinase inhibitor chemotherapy agents have diarrhea as a significant side effect. For example,
FDA guidance suggests diarrhea prophylaxis prior to initiating adjuvant therapy with neratinib.
Congenital Diarrheal Disorders and Short Bowel Syndrome.
We are not aware of any FDA-approved drugs specifically indicated for
Congenital Diarrheal
Disorders and Short Bowel Syndrome.
Cholera.
We are not aware of any FDA-approved drugs specifically indicated as an anti-secretory agent for use to address the devastating
dehydration
in cholera patients.
Irritable Bowel Syndrome (IBS).
If we receive regulatory approval for Mytesi for IBS, we expect to compete with major pharmaceutical
and
biotechnology companies that operate in the gastrointestinal space, such as Sucampo AG, Takeda Pharmaceuticals, Allergan, Inc., Ironwood Pharmaceuticals, Inc., Synergy
Pharmaceuticals Inc., Sebela Pharmaceuticals, Inc. and Salix Pharmaceuticals. Because Mytesi is approved with chronic safety and several of the other agents have safety concerns, there
is likely to be an opportunity for a polypharmacetuical approach to long-term management of these patients,
removing a direct competitive scenario from Mytesi's potential entry to the marketplace and disease indication.
To
our knowledge, there are currently no FDA-approved anti-secretory products, in particular which act locally in the gut with the chronic safety profile of crofelemer, in development or
on the market. Crofelemer represents a new tool in gastro-intestinal disease management.
Distribution and Marketing Agreements
Napo has agreements in place with BexR, a distributor in Texas, and SmartPharma, a marketing and commercialization advisory firm, for the
distribution, marketing and sale of Mytesi. The agreements compensate these parties with a percentage of net sales, as defined. Payments by Napo to BexR will be a specified percentage of net sales,
ranging in the low double digits but in no instance exceeding 20% of net sales, depending on the period in which the sales occur and the amount of such sales. Payments by Napo to SmartPharma will be a
specified percentage of net sales, ranging in the low double digits but in no instance exceeding 20% of net sales, depending on the amount of such sales. In addition, under certain circumstances, Napo
will be required to pay SmartPharma a termination fee equal to a certain percentage of net sales generated within a specified period after the termination date.
Manufacturing
The plant material used to manufacture is crude plant latex ("CPL") extracted and purified from
Croton
lechleri
, a widespread and naturally regenerating tree in the rainforest that is managed as part of sustainable harvesting programs. The tree is found in several South American
countries and has been the focus of long-term sustainable harvesting research and development work. Napo's collaborating suppliers obtain CPL and arrange for the shipment of CPL to Napo's third-party
contract manufacturer.
Napo's
third-party contract manufacturer, India-based Glenmark Pharmaceuticals Ltd. (Glenmark), a research-driven, global, integrated pharmaceutical company, is Napo's primary
manufacturer of crofelemer, the active pharmaceutical ingredient in Mytesi. Glenmark processes CPL into crofelemer utilizing a proprietary manufacturing process. The processing occurs at two
FDA-approved Glenmark
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facilities.
Additionally, Napo plans to establish a third processing site, which will be operated by Indena S.p.A., a Milan, Italy-based contract manufacturer dedicated to the identification,
development and production of high-quality active principles derived from plants, for use in the pharmaceutical, health food and personal care industries. Indena has completed the required technology
transfer and pilot manufacturing and has the equipment in place for the initiation of commercial scale manufacturing.
Canalevia
will be manufactured by the same process used to manufacture the API that was used in the animal safety studies and the human studies in support of the approval of Mytesi. Napo
has also licensed this intellectual property to third parties in connection with its agreements related to the manufacture of crofelemer.
In
May 2014 and June 2014, and as amended in February 2015, we entered into binding memorandums of understanding with Indena S.p.A. to negotiate a definitive commercial supply
agreement for the manufacture of crofelemer and the botanical extract, SB-300.
We
have contracts in place with all the manufacturers and third party testing labs required to manufacture Mytesi and SB-300. We are finalizing a master service agreement with Glenmark
for the manufacture of crofelemer which addresses cost of goods reductions at increasing scale. We are in the process of evaluating alternative and secondary third parties to reduce costs associated
with finished product manufacture and the assays necessary to the release specifications of Mytesi.
Proprietary Library of Medicinal Plants
We possess a proprietary library of more than 2,300 medicinal plants.
Intellectual Property
Trademarks
We plan to market all of our products under a trademark or trademarks we select and we will own all rights, title and interest, including all
goodwill, associated with such trademarks. Mytesi is a registered trademark owned by Napo.
License Agreements
Termination, Asset Transfer and Transition Agreement
On September 19, 2017 (the "Transfer Date"), Napo entered into the Termination, Asset Transfer and Transition Agreement (the "Glenmark
Transition Agreement") with Glenmark. The Glenmark Transition Agreement supersedes the Glenmark Collaboration Agreement and returns to Napo certain rights which Napo licensed to Glenmark pursuant to
the Glenmark Collaboration Agreement related to the development and commercialization of crofelemer for certain specified human indications in India and 140 other countries largely in developing
regions (the "Transferred Assets").
As
a result of the execution of the Glenmark Transition Agreement, we, through Napo, now control commercial rights for Mytesi for all indications, territories and patient populations
globally, and also hold commercial rights to the existing regulatory approvals for crofelemer in Brazil, Ecuador, Zimbabwe and Botswana.
In
consideration for Glenmark's assignment and transfer of the Transferred Assets to Napo, Napo agreed to pay Glenmark in cash, within 45 days after receipt by Napo, 25% of any
payment that Napo receives from a third party to whom Napo grants a license or sublicense or with whom Napo partners in respect of, or sells or otherwise transfers the certain specified human
indications in India and 140 other countries largely in developing regions any of the Transferred Assets, subject to certain limitations, until Glenmark has received a total of $7 million. As
additional consideration for the
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assignment
and transfer of the Transferred Assets, Napo agreed (i) to enter into, within 90 days after the Transfer Date, a manufacturing and supply agreement with Glenmark for
crofelemer, which will be manufactured at either or both of Glenmark's facilities in India (this master service agreement is in final draft form, though not yet fully executed) and (ii) to
transfer and assign to Glenmark all right, title and interest in and to certain required dedicated equipment used to manufacture crofelemer located at Glenmark's Ankleshwar facility, subject to
certain limitations.
Patent Portfolio
Napo
Napo owns a portfolio of patents and patent applications covering formulations of and methods of treatment with proanthocyanidin polymers
isolated from Croton spp. or Calophyllum spp., including Mytesi (crofelemer). The patent family associated with International Patent publication WO1998/16111 relates to enteric protected formulations
of proanthocyanidin polymers isolated from Croton spp. or Calophyllum spp., including crofelemer, and methods of treating watery diarrhea using these enteric protected formulations. There is one U.S.
patent in force in this family, US 7,341,744, which has a term until at least June 23, 2019. Napo has applied to extend the term of US 7,341,744 under 35 U.S.C. 156, and the United States
Patent and Trademark Office has issued a Notice of Final Determination that the patent term extension for US 7,341,744 is 1,075 days. Based upon the June 23, 2019 expiration date, the
patent term would be extended to June 2, 2022 once the patent term extension certificate issues, to account for the regulatory delay in obtaining human marketing approval for crofelemer.
Napo
additionally owns a family of patents arising from International Patent Application Publication WO2012/058664 that cover methods of treating HIV-associated diarrhea and
HAART-associated diarrhea with proanthocyanidin polymers isolated from Croton spp. or Calophyllum spp., including crofelemer. In the U.S., there are two issued patents, US 8,962,680 and US 9,585,868,
both of which expire October 31, 2031. Outside the U.S., patent protection for methods of treating HIV-associated diarrhea has been obtained in Australia, Europe, Hong Kong, Japan,
Kenya, Mexico, Russia, Ukraine, South Africa, and Zimbabwe, with expiration dates of October 31, 2031, and applications are pending in
Brazil, Hong Kong, Canada, China, India, Mexico, and Malaysia. Napo also has patent families related to methods of treating diarrhea-predominant irritable bowel syndrome, methods of treating
constipation-predominant irritable bowel syndrome, and methods of treating inflammatory bowel disease, familial adenomatous polyposis and colon cancer, with proanthocyanidin polymers isolated from
Croton spp. or Calophyllum spp., including crofelemer. In particular, for diarrhea-predominant irritable bowel syndrome, Napo has two issued U.S. patents, US 8,846,113 and US 9,980,938, which expire
on February 9, 2027, as well as issued patents in Australia, Europe, Hong Kong, Japan, South Korea, Mexico, New Zealand, Singapore, and Taiwan and pending applications in Bangladesh,
Bolivia, Canada, Chile, Gulf States, Mexico, Panama, Peru, Paraguay, Thailand, and Venezuela, all of which are estimated to expire April 30, 2027; for constipation-predominant irritable bowel
syndrome, Napo has three issued U.S. patents, with terms to at least April 30, 2027, patents in Australia, Canada, Europe, Hong Kong, Mexico, New Zealand, and Singapore, and a pending
application in India, all of which are estimated to expire April 30, 2027; and for inflammatory bowel disease, familial adenomatous polyposis and/or colon cancer, Napo has two issued U.S.
patents, US 8,852,649 and US 9,987,250 with terms until at least January 4, 2028, as well as issued patents in Australia, Hong Kong, and Europe and an allowed application in Canada,
which have estimated expiration dates of April 30, 2027. Napo has a pending U.S. non provisional application for the treatment of chemotherapy induced diarrhea (CID) with crofelemer filed on
March 9, 2018 and two International Patent Applications on other human indications including for the treatments of short bowel syndrome and congenital diarrhea disorder filed on May 31,
2018.
For
methods of manufacturing proanthocyanidin polymers isolated from Croton spp. or Calophyllum spp., including crofelemer, Napo owns issued patents in India, South Africa, and Eurasia
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with
terms at least until August 26, 2029. Napo also owns issued patents in India, Russia, and South Africa and pending applications in Argentina, Brazil, and Venezuela that also cover methods
of manufacturing proanthocyanidin polymers isolated from Croton spp. or Calophyllum spp., including crofelemer, with terms at least until January 17, 2032. Napo holds a patent in South Africa
and pending applications in Argentina, Bangladesh, Brazil, Egypt, India, Indonesia, Kenya, Malaysia, Mexico, Nigeria, Philippines, United Arab Emirates, Russia, Thailand, Venezuela, and Vietnam
covering non-enteric formulations of crofelemer estimated to expire August 17, 2032. Lastly, Napo owns two U.S. patents covering a formulation of NP 500 (nordihydroguiaretic acid (NDGA)) and
its use in treating a metabolic disorder that have terms until April 23, 2031.
Government Regulation
The FDA and comparable regulatory authorities in state and local jurisdictions and in other countries impose substantial and burdensome
requirements upon companies involved in the clinical development, manufacture, marketing and distribution of prescription drugs such as those Napo is developing. These agencies and other federal,
state and local entities regulate, among other things, the research and development, testing, manufacture, quality control, safety, effectiveness, labeling, storage, record keeping, approval,
advertising and promotion, distribution, post-approval monitoring and reporting, sampling and export and import of Napo's drug product candidates. To comply with the regulatory requirements in each of
the jurisdictions in which Napo is seeking to market and subsequently sell its prescription products, Napo is establishing processes and resources to provide oversight of the development, approval
processes and launch of its products and to position those products in order to gain market share.
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In the United States, the FDA approves and regulates drugs under the Federal Food, Drug, and Cosmetic Act ("FDCA"), and its implementing
regulations.
The
process of obtaining regulatory approvals and the subsequent compliance with applicable federal, state, local and foreign statutes and regulations requires the expenditure of
substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval, may subject an
applicant to a variety of administrative or judicial sanctions, such as the FDA's refusal to approve pending NDAs, withdrawal of an approval, imposition of a clinical hold, issuance of warning
letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement or civil or
criminal penalties.
The
process required by the FDA before a drug may be marketed in the United States generally involves the following:
-
-
completion of pre-clinical laboratory tests, animal studies and formulation studies in compliance with the FDA's good laboratory practice, or
GLP, regulations;
-
-
submission to the FDA of an investigational new drug application, or IND, which must become approved before human clinical trials may begin;
-
-
approval by an institutional review board, or IRB, of the study protocol and informed consent forms for the clinical site before each trial may
be initiated. Multiple sites may necessitate the involvement of multiple IRBs and submissions;
-
-
performance of adequate and well-controlled human clinical trials in accordance with good clinical practice, or GCP, requirements to establish
the safety and efficacy of the proposed drug product for each indication;
-
-
submission to the FDA of an NDA which would include the study reports of the clinical trials, chemistry and manufacturing of the active
pharmaceutical ingredient and the final dosage form as well as other required sections to be included in the NDA;
-
-
satisfactory completion of an FDA advisory committee review, if applicable;
-
-
satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the product is produced to assess compliance
with current good manufacturing practice, or cGMP, requirements and to assure that the facilities, methods and controls are adequate to preserve the drug's identity, strength, quality and purity; and
-
-
FDA review and approval of the NDA.
Pre-clinical Studies
Pre-clinical studies include laboratory evaluation of the drug product's chemistry, toxicity and formulation, as well as animal studies to
assess potential safety and efficacy. An IND sponsor must submit the results of the pre-clinical tests, together with manufacturing information, analytical data and any available clinical data or
literature, among other things, to the FDA as part of an IND. Some pre-clinical testing may continue even after the IND is submitted. An IND automatically becomes effective 30 days after
receipt by the FDA, unless before that time the FDA raises concerns or questions related to one or more proposed clinical trials and places the clinical trial on a clinical hold. In such a case, the
IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. As a result, submission of an IND may not result in the FDA allowing clinical trials to commence.
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Clinical Trials
Clinical trials involve the administration of the investigational new drug to human subjects pursuant to a clinical protocol, under the
supervision of qualified investigators in accordance with GCP requirements, which include the requirement that all research subjects provide their
informed consent in writing for their participation in any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives or endpoints of the trial, the
parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA under
the IND. In addition, an IRB at each institution participating in the clinical trial must review and approve the plan for any clinical trial before it commences at that institution. Information about
certain clinical trials must be submitted within specific timeframes to the National Institutes of Health, or NIH, for public dissemination on their www.clinicaltrials.govwebsite.
Human
clinical trials are typically conducted in three sequential phases, which may overlap or be combined:
-
-
Phase 1: The drug is initially introduced into healthy human subjects or patients with the target disease or condition and tested for
safety, dosage tolerance, absorption, metabolism, distribution, excretion and, if possible, to gain an early indication of its effectiveness depending on the endpoints set forth in the protocol.
-
-
Phase 2: The drug is administered to a limited patient population to identify possible adverse effects and safety risks, to
preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage.
-
-
Phase 3: The drug is administered to an expanded patient population, generally at geographically dispersed clinical trial sites, in
well-controlled clinical trials to generate enough data to statistically evaluate the efficacy and safety of the product for approval, to establish the overall risk-benefit profile of the product, and
to provide adequate information for the labeling of the product.
Progress
reports detailing the results of the clinical trials must be submitted at least annually to the FDA and more frequently if serious adverse events occur. Phase 1,
Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified period, or at all. Furthermore, the FDA or the sponsor may suspend or terminate a clinical
trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical
trial at its institution if the clinical trial is not being conducted in accordance with the IRB's requirements or if the drug has been associated with unexpected serious harm to patients.
Special Protocol Assessment
The special protocol assessment, or SPA, process is designed to facilitate the FDA's review and approval of drugs by allowing the FDA to
evaluate issues related to the adequacy of certain clinical trials, including Phase 3 clinical trials that can form the primary basis for a drug product's efficacy claim in an NDA. Upon
specific request by a clinical trial sponsor, the FDA will evaluate the protocol and respond to a sponsor's questions regarding, among other things, primary efficacy endpoints, trial conduct and data
analysis, within 45 days of receipt of the request.
The
FDA ultimately assesses whether the protocol design and planned analysis of the trial are acceptable to support regulatory approval of the product candidate with respect to
effectiveness of the indication studied. All agreements and disagreements between the FDA and the sponsor regarding an SPA must be clearly documented in an SPA letter or the minutes of a meeting
between the sponsor and the FDA.
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Even
if the FDA agrees to the design, execution and analyses proposed in protocols reviewed under the SPA process, the FDA may revoke or alter its agreement under the following
circumstances:
-
-
public health concerns emerge that were unrecognized at the time of the protocol assessment;
-
-
the director of the review division determines that a substantial scientific issue essential to determining safety or efficacy has been
identified after testing has begun;
-
-
a sponsor fails to follow a protocol that was agreed upon with the FDA; or
-
-
the relevant data, assumptions, or information provided by the sponsor in a request for SPA change, are found to be false statements or
misstatements, or are found to omit relevant facts.
A
documented SPA may be modified, and such modification will be deemed binding on the FDA review division, except under the circumstances described above, if FDA and the sponsor agree in
writing to modify the protocol and such modification is intended to improve the study.
Marketing Approval
Assuming successful completion of the required clinical testing, the results of the pre-clinical studies and clinical trials, together with
detailed information relating to the product's chemistry, manufacture, controls and proposed labeling, among other things, are submitted to the FDA as part of a NDA requesting approval to market the
product for one or more indications. In most cases, the submission of a NDA is subject to a substantial application user fee. Under the Prescription Drug User Fee Act ("PDUFA"), guidelines that are
currently in effect, the FDA has a goal of ten months from the date of "filing" of a standard NDA for a new molecular entity to review and act on the submission. This review typically takes twelve
months from the date the NDA is submitted to FDA because the FDA has approximately two months to make a "filing" decision.
In
addition, under the Pediatric Research Equity Act of 2003 ("PREA"), as amended and reauthorized, certain NDAs or supplements to an NDA must contain data that are adequate to assess
the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations; this would include information which supports dosing and administration for each
pediatric subpopulation for which the product is safe and effective. The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data
until after approval of the product for use in adults or full or partial waivers from the pediatric data requirements.
The
FDA may also require submission of a risk evaluation and mitigation strategy, or REMS, plan to ensure that the benefits of the drug outweigh its risks. The REMS plan could include
medication guides, physician communication plans, assessment plans, and/or elements to assure safe use, such as restricted distribution methods, patient registries, or other risk minimization tools.
The
FDA may also require other information as part of the NDA filing such as an environmental impact statement. The FDA can waive some or delay compliance with some of these
requirements.
The
FDA conducts a preliminary review of all NDAs within the first 60 days after submission, before accepting them for filing, to determine whether they are sufficiently complete
to permit substantive review. The FDA may request additional information rather than accept a NDA for filing. In this event, the application must be resubmitted with the additional information. The
resubmitted application is also subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review. The FDA reviews a NDA
to determine, among other things, whether the drug is safe and effective and whether the facility in which it is manufactured, processed, packaged or held meets standards designed to assure the
product's continued safety, quality and purity.
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The
FDA may refer an application for a novel drug to an advisory committee. An advisory committee is a panel of independent experts, including clinicians and other scientific experts,
that reviews, evaluates and provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee,
but it considers such recommendations carefully when making decisions.
Before
approving an NDA, the FDA typically will inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that
the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before
approving a NDA, the FDA may inspect one or more clinical trial sites to assure compliance with GCP requirements.
After
evaluating the NDA and all related information, including the advisory committee recommendation, if any, and inspection reports regarding the manufacturing facilities and clinical
trial sites, the FDA may issue an approval letter, or, in some cases, a complete response letter. A complete response letter must contain a statement of specific items that prevent the FDA from
approving the application and will also contain conditions that must be met in order to secure final approval of the NDA and may require additional clinical or pre-clinical testing in order for FDA to
reconsider the application. Even with submission of this additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval. If and when
those conditions have been met to the FDA's satisfaction, the FDA will typically issue an approval letter. An approval letter authorizes commercial marketing of the drug with specific prescribing
information for specific indications.
Even
if the FDA approves a product, it may limit the approved indications for use of the product, require that contraindications, warnings or precautions be included in the product
labeling, require that post-approval studies, Phase 4 clinical trials, be conducted to further assess a drug's safety after approval, require testing and surveillance programs to monitor the
product after commercialization, or impose other conditions, including distribution and use restrictions or other risk management mechanisms under a REMS, which can materially affect the potential
market and profitability of the product. The FDA may prevent or limit further marketing of a product based on the results of post-marketing studies or surveillance programs. After approval, some types
of changes to the approved product, such as adding new indications, manufacturing changes, and additional labeling claims, are subject to further testing requirements and FDA review and approval.
Post-Approval Requirements
Drugs manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among
other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting of adverse experiences with the product. After
approval, most changes to the approved product, such as adding new indications or other labeling claims are subject to prior FDA review and approval. New secondary indications must be supported by
clinical trials or data. There also are continuing, annual user fee requirements for any marketed products and the establishments at which such products are manufactured, as well as new application
fees for supplemental applications with clinical data.
The
FDA may impose a number of post-approval requirements as a condition of approval of an NDA. For example, the FDA may require post-marketing testing, including Phase 4 clinical
trials, and surveillance to further assess and monitor the product's safety and effectiveness after commercialization.
In
addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and state
agencies, and are
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subject
to periodic unannounced inspections by the FDA and these state agencies for compliance with cGMP requirements. Changes to the manufacturing process are strictly regulated and often require
prior FDA approval before being implemented. FDA regulations also require investigation and
correction of any deviations from cGMP requirements and impose reporting and documentation requirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use.
Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain cGMP compliance.
Once
an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches
the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with
regulatory requirements, may result in mandatory revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or
imposition of distribution or other restrictions under a REMS program. Other potential consequences include, include, but are not limited to:
-
-
restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls;
-
-
fines, warning letters or holds on post-approval clinical trials;
-
-
refusal of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or revocation of product approvals;
-
-
product seizure or detention, or refusal to permit the import or export of products; or
-
-
injunctions or the imposition of civil or criminal penalties.
The
FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Drugs may be promoted only for the approved indications and in
accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to
have improperly promoted off-label uses may be subject to significant liability. In addition, the FDA regulates the purity and or consistency of the approved product. Products, if deemed adulterated
can lead to serious consequences as set forth above as well as civil and criminal penalties.
To the extent that any of Napo's product candidates, once approved, are sold in a foreign country, Napo may be subject to similar foreign laws
and regulations, which may include, for instance, applicable post-marketing requirements, including safety surveillance, anti-fraud and abuse laws and implementation of corporate compliance programs
and reporting of payments or other transfers of value to healthcare professionals.
In
order to market Napo's future products in the EEA (which is comprised of the 28 Member States of the EU plus Norway, Iceland and Liechtenstein) and many other foreign jurisdictions, a
sponsor must obtain separate regulatory approvals. More concretely, in the EEA, medicinal products can only be commercialized after obtaining a Marketing Authorization, or MA. There are two types of
marketing authorizations:
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-
the Community MA, which is issued by the European Commission through the Centralized Procedure, based on the opinion of the Committee for
Medicinal Products for Human Use of the European Medicines Agency, or EMA, and which is valid throughout the entire territory of the EEA. The Centralized Procedure is mandatory for certain types of
products, such as biotechnology medicinal products, orphan medicinal products and medicinal products indicated
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for
the treatment of AIDS, cancer, neurodegenerative disorders, diabetes, auto-immune and viral diseases. The Centralized Procedure is optional for products containing a new active substance not yet
authorized in the EEA, or for products that constitute a significant therapeutic, scientific or technical innovation or which are in the interest of public health in the EU; and
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National MAs, which are issued by the competent authorities of the Member States of the EEA and only cover their respective territory, are
available for products not falling within the mandatory scope of the Centralized Procedure. Where a product has already been authorized for marketing in a Member State of the EEA, this National MA can
be recognized in another Member State through the Mutual Recognition Procedure. If the product has not received a National MA in any Member State at the time of application, it can be approved
simultaneously in various Member States through the Decentralized Procedure.
Under
the above described procedures, before granting the MA, the EMA or the competent authorities of the Member States of the EEA make an assessment of the risk-benefit balance of the
product on the basis of scientific criteria concerning its quality, safety and efficacy.
In
the EEA, new products authorized for marketing, or reference products, qualify for eight years of data exclusivity and an additional two years of market exclusivity upon marketing
authorization. The data exclusivity period prevents generic or biosimilar applicants from relying on the pre-clinical and clinical trial data contained in the dossier of the reference product when
applying for a generic or biosimilar marketing authorization in the EU during a period of eight years from the date on which the reference product was first authorized in the EU. The market
exclusivity period prevents a successful generic or biosimilar applicant from commercializing its product in the EU until 10 years have elapsed from the initial authorization of the reference
product in the EU. The 10-year market exclusivity period can be extended to a maximum of eleven years if, during the first eight years of those 10 years, the marketing authorization holder
obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to their authorization, are held to bring a significant clinical benefit in
comparison with existing therapies.
In
the EEA, marketing authorization applications for new medicinal products not authorized have to include the results of studies conducted in the pediatric population, in compliance
with a pediatric investigation plan, or PIP, agreed with the EMA's Pediatric Committee ("PDCO"). The PIP sets out the timing and measures proposed to generate data to support a pediatric indication of
the drug for which
marketing authorization is being sought. The PDCO can grant a deferral of the obligation to implement some or all of the measures of the PIP until there are sufficient data to demonstrate the efficacy
and safety of the product in adults. Further, the obligation to provide pediatric clinical trial data can be waived by the PDCO when these data is not needed or appropriate because the product is
likely to be ineffective or unsafe in children, the disease or condition for which the product is intended occurs only in adult populations, or when the product does not represent a significant
therapeutic benefit over existing treatments for pediatric patients. Once the marketing authorization is obtained in all Member States of the EU and study results are included in the product
information, even when negative, the product is eligible for six months' supplementary protection certificate extension. For orphan-drug designated medicinal products, the 10-year period of market
exclusivity is extended to 12 years.
In addition to FDA restrictions on marketing of pharmaceutical and biological products, other U.S. federal and state healthcare regulatory laws
restrict business practices in the pharmaceutical industry, which include, but are not limited to, state and federal anti-kickback, false claims, data privacy and security and physician payment and
drug pricing transparency laws.
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The
U.S. federal Anti-Kickback Statute prohibits, among other things, any person or entity from knowingly and willfully offering, paying, soliciting, receiving or providing any
remuneration, directly or indirectly, overtly or covertly, to induce or in return for purchasing, leasing, ordering, or arranging for or recommending the purchase, lease, or order of any good,
facility, item or service reimbursable, in whole or in part, under Medicare, Medicaid or other federal healthcare programs. The term "remuneration" has been broadly interpreted to include anything of
value. The Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers, formulary managers and beneficiaries on
the other. Although there are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution, the exceptions and safe harbors are drawn narrowly.
Practices that involve remuneration that may be alleged to be intended to induce prescribing, purchases, or recommendations may be subject to scrutiny if they do not meet the requirements of a
statutory or regulatory exception or safe harbor. Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se
illegal under the U.S. federal Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all its facts and
circumstances. Several courts have interpreted the statute's intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of federal healthcare
covered business, the statute has been violated.
Additionally,
the intent standard under the U.S. federal Anti-Kickback Statute was amended by the Patient Protection and Affordable Care Act, as amended by the Health Care and Education
Reconciliation Act of 2010, or collectively, the ACA, to a stricter standard such that a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in
order to have committed a violation. In addition, the ACA codified case law that a claim including items or services resulting from a violation of the U.S. federal Anti-Kickback Statute constitutes a
false or fraudulent claim for purposes of the federal civil False Claims Act. The majority of states also have anti-kickback laws, which establish similar prohibitions and in some cases may apply to
items or services reimbursed by any third-party payor, including commercial insurers.
The
federal false claims and civil monetary penalties laws, including the civil False Claims Act, prohibit any person or entity from, among other things, knowingly presenting, or causing
to be presented, a false, fictitious or fraudulent claim for payment to, or approval by, the federal government, knowingly making, using, or causing to be made or used a false record or statement
material to a false or fraudulent claim to the federal government, or from knowingly making a false statement to avoid, decrease or conceal an obligation to pay money to the U.S. federal government. A
claim includes "any request or demand" for money or property presented to the U.S. government. Actions under the civil False Claims Act may be brought by the Attorney General or as a qui tam action by
a private individual in the name of the government. Violations of the civil False Claims Act can result in very significant monetary penalties and treble damages. Several pharmaceutical and other
healthcare companies have been prosecuted under these laws for, among other things, allegedly providing free product to customers with the expectation that the customers would bill federal programs
for the product. Other companies have been prosecuted for causing false claims to be submitted because of the companies' marketing of products for unapproved, or off-label, uses. Companies also have
been prosecuted for allegedly violating the Anti-Kickback Statute and False Claims Act as a result of impermissible arrangements between companies and healthcare practitioners or as a result of the
provision of remuneration by the companies to the healthcare practitioners. In addition, the civil monetary penalties statute imposes penalties against any person who is determined to have presented
or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent. Many states
also have similar fraud and abuse statutes or regulations that apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor.
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Violations
of fraud and abuse laws, including federal and state anti-kickback and false claims laws, may be punishable by criminal and civil sanctions, including fines and civil monetary
penalties, the possibility of exclusion from federal healthcare programs (including Medicare and Medicaid), disgorgement and corporate integrity agreements, which impose, among other things, rigorous
operational and monitoring requirements on companies. Similar sanctions and penalties, as well as imprisonment, also can be imposed upon executive officers and employees of such companies. Given the
significant size of actual and potential settlements, it is expected that the government authorities will continue to devote substantial resources to investigating healthcare providers' and
manufacturers' compliance with applicable fraud and abuse laws.
The
federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, created additional federal criminal statutes that prohibit, among other actions, knowingly and
willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a
healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense and knowingly and willfully falsifying, concealing or covering up a material fact or making any
materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Similar to the U.S. federal Anti-Kickback Statute, the
ACA broadened the reach of certain criminal healthcare fraud statutes created under HIPAA by amending the intent requirement such that a person or entity does not need to have actual knowledge of the
statute or specific intent to violate it in order to have committed a violation.
In
addition, there has been a recent trend of increased federal and state regulation of payments made to physicians and certain other healthcare providers. The ACA imposed, among other
things, new annual reporting requirements through the Physician Payments Sunshine Act for covered manufacturers for certain payments and "transfers of value" provided to physicians and teaching
hospitals, as well as ownership and investment interests held by physicians and their immediate family members. Failure to submit timely, accurately and completely the required information for all
payments, transfers of value and ownership or investment interests may result in civil monetary penalties of up to an aggregate of $150,000 per year and up to an aggregate of $1 million per
year for "knowing failures." Covered manufacturers must submit reports by the 90th day of each subsequent calendar year. In addition, certain states require implementation of compliance
programs and compliance with the pharmaceutical industry's voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, impose restrictions on marketing
practices and/or tracking and reporting of gifts, compensation and other remuneration or items of value provided to physicians and other healthcare professionals and entities.
Napo
may also be subject to data privacy and security regulation by both the federal government and the states in which Napo conducts its business. HIPAA, as amended by the Health
Information Technology for Economic and Clinical Health Act, or HITECH, and their respective implementing regulations, including the Final HIPAA Omnibus Rule published on January 25, 2013,
impose specified requirements relating to the privacy, security and transmission of individually identifiable health information held by covered entities and their business associates. Among other
things, HITECH made HIPAA's security standards directly applicable to "business associates," defined as independent contractors or agents of covered entities that create, receive, maintain or transmit
protected health information in connection with providing a service for or on behalf of a covered entity. HITECH also increased the civil and criminal penalties that may be imposed against covered
entities, business associates and possibly other persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA
laws and seek attorney's fees and costs associated with pursuing federal civil actions. In addition, state laws govern the privacy and security of health information in certain circumstances, many of
which differ from each other in significant ways and may not have the same requirements, thus complicating compliance efforts.
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Significant uncertainty exists as to the coverage and reimbursement status of any pharmaceutical products for which Napo obtains regulatory
approval. In the United States and markets in other countries, patients who are prescribed treatments for their conditions and providers performing the prescribed services generally rely on
third-party payors to reimburse all or part of the associated healthcare costs. Patients are unlikely to use Napo's products unless coverage is provided and reimbursement is adequate to cover a
significant portion of the cost of Napo's products. Sales of any products for which Napo receives regulatory approval for commercial sale will therefore depend, in part, on the availability of
coverage and adequate reimbursement from third-party payors. Third-party payors include government authorities, managed care plans, private health insurers and other organizations. In the United
States, the process for determining whether a third-party payor will provide coverage for a pharmaceutical or biological product typically is separate from the process for setting the price of such
product or for establishing the reimbursement rate that the payor will pay for the product once coverage is approved. Third-party payors may limit coverage to specific products on an approved list,
also known as a formulary, which might not include all of the FDA-approved products for a particular indication. A decision by a third-party payor not to cover Napo's product candidates could reduce
physician utilization of Napo's products once approved and have a material adverse effect on Napo's sales, results of operations and financial condition. Moreover, a third-party payor's decision to
provide coverage for a pharmaceutical or biological product does not imply that an adequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available to enable Napo
to maintain price levels sufficient to realize an appropriate return on Napo's investment in product development. Additionally, coverage and reimbursement for products can differ significantly from
payor to payor. One third-party payor's decision to cover a particular medical product or service does not ensure that other payors will also provide coverage for the medical product or service, or
will provide coverage at an adequate reimbursement rate. As a result, the coverage determination process will require Napo to provide scientific and clinical support for the use of Napo's products to
each payor separately and will be a time-consuming process.
In
the EEA, governments influence the price of products through their pricing and reimbursement rules and control of national health care systems that fund a large part of the cost of
those products to consumers. Some jurisdictions operate positive and negative list systems under which products may only be marketed once a reimbursement price has been agreed to by the government. To
obtain reimbursement or pricing approval, some of these countries may require the completion of clinical trials that compare the cost effectiveness of a particular product candidate to currently
available therapies. Other member states allow companies to fix their own prices for medicines, but monitor and control company profits. The downward pressure on health care costs in general,
particularly prescription products, has become very intense. As a result, increasingly high barriers are being erected
to the entry of new products. In addition, in some countries, cross border imports from low-priced markets exert a commercial pressure on pricing within a country.
The
containment of healthcare costs has become a priority of federal, state and foreign governments, and the prices of pharmaceutical or biological products have been a focus in this
effort. Third-party payors are increasingly challenging the prices charged for medical products and services, examining the medical necessity and reviewing the cost-effectiveness of pharmaceutical or
biological products, medical devices and medical services, in addition to questioning safety and efficacy. If these third-party payors do not consider Napo's products to be cost-effective compared to
other available therapies, they may not cover Napo's products after FDA approval or, if they do, the level of payment may not be sufficient to allow Napo to sell its products at a profit.
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A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and other third-party payors have
attempted to control costs by limiting coverage and the amount of reimbursement for particular medical products. For example, in March 2010, the ACA was enacted, which, among other things, increased
the minimum Medicaid rebates owed by most manufacturers under the Medicaid Drug Rebate Program; introduced a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate
Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected; extended the Medicaid Drug Rebate Program to utilization of prescriptions of individuals enrolled in
Medicaid managed care plans; imposed mandatory discounts for certain Medicare Part D beneficiaries as a condition for manufacturers' outpatient drugs coverage under Medicare Part D;
subjected drug manufacturers to new annual fees based on pharmaceutical companies' share of sales to federal healthcare programs; created a new Patient Centered Outcomes Research Institute to oversee,
identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research; creation of the Independent Payment Advisory Board, once empaneled, will have
authority to recommend certain changes to the Medicare program that could result in reduced payments for prescription drugs; and establishment of a Center for Medicare Innovation at the CMS to test
innovative payment and service delivery models to lower Medicare and Medicaid spending. Since its enactment, the U.S. federal government has delayed or suspended implementation of certain provisions
of the ACA. In addition, there have been judicial and Congressional challenges to certain aspects of the ACA, and Napo expects there will be additional challenges and amendments to the ACA in the
future. For example, in January 2017, the U.S. House of Representatives and Senate passed legislation, which, if signed into law, would repeal certain aspects of the ACA. In addition, Congress could
consider subsequent legislation to replace those elements of the ACA if so repealed.
Napo
expects that the ACA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and lower reimbursement, and
additional downward pressure on the price that Napo receives for any approved product. Any reduction in reimbursement from Medicare or other government-funded programs may result in a similar
reduction in payments from private payors. Moreover, recently there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products. The
implementation of cost containment measures or other healthcare reforms may prevent Napo from being able to generate revenue, attain profitability or commercialize Napo's drugs.
Additionally,
on August 2, 2011, the Budget Control Act of 2011 created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with
recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation's automatic reduction to
several government programs. This included aggregate reductions of Medicare payments to providers of 2% per fiscal year, which went into effect on April 1, 2013 and, due to subsequent
legislative amendments to the statute, will stay in effect through 2025 unless additional action is taken by Congress. On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed
into law, which, among other things, further reduced Medicare payments to several types of providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of
limitations period for the government to recover overpayments to providers from three to five years. More recently, there has been heightened governmental scrutiny recently over the manner in which
manufacturers set prices for their marketed products, which have resulted in several recent Congressional inquiries and proposed bills designed to, among other things, bring more transparency to
product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for pharmaceutical products.
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Napo
expects that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay
for healthcare products and services, which could result in reduced demand for Napo's products once approved or additional pricing pressures.
The development, approval and sale of animal health products are governed by the laws and regulations of each country in which we intend to seek
approval, where necessary, to
market and subsequently sell our prescription drug and non-drug products. To comply with these regulatory requirements, we are establishing processes and resources to provide oversight of the
development, approval processes and launch of its products and to position those products in order to gain market share in each respective market.
Certain
U.S. federal regulatory agencies are charged with oversight and regulatory authority of animal health products in the United States. These agencies, depending on the product and
its intended use may include the FDA, the USDA and the Environmental Protection Agency. In addition, the Drug Enforcement Administration regulates animal therapeutics that are classified as controlled
substances. In addition, the Federal Trade Commission may in the case of non-drug products, regulate the marketing and advertising claims being made.
The
approval of prescription drugs intended for animal use is regulated by the FDA's Center for Veterinary Medicine ("CVM"). The CVM consists of six offices that work together to, in
part, approve new drugs for commercialization and thereafter monitor those commercialized drugs once in the market. The Office of New Animal Drug Evaluation ("ONADE"), is the lead office for reviewing
novel drug candidates. We, as the sponsor of a novel drug candidate, commence the development and approval process by initiating communication with the ONADE and opening an INAD file. As part of this
process, we will also schedule a discussion of the novel drug's development plan in order to obtain agreement from the CVM for the number, type and design of studies needed to obtain FDA
approval of the novel drug.
As
required by the FDA, new animal drug products must obtain marketing approval through the NADA process. Under the Administrative New Animal Drug Application, or Administrative NADA,
process, a sponsor can engage in a phased submission of the required technical sections of an NADA, known as a rolling NADA, as opposed to submitting the entire application at once with a standard
NADA. The requirements for all NADAs are the same regardless of whether a sponsor chooses the rolling NADA or the standard NADA submission. Under the phased review, once all technical sections have
been submitted and reviewed, the sponsor submits an Administrative NADA to reflect that all technical sections of the NADA have been submitted and reviewed, each such technical section meets the
requirements for approval and the CVM has issued technical section complete letters for each technical section. The phased review and Administrative NADA allow a drug sponsor to engage with the FDA as
to each technical section to ensure that each section meets all requirements prior to submission of the application for approval. Phasing of NADA submissions is a voluntary process.
Once
the tasks set forth in the development plan have been completed, including the clinical work as well as the chemistry and manufacturing work (feasibility, validation and stability
of the drug inclusive), We, as the novel drug sponsor will need to provide to the FDA through the application process, information as to the safety and efficacy of the drug candidate, and, if needed,
human food safety studies. These food safety studies are only required for drugs intended for use in production animals, and we currently have no plans to develop drugs for production animals.
Additionally, the application will contain a module on CMC, which describes the plan for manufacturing the drug including the API, the final formulation, where it will be made, how it will be made,
how the drug will be packaged, how it can be stored, the conditions required for storage and how long it can be stored
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before
expiry. A major part of the CMC section is the analysis we employ to ensure that the manufactured drug is of a high quality, is consistently manufactured under cGMP and is stable. Other
significant components to the application we have to complete before receiving drug approval includes a draft label that will list specific information such as dosing information, intended use,
warnings, directions for use, and other information as required by the regulations. The package insert that will contain information on studies, warnings, drug interactions, intended use and dosing is
considered part of the label in addition to that which is adhering to the container itself. The CVM ensures that the labeling provides all the necessary information to use the drug safely and
effectively, and that it clearly discloses the risks associated with the drug.
The Minor Use and Minor Species Animal Health Act ("MUMS Act"), became effective in August 2004. The purpose of the MUMS Act was twofold: first,
to encourage the development and availability of more animal drugs that are intended to be used in a major species defined as dogs, cats, cattle, horses, chickens, turkeys and pigs to treat diseases
which occur infrequently or in limited geographic areas, therefore having an impact on a smaller number of animals on a yearly basis; and second, to encourage the development and availability of
animal drugs for use in minor species (defined as all animals other than humans that are not one of the major species). The drug sponsor may seek conditional approval of the drug product provided the
Office of Minor Use Minor Species ("OMUMS") acknowledges that the intended use fits within a small number of animals treated per annum. A drug does not have to be designated to be eligible for
conditional approval, however if OMUMS designates a MUMS drug, certain incentives and exclusivities are available to the sponsor. The MUMS designation is modeled on the orphan-drug designation for
human drug development and has certain financial incentives available to encourage MUMS drug development such as the availability of grants to help with the cost of the MUMS drug development. Also,
drug developers of MUMS drugs are eligible to apply for a waiver of the user fees once the MUMS designation has been given by OMUMS. We believe that we qualify for MUMS designation for Canalevia as a
minor use in a major species because the estimated total number of dogs in the United States affected by CID is less than 70,000. We also believe that Canalevia will qualify for MUMS designation for
EID because, in our estimate, the total number of dogs in the United States affected by EID on an annual basis is less than 70,000. To obtain conditional approval of a MUMS drug, the company must
submit CMC and safety data similar to that required for an NADA, as well as data suggesting a reasonable expectation of effectiveness. After the submission and the review of the application, the FDA
through the CVM can then grant a conditional approval (CA-1). This approval allows for a commercialization of the product, while the sponsor continues to collect the substantial evidence of
effectiveness required for a full NADA approval. The sponsor has up to five years to demonstrate substantial evidence of effectiveness for a previously conditionally approved drug. Ideally, MUMS
designation helps move the product forward in development; however, it may not shorten the
time to full commercialization. A sponsor that gains approval or conditional approval for a MUMS designated drug receives seven years of marketing exclusivity.
As we announced in April 2016, we obtained protocol concurrence from the FDA for our pivotal trial of Canalevia that we initiated in December
2015 for acute diarrhea in dogs. Under this process, a protocol is submitted to the FDA voluntarily by a drug sponsor. The FDA review of the protocol for a pivotal study makes it more likely that the
study will generate information the sponsor needs to demonstrate whether the drug is safe and effective for its intended use. It creates an expectation by the sponsor that the FDA will not later alter
its perspectives on these issues unless public or animal health concerns appear that were not recognized at the time of protocol assessment. Even if FDA issues a protocol concurrence, ultimate
approval of an NADA by the FDA is not guaranteed because a final
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determination
that the agreed-upon protocol satisfies a specific objective, such as the demonstration of efficacy, or supports an approval decision, will be based on a complete review of all the data
submitted to the FDA. Even if we were to obtain protocol concurrence, such concurrence does not guarantee that the results of the study will support a particular finding or approval of the new drug.
We are currently planning on seeking MUMS designation for some of our prescription drug products and if we receive such a designation, we will
be entitled to a seven-year marketing exclusivity, which means that we will face no competition from another sponsor marketing the same drug in the same dosage form for the same intended use. If we
were to lose such designation or not receive such designation but our application as a new animal drug is found to be a new chemical entity that meets the criteria described by the FDA, we would be
entitled to a five-year marketing exclusivity. In order to receive this five-year exclusivity, the FDA would have to find in its approval of our application that our NADA contains an API not
previously approved in another application, that the application itself is an original application, not a supplemental application, and that our application included the following studies: one or more
investigations to demonstrate substantial evidence of
effectiveness of the drug for which we are seeking approval; animal safety studies and human food safety studies (where applicable). If the NADA is seeking approval of a drug for which we have
received conditional approval, we, upon approval would still be entitled to a five-year marketing exclusivity provided we meet the criteria as set forth above. If, however, our NADA is for a drug for
which the FDA has determined that the drug contains an API that has previously been approved, regardless of whether the original approval was for use in humans or not, we may only be entitled to a
three-year marketing exclusivity provided that the NADA is an original, not supplemental, application and contains both safety and efficacy studies demonstrating the safety and efficacy of the drug
which is the subject of the application. We have received MUMS designation for Canalevia for the indication of chemotherapy-induced diarrhea, or CID, in dogs. Additionally, the FDA has indicated that
the use of Canalevia for the treatment of EID in dogs qualifies as a "minor use", which means that Canalevia is eligible for conditional approval for the indication of EID in dogs.
As
we announced on March 8, 2018, the U.S. Food & Drug Administration's Center for Veterinary Medicine (CVM) has indicated that the Company's Reasonable Expectation of
Effectiveness (RxE) Technical Section is complete towards conditional approval of Canalevia (crofelemer delayed-release tablets) for treatment of CID in dogs, based on CVM's review of the results of
Jaguar's completed pilot study (CANA-001) of Canalevia for this indication. If Canalevia is approved for CID and EID in dogs, we expect to conduct the commercial launch of Canalevia for these
indications in 2019.
The FDA plays a significant role in regulating the labeling, advertising and promotion of animal drugs. This is also true of regulatory agencies
in the EU and other territories. In addition, advertising and promotion of animal health products is controlled by regulations in many countries. These rules generally restrict advertising and
promotion to those claims and uses that have been reviewed and approved by the applicable agency. We will conduct a review of advertising and promotional material for compliance with the local and
regional requirements in the markets where it eventually may sell its product candidates.
We believe regulatory rules relating to human food safety, food additives, or drug residues in food will not apply to the products we currently
are developing because our animal prescription drug product candidates are not intended for use in production animals, with the exception of horses, which qualify as food animals in Europe and Canada;
and our non-prescription products are not regulated by
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section 201(g)
of the Federal Food, Drug, and Cosmetic Act, which the FDA is authorized to administer.
Our
animal prescription drug product candidates currently in development, if approved, may eventually face generic competition in the United States and in the EU after the period of
exclusivity has expired. In the United States, a generic animal drug may be approved pursuant to an abbreviated new animal drug application ("ANADA"). With an ANADA, a generic applicant is not subject
to the submission of new clinical and safety data but instead must only show that the proposed generic product is a copy of the novel drug product, and bioequivalent to the approved novel product.
However, if our product candidates are the first approved by the FDA or the EMA as applicable for use in animals, they will be eligible for a five-year marketing exclusivity in the United States and
10 years in the EU thereby prohibiting generic entry into the market. If the product has MUMS designation it has a seven-year marketing exclusivity.
We
do not believe that our animal non-prescription products are currently subject to regulation in the United States. The CVM only regulates those animal supplements that fall within the
FDA's definition of an animal drug, food or feed additive. The Federal Food Drug and Cosmetic Act defines food as "articles used for food or drink for man or other animals and articles used as
components of any such article." Animal foods are not subject to pre-market approval and are designed to provide a nutritive purpose to the animals that receive them. Feed additives are defined as
those articles that are added to an animal's feed or water as illustrated by the guidance documents. Our non-prescription products are not added to food, are not ingredients in food nor are they added
to any animal's drinking water. Therefore, our non-prescription products do not fall within the definition of a food or feed additive. The FDA seeks to regulate such supplements as food or food
additives depending on the intended use of the product. The intended use is demonstrated by how the article is included in a food, or added to the animals' intake
(
i.e.,
through its drinking water). If the intended use of the product does not fall within the proscribed use making the product a food, it
cannot be regulated as a food. There is no intent to make our non-prescription products a component of an animal food, either directly or indirectly. A feed additive is a product that is added to a
feed for any reason including the top dressing of an already prepared feed. Some additives, such as certain forage, are deemed to be Generally Recognized as Safe ("GRAS"), and therefore, not subject
to a feed Additive Petition approval prior to use. However, the substances deemed GRAS are generally those that are recognized as providing nutrients as a food does. We do not believe that our
non-prescription products fit within this framework either. Finally, a new animal drug refers to drugs intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease in
animals. Our non-prescription products are not intended to diagnose, cure, mitigate, treat or prevent disease and therefore, do not fit within the definition of an animal drug. Our non-prescription
products are intended to support a healthy gut, support fluid retention, and normalize stool formation in animals suffering from scours. Additionally, because a previously marketed human formulation
of the botanical extract in our non-prescription products was considered a dietary supplement subject to the Dietary Supplement Health and Education Act of 1994 (and not regulated as a drug by the
FDA), we do not believe that the FDA would regulate the animal formulation used in our non-prescription products in a different manner. We do not believe
that our non-prescription products fit the definition of an animal drug, food or food additive and therefore are not regulated by the FDA at this time.
In
addition to the foregoing, we may be subject to state, federal and foreign healthcare and/or veterinary medicine laws, including but not limited to anti-kickback laws, as we may from
time to time enter consulting and other financial arrangements with veterinarians, who may prescribe or recommend our products. If our financial relationships with veterinarians are found to be in
violation of such laws that apply to us, we may be subject to penalties.
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Legal Proceedings
From time to time, we may become involved in litigation relating to claims arising from the ordinary course of business. Other than as set forth
below, there are currently no claims or actions pending against us, the ultimate disposition of which could have a material adverse effect on our results of operations, financial condition or cash
flows.
On
March 27, 2018, the Company received a demand letter from a law firm representing a purported stockholder, relating to certain approvals obtained at a special meeting of
stockholders on March 12, 2018 (the "2018 Special Meeting"). The demand letter alleges that the Company miscalculated the votes with respect to (i) the proposal to amend the Company's
Third Amended and Restated Certificate of Incorporation as filed with Secretary of State of the State of Delaware on March 15, 2018 (the "COI"), which increased the authorized shares of Common
Stock from 250,000,000 to 500,000,000 (the "Share Increase Proposal") and (ii) the proposal to amend the COI to effect a reverse stock split at a ratio of not less than 1-for-1.2 and not
greater than 1-for-10 (the "Former Reverse Stock Split
Proposal"). The Company did not implement the Former Reverse Stock Split Proposal. In addition, at the 2018 annual meeting of stockholders held on May 18, 2018, stockholders approved amendments
to the COI to (i) effect a reverse stock split at a ratio of not less than 1-for-11 and not greater than 1-for-15 and (ii) decrease the number of authorized shares of Common Stock to
150,000,000.
On
September 5, 2018, the Company responded to the law firm, indicating that the Board unanimously rejected the demands set forth in the demand letter. While no proceedings with
respect to the demand letter have been initiated by the purported stockholder to date, the Company believes that the allegations set forth in the demand letter are without merit and would intend to
vigorously defend against any such proceeding.
On
July 20, 2017, a putative class action complaint was filed in the United States District Court, Northern District of California, Civil Action No. 3:17-cv-04102, by Tony
Plant (the "Plaintiff") on behalf of shareholders of the Company who held shares on June 30, 2017 and were entitled to vote at the 2017 Special Shareholders Meeting, against the Company and
certain individuals who were directors as of the date of the vote (collectively, the "Defendants"), in a matter captioned Tony Plant v. Jaguar Animal Health, Inc., et al., making claims arising
under Section 14(a) and Section 20(a) of the Exchange Act and Rule 14a-9, 17 C.F.R. § 240.14a-9, promulgated thereunder by the SEC. The claims allege false and
misleading information provided to investors in the Joint Proxy Statement/Prospectus on Form S-4 (File No. 333-217364) declared effective by the Commission on July 6, 2017 related
to the solicitation of votes from shareholders to approve the merger and certain transactions related thereto. The Company accepted service of the complaint and summons on behalf of itself and the
United States-based director Defendants on November 1, 2017. The Company has not accepted service on behalf of, and Plaintiff has not yet served, the non-U.S.-based director Defendants. On
October 3, 2017, Plaintiff filed a motion seeking appointment as lead plaintiff and appointment of Monteverde & Associates PC as lead counsel. That motion has been granted. Plaintiff
filed an amended complaint against the Company and the United States-based director Defendants on January 10, 2018. If the Plaintiff were able to prove its allegations in this matter and to
establish the damages it asserts, then an adverse ruling could have a material impact on the Company. However, the Company disputes the claims asserted in this putative class action case and is
vigorously contesting the matter. The Defendants filed a motion to dismiss on March 12, 2018, for which oral arguments were held on June 14, 2018. The court has not yet ruled on the
motion. The Company believes that it is not probable that an asset has been impaired or a liability has been incurred as of the date of the financial statements and the amount of any potential loss is
not reasonably estimable.
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Other
than as described above, there are currently no claims or actions pending against us, the ultimate disposition of which could have a material adverse effect on our results of
operations, financial condition or cash flows.
Corporate Information
We were incorporated in the State of Delaware on June 6, 2013. Our principal executive offices are located at 201 Mission Street,
Suite 2375, San Francisco, CA 94015 and our telephone number is (415) 371-8300. Our website address is www.jaguar.health. The information contained on, or that can be accessed through,
our website is not part of this prospectus. Our voting common stock is listed on the NASDAQ Capital Market and trades under the symbol "JAGX." On July 31, 2017, we completed the acquisition of
Napo (the "Merger") pursuant to the Agreement and Plan of Merger, dated March 31, 2017, by and among the Company, Napo, Napo Acquisition Corporation, and Napo's representative (the "Merger
Agreement").
Jaguar
Health, our logo, Napo Pharmaceuticals, Mytesi, Canalevia, Equilevia and Neonorm are our trademarks that are used in this prospectus. This prospectus also includes trademarks,
tradenames and service marks that are the property of other organizations. Solely for convenience, trademarks and tradenames referred to in this prospectus appear without the ©,
® or symbols, but those references are not intended to indicate that we will not assert, to the fullest extent under applicable law, our rights or that the applicable owner
will not assert its rights, to these trademarks and tradenames.
Employees
As of September 4, 2018, we had 45 employees. Six employees hold D.V.M. or Ph.D. degrees. 14 of our employees are engaged in
research and development activities and 23 employees are engaged in sales and marketing. None of our employees are represented by labor unions or covered by collective bargaining agreements.
Description of Properties
Our corporate headquarters are located in San Francisco, California, where we lease 6,311 rentable square feet of office space from CA-Mission
Street Limited Partnership. Our lease agreement expires on September 30, 2020. We believe that our existing facilities are adequate for our near term needs.
DIRECTORS AND CORPORATE GOVERNANCE
The following table lists our directors and their respective ages and positions as of September 5, 2018:
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
James J. Bochnowski(1)(2)(3)
|
|
|
75
|
|
Chairman of the Board (Class I)
|
Lisa A. Conte
|
|
|
59
|
|
Chief Executive Officer, President and Director (Class I)
|
Jeffery C. Johnson(2)(3)
|
|
|
46
|
|
Director (Class III)
|
Greg J. Divis
|
|
|
51
|
|
Director (Class III)
|
John Micek III(1)(3)
|
|
|
65
|
|
Director (Class II)
|
Jiahao Qui
|
|
|
32
|
|
Director (Class II)
|
Jonathan B. Siegel(1)(2)
|
|
|
45
|
|
Director (Class I)
|
Murray David MacNaughtan
|
|
|
51
|
|
Director (Class III)
|
-
(1)
-
Member
of the audit committee.
-
(2)
-
Member
of the compensation committee.
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-
(3)
-
Member
of the nominating committee.
Executive Officers
Lisa A. Conte.
Ms. Conte has served as our President, Chief Executive Officer and a member of our board of directors since she
founded the
company in June 2013. From 2001 to 2014, Ms. Conte served as the Chief Executive Officer of Napo Pharmaceuticals, Inc., a biopharmaceutical company she founded in November 2001. In 1989,
Ms. Conte founded Shaman Pharmaceuticals, Inc., a natural product pharmaceutical company. Ms. Conte is also currently a member of the board of directors of Healing Forest
Conservatory, a California not-for-profit public benefit corporation. Ms. Conte holds an M.S. in Physiology and Pharmacology from the University of California, San Diego, and an M.B.A. and A.B.
in Biochemistry from Dartmouth College.
We
believe Ms. Conte is qualified to serve on our board of directors due to her extensive knowledge of our company and experience with our product and product candidates, as well
as her experience managing and raising capital for public and private companies.
Steven R. King, Ph.D.
Dr. King has served as our Executive Vice President of Sustainable Supply, Ethnobotanical Research and
Intellectual
Property since March 2014 and as our Secretary since September 2014. From 2002 to 2014, Dr. King served as the Senior Vice President of Sustainable Supply, Ethnobotanical Research and
Intellectual Property at Napo Pharmaceuticals, Inc. Prior to that, Dr. King served as the Vice President of Ethnobotany and Conservation at Shaman Pharmaceuticals, Inc.
Dr. King has been recognized by the International Natural Products and Conservation Community for the creation and dissemination of research on the long-term sustainable harvest and management
of
Croton lechleri
, the widespread source of crofelemer. Dr. King is currently a member of the board of directors of Healing Forest Conservatory,
a California not-for-profit public benefit corporation. Dr. King holds a Ph.D. in Biology from the Institute of Economic Botany of the New York Botanical Garden and an M.S. in Biology from the
City University of New York.
Karen S. Wright.
Ms. Wright has served as our Chief Financial Officer since December 15, 2015. Prior to joining us,
Ms. Wright
served as head of finance for Clene Nanomedicine, Inc., beginning in August 2014. From June 2011 to May 2014, Ms. Wright served as vice president of finance and corporate controller at
Veracyte, Inc., and from 2006 to 2011, she served as vice president of finance, corporate controller and principal accounting officer of VIA Pharmaceuticals, Inc. Ms. Wright holds
a B.S. in Accounting and Marketing from the University of California Walter A. Haas School of Business.
Non-Employee Directors
James J. Bochnowski.
Mr. Bochnowski has served as a member of our board of directors since February 2014 and as Chairman of our
board since
June 2014. Since 1988, Mr. Bochnowski has served as the founder and Managing Member of Delphi Ventures, a venture capital firm. In 1980, Mr. Bochnowski co-founded Technology Venture
Investors. Mr. Bochnowski holds an M.B.A. from Harvard University Graduate School of Business and a B.S. in Aeronautics and Astronautics from Massachusetts Institute of Technology.
We
believe Mr. Bochnowski is qualified to serve on our board of directors due to his significant experience with venture capital backed healthcare companies and experience as both
an executive officer and member of the board of directors of numerous companies.
Jeffery C. Johnson.
Mr. Johnson has served as a member of our board of directors since March 2018. Mr. Johnson is a
partner at
Sagard Holdings, ULC and is an investment manager at Sagard Capital Partners Management Corp. Mr. Johnson has been employed by entities affiliated with Sagard Holdings, ULC since
2012. From 2006 to 2011, he served as portfolio manager and senior analyst at Evercore Asset Management. Before that, Mr. Johnson was a portfolio manager and analyst
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at
Citigroup Asset Management where he was responsible for consumer and healthcare investments. He began his career at strategy consulting firm Braxton Associates. He also serves on the board of
directors of Peak Achievement Athletics and previously served on the board of directors of Vein Clinics of America. Mr. Johnson received his M.B.A. in Finance and Accounting from the Kellogg
School of Management in 1999. Mr. Johnson was elected to our board of directors pursuant to the terms of the Series A Preferred Stock Purchase Agreement, dated as of March 23,
2018, by and between the Company and Sagard Capital Partners, L.P., and the Certificate of Designation, which gives the Preferred Stock holders the right to elect two Class III directors
so long as they are entitled to vote in the aggregate 5% or more of all of the votes entitled to be cast by holders of all voting securities of the Company at any meeting of stockholders.
We
believe Mr. Johnson is qualified to serve on our board of directors due to his experience evaluating, investing in and managing companies in the health care sector for Sagard
Holdings, ULC, and for other investment firms he was previously employed by.
Jiahao Qiu.
Mr. Qiu has served as a member of our board of directors since February 2014. Mr. Qiu has been employed at BioVeda
Management, Ltd., a life science investment firm, as associate (2010-2012), senior associate (2012-2014) and Principal since April 2014. From 2009 to 2010, he served as an interpreter for the
Delegation of the European Union to China. Mr. Qiu holds a B.S. in Biotechnology from the Jiao Tong University in Shanghai, China.
We
believe Mr. Qiu is qualified to serve on our board of directors due to his experience with evaluating, managing and investing in life science portfolio companies for BioVeda
Management, Ltd.
Greg J. Divis.
Mr. Divis has served as a member of our board of directors since June 2018. Mr. Divis currently serves as the
Chief
Operating Officer of Avadel Pharmaceuticals, an emerging branded specialty pharmaceutical company he joined in 2017. Prior to Avadel he served as an Executive-in-Residence and Operating Partner for
Linden Capital, a healthcare-focused middle market private equity firm. Previous roles also include President and Chief Executive Officer of Lumara Health, a specialty-branded pharmaceutical company
focused on women's health, where Mr. Divis led the successful turnaround and transformation of the business resulting in a series of transactions culminating in the successful sale to AMAG
Pharmaceuticals. Mr. Divis has also held such notable roles as Vice President, Business Development & Lifecycle Management at Sanofi-Aventis, and Vice-President and General Manager, UK
and Ireland, for Schering-Plough Corporation. He currently serves on the Board of Directors of Mobius Therapeutics and previously served on the Board of Tolero Pharmaceuticals. Mr. Divis is a
graduate of the University of Iowa.
We
believe Mr. Divis is qualified to serve on our board of directors due to his extensive experience in the pharmaceutical industry and experience as both an executive officer and
member of the board of directors of other companies.
Murray David MacNaughtan.
Mr. MacNaughtan has served as a member of our board of directors since June 2018. Most recently,
Mr. MacNaughtan led the intellectual property investing strategy at CPPIB Credit Investments Inc., a wholly-owned subsidiary of the Canada Pension Plan Investment Board, for eight years,
focused on the acquisition and securitization of pharmaceutical royalty streams. Prior to this, he was co-head of the royalty monetization fund at DRI Capital (formerly Drug Royalty Corp.). From 1999
to 2002, he was Vice President of Business Development at Paladin Labs, a specialty pharmaceutical company, where he led a team responsible for acquiring and licensing products for the Canadian
market. He joined Paladin from Royal Bank Capital Corp., the venture capital subsidiary of RBC, where he was an investment manager. Mr. MacNaughtan began his career in the biopharmaceutical
industry at Hemosol Inc. as a process development engineer. Mr. MacNaughtan earned a B.Sc. and M.Sc. in Applied Science from Queen's University in Ontario, and an M.B.A. from the
University of Toronto.
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We
believe Mr. MacNaughtan is qualified to serve on our board of directors due to his extensive experience in specialty finance and the pharmaceutical industry.
John Micek III.
Mr. Micek has served as a member of our board of directors since April 2016. From 2000 to 2010, Mr. Micek was
managing
director of Silicon Prairie Partners, LP, a Palo Alto, California based family-owned venture fund. Since 2010, Mr. Micek has been managing partner of Verdant Ventures, a merchant bank
dedicated to sourcing and funding university and corporate laboratory spinouts in areas including pharmaceuticals and cleantech. Mr. Micek serves on the board of directors of Armanino Foods of
Distinction, Innovare Corporation and JAL/Universal Assurors. He is also a board member and the Chief Executive Officer and Chief Financial Officer of Enovo Systems and from March 2014 to August 2015
he served as interim Chief Financial Officer for Smith Electric Vehicles, Inc. Mr. Micek is a cum laude graduate of Santa Clara University and the University of San Francisco School of
Law, and is a practicing California attorney specializing in financial services.
We
believe Mr. Micek is qualified to serve on our board of directors due to his many years of executive experience in management and on boards of director.
Jonathan B. Siegel.
Mr. Siegel has served as a member of our board of director since March 2018. Mr. Siegel is founder of JBS
Healthcare Ventures, which pursues investments in public and private healthcare entities. In 2017 he left Kingdon Capital ("Kingdon"), where he was principal of the firm, a member of the executive
committee and the sector head for healthcare. He joined Kingdon in 2011 and has more than 18 years of investment experience. Prior to joining Kingdon, Mr. Siegel was with SAC Capital
Advisors from 2005 to 2011, serving as a portfolio manager for healthcare starting in 2007. Before joining SAC, he was an associate director of pharmaceutical and specialty pharmaceutical research
with Bear, Stearns & Co., a research associate with Dresdner Kleinwort Wasserstein, specializing in pharmaceuticals, a consultant to the Life Sciences Division of Computer Sciences
Corporation, a research associate at the Novartis Center for Immunobiology, Harvard Medical School, Beth Israel Deaconess Medical Center, and a research assistant at Tufts University School of
Medicine. Additionally, he previously served on the board of KV Pharmaceutical Company. Mr. Siegel received a B.S. in Psychology from Tufts University in 1995 and an M.B.A. from Columbia
Business School in 1999.
We
believe Mr. Siegel is qualified to serve on our board of directors due to his extensive experience in the pharmaceutical investment sector.
Family Relationships
There are no family relationships among any of our directors or executive officers.
Corporate Governance
Board Composition and Risk Oversight
Our business and affairs are managed under the direction of our board of directors, which consists of eight members. Certain members of our
board of directors were elected pursuant to the provisions of a voting agreement among certain of our major stockholders, as amended. See "Certain Relationships and Related Persons
TransactionsVoting Agreement" for more information regarding the voting agreement.
Six
of the eight directors that comprise our board are independent within the meaning of the independent director rules of the NASDAQ Stock Market, LLC, or NASDAQ.
Our
board of directors are divided into three classes of directors. At each annual meeting of stockholders, a class of directors will be elected for a three-year term to succeed the
class whose term is then expiring. The terms of the directors will expire upon the election and qualification of successor
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directors
at the annual meeting of stockholders to be held during the years 2019 for the Class I directors, 2020 for the Class II directors and 2021 for the Class III directors.
The
Class I directors are Ms. Conte, Mr. Bochnowski, and Mr. Siegel.
The
Class II directors are Mr. Qiu and Mr. Micek.
The
Class III directors are Mr. Johnson, Mr. Divis and Mr. MacNaughtan.
We
expect that any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class
will consist of one-third of the directors. The division of our board of directors into three classes with staggered three-year terms may delay or prevent a change of our management or a change in
control.
Our
board of directors has an active role, as a whole and at the committee level, in overseeing the management of our risks. Our board of directors is responsible for general oversight
of risks and regular review of information regarding our risks, including credit risks, liquidity risks and operational risks. Our compensation and nominating committees are responsible for overseeing
the management of risks relating to our executive compensation plans and arrangements and the risks associated with the independence of our board of directors and potential conflicts of interest. Our
audit committee is responsible for overseeing the management of our risks relating to accounting matters and financial reporting. While each committee is responsible for evaluating certain risks and
overseeing the management of such risks, our entire board of directors is regularly informed through discussions from committee members about such risks. Our board of directors believes its
administration of risk oversight function has not affected our board of directors' leadership structure.
Director Independence
Our common stock is listed on The Nasdaq Capital Market. Under Nasdaq rules, independent directors must comprise a majority of a listed
company's board of directors. In addition, Nasdaq rules require that, subject to specified exceptions, each member of a listed company's Audit, Compensation and Nominating Committee must be
independent. Audit Committee members must also
satisfy the independence criteria set forth in Rule 10A-3 under the Exchange Act. Under Nasdaq rules, a director will only qualify as an "independent director" if, in the opinion of the
company's board of directors, such person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
To
be considered independent for purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit
committee, our board of directors, or any other board committee (1) accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its
subsidiaries or (2) be an affiliated person of the listed company or any of its subsidiaries.
Our
board of directors periodically undertakes a review of its composition, the composition of its committees and the independence of our directors and considered whether any director
has a material relationship with us that could compromise his or her ability to exercise independent judgment in carrying out his or her responsibilities. Based upon information requested from and
provided by each director concerning his or her background, employment and affiliations, including family relationships, our board of directors has determined that six of our eight directors
(i.e., Mr. Bochnowski, Mr. Siegel, Mr. Micek, Mr. Qiu, Mr. Divis and Mr. MacNaughtan) do not have a relationship that would interfere with the exercise
of independent judgment in carrying out the responsibilities of a director and that each of these directors is "independent" as that term is defined under the Nasdaq rules. Our board of directors also
determined that Mr. Micek (chairperson), Mr. Siegel and Mr. Bochnowski, who comprise our Audit Committee, Mr. Bochnowski (chairperson), Mr. Siegel and
Mr. Johnson, who comprise our Compensation Committee, and Mr. Johnson (chairperson), Mr. Bochnowski and Mr. Micek, who
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comprise
our Nominating Committee, satisfy the independence standards for those committees established by applicable SEC rules and the Nasdaq rules and listing standards.
In
making this determination, our board of directors considered the relationships that each non-employee director has with us and all other facts and circumstances our board of directors
deemed relevant in determining independence, including the beneficial ownership of our capital stock by each non-employee director.
Board Committees
Audit Committee
The members of our Audit Committee are Mr. Micek, Mr. Siegel and Mr. Bochnowski. Mr. Micek is the chairperson of the
Audit Committee. Our Audit Committee's responsibilities include:
-
-
appointing, approving the compensation of, and assessing the independence of our registered public accounting firm;
-
-
overseeing the work of our independent registered public accounting firm, including through the receipt and consideration of reports from that
firm;
-
-
reviewing and discussing with management and our independent registered public accounting firm our annual and quarterly financial statements
and related disclosures;
-
-
monitoring our internal control over financial reporting, disclosure controls and procedures and code of conduct;
-
-
discussing our risk management policies;
-
-
establishing policies regarding hiring employees from our independent registered public accounting firm and procedures for the receipt and
retention of accounting related complaints and concerns;
-
-
reviewing and approving or ratifying any related person transactions; and
-
-
preparing the Audit Committee report required by SEC rules.
All
audit and non-audit services, other than
de minimis
non-audit services, to be provided to us by our independent registered public
accounting firm must be approved in advance by our Audit Committee.
Our
board of directors has determined that each of Mr. Micek, Mr. Siegel and Mr. Bochnowski is an independent director under Nasdaq rules and under
Rule 10A-3. All members of our Audit Committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and Nasdaq. Our board of directors has
determined that Mr. Micek is an "audit committee financial expert," as defined by applicable SEC rules, and has the requisite financial sophistication as defined under the applicable Nasdaq
rules and regulations.
The
Audit Committee held five meetings in 2017 and three meetings in 2018 as of August 31, 2018. The Audit Committee has adopted a written charter approved by the board of
directors, which is available on our website at https://jaguarhealth.gcs-web.com/corporate-governance.
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Compensation Committee
The members of our Compensation Committee are Mr. Bochnowski, Mr. Siegel and Mr. Johnson. Mr. Bochnowski is the
chairperson of the Compensation Committee. Our Compensation Committee's responsibilities include:
-
-
determining, or making recommendations to our board of directors with respect to, the compensation of our Chief Executive Officer;
-
-
determining, or making recommendations to our board of directors with respect to, the compensation of our other executive officers;
-
-
overseeing and administering our cash and equity incentive plans;
-
-
reviewing and making recommendations to our board of directors with respect to director compensation;
-
-
reviewing and discussing at least annually with management our "Compensation Discussion and Analysis" disclosure if and to the extent then
required by SEC rules; and
-
-
preparing the Compensation Committee report and necessary disclosure in our annual proxy statement in accordance with applicable SEC rules.
Our
board has determined that each of Mr. Bochnowski, Mr. Siegel and Mr. Johnson is independent under the applicable Nasdaq rules and regulations, is a "non-employee
director" as defined in Rule 16b-3 promulgated under the Exchange Act, and is an "outside director" as that term is defined in Section 162(m) of the Internal Revenue Code of 1986, as
amended.
The
Compensation Committee held three meetings in 2017 and one meeting in 2018 as of August 31, 2018. All compensation-related matters were approved at the board of directors'
level. The Compensation Committee has adopted a written charter approved by the board of directors, which is available on our website at
https://jaguarhealth.gcs-web.com/corporate-governance
.
Nominating Committee
The members of our Nominating Committee are Mr. Johnson, Mr. Bochnowski and Mr. Micek. Mr. Johnson is the
chairperson of the Nominating Committee. Our Nominating Committee's responsibilities include:
-
-
identifying individuals qualified to become members of our board of directors;
-
-
evaluating qualifications of directors;
-
-
recommending to our board of directors the persons to be nominated for election as directors and to each of the committees of our board of
directors; and
-
-
overseeing an annual evaluation of our board of directors.
The
Nominating Committee held one meeting in 2017 and one meeting in 2018 as of August 31, 2018. All nomination-related matters were approved at the board of directors level. The
Nominating Committee has adopted a written charter approved by the board of directors, which is available on our website at
https://jaguarhealth.gcs-web.com/corporate-governance
.
Code of Ethics and Conduct
We have adopted a Code of Business Conduct and Ethics that applies to our directors, officers and employees, including our President and Chief
Executive Officer, our Chief Financial Officer and other employees who perform financial or accounting functions. The Code of Business Conduct and Ethics sets forth the basic principles that guide the
business conduct of our employees. A current copy of the
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code
is available on our website at
https://jaguarhealth.gcs-web.com/corporate-governance
. We intend to disclose future amendments to certain provisions
of our code of business conduct and ethics, or waivers of such provisions on our website to the extent required by applicable rules and exchange requirements. The inclusion of our website address in
this prospectus does not incorporate by reference the information on or accessible through our website into this prospectus.
Compensation Committee Interlocks and Insider Participation
None of the members of our Compensation Committee has ever been an officer or employee of our company. None of our executive officers currently
serves, or in the past year has served, as a member of the board of directors or Compensation Committee or other board committee performing equivalent functions of any entity that has one or more of
its executive officers serving on our board of directors or Compensation Committee.
Limitation of Liability and Indemnification
Our third amended and restated certificate of incorporation, as amended, and amended and restated bylaws contain provisions that limit the
personal liability of our directors for monetary damages to the fullest extent permitted by Delaware law. Delaware law provides that directors of a corporation will not be personally liable to us or
our stockholders for monetary damages for any breach of fiduciary duties as directors, except liability for:
-
-
any breach of the director's duty of loyalty to us or our stockholders;
-
-
any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;
-
-
unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the DGCL; or
-
-
any transaction from which the director derived an improper personal benefit.
Such
limitation of liability does not apply to liabilities arising under federal securities laws and does not affect the availability of equitable remedies, such as injunctive relief or
rescission.
Our
third amended and restated certificate of incorporation provides that we indemnify our directors to the fullest extent permitted by Delaware law. In addition, our amended and
restated bylaws provide that we indemnify our directors and officers to the fullest extent permitted by Delaware law. Our amended and restated bylaws also provide that we shall advance expenses
incurred by a director or officer in advance of the final disposition of any action or proceeding, and permit us to secure
insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in that capacity, regardless of whether we would otherwise be permitted to
indemnify him or her under the provisions of Delaware law. We have entered and expect to continue to enter into agreements to indemnify our directors, executive officers and other employees as
determined by our board of directors. With certain exceptions, these agreements provide for indemnification for related expenses including, among others, attorneys' fees, judgments, fines and
settlement amounts incurred by any of these individuals in any action or proceeding. We believe that these bylaw provisions and indemnification agreements are necessary to attract and retain qualified
persons as directors and officers. We also maintain directors' and officers' liability insurance.
The
limitation of liability and indemnification provisions in our third amended and restated certificate of incorporation and amended and restated bylaws and our indemnification
agreements, may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty of care. They may also reduce the likelihood of derivative litigation against
our directors and officers, even though an action, if successful, might benefit us and other stockholders. Furthermore, a
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stockholder's
investment may be adversely affected to the extent that we pay the costs of settlement and damage awards against directors and officers. There is no pending litigation or proceeding
involving any of our directors, officers or employees for which indemnification is sought, and we are not aware of any threatened litigation that may result in claims for indemnification.
Board Leadership Structure
Our Bylaws and corporate governance guidelines provide our board of directors with flexibility in its discretion to combine or separate the
positions of Chairperson of the board of directors and chief executive officer. As a general policy, our board of directors believes that separation of the positions of Chairperson and chief executive
officer reinforces the independence of the board of directors from management, creates an environment that encourages objective oversight of management's performance and enhances the effectiveness of
the board of directors as a whole. We expect and intend the positions of Chairperson of the board and chief executive officer to be held by two individuals in the future.
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CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
The following includes a summary of transactions since January 1, 2018, to which we have been a party in which the amount involved
exceeded or will exceed the lesser of (i) $120,000 and (ii) one percent (1%) of the average of our total assets at year-end for the prior two fiscal years, and in which any of our
directors, executive officers or beneficial owners of more than 5% of our capital stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect
material interest. Compensation arrangements for our directors and executive officers are described in our annual proxy statement on Schedule 14A.
Transactions with Sagard
Preferred Stock Offering
On March 23, 2018, we entered into the Preferred Stock Purchase Agreement with Sagard, pursuant to which we, in a private placement,
agreed to issue and sell to Sagard 5,524,926 shares of Preferred Stock (the "Preferred Shares"), for an aggregate purchase price of $9,199,001. The Preferred Stock Purchase Agreement also provides for
customary representations, warranties and covenants among the parties. Among other things, the Preferred Stock Purchase Agreement requires that we (i) file prior to the initial closing the
Certificate of Designation and (ii) enter into a registration rights agreement with Sagard providing for the registration of shares of our Common Stock, issuable upon conversion of the
Preferred Shares (the "Conversion Shares"). In addition, so long as Sagard or its affiliates own, in the aggregate, no less than 50% or more of the cumulative amount of the Preferred Shares and
Conversion Shares issued in the Preferred Stock Offering, Sagard and its affiliates have the right to purchase (x) 100% of the first $10 million of any new securities issued by us and
thereafter (y) a pro rata portion of any new securities that we may issue from time to time, subject to certain exceptions specified in the Preferred Stock Purchase Agreement. The Preferred
Shares are subject to a 12-month lock-up period, which period may be shortened in limited circumstances specified in the Preferred Stock Purchase Agreement.
The
Preferred Stock Purchase Agreement also provides that Sagard has the right to designate at least one non-voting observer (subject to increase to two if at any time two designees of
the Preferred Shares and the Conversion Shares are not represented on the board of directors) to attend meetings of the Board, the board of directors of any of our subsidiaries and each committee of
any of the foregoing (a "Board Observer"). In addition, at such time as no shares of Preferred Stock are outstanding, and so long as Sagard holds (i) at least 35% of the total number of the
Conversion Shares that have been issued upon conversion of all shares of Preferred Stock issued in the Preferred Stock Offering, Sagard shall be entitled thereunder to nominate two directors of the
Company (each, a "Series A Director") and (ii) less than 35% but at least 20% of the total number of the Conversion Shares that have been
issued upon conversion of all shares of Preferred Stock issued in the Preferred Stock Offering, Sagard shall be entitled thereunder to nominate one director of the Company.
Notwithstanding
the foregoing, the number of Series A Directors shall be reduced to the extent necessary to comply with our obligations, if any, under the rules or regulations of
the Nasdaq Stock Market (including Nasdaq Listing Rule 5640). The Preferred Stock Purchase Agreement provides that, if one Series A Director may not be appointed due to compliance with
Nasdaq Listing Rule 5640, then Sagard shall be entitled to designate one additional Board Observer to attend meetings of the board of directors, the board of directors of any of our
subsidiaries and each committee of any of the foregoing as an observer.
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The Certificate of Designation authorizes 5,524,926 shares of Preferred Stock and provides for the rights, preferences and privileges of such
Preferred Stock. Any reference to share prices in the below description of the Preferred Stock, including but not limited to the conversion price for the Preferred Shares and the amount of the
liquidation preference per share, is subject to adjustment in the event of any stock dividend, stock split, reverse stock split, combination or other similar recapitalization, as further described in
the Certificate of Designation.
Holders of shares of Preferred Stock are entitled to participate equally and ratably with the holders of shares of Common Stock in all dividends
paid and distributions made to the holders of Common Stock on the shares of Common Stock on an as converted basis.
The holders of a majority of the outstanding shares of Preferred Stock are entitled to elect two (2) members of the Company's Board of
Directors. Notwithstanding the foregoing, the number of Series A Directors shall be reduced to the extent necessary to comply with the Company's obligations, if any, under the rules or
regulations of the Nasdaq Stock Market (including Nasdaq Listing Rule 5640).
The
holders of shares of Preferred Stock have the right to vote with holders of shares of the Common Stock, voting together as one class on all other matters, with each share of
Preferred Stock entitling the holder thereof to cast that number of votes per share as is equal to the aggregate number of shares of Common Stock into which it is then convertible, using the market
value of the Common Stock on the date of the Preferred Stock Agreement (i.e., $0.1935) as the conversion price; provided that, at any time prior to the time the Company obtains stockholder
approval, as required pursuant to Nasdaq Rule 5635(b), no holder (together with such holder's attribution parties) is permitted to have a number of votes in excess of such aggregate number of
votes granted to the holders of 19.99% of the shares of Common Stock then outstanding (including any votes with respect to any shares of Common Stock and Preferred Stock beneficially owned by the
holder or such holder's attribution parties).
Each share of Preferred Stock is initially convertible into nine shares of Common Stock at an effective conversion price of $0.185 per share
(based on an original price per Preferred Share of $1.665), provided that, at any time prior to the time the Company obtains stockholder approval, as required pursuant to Nasdaq Rule 5635(b)
any conversion of Preferred Stock by a holder into shares of the Common Stock would be prohibited if, as a result of such conversion, the holder, together with such holder's attribution parties, would
beneficially own more than 19.99% of the total number of shares of the Common Stock issued and outstanding after giving effect to such conversion. Subject to certain limited exceptions, the shares of
Preferred Stock cannot be offered, pledged or sold by Sagard for one year from the date of issuance. The conversion price is subject to certain adjustments in the event of any stock dividend, stock
split, reverse stock split, combination or other similar recapitalization.
The shares of Preferred Stock will be mandatorily converted upon the date and time, or the occurrence of an event, specified by vote or written
consent of the holders of a majority of the then outstanding shares of Preferred Stock at a conversion price of $0.185 per share. In each case, the number of shares of Common Stock issuable upon such
conversion will be limited to the extent
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necessary
to satisfy limitations on beneficial ownership as described under "Voluntary Conversion" above.
At any time after the first anniversary of the issuance of the Preferred Shares, so long as certain call conditions specified in the Certificate
of Designation have been satisfied, the Company shall have the right to offer to redeem shares of Preferred Stock at a share price equal to two times the original share issue price of the Preferred
Shares. The Company is only permitted to exercise this right to redeem two times, the first of which must be for an aggregate redemption price of $9,199,001 and the second of which must be for all
remaining shares of Preferred Stock remaining. If a holder of Preferred Shares fails to accept the Company's redemption offer, such holder's shares of Preferred Stock shall be automatically converted
into shares of Common Stock pursuant to the terms of "Mandatory Conversion" as described above.
If (i) the Company's consolidated net revenues attributable to the Mytesi products ("Mytesi Revenues") for the six-month period ended
March 31, 2021 are less than $22 million, (ii) the average volume-weighted average price of the Common Stock for the thirty days immediately prior to
the Measurement Date (as defined below) is less than $1.00 or (iii) the Company fails to file with the SEC on or before June 30, 2021 its quarterly report on Form 10-Q for the
three months ended March 31, 2021, then the holders of at least a majority of shares of Preferred Stock then outstanding may require the Company to redeem all shares of Preferred Stock then
outstanding at a per share purchase price equal to $2.3057. For purposes of the foregoing sentence, "Measurement Date" means the later of (x) April 30, 2021 and (y) the date on
which the Company files its quarterly report on Form 10-Q for the three months ended March 31, 2021 (but in no event later than June 30, 2021).
The
mandatory redemption right described above shall terminate if, prior to the Measurement Date, both (i) the Mytesi Revenues for any six-month period ending at the end of a
calendar quarter are equal to or exceed $22 million and (ii) the average volume-weighted average price of the Common Stock for the thirty days immediately preceding the end of such
calendar quarter is equal to or greater than $1.00.
The Certificate of Designation provides the holders of Preferred Stock with a right to require the Company to repurchase shares of Preferred
Stock at a price to be calculated pursuant to the terms of the Certificate of Designation upon the occurrence of any of the following events (each a "Fundamental Change"):
(X) (a)
any person or "group" (within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act), other than certain "Permitted Holders" (and/or any direct
transferee of shares of Preferred Stock from any Permitted Holder) (as defined in the Certificate of Designation), (i) shall have acquired beneficial ownership of more than fifty percent (50%)
or more on a fully diluted basis of the voting and/or economic interest in the capital stock of the Company (or surviving entity in a merger or consolidation, if applicable)) or (ii) shall have
obtained the power (whether or not exercised) to elect a majority of the members of the Company's Board of Directors (or similar governing body); or (b) the occurrence of any "change of
control" or similar event under any agreements relating to any indebtedness of the Company or its subsidiaries; or
(Y) except
in the case of a Deemed Liquidation Event (as defined in the Certificate of Designation and described below) in which holders of Preferred Stock receive,
concurrently with the consummation of such Deemed Liquidation Event, a cash payment pursuant to Sections 2.1 and 2.4 of
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the
Certificate of Designation in full, in an amount equal to the "Fundamental Change Price" as defined in the Certificate of Designation that would otherwise be payable, the Company or any of its
subsidiaries enters into any transaction of merger or consolidation (except that a person may be merged with or into the Company or another wholly-owned subsidiary thereof so long as the Company or
another wholly-owned subsidiary is the continuing or surviving person), or conveys, sells, leases, subleases (as lessor or sublessor), exchanges, transfers or otherwise disposes of, in one transaction
or a series of transactions, all or substantially all of the consolidated business, assets or property of the Company and its subsidiaries.
The
"Fundamental Change Price" for each share of Preferred Stock, as of any date, shall be calculated as the sum of (i) the amount payable in respect of such share under
Section 2.1 of the Certificate of Designation in the event of a "Liquidation Event" as of such date, plus (ii) any and all accrued and unpaid dividends upon the Preferred Stock, whether
or not declared, as of the date of the Fundamental Change, plus (iii) the "Participation Amount" as defined in the Certificate of Designation.
Subject to the Fundamental Change provision described above, under the terms of the Certificate of Designation, upon merger or consolidation
resulting in a change of control, sale, lease, transfer, exclusive license or other disposition, in a single transaction or series of related transactions, by the Company or any subsidiary of the
Company, of substantially all of the assets of the Company and its subsidiaries taken as a whole, or the sale or disposition (whether by merger, consolidation or otherwise) of Napo (as defined below)
(or any successor in interest) or one or more other subsidiaries of the Company if substantially all of the assets of the Company and its subsidiaries taken as a whole are held by such subsidiary or
subsidiaries (collectively, a "Deemed Liquidation"), liquidation, dissolution or winding up of the Company as determined under the Certificate (collectively, a "Liquidation Event"), each share of
Preferred Stock will be entitled to a preference of $1.665 per share (or the equivalent of $0.185 per share on an as-converted to Common Stock basis) plus a participation right described below.
Thereafter, the holders of Common Stock then outstanding shall be entitled to receive an amount per share of Common Stock (in stock or cash as determined under the Certificate of Designation) equal to
$0.185 (as adjusted for stock splits, reverse splits, stock dividends, reclassifications, recapitalizations and/or other similar events). Thereafter, all of the remaining assets of the Company and/or
proceeds from a Deemed Liquidation or Liquidation Event, as applicable, will in general be divided pro rata among the holders of the shares of Preferred Stock and the shares of Common Stock, on an as
converted basis (all as more fully specified and calculated under the Certificate of Designation).
Pursuant to the terms of the Preferred Stock as provided in the Certificate of Designation, so long as any shares of Preferred Stock are
outstanding, the Company may not agree, among other things, without the prior written consent or vote of the holders of at least a majority of the then outstanding shares of Preferred Stock, to:
(a) amend, alter, repeal or waive any provision of the Certificate of Designation, (b) amend, alter or repeal any provision of the Company's charter documents in a manner that would
adversely affect the powers, privileges, preferences or rights of the Preferred Stock, (c) create additional classes or series of capital stock having rights, preferences or privileges senior
to or pari passu with the Preferred Stock or (d) increase or decrease the authorized number of shares of Preferred Stock.
So
long as Sagard or its affiliates own at least 35% of the shares of Preferred Stock that were originally issued, the Certificate of Designation provides that the Company may not, among
other things, without the prior written consent or vote of the holders of at least a majority of the then outstanding shares of Preferred Stock, (a) authorize or issue any capital stock of any
subsidiary which is
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not
wholly-owned by the Company, (b) declare or pay dividends on the Company's equity securities or redeem any of the Company's equity securities, (c) incur, guarantee or assume any
indebtedness, subject to certain limited exceptions, (d) grant or incur any lien, subject to certain limited exceptions, (e) enter into any transaction for the acquisition of all or
substantially of the equity interests or assets of another person, subject to certain limited exceptions (f) make any investments, subject to certain limited exceptions or (g) enter into
any transactions with the Company's affiliates, subject to certain limited exceptions.
Services Agreement
On March 23, 2018, the Company entered into a management services agreement with Sagard Capital Partners Management Corp. ("SCPM"), an
affiliate of Sagard, pursuant to which SCPM will provide certain consulting and management advisory services to the Company over a three-year period (the "Initial Term") for an annual fee of $450,000,
which fees will be paid in equal installments over the Initial Term beginning in the second year of the Initial Term (the "Services Agreement"). The Services Agreement may be terminated earlier than
the initial three-year term
(i) upon mutual consent of the parties, (ii) by either party following a breach of the Services Agreement by the other party that remains uncured following 30 days' written notice
thereof, (iii) in SCPM's sole discretion with 10 day's prior written notice, or (iv) upon the consummation of a Deemed Liquidation (so long as all accrued and unpaid fees payable
thereunder as of such termination have been paid in full) or a Fundamental Change in which all of the Company's shares of Preferred Stock are repurchased by the Company.
As
described above, Jeffery C. Johnson, a member of the Company's board of directors, is an investment manager at SCPM.
Transactions with Lisa A. Conte
Lisa A. Conte has served as our President, Chief Executive Officer and a member of our board of directors since she founded the company in June
2013. On July 18, 2018, Ms. Conte purchased 1,500 shares of common stock for an aggregate purchase price of $1,668.60.
Transactions with Jonathan B. Siegel
On March 29, 2018, our board of directors appointed Mr. Jonathan B. Siegel to fill the vacancy created by Dr. Azhir's
resignation and serve as Class I director of the Company until the 2019 annual meeting of stockholders or until his successor is elected and qualified.
Mr. Siegel
was formerly a principal and member of the executive committee of Kingdon Capital ("Kingdon") and the head for Kingdon's healthcare sector. As described further above,
on March 31, 2017, Napo entered into the Kingdon NPA with the Kingdon Purchasers, which are affiliates of Kingdon, under which remains outstanding approximately $10 million in aggregate
principal amount of the Kingdon Notes. Napo's obligations under the Kingdon Notes are secured by a security interest in substantially all of Napo's assets, including Napo intellectual property.
On
July 16, 17, and 18, 2018, JBS Healthcare Ventures LLC purchased an aggregate of 15,000 shares of common stock in the open market for an aggregate purchase price of
$18,653. Mr. Siegel is the sole member of JBS Healthcare Ventures LLC.
Transactions with Charles C. Conte
Charles C. Conte is the brother of Lisa A. Conte, who Conte has served as our President, Chief Executive Officer and a member of our board of
directors since she founded the company in June 2013.
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On
September 11, 2018, Charles C. Conte purchased a convertible promissory note in the aggregate principal amount of $111,250 with an exercise price of $0.85 per share of common
stock and a warrant exercisable for 33,918 shares of common stock with an exercise price of $1.23 per share.
Financings
In January 2018, the Company issued 50,000 shares of common stock to an existing investor in exchange for $6,425 in services rendered.
In
the first quarter of 2018, the Company issued 12,314,291 shares of its common stock in exchange for redemption of certain convertible debt.
On
February 26, 2018, the Company entered into a securities purchase agreement with CVP, pursuant to which the Company issued to CVP a promissory note in the aggregate principal
amount of $2,240,909 for an aggregate purchase price of $1,560,000. The Note carries an original issue discount of $655,909, and the initial principal balance also includes $25,000 to cover CVP's
transaction expenses. The Note bears interest at the rate of 8% per annum and matures on (i) August 26, 2019 if the Company has raised at least $12 million in equity after the
issuance date of the Note (the "Redemption Start Condition") and on or before April 1, 2018 or (ii) November 26, 2018 if the Redemption Start Condition is not satisfied on or
before April 1, 2018.
On
March 21, 2018, the Company entered into a securities purchase agreement with CVP, pursuant to which the Company issued to CVP a promissory note in the aggregate principal
amount of $1,090,341 for an aggregate purchase price of $750,000. The Note carries an original issue discount of $315,341, and the initial principal balance also includes $25,000 to cover CVP's
transaction expenses. The Note bears interest at the rate of 8% per annum and matures on September 21, 2019.
In
March of 2018, the Company issued 4,285,423 shares of its common stock in exchange for payment of interest expense on certain long-term convertible debt.
In
March 2018, the Company entered into a stock purchase agreement with Sagard Capital Partners, L.P. pursuant to which the Company, in a private placement, agreed to issue and
sell to Sagard 5,524,926 shares of the Company's series A convertible participating preferred stock, $0.0001 par value per share, for an aggregate purchase price of $9,199,001. Each share of
preferred stock is initially convertible into nine shares of common stock at an effective conversion price of $0.185 per share (based on an original price per Preferred Share of $1.665), provided
that, at any time prior to the time the Company obtains stockholder approval, as required pursuant to Nasdaq Rule 5635(b) any conversion of Preferred Stock by a holder into shares of the Common
Stock would be prohibited if, as a result of such conversion, the holder, together with such holder's attribution parties, would beneficially own more than 19.99% of the total number of shares of the
Common Stock issued and outstanding after giving effect to such conversion. Subject to certain limited exceptions, the shares of Preferred Stock cannot be offered, pledged or sold by Sagard for one
year from the date of issuance. The conversion price is subject to certain adjustments in the event of any stock dividend, stock split, reverse stock split, combination or other similar
recapitalization. Concurrently with the consummation of the preferred stock offering, the Company entered into share purchase agreements with certain institutional investors pursuant to which the
Company issued 29,411,766 shares of the Company's common stock in exchange for $5.0 million in cash.
Pursuant
to the November 24, 2017 share purchase agreement with an investor, on July 12, 2018 the Company received $624,897 in exchange for 470,781 shares of its voting
common stock.
Effective
August 13, 2018, the Company entered into an acknowledgement agreement with CVP extending the maturity date of the $2,155,000 secured convertible promissory note dated
July 29, 2017 from August 2, 2018 to August 26, 2019 and also extending the maturity date of the $1,587,500 secured promissory note dated December 8, 2017 from
September 8, 2018 to August 26, 2019.
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On
September 11, 2018, Charles C. Conte purchased a convertible promissory note in the aggregate principal amount of $111,250 with an exercise price of $0.85 per share of common
stock and a warrant exercisable for 33,918 shares of common stock with an exercise price of $1.23 per share.
Indemnification Agreements
We have entered into indemnification agreements with each of our directors and officers. These agreements, among other things, require us or
will require us to indemnify each director to the fullest extent permitted by Delaware law, including indemnification of expenses such as expenses, judgments, penalties, fines and amounts paid in
settlement to the extent legally permitted incurred by the director or officer in any action or proceeding, including any action or proceeding by or in right of us, arising out of the person's
services as a director or officer.
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