UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2014.
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
to
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Commission File Number 000-30929
KERYX
BIOPHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
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Delaware |
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13-4087132 |
(State or other jurisdiction of
incorporation or organization) |
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(I.R.S. Employer
Identification No.) |
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750 Lexington Avenue
New York, New York |
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10022 |
(Address of principal executive offices) |
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(Zip Code) |
Registrants telephone number, including area code: (212) 531-5965
Securities registered pursuant to Section 12(b) of the Act:
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Common Stock, Par Value $0.001 Per Share |
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Nasdaq Capital Market |
(Title of Class) |
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(Name of Each Exchange on Which Registered) |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check
mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes ¨ No x
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company. See definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act). (Check one):
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Large accelerated filer |
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes ¨ No x
The aggregate market value of voting common stock held by non-affiliates of the registrant (assuming, for purposes of this calculation, without
conceding, that all executive officers and directors are affiliates) was $1,378,888,655 as of June 30, 2014, based on the closing sale price of such stock as reported on the Nasdaq Capital Market.
There were 103,596,337 shares of the registrants common stock outstanding as of February 17, 2015.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrants Proxy Statement for the 2015 Annual Meeting of Stockholders are incorporated by reference in Part III of this Annual Report
on Form 10-K.
KERYX BIOPHARMACEUTICALS, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2014
TABLE OF CONTENTS
This Annual Report on Form 10-K contains trademarks and trade names of Keryx Biopharmaceuticals, Inc., including our name and
logo. All other trademarks, service marks, and trade names referenced in this Annual Report on Form 10-K are the property of their respective owners.
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Certain matters discussed in this report, including matters discussed under the caption Managements Discussion and Analysis of
Financial Condition and Results of Operations, may constitute forward-looking statements for purposes of the Securities Act of 1933, as amended, or the Securities Act, and the Securities Exchange Act of 1934, as amended, or the Exchange Act,
and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from the future results, performance or achievements expressed or implied by such
forward-looking statements. The words anticipate, believe, estimate, may, expect and similar expressions are generally intended to identify forward-looking statements. Our actual results
may differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including, without limitation, those discussed under the captions Risk Factors, Managements Discussion and
Analysis of Financial Condition and Results of Operations and elsewhere in this report, as well as other factors which may be identified from time to time in our other filings with the Securities and Exchange Commission, or the SEC, or in the
documents where such forward-looking statements appear. All written or oral forward-looking statements attributable to us are expressly qualified in their entirety by these cautionary statements. Such forward-looking statements include, but are not
limited to, statements about our:
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estimates regarding market size and projected growth, as well as our expectation of market acceptance of Auryxia; |
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expectations for increases or decreases in expenses; |
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expectations for the pre-clinical and clinical development, including our pending Marketing Authorization Application with the European Medicines Agency, manufacturing, regulatory approval, and commercialization
(including market acceptance) of AuryxiaTM (ferric citrate) or any other products that we may acquire or in-license; |
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expectations for incurring capital expenditures to expand our research and development and manufacturing capabilities; |
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expectations regarding our ability to successfully market Riona® through our Japanese partner, Japan Tobacco, Inc. and Torii Pharmaceutical Co., Ltd.; |
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expectations regarding our ability to successfully develop ferric citrate for the treatment of iron deficiency anemia in non-dialysis chronic kidney disease patients; |
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expectations that the European Medicines Agency will concur with our interpretation of our registration studies in End Stage Renal Disease and non-dialysis dependent chronic kidney disease, supportive data, conduct of
such studies, or any other part of our Marketing Authorization Application submission; |
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expectations for generating revenue or becoming profitable on a sustained basis; |
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expectations of the scope of patent protection with respect to Auryxia; |
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expectations or ability to enter into marketing and other partnership agreements; |
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expectations or ability to enter into product acquisition and in-licensing transactions; |
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expectations or ability to build our own commercial infrastructure to manufacture, market and sell our drug candidate; |
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estimates of the sufficiency of our existing cash and cash equivalents to finance our operating requirements, including expectations regarding the value and liquidity of our investments; |
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expectations for future capital requirements. |
1
The forward-looking statements contained in this report reflect our views and assumptions only as
of the date that this report is signed. Except as required by law, we assume no responsibility for updating any forward-looking statements.
We qualify all of our forward-looking statements by these cautionary statements. In addition, with respect to all of our forward-looking
statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
2
PART I
Unless the context requires otherwise, references in this report to Keryx, Company, we, us
and our and similar designations refer to Keryx Biopharmaceuticals, Inc. and our subsidiaries.
We are a biopharmaceutical company focused on bringing innovative therapies to market
for patients with renal disease. Our first product, AuryxiaTM (ferric citrate), an oral, absorbable iron-based compound, received marketing approval from the U.S. Food and Drug Administration, or
FDA, in September 2014 for the control of serum phosphorus levels in patients with chronic kidney disease, or CKD, on dialysis. The U.S. approval of Auryxia was based on data from our Phase 3 registration program, in which Auryxia effectively
reduced serum phosphorus levels to well within the National Kidney Foundation Kidney Disease Outcomes Quality Initiative, or KDOQI, guidelines range of 3.5 to 5.5 mg/dL. In addition to the effects on serum phosphorus levels, Auryxias
pharmacodynamic properties resulted in increased ferritin, iron and transferrin saturation, or TSAT, whereas these parameters remained relatively constant in patients treated with active control
(Renvela® and/or PhosLo®). The most common adverse events for Auryxia treated patients were gastrointestinal-related, including
diarrhea, nausea, constipation, vomiting and cough.
We launched Auryxia in the U.S. in late December 2014. Auryxia is being marketed in
the U.S. through our specialty salesforce and commercial infrastructure. We currently have 60 sales representatives in the field calling on approximately 5,000 target nephrologists.
Our Japanese partner, Japan Tobacco Inc. or JT, and Torii Pharmaceutical Co. Ltd., or Torii, received manufacturing and marketing approval of
ferric citrate from the Japanese Ministry of Health, Labour and Welfare as an oral treatment for the improvement of hyperphosphatemia in patients with CKD, including dialysis and non-dialysis dependent CKD, or NDD-CKD, in January 2014. JTs
subsidiary, Torii, launched the product under the brand name Riona® in May 2014.
We have also submitted, in March 2014, a Marketing
Authorization Application, or MAA, with the European Medicines Agency, or EMA, for the approval of Auryxia in patients with CKD, including dialysis and NDD-CKD. Also in March 2014, the EMA validated our MAA, confirming that the submission is
sufficiently complete to begin the formal review process.
In September 2014, we announced the initiation of a pivotal Phase 3 study of
Auryxia for the treatment of iron deficiency anemia, or IDA, in patients with Stage 3-5 NDD-CKD. This studys primary endpoint is the between group comparison of the proportion of patients achieving a 1 g/dL or greater increase in hemoglobin at
any point during the 16-week randomized period. In our completed 12-week Phase 2 study of Auryxia for the management of elevated serum phosphorus levels and iron deficiency in subjects with Stage 3 to 5 NDD-CKD, a post-hoc analysis of this endpoint
demonstrated that the proportion of patients achieving a 1 g/dL or greater increase in hemoglobin at any time point during the study was 40% in the Auryxia arm vs. 15% in the placebo arm (p-value <0.001). Secondary endpoints in the Phase 3
study include change from baseline to the end of the randomized period for hemoglobin, ferritin, TSAT and serum phosphorus.
Currently,
our only drug product is Auryxia. We may engage in business development activities that include seeking strategic relationships for Auryxia, as well as evaluating other compounds and companies for in-licensing or acquisition. We have also generated,
and expect to continue to generate, revenue from the sublicensing of rights to Auryxia in Japan to our Japanese partner, JT and Torii.
3
OUR STRATEGY
Our mission is to create long-term stockholder value by bringing differentiated products to market that provide meaningful benefits to patients
and their healthcare providers. Our strategy to achieve this mission is to:
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continue building our infrastructure to commercialize Auryxia and any future drug candidate(s), either alone or in partnership depending on the path we believe will provide maximum stockholder value; |
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identify and explore licensing, partnership and other business development opportunities for Auryxia, and any drug candidates we may in-license or acquire; |
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seek to acquire or in-license medically important drug candidates in clinical development; and |
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utilize our clinical development capabilities to manage and progress any future drug candidates through the clinical development and regulatory processes to approval. |
CORPORATE INFORMATION
We were
incorporated in Delaware in October 1998 and commenced operations in November 1999. Our executive offices are located at 750 Lexington Avenue, New York, New York 10022. Our telephone number is 212-531-5965, and our e-mail address is info@keryx.com.
We maintain a website with the address www.keryx.com. We make available free of charge through our Internet website our annual reports on
Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and any amendments to these reports, as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the SEC. We are not
including the information on our website as a part of, nor incorporating it by reference into, this report. You may read and copy any materials we file at the SECs Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 on official
business days during the hours of 10:00 a.m. to 3:00 p.m. Please call the SEC at 1-800-SEC-0330 for information on the Public Reference Room. Additionally, the SEC maintains a website that contains annual, quarterly, and current reports, proxy
statements, and other information that issuers (including us) file electronically with the SEC. The SECs website address is http://www.sec.gov.
LEAD PRODUCT
Auryxia (ferric citrate)
Overview
Auryxia (ferric citrate) is an
oral, ferric iron-based compound that has the capacity to bind to phosphate in the gastrointestinal tract and form non-absorbable complexes and can potentially also treat iron deficiency anemia. The FDA approved Auryxia for the control of serum
phosphorus levels in patients with CKD on dialysis in September 2014. The U.S. approval of Auryxia was based on data from our Phase 3 registration program. In the Phase 3 clinical trials, which were conducted under a Special Protocol Assessment, or
SPA, agreement with the FDA, Auryxia effectively reduced serum phosphorus levels to well within the KDOQI guidelines range of 3.5 to 5.5 mg/dL. In addition to the effects on serum phosphorus levels, Auryxias pharmacodynamic properties resulted
in increased ferritin, iron and TSAT; whereas these parameters remained relatively constant in patients treated with active control (Renvela® and/or Phoslo®). The most common adverse events for Auryxia treated patients were gastrointestinal-related, including diarrhea, nausea, constipation, vomiting and cough. In July 2014, we announced the
publication of results from the long-term pivotal Phase 3 study of Auryxia in the Journal of the American Society of Nephrology.
Auryxia
is being marketed in the U.S. through our specialty salesforce and commercial infrastructure. We currently have 60 sales representatives in the field calling on approximately 5,000 target nephrologists. We have also established account management
and medical affairs teams who are responsible for working with the dialysis centers where ESRD patients receive dialysis treatment. In addition, we have a small team of national
4
account managers who are primarily responsible for working with insurance plans, health maintenance organizations and other payers to secure reimbursement and formulary status for Auryxia. We are
currently undergoing formulary reviews with Medicare Part D insurance plans and as of January 1, 2015 have been placed on formulary with four of those plans. We have also created the Keryx Patient Plus program to assist with patient
accessibility to Auryxia. Beginning at our reimbursement hub, personalized service is provided through dedicated regional case managers to provide the renal care team with comprehensive insurance and reimbursement support for their patients. Keryx
Patient Plus offers benefit verification, co-pay assistance for eligible commercial patients, no-cost drug program for those who qualify, and a short-term prescription bridge program that may assist those already on Auryxia who are in danger of
suffering a break in coverage.
In July 2014, we completed a long-term, open-label extension, or OLE, study for Auryxia in
dialysis-dependent CKD patients. Patients who had participated in and successfully completed the long-term pivotal Phase 3 study were eligible for enrollment in the 48-week OLE study, providing for cumulative exposure to Auryxia of up to two years.
Patients in the OLE study (n=168) were titrated to achieve and maintain serum phosphorus levels within a range of 3.5 to 5.5 mg/dL, with a maximum daily dose of 12 grams per day of Auryxia. The safety profile observed in the OLE study was consistent
with that seen in the long-term pivotal Phase 3 study and there were no clinically meaningful changes in liver enzymes or aluminum levels over the course of the study.
We are also developing Auryxia as a treatment for IDA in patients with Stage 3-5 NDD-CKD and announced the initiation of a pivotal Phase 3
study for that indication in September 2014. This studys primary endpoint is the between group comparison of the proportion of patients achieving a 1 g/dL or greater increase in hemoglobin at any point during the 16-week Randomized Period. In
our completed 12-week Phase 2 study in NDD-CKD, a post-hoc analysis of this endpoint demonstrated that the proportion of patients achieving a 1 g/dL or greater increase in hemoglobin at any time point during the study was 40% in the Auryxia arm vs.
15% in the placebo arm (p-value <0.001). Secondary endpoints in the Phase 3 study include change from baseline to end of Randomized Period for hemoglobin, ferritin, TSAT and serum phosphorus.
In October 2014, we announced that the U.S. Patent and Trademark Office issued U.S. Patent No. 8,846,976. The patent, which expires in
2024, claims a method of treating hyperphosphatemia comprised of administering a therapeutically effective amount of an orally administrable form of Auryxia to a subject, wherein the orally administrable form is prepared from an Auryxia active
pharmaceutical ingredient having an intrinsic dissolution rate of at least 1.88/mg/cm2/min. In addition, U.S. Patent No. 8,846,976 contains claims directed to the FDA approved dosing and daily administration of Auryxia. This newly
issued patent further enhances our key patent family, which includes U.S. Patent Nos. 7,767,851, 8,299,298, 8,338,642, 8,609,896, 8,754,257 and 8,754,258, which expire in 2024, and U.S. Patent No. 8,093,423, which expires in 2026, before patent
term extension. Each of these patents contains composition and method of use claims covering Auryxia.
Our Japanese partner, JT and Torii,
received manufacturing and marketing approval of ferric citrate from the Japanese Ministry of Health, Labour and Welfare as an oral treatment for the improvement of hyperphosphatemia in patients with CKD, including dialysis and NDD-CKD, in January
2014. JTs subsidiary, Torii, launched the product under the brand name Riona® in May 2014. Under the license agreement with JT and Torii, we received a non-refundable payment of $10.0 million in February 2014 for the achievement of the
marketing approval milestone. We also receive royalty payments based on a tiered double-digit percentage of net sales of Riona® in Japan escalating up to the mid-teens, as well as up to an
additional $55.0 million upon the achievement of certain annual net sales milestones. In October 2014, following the regulatory approval of Auryxia in Japan earlier this year, the Japan Patent office granted patent term extensions for patents
#4964585 and #4173553, which extended the terms of these patents in Japan to November 2025 and November 2022, respectively.
We have also
submitted, in March 2014, a MAA with the EMA for the approval of Auryxia in patients with CKD, including dialysis and NDD-CKD. Also in March 2014, the EMA validated our MAA, confirming that the submission is sufficiently complete to begin the formal
review process.
5
Market Opportunity
In the U.S., there were approximately 450,000 adult patients with End Stage Renal Disease, or ESRD, who required dialysis in 2012. Managing
ESRD is complex as many metabolic factors, such as iron and phosphorus, are out of balance. Phosphate retention and the resulting hyperphosphatemia in dialysis patients are typically associated with increased risk for heart and bone disease, and
death. The majority of ESRD patients require chronic treatment with phosphate-binding agents to lower and maintain serum phosphorus at acceptable levels. In addition, iron can be severely depleted in dialysis patients and they are therefore often
treated with intravenous iron, or IV iron, erythropoiesis-stimulating agents, or ESAs, and other medications.
In addition, it is
estimated that more than 10% of the U.S. adult population is affected by NDD-CKD, a condition generally characterized by greater than 50% reduction of normal kidney function. In addition, elevated levels of serum phosphorus become more prevalent in
Stage 3 to 5 NDD-CKD patients. Several studies have shown that higher serum phosphorus concentrations may be associated with increased mortality and morbidity in CKD, however, no phosphate binders are currently FDA approved for NDD-CKD.
IDA is extremely prevalent in the NDD-CKD population and is associated with fatigue, lethargy, decreased quality of life and is also believed
to be associated with cardiovascular complications, hospitalizations, and increased mortality. Based on data contained in a 2009 publication in the Journal of the American Society of Nephrology, it is estimated that over 1.5 million adults with
NDD-CKD in the U.S. alone are also afflicted with IDA. To combat this anemia, iron replacement therapy is essential to increase iron stores, which is reflected in ferritin and TSAT levels, and raise hemoglobin levels. Currently available oral iron
supplements are associated with limited efficacy and dose-limiting tolerability issues. No oral iron agents are currently FDA approved to treat IDA in NDD-CKD. ESAs and IV iron are not frequently administered in NDD-CKD due to both the FDA boxed
warning label of potential cardiovascular risk for ESAs and logistical complications associated with administering IV medicines in office settings. Consequently, the NDD-CKD patient population remains underserved.
CKD on Dialysis: Phase 3 Registration Clinical Program Short-Term Study
Study Design
The Phase 3 short-term study
was a multicenter, randomized, open-label trial with a two-week washout period, following which patients were randomized 1:1:1 to receive a fixed dose of Auryxia of either 1 gram, 6 grams or 8 grams per day for a treatment period of 28 days. Auryxia
was administered using a 1 gram oral tablet formulation, and the fixed-dose arms of 1 gram, 6 grams and 8 grams per day represented 1, 6 and 8 pills per day, respectively. One hundred fifty-four dialysis patients were enrolled into the study. The
ITT group included 146 patients, representing all patients who took at least one dose of Auryxia and provided a Baseline (at the end of washout) and at least one post-Baseline efficacy assessment. Efficacy assessments were taken weekly starting at
Baseline and subsequently at days 7, 14, 21 and 28.
Study Results
The primary endpoint of the study was to determine whether there was a dose response in the change in serum phosphorus from Baseline to Day 28
in the ITT group, using a regression analysis to evaluate this objective. The study met the primary endpoint, with the regression analysis indicating a highly statistically significant dose response (p<0.0001). Additional efficacy results are as
follows:
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Mean Serum Phosphorus (mg/dL)
ITT (n=146) |
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1g/day (n=50) |
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6g/day (n=51) |
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8g/day (n=45) |
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Baseline (End of Washout) |
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7.3 |
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7.6 |
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7.5 |
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Day 28 (End of Treatment) |
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7.4 |
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5.6 |
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5.3 |
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Change from Baseline at Day 28
P-Value |
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0.1 |
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-2.0 <0.0001 |
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-2.2 <0.0001 |
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% Change from Baseline at Day 28 |
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0.5 |
% |
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-25.7 |
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-29.6 |
% |
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In addition, a statistically significant dose response increase in serum bicarbonate was observed
in the study, indicating the potential ability of Auryxia to address metabolic acidosis. Metabolic acidosis is a condition that occurs in many dialysis patients when the kidneys do not remove sufficient acid from the body, leading to low blood pH.
The consequences of metabolic acidosis can be severe. The inability to manage metabolic acidosis is believed to be a drawback for some of the currently marketed phosphate binders.
Importantly, no clinically meaningful change in serum calcium was observed in the study. Additionally, a statistically significant dose
response reduction in calcium-phosphorus product was also observed in the study. Elevated levels of serum calcium, or hypercalcemia, and high levels of calcium-phosphorus product, both of which are believed to be drawbacks from the use of some of
the currently marketed phosphate binders, increase the risk of soft tissue calcification and may contribute to the substantial morbidity and mortality seen in patients with ESRD.
Certain iron parameters, including ferritin and TSAT, were measured in the study. Over the 28-day treatment period, modest upward trends in
ferritin and TSAT levels were observed in the 6 grams/day and 8 grams/day dose groups.
No serious adverse events were deemed to be
drug-related by the Data Safety Monitoring Committee in this clinical study.
CKD on Dialysis: Phase 3 Registration Clinical Program Long-Term
Study
In January 2013, we announced successful top-line results from the long-term Phase 3 study of Auryxia for the treatment of
hyperphosphatemia in patients with CKD on dialysis. In this study, conducted pursuant to a SPA agreement with the FDA, Auryxia met the studys primary endpoint, described below, demonstrating a highly statistically significant change in serum
phosphorus versus placebo over the four-week Efficacy Assessment Period of the study. In addition, Auryxia met the key pre-defined secondary endpoints of increasing ferritin and TSAT and reducing the use of IV iron and ESAs versus the active control
group (Renvela® [sevelamer carbonate] and/or Phoslo® [calcium acetate]) over the 52-week Safety Assessment Period of the study. This
long-term study was the final component of our Phase 3 registration program.
Study Design
This Phase 3 long-term study was a multicenter, randomized, open-label, safety and efficacy clinical trial in 441 CKD patients on hemodialysis
or peritoneal dialysis. The study consisted of a 2-week washout period followed by a 52-week Safety Assessment Period in which subjects were randomized 2:1 to receive either Auryxia or an active control (Renvela® [sevelamer carbonate] and/or Phoslo® [calcium acetate]). The 52-week Safety Assessment Period was followed by a 4-week Efficacy Assessment
Period. During the Efficacy Assessment Period, only those subjects randomized to treatment with Auryxia during the Safety Assessment Period and completed the Safety Assessment Period were randomized in a 1:1 ratio to either continue treatment with
Auryxia or switch to placebo for a 4-week treatment period. Subjects were titrated during the study to achieve serum phosphorus levels that ranged between 3.5 to 5.5 mg/dL.
The primary objectives of this study were to determine the long-term safety of Auryxia in subjects with CKD undergoing either hemodialysis or
peritoneal dialysis, and the efficacy of Auryxia following 52 weeks of treatment in a four-week, randomized, open-label, placebo-controlled Efficacy Assessment Period. Auryxia was administered using a 1 gram oral tablet formulation.
Oral iron therapy was not permitted during the course of the study. IV iron therapy was not permitted if a subjects serum ferritin level
was greater than 1000 ng/mL or TSAT was greater than 30%. The use of ESAs was at the physicians discretion.
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Efficacy results were as follows:
Primary Efficacy Endpoint
The primary
efficacy endpoint of this trial was the mean change in serum phosphorus from baseline (Week 52) to end of the four-week Efficacy Assessment Period (Week 56) versus placebo in the Intent-to-Treat, or ITT, group. The ITT group included 182 subjects,
representing all subjects who took at least one dose of Auryxia or placebo in the Efficacy Assessment Period and provided at least one post-baseline efficacy assessment.
Auryxia met the primary efficacy endpoint with a highly statistically significant result (p<0.0001).
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Mean Serum Phosphorus (mg/dL) |
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Placebo (n=91) |
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Auryxia (n=91) |
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Baseline (Week 52) |
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5.4 |
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5.1 |
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End of Treatment1 (Week 56) |
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7.2 |
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4.9 |
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Mean Change from Baseline at Week 56 |
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1.8 |
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-0.2 |
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Least Squares (LS) Mean Difference from Placebo2 |
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-2.2 |
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p-value2 |
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p<0.0001 |
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Last observation carried forward was used for missing data. |
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The LS Mean treatment difference and p-value is created via an ANCOVA model with treatment as the fixed effect and baseline as the covariate. |
Key Secondary Efficacy Endpoints Related to Serum Phosphorus
During the 52-week Safety Assessment Period, Auryxia maintained serum phosphorus in the normal range, with highly statistically significant
changes in mean serum phosphorus concentration at Weeks 12, 24, 36, 48, and 52 as compared to baseline (Day 0).
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n=281 |
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Baseline |
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Week |
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12 |
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24 |
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36 |
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48 |
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52 |
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Auryxia Mean Serum
Phosphorus (mg/dL)1 |
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7.4 |
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5.4 |
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5.3 |
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5.2 |
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5.3 |
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5.4 |
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Mean Change from Baseline |
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-2.0 |
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-2.1 |
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-2.2 |
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-2.1 |
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-2.0 |
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% Change from Baseline |
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-27.0 |
% |
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-28.4 |
% |
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-29.7 |
% |
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-28.4 |
% |
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-27.0 |
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p-value |
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<0.0001 |
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<0.0001 |
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<0.0001 |
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<0.0001 |
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<0.0001 |
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Last observation carried forward was used for missing data. |
In addition, as agreed to with the EMA, the treatment difference between Auryxia and
Renvela® (sevelamer carbonate) at Week 12 of the Safety Assessment Period in terms of change from baseline (Day 0) in serum phosphorus was analyzed. Auryxia successfully achieved the
non-inferiority endpoint versus Renvela®.
Key Secondary Efficacy Endpoints Related to Iron
The objectives of the key iron-related secondary endpoints, which were all pre-specified in the statistical analysis plan in a
sequential strategy to control overall Type I error rate, were to corroborate prior data which suggested that Auryxia may increase iron storage parameters and reduce the need for IV iron and/or ESAs as compared to the active control group. Auryxia
met all the key pre-defined secondary efficacy endpoints related
8
to iron with statistically significant treatment differences versus the active control group (Renvela® [sevelamer carbonate] and/or Phoslo® [calcium acetate]), as follows:
Mean Change in Ferritin
Auryxia demonstrated a statistically significant treatment difference versus the active control group in mean change in serum ferritin from
baseline (Day 0) to Week 52.
|
|
|
|
|
|
|
|
|
Mean Ferritin (ng/mL)1 |
|
Active Controls (n=137) |
|
|
Auryxia (n=253) |
|
Baseline (Day 0) |
|
|
610 |
|
|
|
593 |
|
Week 12 |
|
|
649 |
|
|
|
750 |
|
Week 24 |
|
|
651 |
|
|
|
847 |
|
Week 36 |
|
|
633 |
|
|
|
864 |
|
Week 48 |
|
|
622 |
|
|
|
886 |
|
Week 52 |
|
|
632 |
|
|
|
895 |
|
Mean Change from Baseline at Week 52
% Change from Baseline |
|
|
22 3.6 |
% |
|
|
302 50.9 |
% |
LS Mean Difference from Active Control Group at Week 522 |
|
|
|
|
|
|
274 |
|
p-value2 |
|
|
|
|
|
|
p<0.0001 |
|
1 |
Last observation carried forward was used for missing data. |
2 |
The LS Mean treatment difference and p-value is created via an ANCOVA model with treatment as the fixed effect and baseline as the covariate. |
Mean Change in TSAT
Auryxia demonstrated
a statistically significant treatment difference versus the active control group in mean change in TSAT from baseline (Day 0) to Week 52.
|
|
|
|
|
|
|
|
|
Mean TSAT (%)1 |
|
Active Controls (n=137) |
|
|
Auryxia (n=252) |
|
Baseline (Day 0) |
|
|
31 |
|
|
|
31 |
|
Week 12 |
|
|
31 |
|
|
|
40 |
|
Week 24 |
|
|
31 |
|
|
|
40 |
|
Week 36 |
|
|
31 |
|
|
|
40 |
|
Week 48 |
|
|
29 |
|
|
|
41 |
|
Week 52 |
|
|
30 |
|
|
|
39 |
|
Mean Change from Baseline at Week 52
% Change from Baseline |
|
|
-1 -3.2 |
% |
|
|
8 25.8 |
% |
LS Mean Difference from Active Control Group at Week 522 |
|
|
|
|
|
|
9 |
|
p-value2 |
|
|
|
|
|
|
p<0.0001 |
|
1 |
Last observation carried forward was used for missing data. |
2 |
The LS Mean treatment difference and p-value is created via an ANCOVA model with treatment as the fixed effect and baseline as the covariate. |
Cumulative IV iron Use
Each
subjects average cumulative IV iron intake was calculated over the 52-week Safety Assessment Period. The ITT group consisted of 271 subjects and 138 subjects for the Auryxia and active control groups, respectively. Auryxia demonstrated a 51%
decrease in median IV iron intake as compared to the active control group (median 1.87 mg/day for Auryxia versus 3.83 mg/day for active control, p<0.0001).
9
Cumulative Erythropoiesis-Stimulating Agent (ESA) Use
Each subjects average cumulative ESA intake was calculated over the 52-week Safety Assessment Period. The ITT group consisted of 273
subjects and 141 subjects for the Auryxia and active control groups, respectively. Auryxia demonstrated a 24% decrease in median ESA intake as compared to the active control group (median 756 units/day for Auryxia versus 993 units/day for active
control, p<0.05).
Mean Change in Hemoglobin
Auryxia demonstrated a statistically significant treatment difference versus the active control group in mean change in hemoglobin from
baseline (Day 0) to Week 52.
|
|
|
|
|
|
|
|
|
Mean Hemoglobin (g/dL)1 |
|
Active Controls (n=133) |
|
|
Auryxia (n=248) |
|
Baseline (Day 0) |
|
|
11.7 |
|
|
|
11.6 |
|
Week 52 |
|
|
11.2 |
|
|
|
11.4 |
|
Mean Change from Baseline at Week 52 |
|
|
-0.6 |
|
|
|
-0.2 |
|
LS Mean Difference from Active Control Group at Week 522 |
|
|
|
|
|
|
0.3 |
|
p-value2 |
|
|
|
|
|
|
p<0.05 |
|
1 |
Last observation carried forward was used for missing data. |
2 |
The LS Mean treatment difference and p-value is created via an ANCOVA model with treatment as the fixed effect and baseline as the covariate. |
Safety and Tolerability Profile
For
reference, subjects previously intolerant to Renvela® (sevelamer carbonate) and/or Phoslo® (calcium acetate) were ineligible to
participate in this study. Based on an analysis of safety data, the side-effect profile of Auryxia and the active control group appeared similar, with the most common adverse events gastrointestinal-related. The most common gastrointestinal adverse
events were: diarrhea, including soft stools (26% Auryxia vs. 14% Active Control), nausea (14% Auryxia vs. 14% Active Control), feces discoloration (17% Auryxia vs. 0% Active Control), vomiting (9% Auryxia vs. 15% Active Control) and constipation
(8% Auryxia vs. 5% Active Control). Adverse events were generally characterized as mild to moderate in nature.
The overall serious
adverse event rates in the study were 39% Auryxia vs. 49% Active Control. Importantly, there were no clinically meaningful or statistically significant differences between Auryxia and the active control group in serum calcium levels, aluminum levels
and liver enzymes, as measured by alanine transaminase, or ALT, and aspartate transaminase, or AST.
CKD on Dialysis: Open-Label Safety Extension Study
In July 2014, we completed the long-term, open-label extension, or OLE, study for Auryxia in dialysis-dependent CKD patients. Patients
who had participated in and successfully completed the long-term pivotal Phase 3 study were eligible for enrollment in the 48-week OLE study, providing for cumulative exposure to Auryxia of up to two years. Patients in the OLE study (n=168) were
titrated to achieve and maintain serum phosphorus levels within a range of 3.5 to 5.5 mg/dL, with a maximum daily dose of 12 grams per day of Auryxia. The safety profile observed in the OLE study was consistent with that seen in the long-term
pivotal Phase 3 study and there were no clinically meaningful changes in liver enzymes or aluminum levels over the course of the study.
10
NDD-CKD: Phase 3 Clinical Study
In September 2014, we announced the initiation of a pivotal Phase 3 study of Auryxia for the treatment of iron deficiency anemia in patients with Stage 3-5
NDD-CKD. The placebo-controlled study is expected to 230 patients and the studys primary endpoint is the between group comparison of the proportion of patients achieving a 1 g/dL or greater increase in hemoglobin at any point during the
16-week Randomized Period. In our completed 12-week Phase 2 study in NDD-CKD, a post-hoc analysis of this endpoint demonstrated that the proportion of patients achieving a 1 g/dL or greater increase in hemoglobin at any time point during the study
was 40% in the Auryxia arm vs. 15% in the placebo arm (p-value <0.001). Secondary endpoints in the Phase 3 study include change from baseline to end of Randomized Period for hemoglobin, ferritin, TSAT and serum phosphorus.
NDD-CKD: Phase 2 Clinical Study
In
November 2013, we announced successful top-line results from the U.S.-based Phase 2 study of Auryxia in managing serum phosphorus and iron deficiency anemia in patients with Stage 3 to 5 NDD-CKD. In this study, Auryxia met both co-primary endpoints,
demonstrating highly statistically significant changes in serum phosphorus and TSAT versus placebo over the 12-week treatment period. In addition, Auryxia met the key secondary endpoints of increasing ferritin and hemoglobin, and decreasing
fibroblast growth factor-23, or FGF-23, versus placebo.
Study Design
This Phase 2 study was a multicenter, randomized, double-blind, placebo-controlled clinical trial in subjects with stage 3 to 5 NDD-CKD, with
elevated serum phosphorus ³4.0 mg/dL and iron deficiency anemia. The study consisted of a 2-week washout period (for subjects on a phosphate binder at screening) followed by a 12-week treatment period in
which subjects were randomized 1:1 to receive either Auryxia or placebo. One hundred forty-nine (149) subjects were randomized into the study from 20 sites in the United States.
The use of IV iron and ESAs were not permitted within 8 weeks and 4 weeks prior to the study, respectively, and not permitted during the
course of the study. Oral iron therapy was also not permitted during the course of the study.
Efficacy results were as follows:
Co-Primary and Key Secondary Endpoints
Auryxia met both co-primary and all key secondary endpoints with highly statistically significant results. The Intent-to Treat (ITT) group
included 141 subjects, representing all subjects who took at least one dose of Auryxia or placebo and provided at least one post-baseline efficacy assessment. The co-primary efficacy endpoints of this trial were the mean changes in serum phosphorus
and TSAT from baseline to the end of the 12-week treatment period versus placebo in the ITT group.
|
|
|
|
|
|
|
|
|
Mean Serum Phosphorus (mg/dL) |
|
Placebo (n=69) |
|
|
Auryxia (n=72) |
|
Baseline |
|
|
4.7 |
|
|
|
4.5 |
|
End of Treatment1 (Week 12) |
|
|
4.4 |
|
|
|
3.9 |
|
Treatment Difference p-value2 |
|
|
|
|
|
|
p<0.001 |
|
1 |
Last observation carried forward was used for missing data. |
2 |
P-value is created via an ANCOVA model with treatment as the fixed effect and baseline as the covariate. |
11
|
|
|
|
|
|
|
|
|
TSAT (%) |
|
Placebo (n=69) |
|
|
Auryxia (n=72) |
|
Baseline |
|
|
21 |
|
|
|
22 |
|
End of Treatment1 (Week 12) |
|
|
20 |
|
|
|
32 |
|
Treatment Difference p-value2 |
|
|
|
|
|
|
p<0.001 |
|
1 |
Last observation carried forward was used for missing data. |
2 |
P-value is created via an ANCOVA model with treatment as the fixed effect and baseline as the covariate. |
The key secondary endpoints of the study were the mean changes in ferritin, hemoglobin and FGF-23 from baseline to the end of the 12-week
treatment period versus placebo in the ITT group.
|
|
|
|
|
|
|
|
|
Mean Ferritin (ng/mL) |
|
Placebo (n=69) |
|
|
Auryxia (n=72) |
|
Baseline |
|
|
110 |
|
|
|
116 |
|
End of Treatment1 (Week 12) |
|
|
106 |
|
|
|
189 |
|
Treatment Difference p-value2 |
|
|
|
|
|
|
p<0.001 |
|
1 |
Last observation carried forward was used for missing data. |
2 |
P-value is created via an ANCOVA model with treatment as the fixed effect and baseline as the covariate. |
|
|
|
|
|
|
|
|
|
Mean Hemoglobin (g/dL) |
|
Placebo (n=69) |
|
|
Auryxia (n=72) |
|
Baseline |
|
|
10.6 |
|
|
|
10.5 |
|
End of Treatment1 (Week 12) |
|
|
10.4 |
|
|
|
11.0 |
|
Treatment Difference p-value2 |
|
|
|
|
|
|
p<0.001 |
|
1 |
Last observation carried forward was used for missing data. |
2 |
P-value is created via an ANCOVA model with treatment as the fixed effect and baseline as the covariate. |
|
|
|
|
|
|
|
|
|
Mean Intact FGF-23 (pg/mL) |
|
Placebo (n=60) |
|
|
Auryxia (n=63) |
|
Baseline |
|
|
263 |
|
|
|
319 |
|
End of Treatment1 (Week 12) |
|
|
293 |
|
|
|
200 |
|
Treatment Difference p-value2 |
|
|
|
|
|
|
P=0.017 |
|
1 |
Last observation carried forward was used for missing data. Intact FGF-23 was assessed at baseline, Week 6 and Week 12. |
2 |
P-value is created via an ANCOVA model with treatment as the fixed effect and baseline as the covariate. |
|
|
|
|
|
|
|
|
|
Mean C-Terminal FGF-23 (pg/mL) |
|
Placebo (n=60) |
|
|
Auryxia (n=63) |
|
Baseline |
|
|
511 |
|
|
|
468 |
|
End of Treatment1 (Week 12) |
|
|
579 |
|
|
|
316 |
|
Treatment Difference p-value2 |
|
|
|
|
|
|
p<0.001 |
|
1 |
Last observation carried forward was used for missing data. C-Terminal FGF-23 was assessed at baseline, Week 6 and Week 12. |
2 |
P-value is created via an ANCOVA model with treatment as the fixed effect and baseline as the covariate. |
Auryxia was also highly statistically significant in its mean changes at Week 12 versus baseline for all the above-mentioned co-primary and
key secondary endpoints.
12
Treatment Failures
Patients were discontinued from the study if they had hemoglobin measurements <9.0 g/dL on two consecutive visits or serum phosphorus
measurements ³6.0 mg/dL on two consecutive visits following randomization. Treatment Failures in the study were as follows:
|
|
|
|
|
|
|
|
|
Treatment Failures n (%) |
|
Placebo (n=74) |
|
|
Auryxia (n=75) |
|
Hemoglobin <9.0 g/dL |
|
|
9 |
(12%) |
|
|
1 |
(1%) |
Serum Phosphorus ³6.0 mg/dL |
|
|
2 |
(3%) |
|
|
0 |
(0%) |
Safety and Tolerability Profile
The safety population in the study included all randomized patients who took at least one dose of study drug. We believe that Auryxia appeared
to be safe and well-tolerated in this Phase 2 study, with discontinuation rates of 19% and 32% in the Auryxia and placebo groups, respectively, including Treatment Failures. There were no study discontinuations due to hypophosphatemia in the study.
Serious adverse events occurred in six Auryxia subjects (8%) versus nine placebo subjects (12%). Two deaths were recorded in the
study, both from the placebo group. There were no clinically meaningful or statistically significant differences in serum calcium levels and liver enzymes as measured by ALT and AST.
COSTS AND TIME TO COMPLETE PRODUCT DEVELOPMENT
The information below provides estimates regarding the costs associated with the completion of the current development phase and our current
estimated range of the time that will be necessary to complete such development for Auryxia, which is currently our only product candidate. We also direct your attention to the risk factors which could significantly affect our ability to meet these
cost and time estimates found in this report in Item 1A under the heading Risks Associated with Our Product Development Efforts.
|
|
|
|
|
|
|
|
|
Product candidate |
|
Target indication |
|
Development status |
|
Expected completion of phase |
|
Estimated cost to complete phase |
Auryxia (ferric citrate) |
|
Hyperphosphatemia in CKD |
|
EU MAA submitted and under review |
|
2H 2015 |
|
$1 - $3 million |
|
|
|
|
|
|
|
|
|
Auryxia (ferric citrate) |
|
Iron deficiency anemia in NDD-CKD |
|
Phase 3 ongoing |
|
1Q 2016 |
|
$6 - $8 million |
Completion dates and costs in the above table are estimates and are subject to the uncertainties associated
with regulatory submissions, clinical trials and the related requirements of development. In the cases where the requirements for regulatory submissions, clinical trials and development programs have not been fully defined, or are dependent on the
success of other trials, we cannot estimate trial completion or cost with any certainty. The actual spending on each trial during the year is also dependent on our ability to fund such clinical trials. We therefore direct your attention to
Item 7 under the heading Liquidity and Capital Resources.
INTELLECTUAL PROPERTY AND PATENTS
General
Patents and other
proprietary rights are very important to the development of our business. We will be able to protect our proprietary technologies from unauthorized use by third parties only to the extent that our proprietary rights are covered by valid and
enforceable patents supported by regulatory exclusivity, or are effectively maintained as trade secrets. It is our intention to seek and maintain patent and trade secret protection for our drug candidates and our proprietary technologies. As part of
our business strategy, our policy is to
13
actively file patent applications in the U.S. and, when appropriate, internationally to cover methods of use, processes of manufacture, new chemical compounds, pharmaceutical compositions, dosing
of the compounds and compositions, and improvements in each of these areas. We also rely on trade secret information, technical know-how, innovation and agreements with third parties to continuously expand and protect our competitive position. We
have a number of patents and patent applications related to our compounds and other technology, but we cannot guarantee the scope of protection of the issued patents, or that such patents will survive a validity or enforceability challenge, or that
any of the pending patent applications will issue as patents.
Generally, patent applications in the U.S. are maintained in secrecy for a
period of 18 months or more. Since publication of discoveries in the scientific or patent literature often lag behind actual discoveries, we are not certain that we were the first to make the inventions covered by each of our pending patent
applications or that we were the first to file those patent applications. The patent positions of biotechnology and pharmaceutical companies are highly uncertain and involve complex legal and factual questions. Therefore, we cannot predict the
breadth of claims allowed in biotechnology and pharmaceutical patents, or their enforceability. To date, there has been no consistent policy regarding the breadth of claims allowed in biotechnology patents. Third parties or competitors may challenge
or circumvent our patents or patent applications, if issued. If our competitors prepare and file patent applications in the U.S. that claim technology also claimed by us, we may have to participate in interference or derivation proceedings in front
of the U.S. Patent and Trademark Office to determine priority of invention, which could result in substantial cost, even if the eventual outcome is favorable to us. Because of the extensive time required for development, testing and regulatory
review of a potential product, it is possible that before we commercialize any of our products, any related patent may expire or remain in existence for only a short period following commercialization, thus reducing any advantage of the patent.
However, the life of a patent covering a product that has been subject to regulatory approval may have the ability to be extended through the Patent Term Extension program available under 35 U.S.C. § 156, although any such extension could still
be minimal.
If a patent is issued to a third party containing one or more preclusive or conflicting claims, and those claims are
ultimately determined to be valid and enforceable, we may be required to obtain a license under such patent or to develop or obtain alternative technology. In the event of a litigation involving a third party claim, an adverse outcome in the
litigation could subject us to significant liabilities to such third party, require us to seek a license for the disputed rights from such third party, and/or require us to cease use of the technology. Further, our breach of an existing license or
failure to obtain a license to technology required to commercialize our products may seriously harm our business. We also may need to commence litigation to enforce any patents issued to us or to determine the scope and validity of third-party
proprietary rights. Litigation would involve substantial costs.
Pursuant to our license for Auryxia (ferric citrate) with
Panion & BF Biotech, Inc., or Panion, we have the exclusive commercial rights to a series of patent applications worldwide, excluding certain Asian-Pacific countries. These patents and patent applications include claims directed to
compositions of matter, pharmaceutical compositions, methods of treatment, as well as methods for the manufacture of Auryxia. We have also filed a patent application directed to formulations of certain ferric citrate drug products.
The patent rights that we own or have licensed relating to Auryxia are limited in ways that may affect our ability to exclude third parties
from competing against us. In particular:
|
|
|
Composition of matter patents can provide protection for pharmaceutical products to the extent that the specifically covered compositions are key, non-interchangeable components of the pharmaceutical product. The first
composition of matter and method patent relating to Auryxia in the United States (U.S. Patent No. 5,753,706) expires in February 2017. We licensed additional composition of matter and method of use patents expiring in 2024 with independent
claims covering forms of ferric citrate (the active pharmaceutical ingredient, or API, of Auryxia), pharmaceutical compositions that include the API, pharmaceutical compositions having ferric citrate in an amount effective to reduce serum phosphate
levels, and methods of treating hyperphosphatemia and metabolic acidosis. |
14
|
|
|
Our method of use patents, including U.S. Patent Nos. 7,767,851, 8,299,298 and 8,338,642 and (which expire in 2024), and U.S. Patent No. 8,093,423 (which expires in 2026) only protect the product when used or sold
for the claimed methods. However, these types of patents do not limit a competitor from making and marketing a product that is identical to our product that is labeled for an indication that is outside of our patented methods. |
|
|
|
We have filed applications under the Patent Term Extension provisions of 35 U.S.C. § 156 on the above mentioned patents for delays caused by FDA regulatory review. If granted we can utilize the patent term
extension on one of these patents, however, we cannot assure you that we can obtain any extension of the term of these patents. If obtained, the maximum term of extension available under 35 U.S.C. § 156 would extend the term of the chosen
patent by no more than five years. Upon expiration of these patents, competitors who obtain the requisite regulatory approval may potentially offer products with the same composition and/or method of use as our product, so long as the competitors do
not infringe any other patents that we may hold. |
|
|
|
Our pending patent applications may not issue as patents and may not issue in all countries in which we develop, manufacture or potentially sell our product(s) or in countries where others develop, manufacture and
potentially sell products using our technologies. Moreover, our pending patent applications, if issued as patents, may not provide additional protection for our product. |
In October 2014, we announced that the U.S. Patent and Trademark Office issued U.S. Patent No. 8,846,976. The patent, which expires in
2024, claims a method of treating hyperphosphatemia comprised of administering a therapeutically effective amount of an orally administrable form of Auryxia to a subject, wherein the orally administrable form is prepared from an active
pharmaceutical ingredient having an intrinsic dissolution rate of at least 1.88/mg/cm2/min. In addition, U.S. Patent No. 8,846,976 contains claims directed to the FDA approved dosing and daily administration of Auryxia. This newly
issued patent further enhances our key patent family, which includes U.S. Patent Nos. 7,767,851, 8,299,298, 8,338,642, 8,609,896, 8,754,257 and 8,754,258, which expire in 2024, and U.S. Patent No. 8,093,423, which expires in 2026, before patent
term extension. Each of these patents contains composition and method of use claims covering Auryxia.
In October 2014, following the
regulatory approval of Auryxia in Japan earlier this year, the Japan Patent office granted patent term extensions for patents #4964585 and #4173553, which extended the terms of these patents in Japan to November 2025 and November 2022, respectively.
Obtaining proof of direct infringement by a competitor for a method of use patent requires us to demonstrate that the competitors make
and market a product for the patented use(s). Alternatively we can prove that our competitors induce or contribute others in engaging in direct infringement. Proving that a competitor contributes to, or induces, infringement of a patented method by
another has additional proof requirements. For example, proving inducement of infringement requires proof of intent by the competitor. If we are required to defend ourselves against claims or to protect our own proprietary rights against others, it
could result in substantial costs to us and the distraction of our management. An adverse ruling in any litigation or administrative proceeding could prevent us from marketing and selling Auryxia, increase the risk that a generic version of Auryxia
could enter the market to compete with Auryxia, limit our development and commercialization of Auryxia, or otherwise harm our competitive position and result in additional significant costs. In addition, any successful claim of infringement asserted
against us could subject us to monetary damages or injunction, which could prevent us from making or selling Auryxia. We also may be required to obtain licenses to use the relevant technology. Such licenses may not be available on commercially
reasonable terms, if at all.
Moreover, physicians may prescribe a competitive identical product for indications other than the one for
which the product has been approved, or off-label indications, that are covered by the applicable patents. Although such off-label prescriptions may directly infringe or contribute to or induce infringement of method of use patents, such
infringement is difficult to prevent.
15
In addition, any limitations of our patent protection described above may adversely affect the
value of our product candidate and may inhibit our ability to obtain a corporate partner at terms acceptable to us, if at all.
Other Intellectual
Property Rights
We depend upon trademarks, trade secrets, know-how and continuing technological advances to develop and maintain
our competitive position. To maintain the confidentiality of trade secrets and proprietary information, we require our employees, scientific advisors, consultants and collaborators, upon commencement of a relationship with us, to execute
confidentiality agreements and, in the case of parties other than our research and development collaborators, to agree to assign their inventions to us. These agreements are designed to protect our proprietary information and to grant us ownership
of technologies that are developed in connection with their relationship with us. These agreements may not, however, provide protection for our trade secrets in the event of unauthorized disclosure of such information.
In addition to patent protection, we may utilize orphan drug regulations, pediatric exclusivity or other provisions of the Food, Drug and
Cosmetic Act of 1938, as amended, or FDCA, such as new chemical entity exclusivity or new formulation exclusivity, to provide market exclusivity for a drug candidate. Orphan drug regulations provide incentives to pharmaceutical and biotechnology
companies to develop and manufacture drugs for the treatment of rare diseases, currently defined as diseases that exist in fewer than 200,000 individuals in the U.S., or, diseases that affect more than 200,000 individuals in the U.S. but that the
sponsor does not realistically anticipate will generate a net profit. Under these provisions, a manufacturer of a designated orphan drug can seek tax benefits, and the holder of the first FDA approval of a designated orphan product will be granted a
seven-year period of marketing exclusivity for such FDA-approved orphan product. In the U.S., the FDA has the authority to grant additional data protection for approved drugs where the sponsor conducts specified testing in pediatric or adolescent
populations. If granted, this pediatric exclusivity may provide an additional six months which are added to the term of data protection as well as to the term of a relevant patent, to the extent these protections have not already expired. We may
also seek to utilize market exclusivities in other territories, such as in the EU. We cannot assure that our drug candidate, Auryxia, or any drug candidates we may acquire or in-license, will obtain such orphan drug designation, pediatric
exclusivity, new chemical entity exclusivity or any other market exclusivity in the U.S., EU or any other territory, or that we will be the first to receive the respective regulatory approval for such drugs so as to be eligible for any market
exclusivity protection.
LICENSING AGREEMENTS AND COLLABORATIONS
We have formed strategic alliances with a number of companies for the development, manufacture and commercialization of Auryxia. Our current
key strategic alliances are discussed below.
Panion & BF Biotech, Inc.
In November 2005, we entered into a license agreement with Panion & BF Biotech, Inc. (Panion). Under the license
agreement, we acquired the exclusive worldwide rights, excluding certain Asian-Pacific countries, for the development and marketing of Auryxia. To date, we have paid an aggregate of $9.6 million to Panion and Panion is eligible to receive one
additional milestone payment of $2.0 million upon our successful achievement of European marketing approval, in addition to royalty payments based on a mid-single digit percentage of net sales of Auryxia.
The license agreement terminates upon the expiration of our obligations to pay royalties thereunder. In addition, we may terminate the license
agreement (i) in its entirety or (ii) with respect to one or more countries of the territory covered by the agreement, in either case upon 90 days notice. We and Panion also have the right to terminate the license agreement upon the
occurrence of a breach of a material provision of the license agreement and certain insolvency events.
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Japan Tobacco Inc. and Torii Pharmaceutical Co., Ltd.
In September 2007, we entered into a Sublicense Agreement with JT and Torii, JTs pharmaceutical business subsidiary, under which JT and
Torii obtained the exclusive sublicense rights for the development and commercialization of ferric citrate in Japan, which is being developed and marketed in the U.S. under the trade name Auryxia. JT and Torii are responsible for the future
development and commercialization costs in Japan. Effective as of June 8, 2009, we entered into an Amended and Restated Sublicense Agreement (the Revised Agreement) with JT and Torii, which, among other things, provided for the
elimination of all significant on-going obligations under the sublicense agreement.
In January 2014, JT and Torii received manufacturing
and marketing approval of ferric citrate from the Japanese Ministry of Health, Labour and Welfare. Ferric citrate, launched in May 2014 and being marketed in Japan by JTs subsidiary, Torii Pharmaceutical Co., Ltd., under the brand name Riona®, is indicated as an oral treatment for the improvement of hyperphosphatemia in patients with CKD. Under the terms of the license agreement with JT and Torii, we receive royalty payments
based on a tiered double-digit percentage of net sales of Riona® in Japan escalating up to the mid-teens, as well as up to an additional $55.0 million upon the achievement of certain annual net sales milestones. In accordance with our
revenue recognition policy, royalty revenues are recognized in the quarter that JT and Torii provide their written report and related information to us regarding sales of Riona®, which generally will be one quarter following the quarter in which
the underlying sales by JT and Torii occurred. We record the associated mid-single digit percentage of net sales royalty expense due Panion, the licensor of Auryxia, in the same period as the royalty revenue from JT and Torii is recorded.
The sublicense terminates upon the expiration of all underlying patent rights. Also, JT and Torii may terminate the sublicense agreement with
or without cause upon at least six months prior written notice to us. Additionally, either party may terminate the sublicense agreement for cause upon 60 days prior written notice after the breach of any material provision of the sublicense
agreement, or after certain insolvency events.
COMPETITION
The pharmaceutical and biotechnology industries are highly competitive. Our competitors include pharmaceutical companies and biotechnology
companies, as well as universities and public and private research institutions. In addition, companies that are active in different but related fields represent substantial competition for us. Many of our competitors have significantly greater
capital resources, larger research and development staffs and facilities and greater experience in drug development, regulation, manufacturing and marketing than we do. These organizations also compete with us to recruit qualified personnel, attract
partners for joint ventures or other collaborations, and license technologies that are competitive with ours. To compete successfully in this industry we must identify novel and unique drugs or methods of treatment and then complete the development
of those drugs as treatments in advance of our competitors.
Aluminum-type phosphate binders were widely used in the past. However, the
systemic absorption of aluminum from these agents and the potential toxicity associated with their use no longer make this type of binder a viable long-term treatment option.
Calcium-type phosphate binders are commonly used to bind dietary phosphate; however, they promote positive net calcium balance and an
increased risk of metastatic calcification in many patients, especially in those patients taking vitamin D analogs and those with adynamic bone disease. Calcification of the cardiovascular system is believed to represent a significant risk factor
for morbidity and mortality in patients with CKD.
Non-calcium-based, non-absorbed phosphate binders, including sevelamer hydrochloride
and sevelamer carbonate are among the most prescribed phosphate binders in the U.S. Compared to the calcium-type binders, fewer coronary and aortic calcifications have been documented, however, there is a risk of metabolic acidosis with sevelamer
hydrochloride, as well as the potential for gastrointestinal problems, and sevelamer can affect concomitant vitamin K and vitamin D treatment.
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Lanthanum-type phosphate binders are another alternative. Lanthanum is a rare earth element and
is minimally absorbed in the gastrointestinal tract. Lower level tissue deposition, particularly in bone and liver, has been observed in animals. However, the long-term, potentially harmful, effects due to the accumulation of lanthanum in these
tissues have not been clearly determined.
The need for alternative phosphate-binding agents has long been recognized, especially given
the increasing prevalence of ESRD and shortcomings with current therapies available to such patients.
Auryxia, currently our only drug
product, which we launched in December 2014, is competing with existing therapies. In addition, other companies are pursuing the development of pharmaceuticals that target the same diseases and conditions that we are targeting with Auryxia,
including the treatment of hyperphosphatemia and iron deficiency anemia. Other companies have products or drug candidates in various stages of pre-clinical or clinical development to treat diseases for which we are also seeking to acquire and
develop drug products. Some of these potential competing drugs are further advanced in development than Auryxia and other potential drug candidates we may acquire or in-license, and may be commercialized earlier. Additional information can be found
under Item 1A - Risk Factors Other Risks Related to Our Business within this report.
SUPPLY AND MANUFACTURING
We have limited experience in manufacturing products for clinical or commercial purposes. We intend to continue, in whole or in part, to use
third parties to manufacture and analytically test our drug, Auryxia, for use in clinical trials and for sales.
We believe that we have
established contract manufacturing relationships for the supply of Auryxia to ensure that we will have sufficient material for clinical trials and the ongoing commercial launch. In addition, we are establishing the basis for long-term commercial
production capabilities to supply the potential expanded demand for Auryxia in future years. As with any supply program, obtaining raw materials of the required quality and quantity cannot be guaranteed and we cannot ensure that we will be
successful in this endeavor.
As we continue to build inventory for the expanded commercialization of Auryxia, we intend to engage
additional suppliers to produce Auryxia under current Good Manufacturing Practice, or cGMP, regulations. Our third-party manufacturers have a limited number of facilities in which Auryxia can be produced and will have limited experience in
manufacturing Auryxia in quantities sufficient for commercialization. Our third-party manufacturers will have other clients and may have other priorities that could affect their ability to perform the work satisfactorily and/or on a timely basis.
Both of these occurrences would be beyond our control.
We expect to similarly rely on contract manufacturing relationships for any
products that we may in-license or acquire in the future. However, there can be no assurance that we will be able to successfully contract with such manufacturers on terms acceptable to us, or at all.
Contract manufacturers are subject to ongoing periodic and unannounced inspections by the FDA, the Drug Enforcement Administration and
corresponding state and foreign government agencies to ensure strict compliance with cGMP and other state and federal regulations and corresponding foreign standards. Any of our contractors in Europe face similar challenges from the numerous
European Union and member state regulatory agencies and authorized bodies. We do not have control over third-party manufacturers compliance with these regulations and standards, other than through contractual obligations and periodic auditing.
If they are deemed out of compliance with cGMPs, approvals could be delayed, product recalls could result, inventory could be destroyed, production could be stopped and supplies could be delayed or otherwise disrupted.
If we need to change manufacturers after commercialization, the FDA and corresponding foreign regulatory agencies must approve these new
manufacturers in advance, which will involve testing and additional inspections to ensure compliance with FDA regulations and standards and may require significant lead times and delay, and
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disruption of supply. Furthermore, switching manufacturers may be difficult because the number of potential manufacturers is limited. It may be difficult or impossible for us to find a
replacement manufacturer quickly or on terms acceptable to us, or at all.
GOVERNMENT AND INDUSTRY REGULATION
Numerous governmental authorities, principally the FDA and corresponding state and foreign regulatory agencies, impose substantial regulations
upon the clinical development, manufacture and marketing of Auryxia and any future drug candidate(s), as well as our ongoing research and development activities. Before marketing in the U.S., any drug that we develop must undergo rigorous
pre-clinical testing and clinical trials and an extensive regulatory approval process implemented by the FDA under the FDCA. The FDA regulates, among other things, the pre-clinical and clinical testing, safety, efficacy, approval, manufacturing,
testing, packaging, labeling, storage, recordkeeping, distribution, adverse event reporting, advertising, promotion, and the import and export of biopharmaceutical products.
The regulatory review and approval process is lengthy, expensive and uncertain. We are required to submit extensive pre-clinical, clinical and
manufacturing data and supporting information to the FDA for each indication for use to establish a drug candidates safety and efficacy before we can secure FDA approval to market or sell a product in the U.S. The approval process can take
many years, requires the expenditure of substantial resources, and can include ongoing requirements for post-market surveillance and possibly post-marketing studies. Before commencing clinical trials in humans, we must submit an IND to the FDA
containing, among other things, pre-clinical data, chemistry, manufacturing and control information, and an investigative plan. Our submission of an IND may not result in FDA authorization to commence a clinical trial.
The FDA may permit expedited development, evaluation, and marketing of new therapies intended to treat persons with serious or
life-threatening conditions for which there is an unmet medical need under its fast track drug development programs. A sponsor can apply for fast track designation at the time of submission of an IND, or at any time prior to receiving marketing
approval of the new drug application, or NDA. To receive Fast Track designation, an applicant must demonstrate:
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that the drug is intended to treat a serious or life-threatening condition; and |
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that the drug demonstrates the potential to address unmet medical needs. |
The FDA must respond
to a request for fast track designation within 60 calendar days of receipt of the request. If the FDA determines that the conditions for fast track designation have been met, the FDA will provide a designation letter stating that fast track
designation has been granted for development of the drug product for use in treating serious or life-threatening conditions, and informing the sponsor that development studies must show that the product fulfills unmet medical needs. A fast track
designation applies to the product coupled with the specific indication for which it is being studied, but not to a product alone.
If the
fast track request is incomplete, or the drug development program fails to meet the criteria for fast track designation, the FDA will issue a nondesignation determination. If the sponsor submits a subsequent request for consideration, the FDA will
respond to that request within 60 calendar days of receipt of the subsequent request.
Over the course of drug development, a product in a
fast track development program must continue to meet the criteria for fast track designation. Sponsors of products in fast track drug development programs must be in regular contact with the reviewing division of the FDA to ensure that the evidence
necessary to support marketing approval will be developed and presented in a format conducive to an efficient review. Sponsors of products in fast track drug development programs ordinarily are eligible for priority review of a completed application
in six months or less, if the application submission is supported by clinical data, and also may be permitted to submit portions of a NDA to the FDA for review before the complete application is submitted.
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Sponsors of drugs designated as fast track also may seek approval under the FDAs
accelerated approval regulations. Under this authority, the FDA may grant marketing approval for a new drug product on the basis of adequate and well-controlled clinical trials establishing that the drug product has an effect on a surrogate endpoint
that is reasonably likely, based on epidemiologic, therapeutic, pathophysiologic, or other evidence, to predict clinical benefit or an effect on a clinical endpoint that can be measured earlier than an effect on irreversible morbidity or mortality,
taking into account the threat posed by the condition and whether the drug provides a meaningful advantage over available therapies. Accelerated approval based on a surrogate endpoint or an effect on a clinical endpoint other than survival or
irreversible morbidity will be subject to the requirement that the applicant study the drug further to verify and describe its clinical benefit where there is uncertainty as to the relation of the surrogate endpoint to clinical benefit or
uncertainty as to the relation of the observed clinical benefit to ultimate outcome. When required to be conducted, such post-marketing studies must also be adequate and well-controlled. The applicant must carry out any such post-marketing studies
with due diligence. Failure to conduct such studies, or conducting such studies that do not establish the required safety and efficacy may result in revocation of the original approval. Many companies who have been granted the right to utilize an
accelerated approval approach have failed to obtain approval. In addition, the FDA currently requires as a condition for accelerated approval pre-approval of promotional materials, which could adversely impact the timing of the commercial launch or
subsequent marketing of the product.
Clinical testing must meet requirements for institutional review board oversight, informed consent
and good clinical practices, and must be conducted pursuant to an IND, unless exempted.
For purposes of NDA approval, clinical trials are
typically conducted in the following sequential phases:
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Phase 1: The drug is administered to a small group of humans, either healthy volunteers or patients, to test for safety, dosage tolerance, absorption, metabolism, excretion, and clinical pharmacology. In the case
of some products for severe or life-threatening diseases, the initial human testing is often conducted in patients having the specific disease. |
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Phase 2: Studies are conducted on a larger number of patients to assess the efficacy of the product, to ascertain dose tolerance and the optimal dose range, and to gather additional data relating to safety and
potential adverse events. |
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Phase 3: Studies further evaluate dosage, and establish safety and efficacy in an expanded patient population. Generally, at least two adequate and well-controlled Phase 3 clinical trials are required by the FDA
for approval. |
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Phase 4: The FDA may require Phase 4 post-marketing studies to find out more about the drugs long-term risks, benefits, and optimal use, or to test the drug in different populations. |
The length of time necessary to complete clinical trials varies significantly and may be difficult to predict. Clinical results are frequently
susceptible to varying interpretations that may delay, limit or prevent regulatory approvals. Additional factors that can cause delay or termination of our clinical trials, or that may increase the costs of these trials, include:
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slow patient enrollment due to the nature of the clinical trial plan, the proximity of patients to clinical sites, the eligibility criteria for participation in the study, competing clinical trials or other factors;
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inadequately trained or insufficient personnel at the study site to assist in overseeing and monitoring clinical trials or delays in approvals from a study sites review board; |
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longer treatment time required to demonstrate efficacy or determine the appropriate product dose; |
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insufficient supply of the drug candidates; |
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high drop-out rate in the clinical trial; |
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adverse medical events or side effects in treated patients; and |
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lack of efficacy of the drug candidates. |
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In addition, the FDA, equivalent foreign regulatory authority, or a data safety monitoring
committee for a trial may place a clinical trial on hold or terminate it if it concludes that subjects are being exposed to an unacceptable health risk, or for futility. Any drug is likely to produce some toxicity or undesirable side effects in
animals and in humans when administered at sufficiently high doses and/or for a sufficiently long period of time. Unacceptable toxicity or side effects may occur at any dose level at any time in the course of studies in animals designed to identify
unacceptable effects of a drug candidate, known as toxicological studies, or clinical trials of drug candidates. The appearance of any unacceptable toxicity or side effect could cause us or regulatory authorities to interrupt, limit, delay or abort
the development of any of our drug candidates and could ultimately prevent approval by the FDA or foreign regulatory authorities for any or all targeted indications.
Sponsors of drugs may apply for a Special Protocol Assessment (SPA) from the FDA. Through the SPA process, the FDA provides official
evaluation and written guidance on the design and size of proposed protocols that are intended to form the basis for a new drug application. However, final marketing approval depends on the results of efficacy, the adverse event profile and an
evaluation of the benefit/risk of treatment demonstrated in Phase 3 trials. The SPA agreement may only be changed through a written agreement between the sponsor and the FDA, or if the FDA becomes aware of a substantial scientific issue essential to
product safety or efficacy.
Before receiving FDA approval to market a product, we must demonstrate that the product is safe and effective
for its intended use by submitting to the FDA an NDA containing the pre-clinical and clinical data that have been accumulated, together with chemistry, manufacturing and controls specifications and information, and proposed labeling, among other
things. The FDA may refuse to accept an NDA for filing if certain content criteria are not met and, even after accepting an NDA, the FDA may often require additional information, including clinical data, before issuing approval to market a product.
Whether or not the FDA requests additional information, there is no assurance that the NDA will be approved.
It is also becoming more
common for the FDA to request a Risk Evaluation and Mitigation Strategy, or REMS, as part of a NDA. A REMS plan may contain post-market obligations of the sponsor to, among other things, train prescribing physicians, monitor off-label drug use, and
conduct sufficient Phase 4 follow-up studies and registries to ensure the continued safe use of the drug.
As part of the approval
process, the FDA must inspect and approve each manufacturing facility. Among the conditions of approval is the requirement that a manufacturers quality control and manufacturing procedures conform to current good manufacturing practices
(cGMPs), which are established under FDA regulations. Manufacturers must expend significant time, money and effort to ensure continued compliance, and, in addition to preapproval inspections, the FDA conducts periodic inspections to evaluate
continued compliance with cGMP and other requirements. It may be difficult for our manufacturers or us to comply with applicable cGMPs, as interpreted by the FDA, and other FDA regulatory requirements. If we, or our contract manufacturers, fail to
comply, then the FDA may not allow us to market products that have been affected by the failure to comply.
If the FDA grants approval,
the approval will be limited to those disease states, conditions and patient populations for which the product is deemed by the FDA to be safe and effective, as determined by the FDAs review of the clinical studies and other data submitted in
the NDA. Further, a product may be marketed only in those dosage forms and for those indications approved in the NDA. Certain changes to an approved NDA, including, with certain exceptions, any significant changes to manufacturing, drug product, or
labeling, require approval of a supplemental application before the drug may be marketed as changed. Any products that we manufacture or distribute pursuant to FDA approvals are subject to continuing monitoring and regulation by the FDA, including
compliance with cGMPs and the reporting of field alerts and adverse reactions and experiences with the drugs. The nature of marketing claims that the FDA will permit us to make in the labeling and advertising of our products will be limited to those
specified in FDA approved labeling, and the promotion and advertising of our products will be subject to comprehensive monitoring, review and regulation by the FDA. Drugs whose review was accelerated may carry additional restrictions on marketing
activities, including the requirement that all promotional materials are pre-submitted to the FDA. Claims exceeding or deemed
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inconsistent with those contained in approved labeling, or deemed to be false or misleading, will be deemed by FDA to constitute a violation of the FDCA. Violations of the FDCA or regulatory
requirements at any time during the product development process, approval process, or marketing and sale following approval may result in recalls, warning letters or enforcement actions, including withdrawal of approval, seizure of products,
injunctions, fines and/or civil or criminal penalties. In addition, there may be instances in which the U.S. Department of Justice or Office of Inspector General at the U.S. Department of Health & Human Services pursues an enforcement
action against our company or our contract manufacturers due to manufacturing or marketing activities or due to alleged kickbacks to health care professionals or false claims to the government if we are able to obtain reimbursement for our product.
Any agency enforcement action could have a material adverse effect on our business.
Should we wish to market our products outside the
U.S., we must receive marketing authorization from the appropriate foreign regulatory authorities. The requirements governing the conduct of clinical trials, marketing authorization, pricing and reimbursement vary widely from country to country. At
present, companies may apply for foreign marketing authorizations at a national level. However, within the European Union, registration procedures are available to companies wishing to market a product in more than one European Union member state.
Typically, if the regulatory authority is satisfied that a company has presented adequate evidence of safety, quality and efficacy, then the regulatory authority will grant a marketing authorization. This foreign regulatory approval process,
however, involves risks similar or identical to the risks associated with FDA approval discussed above, and therefore we cannot guarantee that we will be able to obtain the appropriate marketing authorization for any product in any particular
country.
Failure to comply with applicable federal, state and foreign laws and regulations would likely have a material adverse effect on
our business. In addition, federal, state and foreign laws and regulations regarding the manufacture and sale of new drugs are subject to future changes. We cannot predict the likelihood, nature, effect or extent of adverse governmental regulation
that might arise from future legislative or administrative action, either in the U.S. or abroad.
RESEARCH AND DEVELOPMENT
Company sponsored research and development expenses totaled $20.0 million in 2012, $34.7 million in 2013 and $51.5 million in 2014. Research
and development expenses consist primarily of salaries and related personnel costs (including stock-based compensation expense), fees paid to consultants and outside service providers for clinical and laboratory development, manufacturing, including
pre-FDA approval inventory, facilities-related and other expenses relating to the design, development, manufacture, testing, and enhancement of our drug candidates and technologies, as well as expenses related to in-licensing of new product
candidates. See Item 7. Managements Discussion and Analysis of Financial Condition and Results of OperationsOverview.
EMPLOYEES
As of February 17, 2015,
we had 155 full and part-time employees. None of our employees are represented by a collective bargaining agreement, and we have never experienced a work stoppage. We consider our relations with our employees to be good.
You should carefully consider the following risks and uncertainties. If
any of the following occurs, our business, financial condition and/or operating results could be materially harmed. These factors could cause the trading price of our common stock to decline, and you could lose all or part of your investment.
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Risks related to our business and industry
We have a limited operating history and have incurred substantial operating losses since our inception. We expect to continue to incur losses in the
future and may never become profitable.
We have a limited operating history. You should consider our prospects in light of the
risks and difficulties frequently encountered by early stage companies. In addition, we have incurred substantial operating losses since our inception and expect to continue to incur operating losses for the foreseeable future and may never become
profitable. As of December 31, 2014, we had an accumulated deficit of $550.9 million. As we continue our research and development and initial commercial efforts, we will incur increasing losses. We may continue to incur substantial operating
losses even after we begin to generate revenues from our drug, Auryxia. Our ability to achieve profitability depends on a number of factors, including our ability to complete our development efforts, obtain additional regulatory approvals for our
drug, successfully complete any post approval regulatory obligations and successfully manufacture and commercialize our drug.
We are highly
dependent on the commercial success of Auryxia in the U.S. for the foreseeable future; we may be unable to attain profitability and positive cash flow from operations.
In September 2014, the FDA approved Auryxia (formerly known as Zerenex) for the control of serum phosphorus levels in patients with CKD
on dialysis. The commercial success of Auryxia will depend on a number of factors, including:
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the effectiveness of Auryxia as a treatment for adult patients with CKD on dialysis; |
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the size of the treatable patient population; |
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the effectiveness of the sales, managed markets and marketing efforts by us and our competitors; |
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the adoption of Auryxia by physicians, which depends on whether physicians view it as a safe and effective treatment to lower serum phosphorus levels in patients with CKD on dialysis; |
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our ability to both secure and maintain adequate reimbursement for, and optimize patient access to, Auryxia by providing third party payers with a strong value proposition based on the existing burden of illness
associated with CKD patients on dialysis and the benefits of Auryxia; |
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the occurrence of any side effects, adverse reactions or misuse, or any unfavorable publicity in these areas, associated with Auryxia; |
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our ability to obtain and maintain strong intellectual property protection for Auryxia; |
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the development or commercialization of competing products or therapies for the control of serum phosphorus levels in patients with CKD on dialysis; and |
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our ability to identify reliable suppliers and successfully manufacture Auryxia. |
Our revenues
from the commercialization of Auryxia are subject to these and other factors, and therefore may be unpredictable from quarter-to-quarter. Ultimately, we may never generate sufficient revenues from Auryxia to reach or maintain profitability or
sustain our anticipated levels of operations.
Auryxia may cause undesirable side effects or have other properties that could limit its commercial
potential.
The most commonly reported adverse reactions in the clinical trials that supported the approval of Auryxia in the U.S.
were diarrhea (21%), nausea (11%), constipation (8%), vomiting (7%) and cough (6%). Gastrointestinal adverse reactions were the most common reason for discontinuing Auryxia (14%) in clinical trials. If we or others identify previously
unknown side effects, if known side effects are more frequent or severe than in the past, if we or others detect unexpected safety signals for Auryxia or any products perceived to be similar to Auryxia, or if any of the foregoing are perceived to
have occurred, then in any of these circumstances:
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sales of Auryxia may be impaired; |
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regulatory approvals for Auryxia may be restricted or withdrawn; |
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we may decide to, or be required to, send drug warnings or safety alerts to physicians, pharmacists and hospitals, or may decide to conduct a product recall; |
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reformulation of the product, additional nonclinical or clinical studies, changes in labeling or changes to or reapprovals of manufacturing facilities may be required; |
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we may be precluded from pursuing additional development opportunities to enhance the clinical profile of Auryxia within its indicated populations, as well as be precluded from studying Auryxia in additional indications
and populations and in new formulations; and |
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government investigations or lawsuits, including class action suits, may be brought against us. |
Any of the above occurrences would harm or prevent sales of Auryxia, likely increase our expenses and impair our ability to successfully
commercialize Auryxia.
Furthermore, as we explore development opportunities to enhance the clinical profile of Auryxia, any clinical
trials conducted, if successful, may expand the patient populations treated with Auryxia within or outside of its current indications or patient populations, which could result in the identification of previously unknown side effects, increased
frequency or severity of known side effects, or detection of unexpected safety signals. In addition, now that Auryxia will soon be commercially available, it will be used in a wider population and in less rigorously controlled environments than
in clinical studies. As a result, regulatory authorities, healthcare practitioners, third party payers or patients may perceive or conclude that the use of Auryxia is associated with serious adverse effects, undermining our commercialization
efforts.
We rely on third parties to manufacture and analytically test our drug. If these third parties do not successfully manufacture and test
our drug, our business will be harmed.
We have limited experience in manufacturing products for clinical or commercial purposes.
We intend to continue, in whole or in part, to use third parties to manufacture and analytically test our drug for use in clinical trials and for future commercial distribution. We may not be able to enter into future contract agreements with these
third-parties on terms acceptable to us, if at all.
Our ability to conduct clinical trials, manufacture and commercialize our drug will
depend on the ability of such third parties to manufacture our drug on a large scale at a competitive cost and in accordance with current Good Manufacturing Practice regulations, (or cGMPs), and other regulatory requirements, including requirements
from federal, state and local environmental and safety regulatory agencies and foreign regulatory requirements, if applicable. Significant scale-up of manufacturing may result in unanticipated technical challenges and will require validation studies
that are subject to FDA inspection. Scale-up/technology transfer activities can be complex, and insufficient process knowledge can result in a poorly scaled up process with inadequate process control. A lack of process control can lead to increased
deviations during the manufacturing process, out of specification test results, batch rejection and the possible distribution of drug products that do not conform to predetermined specifications. In addition, a variety of factors can affect a
contract manufacturers qualifications to produce acceptable product, including deficiencies in the contractors quality unit, lack of training, a shortage of qualified personnel, capacity constraints and changes in the contractors
commercial or quality related priorities. Any of these difficulties, if they occur, and are not overcome to the satisfaction of the FDA or other regulatory agency, could lead to significant delays and possibly the termination of the development
program for our drug, particularly given that some of the third parties we intend to employ in the manufacturing process are single source providers. These risks become more acute as we scale up for commercial quantities, where a reliable source of
active pharmaceutical ingredient (or API) and a qualified contract manufacturer become critical to commercial success. For example, given the large quantity of materials required for Auryxia production and the large quantities of Auryxia that will
be required for commercial success, the commercial viability of Auryxia will also depend on adequate supply of starting materials that meet quality, quantity and cost
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standards and the ability of our contract manufacturers to produce the API and finished drug product on a commercial scale. Failure to achieve this level of supply can jeopardize and prevent the
successful commercialization of the product. Moreover, issues that may arise in our scale-up/technology transfer of Auryxia can lead to significant delays in our development and commercial timelines.
Our third-party manufacturers may not perform as required under the terms of our supply agreement or quality agreement, or may not remain in
the contract manufacturing business for the time required by us to successfully manufacture and distribute our drug. In addition, our contract manufacturers will be subject to ongoing periodic and unannounced inspections by the FDA and corresponding
foreign governmental agencies to ensure strict compliance with cGMPs, as well as other governmental regulations and corresponding foreign standards. While we periodically audit our contractors for adherence to regulatory requirements, and are
ultimately held responsible for their regulatory compliance, we cannot assure you that unforeseen changes at these contractors will not occur that could change their regulatory standing. The same issues apply to contract analytical services which we
use for quality, impurity and release testing of our drug. We are required by law to establish adequate oversight and control over raw materials, components and finished products furnished by our third-party manufacturers, which we establish by
contract, supplier qualification and periodic audits, but unforeseen circumstances could affect our third-party manufacturers compliance with applicable regulations and standards. As we continue to scale up production, we continue to develop
analytical tools for Auryxia drug substance and drug product testing. Failure to develop effective analytical tools could result in regulatory or technical delay or could jeopardize our ability to obtain FDA approval. Moreover, even with effective
analytical methods available, there is no assurance that we will be able to analyze all the raw materials and qualify all impurities to the satisfaction of the FDA, possibly requiring additional analytical studies, analytical method development, or
preclinical studies, which could significantly delay our ability to receive regulatory approvals for our drug. Additionally, changes in the analytical specifications required by the FDA or other regulatory authority, such as United States
Pharmacopeial Convention standards, from time to time, could delay our ability to receive regulatory approvals for our drug or our commercial efforts. Switching or engaging multiple third-party contractors to produce our drug substance or drug
product may be difficult and time consuming because the number of potential manufacturers may be limited and the process by which multiple manufacturers make the drug substance or drug product must meet established specifications at each
manufacturing facility. It may be difficult and time consuming for us to find and engage replacement or multiple manufacturers quickly and on terms acceptable to us, if at all. For Auryxia, the loss of any of our drug substance or drug product
manufacturers would result in significant additional costs and delays in our development program. Moreover, if we need to add or change manufacturers after commercialization, the FDA and corresponding foreign regulatory agencies must approve any new
manufacturers in advance, which will involve additional inspections to ensure compliance with FDA and foreign regulations and standards.
If we do
not establish or maintain manufacturing, drug development and marketing arrangements with third parties, we may be unable to commercialize our products.
We do not possess all of the capabilities to fully commercialize our product on our own. From time to time, we may need to contract with
additional third parties, or renew or revise contracts with existing third parties, to:
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assist us in developing, testing and obtaining regulatory approval for and commercializing our compound and technologies; and |
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market and distribute our drug. |
We can provide no assurance that we will be able to
successfully enter into agreements with such third parties on terms that are acceptable to us, if at all. If we are unable to successfully contract with third parties for these services when needed, or if existing arrangements for these services are
terminated, whether or not through our actions, or if such third parties do not fully perform under these arrangements, we may have to delay, scale back or end one or more of our drug development programs or seek to develop or commercialize our
product
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independently, which could result in significant delays. Furthermore, such failure could result in the termination of license rights to our product. If these manufacturing, development or
marketing agreements take the form of a partnership or strategic alliance, such arrangements may provide our collaborators with significant discretion in determining the efforts and resources that they will apply to the development and
commercialization of our product. We cannot predict the form or scope that any such collaboration might take, and we may pursue other strategic alternatives if terms or proposed collaborations are not attractive. To the extent that we rely on third
parties to research, develop or commercialize our product, we are unable to control whether such product will be scientifically or commercially successful. Additionally, if these third parties fail to perform their obligations under our agreements
with them or fail to perform their work in a satisfactory manner, in spite of our efforts to monitor and ensure the quality of such work, we may face delays in achieving the business or regulatory milestones required for commercialization of our
current drug and any future drug candidate.
We will incur significant liability if it is determined that we are promoting any off-label
use of Auryxia.
Physicians are permitted to prescribe drug products for uses that are not described in the products labeling
and that differ from those approved by the FDA or other applicable regulatory agencies. Such off-label uses are common across medical specialties. Although the FDA and other regulatory agencies do not regulate a physicians choice
of treatments, the FDA and other regulatory agencies do restrict communications on the subject of off-label use. Companies are not permitted to promote drugs for off-label uses or promote drugs using marketing claims that are not otherwise
consistent with the FDA-approved labeling, including comparative or superiority claims that are not consistent with the FDA-approved labeling or supported by substantial evidence. Accordingly, we may not promote Auryxia in the U.S. for use in any
indications other than for the control of serum phosphorus levels in patients with CKD on dialysis and all promotional claims must be consistent with the FDA-approved labeling for Auryxia. The FDA and other regulatory and enforcement authorities
actively enforce laws and regulations prohibiting promotion of off-label uses and the promotion of products for which marketing approval has not been obtained as well as the false advertising or misleading promotion of drugs. A company that is found
to have improperly promoted off-label uses or to have otherwise engaged in false or misleading promotion of drugs will be subject to significant liability, including civil and administrative remedies as well as criminal sanctions.
Notwithstanding the regulatory restrictions on off-label promotion, the FDA and other regulatory authorities allow companies to engage in
truthful, non-misleading, and non-promotional scientific exchange concerning their products in certain circumstances. We intend to engage in medical education activities and communicate with healthcare providers in compliance with all applicable
laws, regulatory guidance and industry best practices. Although we believe we have put in place a robust compliance program designed to ensure that all such activities are performed in a legal and compliant manner, Auryxia is our first commercial
product, so our implementation of our compliance program in connection with commercialization activities is still relatively new.
If we fail to
comply with healthcare regulations, we could face substantial penalties and our business, operations and financial condition could be adversely affected.
As a manufacturer of pharmaceuticals, even though we do not (and do not expect in the future to) control referrals of healthcare services or
bill directly to Medicare, Medicaid or other third-party payers, certain federal and state healthcare laws and regulations pertaining to fraud and abuse and patients rights are and will be applicable to our business. We are subject to
healthcare fraud and abuse and patient privacy regulation by both the federal government and the states in which we conduct our business. The regulations include:
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federal healthcare program anti-kickback laws, which prohibit, among other things, persons from soliciting, receiving or providing remuneration, directly or indirectly, to induce either the referral of an individual,
for an item or service or the purchasing or ordering of a good or service, for which payment may be made under federal healthcare programs such as Medicare and Medicaid; |
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federal false claims laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payers that
are false or fraudulent, and which may apply to entities like us which provide coding and billing advice to customers; |
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the federal Health Insurance Portability and Accountability Act of 1996, which prohibits executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters and which
also imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information; |
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the Federal Food, Drug, and Cosmetic Act, which among other things, strictly regulates drug product marketing, prohibits manufacturers from marketing drug products for off-label use and regulates the distribution of
drug samples; |
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state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payer, including commercial insurers, 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 often are not preempted by federal laws, thus complicating compliance efforts; |
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the federal Foreign Corrupt Practices Act which prohibits corporations and individuals from paying, offering to pay, or authorizing the payment of anything of value to any foreign government official, government staff
member, political party, or political candidate in an attempt to obtain or retain business or to otherwise influence a person working in an official capacity; and |
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the federal Physician Payments Sunshine Act, which was passed as part of the Patient Protection and Affordable Care Act of 2010, and similar state laws in certain states, that require pharmaceutical and medical device
companies to monitor and report certain payments and transfers of value made to physicians and teaching hospitals. |
If our
operations are found to be in violation of any of the laws described above or any other laws, rules or regulations that apply to us, we will be subject to penalties, including civil and criminal penalties, damages, fines and the curtailment or
restructuring of our operations. Any penalties, damages, fines, curtailment or restructuring of our operations could adversely affect our ability to operate our business and our financial results.
In preparation for the commercial launch of Auryxia, we assembled an experienced compliance team who compiled a program based on industry best
practices that is designed to ensure that our commercialization of Auryxia complies with all applicable laws, regulations and industry standards. We also hire, manage and incentivize our employees around a culture of compliance, trust, respect and
ownership. Because our program is relatively new and the requirements in this area are constantly evolving, we cannot be certain that our program will eliminate all areas of potential exposure. Although compliance programs can mitigate the risk of
investigation and prosecution for violations of these laws, the risks cannot be entirely eliminated. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and
divert our managements attention from the operation of our business, as well as damage our business or reputation. Moreover, achieving and sustaining compliance with applicable federal and state privacy, security, fraud and reporting laws may
prove costly.
If our competitors develop and market products that are less expensive, more effective or safer than our drug product, or our drug
product does not achieve market acceptance vis-à-vis existing treatments, our commercial opportunities may be reduced or eliminated.
The pharmaceutical industry is highly competitive. Our competitors include pharmaceutical companies and biotechnology companies, as well as
universities and public and private research institutions. In addition, companies that are active in different but related fields represent substantial competition for us. Many of our competitors have significantly greater capital resources, larger
research and development staffs and facilities and
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greater experience in drug development, regulation, manufacturing and marketing than we do. These organizations also compete with us to recruit qualified personnel, attract partners for joint
ventures or other collaborations, and license technologies that are competitive with ours. As a result, our competitors may be able to more easily develop technologies and products that could render our drug product obsolete or noncompetitive. To
compete successfully in this industry we must identify novel and unique drugs or methods of treatment and then complete the development of those drugs as treatments in advance of our competitors.
Auryxia will compete in the U.S. with other FDA approved phosphate binders such as
Renagel® (sevelamer hydrochloride) and Renvela® (sevelamer carbonate), both marketed by Genzyme Corporation (a wholly-owned subsidiary
of Sanofi), or Genzyme, PhosLo® (calcium acetate), marketed by Fresenius Medical Care, Fosrenol® (lanthanum carbonate), marketed by
Shire Pharmaceuticals Group plc, and Velphoro® (sucroferric oxyhydroxide), marketed by Fresenius Medical Care North America, as well as over-the-counter calcium carbonate products such as TUMS® and metal-based options such as aluminum and magnesium. Our strategy to compete against these existing treatments depends in part on physicians and patients accepting that Auryxia is
differentiated in the marketplace versus these FDA approved phosphate binders. In addition, we may have to compete against existing treatments on price, which becomes more challenging as generic versions of these existing treatments come to market.
For example, an authorized generic of Renvela® was launched in the U.S. in April 2014 by Impax Laboratories, Inc., or Impax, under a settlement agreement with Genzyme whereby Genzyme agreed to
grant Impax a license to sell a one-time allotment of a specified number of bottles of an authorized generic version of Renvela® tablets. Impax is also pursuing approval of its pending
Abbreviated New Drug Application, or ANDA, for generic Renvela® with the FDA. In addition, a generic formulation of PhosLo®
manufactured by Roxane Laboratories, Inc. was launched in the U.S. in October 2008. In addition, upon the expiration of its core patents, generic formulations of Fosrenol® may be launched.
These generic formulations could have a further material effect on the pricing of phosphate binders.
Furthermore, our commercial
opportunities may be reduced or eliminated if our competitors develop and market products that are less expensive, more effective or safer than our drug product. Other companies have drug candidates in various stages of pre-clinical or clinical
development to treat diseases for which we are also seeking to acquire and develop drug products. Even if we are successful in developing effective drugs, our product(s) may not compete successfully with products produced by our competitors.
If we lose our key personnel or are unable to attract and retain additional personnel, our operations could be disrupted and our business could be
harmed.
As of February 17, 2015, we had 155 full and part-time employees. To successfully develop and commercialize our drug
and any drug candidates we may in-license or acquire, we must be able to attract and retain highly skilled personnel. Our limited resources may hinder our efforts to attract and retain highly skilled personnel. In addition, if we lose the services
of our current personnel our ability to continue to execute on our business plan could be materially impaired. Although we have employment agreements with Ron Bentsur and Greg Madison, these agreements do not prevent them from terminating their
employment with us.
In January 2015, we announced the transitioning of the role of Chief Executive Officer from Ron Bentsur to Greg
Madison. Mr. Madison joined Keryx in February 2014 as Executive Vice President and Chief Operating Officer to transition Keryx from a development-stage organization into a fully integrated commercial entity, bringing to Keryx a wealth of
relevant expertise in both the phosphate binder and iron deficiency anemia markets. Mr. Madison has been appointed President of Keryx and will work with Mr. Bentsur to ensure a successful leadership transition by the end of May, when
Mr. Bentsurs contract expires.
In February 2015, we announced a planned consolidation of our finance and accounting function
into our Boston office and that our Chief Financial Officer, James Oliviero, will be leaving Keryx by October 2015. Mr. Oliviero has been with Keryx for twelve years and has served as the Chief Financial Officer since 2009. We
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have commenced a search for a new Chief Financial Officer who will be based in our Boston office. Mr. Oliviero will continue to manage our finance and accounting team during the remainder of
his tenure and will assist in the transition of his duties to the new Chief Financial Officer.
Risks associated with our product development
efforts
If we do not receive regulatory approvals to market our drug product in a timely manner, or at all, our business will be materially
harmed and our stock price may be adversely affected.
We are developing Auryxia, an oral, ferric iron-based compound that has the
capacity to bind to phosphate and form non-absorbable complexes. In May 2011, we announced positive Scientific Advice from the EMA for the development of Auryxia for the management and control of serum phosphorus in CKD patients undergoing dialysis,
and in NDD-CKD patients. The Scientific Advice from the EMA indicates that our successful Phase 3 program in dialysis in the U.S., in conjunction with safety data generated from other clinical studies with Auryxia, will be considered sufficient to
support a MAA to the EMA for the indication in CKD patients on dialysis. The Scientific Advice also provided us with a regulatory path forward in the NDD-CKD setting in Europe. As a result, we believe that since our Phase 3 program in dialysis, and
Phase 2 study in NDD-CKD, in the U.S. were successful, we will not need to conduct any additional clinical trials to assess the safety or efficacy of Auryxia in order to obtain European approval in CKD, including the dialysis and NDD-CKD settings.
Accordingly, in March 2014, we submitted a MAA with the EMA for both dialysis and NDD-CKD, which was validated by the EMA in March 2014. Scientific Advice is legally non-binding and is based on the current scientific knowledge, which may be subject
to future changes. Many companies which have been provided with positive Scientific Advice by the EMA have ultimately failed to obtain approval of an MAA for their drugs. Additionally, even if the primary endpoint in a Phase 3, or other pivotal,
clinical trial is achieved, the Scientific Advice does not guarantee approval. The EMA may raise issues of safety, study conduct, bias, deviation from the protocol, statistical power and analyses, patient demographics, patient completion rates,
changes in scientific or medical parameters or internal inconsistencies in the data prior to making its final decision, which may delay or prevent EMA approval of Auryxia.
Obtaining approval of an MAA by the EMA is highly uncertain and like many product candidates, we may fail to obtain the approval even though
our MAA has been validated by the EMA. The MAA review processes are extensive, lengthy, expensive and uncertain, and the EMA may delay, limit or deny approval of Auryxia for many reasons, including:
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we may not be able to demonstrate to the satisfaction of the regulatory authority that Auryxia is safe and effective for any indication; |
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the data arising from the clinical trials, including the Phase 3 results for dialysis patients and our Phase 2 results for NDD-CKD, the development program or the MAA for Auryxia may not be satisfactory to the EMA;
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the EMA may disagree with the number, design, size, conduct or implementation of our clinical trials or conclude that the data fails to meet statistical or clinical significance; |
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the EMA may not find the data from preclinical and clinical studies sufficient to demonstrate that Auryxias clinical and other benefits outweigh its safety risks; |
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the EMA may disagree with our interpretation of data from preclinical studies or clinical trials, and may reject conclusions from preclinical studies or clinical trials, or determine that primary or secondary endpoints
from clinical trials were not met, or reject safety conclusions from such studies; |
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the EMA may not accept data generated at one or more of our clinical trial sites; |
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the EMA may determine that we did not properly oversee our clinical trials or follow the regulatory authoritys advice or recommendations in conducting our clinical trials; |
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an advisory committee, if convened by the EMA, may recommend against approval of our application or may recommend that the respective regulatory authority require, as a condition of approval, additional preclinical
studies or clinical trials, limitations on approved labeling or distribution and use restrictions, or even if an advisory committee, if convened, makes a favorable recommendation, the respective regulatory authority may still not approve Auryxia;
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data and analyses submitted to the EMA in response to questions raised during the review processes may not be satisfactory to the regulatory authority, and this may lead to significant delays in the approval of Auryxia
or to the rejection of the Auryxia MAA; and |
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the EMA may identify deficiencies in the chemistry, manufacturing and controls, or CMC, sections of our MAA, our manufacturing processes, facilities or analytical methods or those of our third party contract
manufacturers, and this may lead to significant delays in the approval of Auryxia or to the rejection of the Auryxia MAA. |
Additionally, our March 2014 MAA submission to the EMA was our first MAA filing in Europe. During the regulatory review process, regulatory
agencies will typically ask questions of drug sponsors, such as the Day 120 questions which we received from the EMA for which we submitted our responses in January 2015. We will endeavor to answer all such questions in a timely and complete
fashion; however, we cannot assure you that our answers to such questions will be complete and to the satisfaction of the regulatory agencies. If certain questions asked have not been fully and satisfactorily answered by us, approval of our filings
may be delayed, or the filings may be rejected.
Accordingly, we may not receive the regulatory approvals needed to market Auryxia. Any
failure or delay in completion of the development program or the EMA review processes would delay or foreclose commercialization of Auryxia and severely harm our business and financial condition.
If we are unable to successfully complete our clinical trial programs, or if such clinical trials take longer to complete than we project, our ability
to execute our current business strategy will be adversely affected.
Whether or not and how quickly we complete our clinical
trials is dependent in part upon the rate at which we are able to engage clinical trial sites and, thereafter, the rate of enrollment of patients, and the rate we collect, clean, lock and analyze the clinical trial database. Patient enrollment is a
function of many factors, including the size of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the study, the existence of competitive clinical trials, and whether existing or new drugs are approved
for the indication we are studying. We are aware that other companies are currently conducting or planning clinical trials that seek to enroll patients with the same disease that we are studying. If we experience delays in identifying and
contracting with sites and/or in patient enrollment in our clinical trial programs, we may incur additional costs and delays in our development programs, and may not be able to complete our clinical trials in a cost-effective or timely manner or at
all. In addition, conducting multi-national studies adds another level of complexity and risk. As a result, we may be subject to events affecting countries outside the U.S.
Negative or inconclusive results from the clinical trials we conduct, such as the ongoing Phase 3 study of Auryxia for the treatment of iron
deficiency anemia in patients with NDD-CKD, or unanticipated adverse medical events could cause us to have to repeat or terminate the clinical trials. For example, in May 2012, we abandoned our development efforts and terminated our license for
KRX-0401 (perifosine) following negative results from the Phase 3 trial. We may also opt to change the delivery method, formulation or dosage which could affect efficacy results for the drug. Accordingly, we may not be able to complete our current
or future clinical trials within an acceptable time frame, if at all.
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Pre-clinical testing and clinical development are long, expensive and uncertain processes. If our drug does
not receive the necessary regulatory approvals, we will be unable to commercialize our drug, Auryxia in Europe.
We have not
received, and may never receive, regulatory approval for the commercial sale of Auryxia by the EMA. We may need to conduct significant additional research and human testing before we receive product approval with the EMA or with regulatory
authorities of other countries. Pre-clinical testing and clinical development are long, expensive and uncertain processes. Satisfaction of regulatory requirements typically depends on the nature, complexity and novelty of the product. It requires
the expenditure of substantial resources. Data obtained from pre-clinical and clinical tests can be interpreted in different ways, which could delay, limit or prevent regulatory approval. The EMA or a regulatory authority of another country, as
applicable, may pose additional questions or request further toxicological, drug-drug interaction, pre-clinical or clinical data or substantiation. For example, while Auryxia is a Generally Recognized as Safe, or GRAS, substance in the U.S., and the
EMA has not requested that we conduct a two-year carcinogenicity study in animals, there is no assurance that the EMA or some other regulatory authority will not ask us to conduct such a study in order to obtain regulatory approval. In addition, the
EMA has not requested us to conduct reproductive toxicity, genotoxicity and single-dose toxicity studies and we are referencing such studies from the published scientific literature in our regulatory submissions. However, we can provide no assurance
that the EMA will not ask us to conduct additional studies. We received Day 120 questions from the EMA on our MAA. We provided our responses to the EMAs Day 120 questions in January 2015; however, we cannot assure you that we have answered
these questions to the EMAs satisfaction or that the EMA will not have additional questions as part of the MAA review. Consequently, it may take us many years to complete the testing of our drug and failure can occur at any stage of this
process. Negative, inconclusive, or insufficient results or medical events during a pre-clinical or clinical trial could cause us to delay or terminate our development efforts. Furthermore, interim results of preclinical or clinical studies do not
necessarily predict their final results, and acceptable results in early studies might not be obtained in later studies.
Safety signals
detected during clinical studies and pre-clinical animal studies, such as the gastrointestinal bleeding and liver toxicities that have been seen in some high-dose Auryxia canine studies, may require us to perform additional safety studies or
analyses, which could delay the development of the drug or lead to a decision to discontinue development of the drug. We have submitted to the EMA data from our short-term and long-term rat and canine pre-clinical studies for Auryxia. While the EMA
has reviewed the data from these studies and we have conducted our Phase 3 clinical program for CKD patients on dialysis, and Phase 2 study in NDD CKD patients, we can provide no assurance that the EMA will not raise any safety concerns in the
future from these studies. Drug candidates in the later stages of clinical development may fail to show the desired traits of safety and efficacy despite positive results in earlier clinical testing. Moreover, the risk remains that the safety and
efficacy data from our pivotal Phase 3 program for dialysis dependent CKD patients may be insufficiently persuasive for the approval of the drug, or may raise safety concerns that may prevent approval of the drug, for the indication sought. The risk
also remains that a clinical program conducted by one of our partners may raise efficacy or safety concerns that may prevent approval of the drug. In addition, qualitative, quantitative and statistical interpretation of any of the prior pre-clinical
and clinical safety and efficacy data of our drug may be viewed as flawed by the EMA or any other regulatory agency. In addition, there can be no assurance that safety and/or efficacy concerns from the prior data were not overlooked or
misinterpreted by us or our consultants, which in subsequent, larger studies might appear and prevent approval of such drug candidate. In addition, top-line results reported on completed clinical trials, such as those from our long-term open label
extension, or OLE, study for Auryxia in dialysis-dependent CKD patients, are based on a preliminary analysis of then available data (both safety and efficacy) and there is the risk that such findings and conclusions could change following a more
comprehensive review of the data by a regulatory authority. For example, in January 2013, we announced successful top-line results from our long-term Phase 3 study of Auryxia for the treatment of elevated serum phosphorus levels, or
hyperphosphatemia, in patients with ESRD on dialysis. Updated results from the study were presented in June 2013 at the World Congress of Nephrology. We can provide no assurance that our findings and conclusions from our long-term Phase 3 study of
Auryxia or from our long-term OLE study for Auryxia in dialysis-dependent CKD patients will not change following a more comprehensive review of the data by a regulatory authority.
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Clinical trials have a high risk of failure. A number of companies in the pharmaceutical
industry, including biotechnology companies, have suffered significant setbacks in advanced clinical trials, even after achieving what appeared to be promising results in earlier trials. We experienced such a setback with our Phase 3 KRX-0401
(perifosine) results in April 2012, and we can provide no assurance that we will not experience such setbacks with Auryxia or any other drug candidate we develop. If we experience delays in the testing or approval process for our existing drug or if
we need to perform more or larger clinical trials than originally planned, our financial results and the commercial prospects for our drug may be materially impaired. In addition, we have limited experience in conducting and managing the clinical
trials necessary to obtain regulatory approval. Accordingly, we may encounter unforeseen problems and delays in the approval process. Although we engage, from time to time, clinical research organizations with experience in conducting regulatory
trials, errors in the conduct, monitoring, data capture and analysis, and/or auditing could potentially invalidate the results.
Because all of our
proprietary technologies are licensed or sublicensed to us by third parties, termination of these license rights would prevent us from developing and commercializing Auryxia.
We do not own our drug, Auryxia. We have licensed and sublicensed the rights, patent or otherwise, to Auryxia from a third party,
Panion & BF Biotech, Inc., or Panion, who in turn licenses certain rights to Auryxia from one of the inventors of Auryxia. The license agreement with Panion requires us to meet development milestones and imposes development and
commercialization due diligence requirements on us. In addition, under the agreement, we must pay royalties based on a mid-single digit percentage of net sales of product resulting from the licensed technologies (including Auryxia) and pay the
patent filing, prosecution and maintenance costs related to the license. If we do not meet our obligations in a timely manner or if we otherwise breach the terms of our license agreement (including upon certain insolvency events), Panion could
terminate the agreement, and we would lose the rights to Auryxia. In addition, if Panion breaches its agreement with the inventor from whom it licenses rights to Auryxia, Panion could lose its license, which could impair or delay our ability to
develop and commercialize Auryxia. From time to time, we may have disagreements with our licensors or collaborators, or they and/or we may have disagreements with the original inventors, regarding the terms of our agreements or ownership of
proprietary rights, which could lead to delays in the research, development and commercialization of our current drug and any future drug candidate, could require or result in litigation or arbitration, which would be time-consuming and expensive,
or could lead to the termination of a license, or force us to negotiate a revised or new license agreement on terms less favorable than the original. In addition, in the event that the owners and/or licensors of the rights we license were to enter
into bankruptcy or similar proceedings, we could potentially lose our rights to our drug or drug candidates or our rights could otherwise be adversely affected, which could prevent us from developing or commercializing our drugs. Finally, our rights
to develop and commercialize Auryxia, whether ourselves or with third parties, are subject to and limited by the terms and conditions of our licenses to Auryxia and the licenses and sublicenses we grant to others.
Our reliance on third parties, such as clinical research organizations, or CROs, may result in delays in completing, or a failure to complete, clinical
trials if such CROs fail to perform under our agreements with them.
In the course of product development, we engage CROs and other
vendors to conduct and manage clinical studies and to assist us in guiding our products through the FDA review and approval process. If the CROs or applicable vendors fail to perform their obligations under our agreements with them or fail to
perform clinical trials in a satisfactory or timely manner, we may face significant delays in completing our clinical trials, submitting our regulatory filings, or approval, as well as the commercialization of one or more drug candidates.
Furthermore, any loss or delay in obtaining contracts with such entities may also delay the completion of our clinical trials and the market approval of drug candidate(s).
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Other risks related to our business.
Any acquisitions we make may require a significant amount of our available cash and may not be scientifically or commercially successful.
As part of our business strategy, we may effect acquisitions to obtain additional businesses, products, technologies, capabilities and
personnel. If we make one or more significant acquisitions in which the consideration includes cash, we may be required to use a substantial portion of our available cash.
Acquisitions involve a number of operational risks, including:
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difficulty and expense of assimilating the operations, technology and personnel of the acquired business; |
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our inability to retain the management, key personnel and other employees of the acquired business; |
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our inability to maintain the acquired companys relationship with key third parties, such as alliance partners; |
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exposure to legal claims for activities of the acquired business prior to the acquisition; |
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the diversion of our managements attention from our core business; and |
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the potential impairment of goodwill and write-off of in-process research and development costs, adversely affecting our reported results of operations. |
The status of reimbursement from third-party payors for newly approved health care drugs is uncertain and failure to obtain adequate reimbursement could
limit our ability to generate revenue.
Our ability to commercialize pharmaceutical products may depend, in part, on the extent to
which reimbursement for the products will be available from:
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government and health administration authorities; |
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private health insurers; |
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managed care programs; and |
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other third-party payors. |
Significant uncertainty exists as to the coverage and reimbursement
status of newly approved health care products, as well as the timing of coverage and reimbursement decisions by third-party payors. Third-party payors, including Medicare and Medicaid, are challenging the prices charged for medical products and
services. Government and other third-party payors increasingly are attempting to contain health care costs by limiting both coverage and the level of reimbursement for new drugs and by refusing, in some cases, to provide coverage for uses of
approved products for disease indications for which the FDA has not granted labeling approval. In 2003, Congress passed the Medicare Prescription Drug, Improvement and Modernization Act of 2003, which for the first time established prescription drug
coverage for Medicare beneficiaries, under Medicare Part D. Under this program, beneficiaries purchase insurance coverage from private insurance companies to cover the cost of their prescription drugs. However, third-party insurance coverage may not
be available to patients for our product. If government and other third-party payors do not provide adequate coverage and reimbursement levels for our product, its market acceptance may be significantly reduced.
Health care reform measures could adversely affect our business.
The business prospects and financial condition of pharmaceutical and biotechnology companies are affected by the efforts of governmental and
third-party payors to contain or reduce the costs of health care. In the U.S. and in foreign jurisdictions there have been, and we expect that there will continue to be, a number of legislative and
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regulatory proposals aimed at changing the health care system, such as proposals relating to the pricing of healthcare products and services in the U.S. or internationally, the reimportation of
drugs into the U.S. from other countries (where they are then sold at a lower price), and the amount of reimbursement available from governmental agencies or other third party payors. For example, drug manufacturers are required to have a national
rebate agreement with the Department of Health and Human Services, or HHS, in order to obtain state Medicaid coverage, which requires manufacturers to pay a rebate on drugs dispensed to Medicaid patients. On January 27, 2012, the Centers for
Medicare and Medicaid Services, or CMS, issued a proposed regulation covering the calculation of Average Manufacturer Price, or AMP, which is the key variable in the calculation of these rebates.
Furthermore, in the U.S., health care reform legislation titled the Patient Protection and Affordable Care Act, or PPACA, was signed into law
in March 2010. The impact of this legislation on our business is inherently difficult to predict as many of the details regarding the implementation of this legislation have not been determined. In a decision issued on June 29, 2012, the United
States Supreme Court upheld the majority of PPACA. The Courts decision allows implementation of key provisions impacting drug and device manufacturers to go forward. This includes PPACA changes to the Medicare Part D Program (including closing
the donut hole), Medicaid Drug Rebate Program (including the definition of AMP), and expansion of the 340B Drug Discount Program. The decision also allows the FDA and CMS to continue with implementation efforts, including related to the
Biologics Price Competition and Innovation Act and the Physician Payments Sunshine Act, both of which were enacted as part of the PPACA. Regulations to implement PPACA could result in a decrease in our stock price or limit our ability to raise
capital or to obtain strategic partnerships or licenses. Government-financed comparative efficacy research could also result in new practice guidelines, labeling or reimbursement policies that discourages use of our product.
For example, in July 2010, CMS released its final rule to implement a bundled prospective payment system for end-stage renal disease
facilities as required by the Medicare Improvements for Patients and Providers Act, or MIPPA. The final rule delayed the inclusion of oral medications without intravenous equivalents, such as phosphate binders, in the bundle until January 1,
2014; however, on January 3, 2013, the United States Congress passed legislation known as the American Taxpayer Relief Act of 2012, which, among other things, delayed by two years the implementation of oral-only end-stage renal disease related
drugs, including phosphate binders, in the bundled ESRD prospective payment system, until January 1, 2016. In April 2014, the United States Congress passed legislation known as Protecting Access to Medicare Act of 2014, which, among other
things, delays by eight years the implementation of oral-only ESRD related drugs, including phosphate binders, in the bundled ESRD prospective payment system, until January 1, 2025. If phosphate binders are included in the bundle beginning in
2025, or earlier, separate Medicare reimbursement will no longer be available for phosphate binders, as it is today under Medicare Part D. While it is too early to project the impact bundling may have on the phosphate binder industry, the impact
could potentially cause dramatic price reductions for phosphate binders, which could significantly reduce the commercial potential of Auryxia.
On September 27, 2007, the Food and Drug Administration Amendments Act of 2007 was enacted, giving the FDA enhanced post-market
authority, including the authority to require post-marketing studies and post-marketing clinical trials related to serious risks, labeling changes based on new safety information, and compliance with risk evaluation and mitigation strategies
approved by the FDA. The FDAs exercise of this authority may result in delays or increased costs during the period of product development, clinical trials and regulatory review and approval, which may also increase costs related to complying
with new post-approval regulatory requirements, and increase potential FDA restrictions on the sale or distribution of approved products. On July 9, 2012, the Food and Drug Administration Safety and Innovation Act was enacted to, among other
things, renew the drug user fee program, expand the FDAs inspection records access and require manufacturers to establish appropriate oversight and controls over their suppliers and the supply chain, including raw material suppliers and
contract manufacturers, as a part of cGMP compliance. On November 27, 2013, the Drug Quality and Security Act, which includes the Drug Supply Chain Security Act, was signed into law to, among other things, build an electronic, interoperable
system to identify and trace certain prescription drugs as they are
34
distributed in the United States. Requirements for the tracing of products through the pharmaceutical distribution supply chain took effect on January 1, 2015 for manufacturers and building
internal systems to ensure compliance with this law will require dedication of resources. In addition, this law requires engaging in transactions only with authorized trading partners and could limit our pool of available trading partners.
We face product liability risks and may not be able to obtain adequate insurance.
The use of our drug or future drug candidates in clinical trials, and the future sale of any approved drug and new technology, exposes us to
liability claims. Although we are not aware of any historical or anticipated product liability claims against us, if we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to
cease clinical trials of our drug product or limit commercialization of any approved product.
We have expanded our insurance coverage to
include the commercial sale of Auryxia; however, insurance coverage is becoming increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost. We also may not be able to obtain additional insurance coverage that will
be adequate to cover product liability risks that may arise. Regardless of merit or eventual outcome, product liability claims may result in:
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decreased demand for a product; |
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injury to our reputation; |
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our inability to continue to develop a drug candidate; |
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withdrawal of clinical trial volunteers; and |
Consequently, a product liability claim or product recall may result in
losses that could be material to our business.
Security breaches and other disruptions could compromise our information and expose us to liability,
which would cause our business and reputation to suffer.
In the ordinary course of our business, we collect and store sensitive
data, including intellectual property, our proprietary business information and that of our suppliers and business partners, as well as personally identifiable information of Auryxia patients, clinical trial participants and employees. We also have
outsourced elements of our information technology structure, and as a result, we are managing independent vendor relationships with third parties who may or could have access to our confidential information. Similarly, our business partners and
other third party providers possess certain of our sensitive data. The secure maintenance of this information is critical to our operations and business strategy. Despite our security measures, our information technology and infrastructure may be
vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. We, our partners, vendors and other third party providers could be susceptible to third party attacks on our, and their, information security
systems, which attacks are of ever increasing levels of sophistication and are made by groups and individuals with a wide range of motives and expertise, including criminal groups. Any such breach could compromise our, and their, networks and the
information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal
information, disrupt our operations, and damage our reputation, any of which could adversely affect our business.
Risks related to our financial
condition
Our existing capital resources may not be adequate to finance our operating cash requirements for the length of time that we have
estimated.
We currently expect that our existing capital resources combined with future anticipated cash flows will be sufficient
to execute our business plan. The actual amount of cash that we will need to operate is subject to many
35
factors, including, but not limited to, the timing and expenditures associated with the build-up of inventory and capacity expansion, the timing and expenditures associated with the regulatory
review process for our EU MAA filing, the timing and expenditures associated with commercial activities related to Auryxia, and the timing, design and conduct of clinical trials for Auryxia. As a result of these factors, we may need to seek
additional financings to provide the cash necessary to execute our current operations, including beyond the initial commercialization of Auryxia, and to develop any drug candidates we may in-license or acquire.
Our forecast of the period of time through which our existing capital resources will be adequate to support our current operations is a
forward-looking statement that involves risks and uncertainties. The actual amount of funds we will need to operate is subject to many factors, some of which are beyond our control. These factors include, but are not limited to, the following:
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the timing and expenditures associated with the build-up of inventory and capacity expansion; |
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the timing and expenditures associated with the regulatory review process for our EU MAA filing; |
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the timing and expenditures associated with commercial activities related to Auryxia; |
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the timing, design and conduct of, and results from, clinical trials for Auryxia; |
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the timing of expenses associated with manufacturing and product development of Auryxia and those proprietary drug candidates that may be in-licensed, partnered or acquired; |
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the timing of the in-licensing, partnering and acquisition of new product opportunities; |
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the progress of the development efforts of parties with whom we have entered, or may enter, into research and development agreements; |
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our ability to achieve our milestones under our licensing arrangement; |
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the timing and expenses associated with capital expenditures to expand our manufacturing capabilities; |
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the timing and expenses associated with building our own commercial infrastructure to manufacture, market and sell our drug and those that may be in-licensed, partnered or acquired; |
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the costs involved in prosecuting and enforcing patent claims and other intellectual property rights or defending against claims of infringement initiated by third parties in respect of their intellectual property
rights; and |
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the timing and magnitude of cash received from product sales. |
If our cash is insufficient to
meet future operating requirements, we will have to raise additional funds. If we are unable to obtain additional funds on terms favorable to us or at all, we may be required to cease or reduce our operating activities or sell or license to third
parties some or all of our intellectual property. If we raise additional funds by selling additional shares of our capital stock, the ownership interests of our stockholders will be diluted. If we need to raise additional funds through the sale or
license of our intellectual property, we may be unable to do so on terms favorable to us, if at all.
Risks related to our intellectual property and
third-party contracts
If we are unable to adequately protect our intellectual property, third parties may be able to use our intellectual
property, which could adversely affect our ability to compete in the market.
Our commercial success will depend in part on our
ability, and the ability of our licensors, to obtain and maintain patent protection on our drug product and technologies, and to successfully defend these patents against third-party challenges. The patent positions of pharmaceutical and
biotechnology companies can be highly uncertain and involve complex legal and factual questions. No consistent policy regarding the breadth of claims allowed in biotechnology patents has emerged to date. Accordingly, the patents we use may not be
sufficiently broad to prevent others from practicing our technologies or from developing competing products. Furthermore,
36
others may independently develop similar or alternative drug products or technologies or design around our patented drug product and technologies which may have an adverse effect on our business.
If our competitors prepare and file patent applications in the U.S. that claim technology also claimed by us, we may have to participate in interference or derivation proceedings in front of the U.S. Patent and Trademark Office to determine priority
of invention, which could result in substantial cost, even if the eventual outcome is favorable to us. Because of the extensive time required for development, testing and regulatory review of a potential product, it is possible that any related
patent may expire prior to, or remain in existence for only a short period following, commercialization, thus reducing any advantage of the patent. The patents we use may be challenged or invalidated or may fail to provide us with any competitive
advantage. As many of the patents we use are licensed or sublicensed from third parties, we may not be able to enforce such licensed patents against third party infringers without the cooperation of the patent owner and the licensor, which may not
be forthcoming. In addition, we may not be successful or timely in obtaining any patents for which we submit applications.
Additionally,
the laws of foreign countries may not protect our intellectual property rights to the same extent as do the laws of the U.S. In addition, in jurisdictions outside the U.S. where we own or license patent rights, we may be unable to prevent unlicensed
parties from selling or importing products or technologies derived elsewhere using our proprietary technology.
We also rely on trade
secrets and know-how to protect our intellectual property where we believe patent protection is not appropriate or obtainable. Trade secrets are difficult to protect. While we require our employees, licensees, collaborators and consultants to enter
into confidentiality agreements, this may not be sufficient to adequately protect our trade secrets or other proprietary information. In addition, we share ownership and publication rights to data relating to our drug product and technologies with
our research collaborators and scientific advisors. If we cannot maintain the confidentiality of this information, our ability to receive patent protection or protect our trade secrets or other proprietary information will be at risk.
The intellectual property that we own or have licensed relating to our drug, Auryxia, is limited, which could adversely affect our ability to compete in
the market and adversely affect the value of Auryxia.
The patent rights that we own or have licensed relating to Auryxia are
limited in ways that may affect our ability to exclude third parties from competing against us. In particular:
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Composition of matter patents can provide protection for pharmaceutical products to the extent that the specifically covered compositions are key, non-interchangeable components of the pharmaceutical product. The first
composition of matter and method patent relating to Auryxia in the United States (U.S. Patent No. 5,753,706) expires in February 2017. We licensed additional composition of matter and method of use patents expiring in 2024 with independent
claims covering forms of ferric citrate (the active pharmaceutical ingredient, or API, of Auryxia), pharmaceutical compositions that include the API, pharmaceutical compositions having ferric citrate in an amount effective to reduce serum phosphate
levels, and methods of treating hyperphosphatemia and metabolic acidosis. |
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Our method of use patents, including U.S. Patent Nos. 7,767,851, 8,299,298 and 8,338,642 and (which expire in 2024), and U.S. Patent No. 8,093,423 (which expires in 2026) only protect the product when used or sold
for the claimed methods. However, these types of patents do not limit a competitor from making and marketing a product that is identical to our product that is labeled for an indication that is outside of our patented methods. |
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We have filed applications under the Patent Term Extension provisions of 35 U.S.C. § 156 on the above mentioned patents for delays caused by FDA regulatory review. If granted we can utilize the patent term
extension on one of these patents, however, we cannot assure you that we can obtain any extension of the term of these patents. If obtained, the maximum term of extension available under 35 U.S.C. § 156 would extend the term of the chosen
patent by no more than five years. Upon expiration of these patents, competitors who obtain the requisite regulatory approval may potentially offer products with the same composition and/or method of use as our product, so long as the competitors do
not infringe any other patents that we may hold. |
37
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Our pending patent applications may not issue as patents and may not issue in all countries in which we develop, manufacture or potentially sell our product(s) or in countries where others develop, manufacture and
potentially sell products using our technologies. Moreover, our pending patent applications, if issued as patents, may not provide additional protection for our product. |
Obtaining proof of direct infringement by a competitor for a method of use patent requires us to demonstrate that the competitors make and
market a product for the patented use(s). Alternatively we can prove that our competitors induce or contribute others in engaging in direct infringement. Proving that a competitor contributes to, or induces, infringement of a patented method by
another has additional proof requirements. For example, proving inducement of infringement requires proof of intent by the competitor. If we are required to defend ourselves against claims or to protect our own proprietary rights against others, it
could result in substantial costs to us and the distraction of our management. An adverse ruling in any litigation or administrative proceeding could prevent us from marketing and selling Auryxia, increase the risk that a generic version of Auryxia
could enter the market to compete with Auryxia, limit our development and commercialization of Auryxia, or otherwise harm our competitive position and result in additional significant costs. In addition, any successful claim of infringement asserted
against us could subject us to monetary damages or injunction, which could prevent us from making or selling Auryxia. We also may be required to obtain licenses to use the relevant technology. Such licenses may not be available on commercially
reasonable terms, if at all.
Moreover, physicians may prescribe a competitive identical product for indications other than the one for
which the product has been approved, or off-label indications, that are covered by the applicable patents. Although such off-label prescriptions may directly infringe or contribute to or induce infringement of method of use patents, such
infringement is difficult to prevent.
In addition, any limitations of our patent protection described above may adversely affect the
value of our drug product and may inhibit our ability to obtain a corporate partner at terms acceptable to us, if at all.
In addition to
patent protection, we may utilize pediatric exclusivity or other provisions of the Food, Drug and Cosmetic Act of 1938, as amended, or FDCA, such as new chemical entity exclusivity, or NCE, or new formulation exclusivity, to provide market
exclusivity for a drug candidate.
In the U.S., the FDA has the authority to grant additional data protection for approved drugs where the
sponsor conducts specified testing in pediatric or adolescent populations. If granted, this pediatric exclusivity may provide an additional six months which are added to the term of data protection as well as to the term of a relevant patent, to the
extent these protections have not already expired.
The FDCA provides a five-year period of non-patent marketing exclusivity within the
U.S. to the first applicant to gain approval of an NDA for a New Chemical Entity, or NCE. A drug is an NCE if the FDA has not previously approved any other new drug containing the same active moiety, which consists of the molecule(s) or ion(s)
responsible for the action of the drug substance. During the exclusivity period, the FDA may not accept for review an ANDA or a 505(b)(2) NDA submitted by another company for another version of such drug where the applicant does not own or have a
legal right of reference to all the data required for approval. However, an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement. The FDCA also provides three years of marketing
exclusivity for an NDA, 505(b)(2) NDA or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the
application (for example, for new indications, dosages, or strengths of an existing drug). This three-year exclusivity covers only the conditions associated with the new clinical investigations and does not prohibit the FDA from approving ANDAs for
drugs containing the original active agent. Five-year and three-year exclusivity will not delay the submission or tentative approval of a full ANDA; however, an applicant submitting a full ANDA would be required to conduct sufficient studies to
demonstrate that their generic product is bioequivalent to Auryxia.
38
We may also seek to utilize market exclusivities in other territories, such as in the EU.
We cannot assure that Auryxia or any drug candidates we may acquire or in-license, will obtain such pediatric exclusivity, NCE exclusivity or
any other market exclusivity in the U.S., EU or any other territory, or that we will be the first to receive the respective regulatory approval for such drugs so as to be eligible for any market exclusivity protection. We also cannot assure that
Auryxia or any drug candidates we may acquire or in-license will obtain patent term extension.
Litigation or third-party claims could require us to
spend substantial time and money defending such claims and adversely affect our ability to develop and commercialize our product.
We may be forced to initiate litigation to enforce our contractual and intellectual property rights, or we may be sued by third parties
asserting claims based on contract, tort or intellectual property infringement. In addition, third parties may have or may obtain patents in the future and claim that Auryxia or any other technologies infringe their patents. If we are required to
defend against suits brought by third parties, or if we sue third parties to protect our rights, we may be required to pay substantial litigation costs, and our managements attention may be diverted from operating our business. In addition,
any legal action against our licensor or us that seeks damages or an injunction of our commercial activities relating to Auryxia or other technologies could subject us to monetary liability, a temporary or permanent injunction preventing the
development, marketing and sale of Auryxia or such technologies, and/or require our licensor or us to obtain a license to continue to use Auryxia or other technologies. We cannot predict whether our licensor or we would prevail in any of these types
of actions or that any required license would be made available on commercially acceptable terms, if at all.
Risks Related to Our Common Stock
Future sales or other issuances of our common stock could depress the market for our common stock.
Sales of a substantial number of shares of our common stock, or the perception by the market that those sales could occur, could cause the
market price of our common stock to decline or could make it more difficult for us to raise funds through the sale of equity in the future.
On January 21, 2015, we announced the pricing of an underwritten public offering in which we sold 10,541,667 shares of our common stock
at a price of $12.00 per share for gross proceeds of approximately $126.5 million. Net proceeds from this offering were approximately $118.3 million, net of underwriting discounts and offering expenses of approximately $8.2 million. The shares were
sold under Registration Statements (Nos. 333-201605 and 333-201639) on Form S-3 and Form S-3MEF, respectively, filed by us with the Securities and Exchange Commission.
We may need to seek additional financing to provide cash necessary to execute our current operations, including beyond the initial
commercialization of Auryxia, and to develop any drug candidates we may in-license or acquire. Future issuances of common stock could depress the market for our common stock.
If we make one or more significant acquisitions in which the consideration includes stock or other securities, our stockholders holdings
may be significantly diluted. In addition, stockholders holdings may also be diluted if we enter into arrangements with third parties permitting us to issue shares of common stock in lieu of certain cash payments upon the achievement of
milestones.
Our stock price can be volatile, which increases the risk of litigation, and may result in a significant decline in the value of your
investment.
The trading price of our common stock is likely to be highly volatile and subject to wide fluctuations in price in
response to various factors, many of which are beyond our control. These factors include:
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announcements of technological innovations by us or our competitors; |
39
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introductions or announcements of new products by us or our competitors; |
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announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments involving us or our competitors; |
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changes in financial estimates by securities analysts; |
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actual or anticipated variations in quarterly or annual operating results; |
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developments relating to the marketing, safety and efficacy of our drug product, and regulatory filings and approvals for us or our competitors; |
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expectations regarding our financial condition; |
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expiration or termination of licenses, research contracts or other collaboration agreements; |
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expectations or investor speculation regarding the strength of our intellectual property position, or the availability of other forms of regulatory exclusivity; |
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conditions or trends in the regulatory climate and the biotechnology and pharmaceutical industries; |
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changes in the market valuations of similar companies; |
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negative comments and sentiment in the media; and |
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additions or departures of key personnel. |
In addition, equity markets in general, and the
market for biotechnology and life sciences companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies traded in those markets. These
broad market and industry factors may materially affect the market price of our common stock, regardless of our development and operating performance. In the past, following periods of volatility in the market price of a companys securities,
securities class-action litigation has often been instituted against that company. For example, in the past, we have been the subject of a putative stockholders securities class action alleging misstatements or omissions in relation to our clinical
trials for KRX-0401 (perifosine), which we abandoned in May 2012 following negative Phase 3 results. Any litigation instituted against us could cause us to incur substantial costs to defend such claims and divert managements attention and
resources, which could seriously harm our business.
Certain anti-takeover provisions in our charter documents and Delaware law could make a
third-party acquisition of us difficult. This could limit the price investors might be willing to pay in the future for our common stock.
Provisions in our amended and restated certificate of incorporation and bylaws could have the effect of making it more difficult for a third
party to acquire, or of discouraging a third party from attempting to acquire, or control us. These factors could limit the price that certain investors might be willing to pay in the future for shares of our common stock. Our amended and restated
certificate of incorporation allows us to issue preferred stock without the approval of our stockholders. The issuance of preferred stock could decrease the amount of earnings and assets available for distribution to the holders of our common stock
or could adversely affect the rights and powers, including voting rights, of such holders. In certain circumstances, such issuance could have the effect of decreasing the market price of our common stock. Our amended and restated bylaws eliminate
the right of stockholders to call a special meeting of stockholders, which could make it more difficult for stockholders to effect certain corporate actions. Any of these provisions could also have the effect of delaying or preventing a change in
control.
ITEM 1B. |
UNRESOLVED STAFF COMMENTS. |
None.
40
Our corporate and executive office is located in New York, New York. Our
New York facility consists of approximately 18,500 square feet of leased space at 750 Lexington Avenue, New York, New York 10022, with a lease term through September 30, 2016. We were a party to an office sharing agreement with a third-party
for a portion of our leased space through September 29, 2014.
In March 2014, we entered into a sublease for approximately 10,395
square feet of leased office space in Boston, Massachusetts, with a term through December 31, 2015.
ITEM 3. |
LEGAL PROCEEDINGS. |
We, and our subsidiaries, are not a party to, and our property is
not the subject of, any material pending legal proceedings, except as stated below.
On February 1, 2013, a lawsuit was filed against
us and our chief executive officer on behalf of a putative class of all of our shareholders (other than the defendants) who acquired our shares between June 1, 2009 and April 1, 2012. Smith v. Keryx Biopharmaceuticals, Inc., et al., Case
No. 1:13-CV-0755-TPG (S.D.N.Y.). On February 26, 2013, a substantially similar lawsuit was filed against us and our chief executive officer as well as our chief financial officer. Park v. Keryx Biopharmaceuticals, Inc., et al., Case
No. 1:13-CV-1307-TPG (S.D.N.Y.). On June 10, 2013, the Court entered an Order consolidating the two lawsuits and appointing a lead plaintiff. The case was styled In re Keryx Biopharmaceuticals, Inc. Securities Litigation, Case
No. 1:13-CV-0755-KBF (S.D.N.Y.). On July 10, 2013, the lead plaintiff filed a Consolidated Amended Complaint that, in substance, repeated the claims alleged in the consolidated lawsuits. The Consolidated Amended Complaint asserted claims
against (i) us for alleged violations of Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 promulgated thereunder and (ii) our chief executive officer for alleged violations of Sections
10(b) and 20(a) of the Exchange Act and Rule 10b-5. The claims in the Consolidated Amended Complaint were premised on general allegations that we and the individual defendant participated directly or indirectly in the preparation and/or issuance of
purportedly false and misleading earnings reports, SEC filings, press releases, and other public statements, which allegedly caused our stock to trade at artificially inflated prices. On August 26, 2013, we filed a motion to dismiss the
Consolidated Amended Complaint. On February 14, 2014, the Court entered an Opinion and Order granting the motion to dismiss. The Court entered Judgment for the Defendants on February 24, 2014. The lead plaintiff did not appeal the Judgment
and this matter is now concluded.
ITEM 4. |
MINE SAFETY DISCLOSURES. |
Not applicable
41
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information
Our
common stock is listed on the Nasdaq Capital Market and trades under the symbol KERX.
The following table sets forth the high
and low closing sale prices of our common stock for the periods indicated.
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High |
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Low |
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Fiscal Year Ended December 31, 2014 |
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Fourth Quarter |
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$ |
17.20 |
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|
$ |
13.57 |
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Third Quarter |
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$ |
18.19 |
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|
$ |
12.71 |
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Second Quarter |
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$ |
17.03 |
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$ |
12.11 |
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First Quarter |
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$ |
17.04 |
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$ |
12.16 |
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High |
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Low |
|
Fiscal Year Ended December 31, 2013 |
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Fourth Quarter |
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$ |
14.68 |
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$ |
8.76 |
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Third Quarter |
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$ |
10.22 |
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|
$ |
7.87 |
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Second Quarter |
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$ |
8.75 |
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|
$ |
6.92 |
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First Quarter |
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$ |
9.08 |
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|
$ |
2.73 |
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Holders
The number of record holders of our common stock as of February 13, 2015 was 51.
Dividends
We have never declared
or paid any cash dividends on our common stock and do not anticipate paying any cash dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table provides information as of December 31, 2014, regarding the securities authorized for issuance under our equity
compensation plans, consisting of the 1999 Stock Option Plan, as amended, 2004 Long-Term Incentive Plan, 2007 Incentive Plan, 2009 CEO Incentive Plan and 2013 Incentive Plan, as amended.
42
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Equity Compensation Plan Information |
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Plan Category |
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Number of securities to be issued upon exercise of outstanding options |
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Weighted-average exercise price of outstanding options |
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Number of securities remaining available for future issuance under
equity compensation plans (excluding securities reflected in column (a)) |
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(a) |
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(b) |
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(c) |
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Equity compensation plans approved by security holders |
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4,532,426 |
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$ |
10.51 |
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5,528,526 |
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Equity compensation plans not approved by security holders |
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600,000 |
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|
0.35 |
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Total |
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5,132,426 |
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|
$ |
9.32 |
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5,528,526 |
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For information about all of our equity compensation plans, see Note 11 to our Consolidated Financial
Statements included in this report.
COMMON STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on our common stock for the period from December 31, 2009 through
December 31, 2014, with the cumulative total return over such period on (i) the U.S. Index of The Nasdaq Stock Market and (ii) the Biotechnology Index of The Nasdaq Stock Market. The graph assumes an investment of $100 on
December 31, 2009, in our common stock (at the closing market price) and in each of the indices listed above, and assumes the reinvestment of all dividends. Measurement points are December 31 of each year.
43
ITEM 6. |
SELECTED FINANCIAL DATA. |
The following Statement of Operations Data for the years ended
December 31, 2014, 2013, 2012, 2011 and 2010, and Balance Sheet Data as of December 31, 2014, 2013, 2012, 2011 and 2010, as set forth below are derived from our audited consolidated financial statements. This financial data should be read
in conjunction with Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations and Item 8. Financial Statements and Supplementary Data.
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Years ended December 31, |
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2014 |
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2013 |
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2012 |
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2011 |
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2010 |
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(in thousands, except per share data) |
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Statement of Operations Data: |
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License revenue |
|
$ |
10,825 |
|
|
$ |
7,000 |
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|
$ |
|
|
|
$ |
5,000 |
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|
$ |
|
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Operating expenses: |
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License expenses |
|
|
495 |
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|
|
|
|
|
Research and development |
|
|
51,502 |
|
|
|
34,734 |
|
|
|
20,031 |
|
|
|
27,012 |
|
|
|
14,964 |
|
Selling, general and administrative |
|
|
70,057 |
|
|
|
19,349 |
|
|
|
7,048 |
|
|
|
6,737 |
|
|
|
6,251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
122,054 |
|
|
|
54,083 |
|
|
|
27,079 |
|
|
|
33,749 |
|
|
|
21,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
(111,229 |
) |
|
|
(47,083 |
) |
|
|
(27,079 |
) |
|
|
(28,749 |
) |
|
|
(21,215 |
) |
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income, net |
|
|
411 |
|
|
|
351 |
|
|
|
1,719 |
|
|
|
380 |
|
|
|
764 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes |
|
|
(110,818 |
) |
|
|
(46,732 |
) |
|
|
(25,360 |
) |
|
|
(28,369 |
) |
|
|
(20,451 |
) |
Income taxes |
|
|
(700 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations |
|
|
(111,518 |
) |
|
|
(46,732 |
) |
|
|
(25,360 |
) |
|
|
(28,369 |
) |
|
|
(20,451 |
) |
Gain from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
246 |
|
|
|
120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before extraordinary gain |
|
|
(111,518 |
) |
|
|
(46,732 |
) |
|
|
(25,360 |
) |
|
|
(28,123 |
) |
|
|
(20,331 |
) |
Extraordinary gain |
|
|
|
|
|
|
|
|
|
|
2,639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(111,518 |
) |
|
$ |
(46,732 |
) |
|
$ |
(22,721 |
) |
|
$ |
(28,123 |
) |
|
$ |
(20,331 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(1.23 |
) |
|
$ |
(0.58 |
) |
|
$ |
(0.36 |
) |
|
$ |
(0.42 |
) |
|
$ |
(0.34 |
) |
Discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
|
|
* |
Extraordinary gain |
|
|
|
|
|
|
|
|
|
|
0.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per common share |
|
$ |
(1.23 |
) |
|
$ |
(0.58 |
) |
|
$ |
(0.32 |
) |
|
$ |
(0.42 |
) |
|
$ |
(0.34 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Amount less than one cent per share. |
|
|
|
|
|
As of December 31, |
|
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
|
2011 |
|
|
2010 |
|
|
|
(in thousands) |
|
Balance Sheet Data: |
|
|
|
|
|
|
|
|
Cash, cash equivalents, interest receivable and short-term investment securities |
|
$ |
85,840 |
|
|
$ |
55,696 |
|
|
$ |
14,677 |
|
|
$ |
39,470 |
|
|
$ |
28,512 |
|
Working capital |
|
|
69,285 |
|
|
|
41,600 |
|
|
|
7,068 |
|
|
|
30,237 |
|
|
|
22,520 |
|
Total assets |
|
|
103,628 |
|
|
|
60,766 |
|
|
|
18,569 |
|
|
|
43,488 |
|
|
|
32,114 |
|
Deferred tax liability |
|
|
700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
133 |
|
|
|
38 |
|
|
|
36 |
|
|
|
35 |
|
|
|
35 |
|
Contingent equity rights |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,639 |
|
|
|
2,639 |
|
Total stockholders equity |
|
|
73,484 |
|
|
|
45,400 |
|
|
|
10,494 |
|
|
|
31,047 |
|
|
|
23,248 |
|
44
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion and analysis contains forward-looking statements about our plans and expectations of
what may happen in the future. Forward-looking statements are based on a number of assumptions and estimates that are inherently subject to significant risks and uncertainties, and our results could differ materially from the results anticipated by
our forward-looking statements as a result of many known or unknown factors, including, but not limited to, those factors discussed in Item 1A. Risk Factors. See also the Special Cautionary Notice Regarding Forward-Looking
Statements set forth at the beginning of this report.
You should read the following discussion and analysis in conjunction with
Item 6. Selected Financial Data, Item 8. Financial Statements and Supplementary Data, and our consolidated financial statements beginning on page F-1 of this report.
Overview
We are a biopharmaceutical
company focused on bringing innovative therapies to market for patients with renal disease. Our first product, AuryxiaTM (ferric citrate), an oral, absorbable iron-based compound, received
marketing approval from the U.S. Food and Drug Administration, or FDA, in September 2014 for the control of serum phosphorus levels in patients with chronic kidney disease, or CKD, on dialysis.
Auryxia received marketing approval from the U.S. FDA in September 2014 for the control of serum phosphorus levels in patients with CKD on
dialysis. The U.S. approval of Auryxia was based on data from our Phase 3 registration program, in which Auryxia effectively reduced serum phosphorus levels to well within the KDOQI guidelines range of 3.5 to 5.5 mg/dL. In addition to the effects on
serum phosphorus levels, Auryxias pharmacodynamic properties resulted in increased ferritin, iron and TSAT, whereas these parameters remained relatively constant in patients treated with active control (Renvela® and/or PhosLo®). The most common adverse events for Auryxia treated patients were gastrointestinal-related, including diarrhea, nausea,
constipation, vomiting and cough.
We launched Auryxia in the U.S. in late December 2014. Auryxia is being marketed in the U.S. through
our specialty salesforce and commercial infrastructure. We currently have 60 sales representatives in the field calling on approximately 5,000 target nephrologists.
Our Japanese partner, JT and Torii, received manufacturing and marketing approval of ferric citrate from the Japanese Ministry of Health,
Labour and Welfare as an oral treatment for the improvement of hyperphosphatemia in patients with CKD, including dialysis and NDD-CKD, in January 2014. JTs subsidiary, Torii, launched the product under the brand name Riona® in May 2014. Under the license agreement with JT and Torii, we received a non-refundable payment of $10.0 million in February 2014 for the achievement of the marketing approval milestone. We also
receive royalty payments based on a tiered double-digit percentage of net sales of Riona® in Japan escalating up to the mid-teens, as well as up to an additional $55.0 million upon the
achievement of certain annual net sales milestones.
We have also submitted, in March 2014, a MAA with the EMA for the approval of Auryxia
in patients with CKD, including dialysis and NDD-CKD. Also in March 2014, the EMA validated our MAA, confirming that the submission is sufficiently complete to begin the formal review process.
In September 2014, we announced the initiation of a pivotal Phase 3 study of Auryxia for the treatment of IDA in patients with Stage 3-5
NDD-CKD. This studys primary endpoint is the between group comparison of the proportion of patients achieving a 1 g/dL or greater increase in hemoglobin at any point during the 16-week randomized period. In our completed 12-week Phase 2 study
of Auryxia for the management of elevated serum phosphorus levels and iron deficiency in subjects with Stage 3 to 5 NDD-CKD, a post-hoc analysis of this
45
endpoint demonstrated that the proportion of patients achieving a 1 g/dL or greater increase in hemoglobin at any time point during the study was 40% in the Auryxia arm vs. 15% in the placebo arm
(p-value <0.001). Secondary endpoints in the Phase 3 study include change from baseline to the end of the randomized period for hemoglobin, ferritin, TSAT and serum phosphorus.
Currently, our only drug product is Auryxia. We may engage in business development activities that include seeking strategic relationships for
Auryxia, as well as evaluating other compounds and companies for in-licensing or acquisition. We have also generated, and expect to continue to generate, revenue from the sublicensing of rights to Auryxia in Japan to JT and Torii.
In April 2012 we announced that our Phase 3 trial for KRX-0401 (perifosine) for refractory advanced colorectal cancer did not meet the primary
endpoint of improving overall survival versus capecitabine and placebo. Following these results, we abandoned our development efforts and terminated our license relating to the KRX-0401 (perifosine) drug candidate, and re-focused our development
efforts on our drug candidate, Auryxia.
We have devoted substantially all of our efforts to the identification, in-licensing, development
and partnering of drug candidates, as well as pre-commercial/commercial activities related to Auryxia, and have incurred negative cash flow from operations each year since our inception. We have spent, and expect to continue to spend, substantial
amounts in connection with implementing our business strategy, including our product development efforts, our clinical trials, commercial, partnership and licensing activities. Prior to the launch of Auryxia in December 2014, we have not
commercialized any drug, and we may not become profitable. Our ability to achieve profitability depends on a number of factors, including our ability to complete our development efforts, obtain additional regulatory approvals for our drug,
successfully complete any post-approval regulatory obligations and successfully manufacture and commercialize our drug. We may continue to incur substantial operating losses even after we begin to generate revenues from our drug.
Our license revenues consist of license fees and milestone payments arising from our agreement with JT and Torii. We recognize license revenue
in accordance with the revenue recognition guidance of the Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or the Codification. We analyze each element of our licensing agreement to determine the appropriate revenue
recognition. The terms of the license agreement may include payment to us of non-refundable up-front license fees, milestone payments if specified objectives are achieved, and/or royalties on product sales. We recognize revenue from upfront payments
over the period of significant involvement under the related agreements unless the fee is in exchange for products delivered or services rendered that represent the culmination of a separate earnings process and no further performance obligation
exists under the contract. We recognize milestone payments as revenue upon the achievement of specified milestones only if (1) the milestone payment is non-refundable, (2) substantive effort is involved in achieving the milestone,
(3) the amount of the milestone is reasonable in relation to the effort expended or the risk associated with the achievement of the milestone, and (4) the milestone is at risk for both parties. If any of these conditions are not met, we
defer the milestone payment and recognize it as revenue over the estimated period of performance under the contract.
For arrangements for
which royalty revenue information becomes available and collectability is reasonably assured, we recognize revenue during the applicable period earned. When collectability is reasonably assured but a reasonable estimate of royalty revenue
cannot be made, the royalty revenue is recognized in the quarter that the licensee provides the written report and related information to us. Based on our agreement with JT and Torii, and in accordance with our revenue recognition policy, royalty
revenues are recognized in the quarter that JT and Torii provide their written report and related information to us regarding sales of Riona®, which generally will be one quarter following the
quarter in which the underlying sales by JT and Torii occurred.
Our commercial launch of Auryxia occurred in December 2014. We sell
product to a limited number of major wholesalers, our Distributors, as well as certain pharmacies, or collectively, our Customers. Our
46
Distributors resell the product to retail pharmacies for purposes of their reselling the product to fill patient prescriptions. In accordance with GAAP, until we have the ability to reliably
estimate returns of Auryxia from our Customers, revenue will be recognized based on the resale of Auryxia for the purposes of filling patient prescriptions, and not based on sales from us to such Customers. Consistent with industry practice, once we
achieve sufficient history such that we can reliably estimate returns based on sales to our Customers, we anticipate that our revenues will be recognized based on sales to our Customers. We currently defer Auryxia revenue recognition until the
earlier of the product being resold for purposes of filling patient prescriptions and the expiration of the right of return (twelve months after the expiration date of the product). The deferred revenue is recorded net of discounts, rebates,
and chargebacks. We also defer the related cost of product sales and record such amounts as finished goods inventory held by others, which is included in inventory on our balance sheet, until revenue related to such product sales is recognized.
Our license expenses consist of royalty and other expenses due to the licensor of Auryxia related to our license agreement with JT and Torii.
With regard to royalty expense, such expense is directly related to the royalty revenue received from JT and Torii and is recognized in the same period as the revenue is recorded. Other expenses are recognized in the period they are incurred.
Our research and development expenses consist primarily of salaries and related personnel costs, including stock-based compensation, fees paid
to consultants and outside service providers for clinical and laboratory development, manufacturing, including pre-approval inventory build-up, regulatory, facilities-related and other expenses relating to the design, development, manufacture,
testing, and enhancement of our drug candidates and technologies, as well as expenses related to in-licensing of new product candidates. We expense our research and development costs as they are incurred. Research and development expenses for the
years ended December 31, 2014, 2013 and 2012 were $51.5 million, $34.7 million and $20.0 million, respectively.
The following table
sets forth the research and development expenses per project, for the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
(in thousands) |
|
2014 |
|
|
2013 |
|
|
2012 |
|
Auryxia (ferric citrate) |
|
$ |
44,735 |
|
|
$ |
32,001 |
|
|
$ |
15,494 |
|
Other |
|
|
670 |
|
|
|
1,017 |
|
|
|
641 |
|
Terminated programs (primarily KRX-0401) |
|
|
(282 |
) |
|
|
(631 |
) |
|
|
3,234 |
|
Stock-based compensation expense |
|
|
6,379 |
|
|
|
2,347 |
|
|
|
662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
51,502 |
|
|
$ |
34,734 |
|
|
$ |
20,031 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our selling, general and administrative expenses consist primarily of salaries and related expenses, including
stock-based compensation, for executive, finance, sales, marketing and other administrative personnel, recruitment expenses, professional fees and other corporate expenses, including investor relations, legal activities, pre-commercial/commercial
activities and facilities-related expenses.
Our results of operations include stock-based compensation expense as a result of the grants
of stock options and restricted stock. Compensation expense for awards of options and restricted stock granted to employees and directors represents the fair value of the award recorded over the respective vesting periods of the individual awards.
The expense is included in the respective categories of expense in the consolidated statements of operations. We expect to continue to incur significant stock-based compensation expenses.
For awards of options and restricted stock to consultants and other third-parties, compensation expense is determined at the measurement
date. The expense is recognized over the vesting period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. We record compensation expense based on the fair value of the award at the
reporting date. The awards to consultants and other third-parties are then revalued, or the total compensation is recalculated based on the then current fair
47
value, at each subsequent reporting date. This results in a change to the amount previously recorded in respect of the equity award grant, and additional expense or a reversal of expense may be
recorded in subsequent periods based on changes in the assumptions used to calculate fair value, such as changes in market price, until the measurement date is reached and the compensation expense is finalized.
In addition, certain options and restricted stock issued to employees, consultants and other third-parties vest upon the achievement of
certain milestones, therefore the total expense is uncertain until the milestone is met.
Even though our trials demonstrated that Auryxia
is effective in the control of serum phosphorus levels in patients with CKD on dialysis, there is no guarantee that we will be able to record meaningful commercial sales of Auryxia in the future or become profitable. In addition, we expect losses to
continue as we continue to fund the development and commercialization of Auryxia, including, but not limited to, supplemental new drug application submissions, MAA submission review, building of inventory, commercial activities, ongoing and
additional clinical trials, and the potential acquisition and development of additional drug candidates in the future. As we continue our development efforts, we may enter into additional third-party collaborative agreements and may incur additional
expenses, such as licensing fees and milestone payments. As a result, our quarterly results may fluctuate and a quarter-by-quarter comparison of our operating results may not be a meaningful indication of our future performance.
Corporate
In January 2014, we
formed a subsidiary in the United Kingdom, Keryx Biopharma UK Ltd., related to the submission of our MAA in Europe.
In March 2014, we
entered into a sublease for approximately 10,395 square feet of leased office space in Boston, Massachusetts, with a term through December 31, 2015.
In January 2015, we announced the transitioning of the role of Chief Executive Officer from Ron Bentsur to Greg Madison.
Mr. Madison joined Keryx in February 2014 as Executive Vice President and Chief Operating Officer to transition Keryx from a development-stage organization into a fully integrated commercial entity, bringing to Keryx a wealth of
relevant expertise in both the phosphate binder and iron deficiency anemia markets. Mr. Madison has been appointed President of Keryx and will work with Mr. Bentsur to ensure a successful leadership transition by the end of May, when
Mr. Bentsurs contract expires.
In February 2015, we announced a planned consolidation of our finance and accounting function
into our Boston office and that our Chief Financial Officer, James Oliviero, will be leaving Keryx by October 2015. Mr. Oliviero has been with Keryx for twelve years and has served as the Chief Financial Officer since 2009. We have commenced a
search for a new Chief Financial Officer who will be based in our Boston office. Mr. Oliviero will continue to manage our finance and accounting team during the remainder of his tenure and will assist in the transition of his duties to the new
Chief Financial Officer.
RESULTS OF OPERATIONS
Years Ended December 31, 2014 and 2013
License Revenue. License revenue for the year ended December 31, 2014 was $10.8 million due to the recognition of a $10.0 million
non-refundable milestone payment in January 2014 related to JT and Toriis achievement of marketing approval in Japan and $0.8 million of royalty payments from sales of Riona® in
Japan. License revenue for the year ended December 31, 2013 was $7.0 million due to the recognition of a non-refundable milestone payment received in January 2013 from JT and Torii following their filing of their NDA with the Japanese Ministry
of Health, Labour and Welfare for marketing approval of Auryxia in Japan. We receive royalty payments based on a tiered double-digit percentage of net sales of Riona® in Japan escalating
up to the mid-teens for sales made by Torii. We may also receive up to an additional $55 million of milestone payments upon the achievement of certain annual net sales milestones.
48
License Expenses. For the year ended December 31, 2014, we recognized $0.5 million in
license expenses related to royalties due to the licensor of Auryxia relating to sales of Riona® in Japan. There were no license expenses for the year ended December 31, 2013. We owe
a mid-single digit percentage of net sales royalty to the licensor of Auryxia associated with net sales of Riona® in Japan.
Research and Development Expenses. Research and development expenses increased by $16.8 million to $51.5 million for the year ended
December 31, 2014, as compared to $34.7 million for the year ended December 31, 2013. The increase in research and development expenses was due primarily to a $12.7 million increase in research and development expenses related to our
Auryxia program, including costs associated with the manufacturing of pre-approval inventory and the submission of our MAA filing. The year ended December 31, 2014, includes a $2.0 million one-time milestone payment to Panion, the licensor of
Auryxia, for JT and Toriis achievement of the Japanese marketing approval milestone in January 2014 and a $3.0 million one-time milestone payment to Panion for our achievement of U.S. FDA approval of Auryxia in September 2014. Stock-based
compensation expense increased by $4.0 million to $6.4 million for the year ended December 31, 2014, as compared to $2.3 million for the year ended December 31, 2013, primarily related to $4.6 million of expense due to the vesting of
milestone-based stock options and restricted shares upon the FDA approval. We expect our research and development expenses for 2015 to decrease due to the capitalization of inventory, which prior to FDA approval had been expensed, expected
completion of our MAA filing and a decrease in stock-based compensation expense.
Selling, General and Administrative Expenses.
Selling, general and administrative expenses increased by $50.7 million to $70.1 million for the year ended December 31, 2014, as compared to $19.3 million for the year ended December 31, 2013. The increase was primarily related to a $24.3
million increase in pre-commercial/commercial activities, including associated personnel costs, in preparation for the commercialization of Auryxia and increased stock compensation expense. Stock-based compensation expense increased by $17.0 million
to $20.6 million for the year ended December 31, 2014, as compared to $3.6 million for the year ended December 31, 2013, primarily related to $11.0 million of expense due to the vesting of milestone-based stock options and restricted
shares upon the FDA approval and first commercial sale of Auryxia, as well as to increased selling, general and administrative personnel and the recording of the fair value of equity awards granted, which are expensed over the vesting periods of the
individual awards. We expect our selling, general and administrative costs to increase in 2015 related to a full year of commercialization of Auryxia, partially offset by a decrease in stock-based compensation expense.
Interest and Other Income, Net. Interest and other income, net, increased by $60,000 to $411,000 for the year ended December 31,
2014, as compared to $351,000 for the year ended December 31, 2013. The increase was due to a higher level of invested funds in our investment portfolio following our January 2014 public offering.
Income Taxes. For the year ended December 31, 2014, we recognized $0.7 million in income tax expense related to the recording of a
deferred tax liability associated with capitalized goodwill, an indefinite-lived intangible asset that is being amortized for tax purposes. Indefinite-lived intangibles are non-monetary assets which are not amortized under GAAP since there is no
foreseeable limit to the cash flows provided by them. Our lack of earnings history and the uncertainty surrounding our ability to generate taxable income prior to the reversal or expiration of such deferred tax liability were the primary factors
considered by management when recording the deferred tax liability. There was no income tax expense for the year ended December 31, 2013. We continue to maintain a full valuation allowance against our net deferred tax assets.
Years Ended December 31, 2013 and 2012
License Revenue. License revenue for the year ended December 31, 2013 was $7.0 million due to the recognition of a non-refundable
milestone payment received in January 2013 from JT and Torii following their filing of their NDA with the Japanese Ministry of Health, Labour and Welfare for marketing approval of Auryxia in Japan for the treatment of hyperphosphatemia in patients
with CKD. There was no license revenue for the year ended December 31, 2012.
49
License Expenses. There were no license expenses for the years ended December 31,
2013 and 2012.
Research and Development Expenses. Research and development expenses increased by $14.7 million to $34.7 million
for the year ended December 31, 2013, as compared to $20.0 for the year ended December 31, 2012. The increase in research and development expenses was due primarily to a $16.5 million increase in research and development expenses related
to our Auryxia program, including costs associated with the filing of our NDA, preparation of our MAA submission, and manufacturing of pre-launch inventory, an increase in $1.7 million in stock-based compensation expenses (primarily due to the
recording of $1.2 million in stock-based compensation expense associated with the vesting of 17,500 stock options and 100,000 shares of restricted stock in October 2013 upon the filing acceptance of our NDA for Auryxia), partially offset by a $3.9
million decrease in research and development expenses related to KRX-0401, which license agreement was terminated in May 2012. The year ended December 31, 2013, included a $1.0 million one-time milestone payment to Panion & BF Biotech,
Inc., the licensor of Auryxia, related to our submission of the NDA in August 2013.
Selling, General and Administrative Expenses.
Selling, general and administrative expenses increased by $12.3 million to $19.3 million for the year ended December 31, 2013, as compared to $7.0 million for the year ended December 31, 2012. The increase was primarily related to a $7.2
million increase in pre-commercial activities as we scaled-up our operations and infrastructure to prepare to commercialize Auryxia, a $2.1 million increase in stock-based compensation expense (primarily due to the recording of $1.6 million of
stock-based compensation expense associated with the vesting of 150,000 shares of restricted stock in October 2013 upon the filing acceptance of our NDA for Auryxia), and a $1.5 million increase in legal fees.
Interest and Other Income, Net. Interest and other income, net, decreased by $1.4 million to $0.4 million for the year ended
December 31, 2013, as compared to $1.7 million for the year ended December 31, 2012. During the year ended December 31, 2012, we were awarded $1.5 million in compensatory damages, net of fees and legal expenses, related to a statement
of claim we filed with FINRA against an SEC registered broker-dealer for damages arising from that broker-dealers recommendations and purchases of certain securities for our cash management account.
Income Taxes. There were no income tax expenses for the years ended December 31, 2013 and 2012.
Extraordinary Gain. For the year ended December 31, 2012, we recorded a non-cash extraordinary gain of $2.6 million related to a
write-off of the contingent equity rights liability following the termination of the license agreement for KRX-0401.
LIQUIDITY AND CAPITAL RESOURCES
Our major sources of cash have been proceeds from various public and private offerings of our common stock, option and warrant
exercises, interest income, and from the upfront and milestone payments from our Sublicense Agreement with JT and Torii and miscellaneous payments from our other prior licensing activities. The commercial launch of our first product, Auryxia,
occurred in December 2014. Even though we are commercializing Auryxia, we may not become profitable. Our ability to achieve profitability depends on a number of factors, including our ability to complete our development efforts, obtain additional
regulatory approvals for our drug, successfully complete any post-approval regulatory obligations and successfully manufacture and commercialize our drug alone or in partnership. We may continue to incur substantial operating losses even after we
begin to generate meaningful revenues from our drug.
As of December 31, 2014, we had $85.8 million in cash, cash equivalents,
short-term investments and interest receivable, an increase of $30.1 million from December 31, 2013. On January 21, 2015, we announced the pricing of an underwritten public offering in which we sold 10,541,667 shares of our common stock at
a price of $12.00 per share for gross proceeds of approximately $126.5 million. Net proceeds from this offering were
50
approximately $118.3 million, net of underwriting discounts and offering expenses of approximately $8.2 million. The shares were sold under Registration Statements (Nos. 333-201605 and
333-201639) on Form S-3 and Form S-3MEF, respectively, filed by us with the Securities and Exchange Commission.
On January 22, 2014,
we announced the pricing of an underwritten public offering in which we sold 7,935,000 shares of our common stock at a price of $14.50 per share for gross proceeds of approximately $115.1 million. Net proceeds from this offering were approximately
$107.5 million, net of underwriting discounts and offering expenses of approximately $7.5 million. The shares were sold under a Registration Statement (No. 333-190353) on Form S-3, filed by us with the SEC.
In January 2014, our Japanese partner, JT and Torii, received manufacturing and marketing approval of ferric citrate from the Japanese
Ministry of Health, Labour and Welfare. Ferric citrate, launched in May 2014 and being marketed in Japan by JTs subsidiary, Torii, under the brand name Riona®, is indicated as an oral
treatment for the improvement of hyperphosphatemia in patients with CKD, including dialysis and NDD-CKD. Under the license agreement with JT and Torii, we received a non-refundable payment of $10.0 million in February 2014 for the achievement
of the marketing approval milestone. We also receive royalty payments based on a tiered double-digit percentage of net sales of Riona® in Japan escalating up to the mid-teens, as
well as up to an additional $55.0 million upon the achievement of certain annual net sales milestones. We owe a mid-single digit percentage of net sales royalty to the licensor of Auryxia associated with net sales of Riona® in Japan.
We currently expect that our existing capital resources combined with
future anticipated cash flows will be sufficient to execute our business plan. The actual amount of cash that we will need to operate is subject to many factors, including, but not limited to, the timing and expenditures associated with the build-up
of inventory and capacity expansion, the timing and expenditures associated with the regulatory review process for our EU MAA filing, the timing and expenditures associated with commercial activities related to Auryxia, and the timing, design and
conduct of clinical trials for Auryxia. As a result of these factors, we may need to seek additional financings to provide the cash necessary to execute our current operations, including beyond the initial commercialization of Auryxia, and to
develop any drug candidates we may in-license or acquire.
Net cash used in operating activities for the year ended December 31, 2014
was $81.0 million, as compared to $34.3 million for the year ended December 31, 2013. This increase in net cash used in operating activities was primarily related to increased Auryxia development and pre-commercial/commercial expenditures,
including the manufacturing of inventory.
For the year ended December 31, 2014, net cash used in investing activities was $13.0
million, as compared to $0.3 million for the year ended December 31, 2013. The increase in net cash used in investing activities was primarily due to our investments in held-to-maturity short-term securities following our public offering of
common stock in January 2014.
For the year ended December 31, 2014, net cash provided by financing activities was $112.6 million as
compared to $75.7 million for the year ended December 31, 2013. The increase was primarily related to $107.5 million of net proceeds received from our public offering of common stock in January 2014, as compared to $74.8 million of net proceeds
received from our public offering of common stock in January 2013.
OFF-BALANCE SHEET ARRANGEMENTS
We have not entered into any transactions with unconsolidated entities whereby we have financial guarantees, subordinated retained interests,
derivative instruments or other contingent arrangements that expose us to material continuing risks, contingent liabilities, or any other obligations under a variable interest in an unconsolidated entity that provides us with financing, liquidity,
market risk or credit risk support, or engages in leasing, hedging, or research and development services on our behalf.
51
OBLIGATIONS AND COMMITMENTS
As of December 31, 2014, we have known contractual obligations, commitments and contingencies of $46.4 million. Of this amount, $13.9
million relates to selling, general and administrative agreements primarily associated with the launch and commercialization of Auryxia, of which $10.0 million is due within the next year, $4.4 million relates to research and development agreements
(relating to our Auryxia clinical and regulatory programs), of which $4.1 million is due within the next year, and $25.7 million relates to various third-party contract manufacturing agreements for the production and packaging of Auryxia drug
substance and drug product, of which $24.7 million is due within the next year. The additional $2.4 million relates to our operating lease obligations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
Payment due by period |
|
Contractual obligations |
|
Total |
|
|
Less than 1 year |
|
|
1-3 years |
|
|
3-5 years |
|
|
More than 5 years |
|
Selling, general and administrative agreements |
|
$ |
13,938 |
|
|
$ |
10,031 |
|
|
$ |
3,807 |
|
|
$ |
100 |
|
|
$ |
|
|
Research and development agreements |
|
|
4,406 |
|
|
|
4,073 |
|
|
|
333 |
|
|
|
|
|
|
|
|
|
Manufacturing agreements |
|
|
25,712 |
|
|
|
24,663 |
|
|
|
1,049 |
|
|
|
|
|
|
|
|
|
Operating leases |
|
|
2,375 |
|
|
|
1,521 |
|
|
|
854 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
46,431 |
|
|
$ |
40,288 |
|
|
$ |
6,043 |
|
|
$ |
100 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our lease on our corporate and executive office located in New York City extends through September 30,
2016. In March 2014, we entered into a sublease for approximately 10,395 square feet of leased office space in Boston, Massachusetts, with a term through December 31, 2015.
We have undertaken to make a contingent milestone payment to the licensor of Auryxia of $2.0 million, which will be due upon the regulatory
approval of Auryxia in Europe, which is included in research and development agreements in the table above. In addition the licensor will be due royalty payments based on a mid-single digit percentage of net sales of Auryxia.
CRITICAL ACCOUNTING POLICIES
The
discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires
us to make estimates and judgments that affect the reported amount of assets and liabilities and related disclosure of contingent assets and liabilities at the date of our consolidated financial statements and the reported amounts of revenues and
expenses during the applicable period. Actual results may differ from these estimates under different assumptions or conditions.
We
define critical accounting policies as those that are reflective of significant judgments and uncertainties and which may potentially result in materially different results under different assumptions and conditions. In applying these critical
accounting policies, our management uses its judgment to determine the appropriate assumptions to be used in making certain estimates. These estimates are subject to an inherent degree of uncertainty. Our critical accounting policies include the
following:
Stock Compensation. We have granted stock options and restricted stock to employees, directors and consultants, as well
as warrants to other third parties. For employee and director grants, the value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model. The Black-Scholes model takes into account volatility in the price
of our stock, the risk-free interest rate, the estimated life of the option, the closing market price of our stock and the exercise price. We base our estimates of our stock price volatility on the historical volatility of our common stock and our
assessment of future volatility; however, these estimates are neither predictive nor indicative of the future performance of our stock. For purposes of the calculation, we assumed that no dividends would be paid during the life of the options and
warrants. The estimates utilized in the
52
Black-Scholes calculation involve inherent uncertainties and the application of management judgment. In addition, we are required to estimate the expected forfeiture rate and only recognize
expense for those equity awards expected to vest. As a result, if other assumptions had been used, our recorded stock-based compensation expense could have been materially different from that reported. In addition, because some of the options and
warrants issued to employees, consultants and other third-parties vest upon the achievement of certain milestones, the total expense is uncertain.
Total compensation expense for options and restricted stock issued to consultants is determined at the measurement date. The
expense is recognized over the vesting period for the options and restricted stock. Until the measurement date is reached, the total amount of compensation expense remains uncertain. We record stock-based compensation expense based on the fair value
of the equity awards at the reporting date. These equity awards are then revalued, or the total compensation is recalculated based on the then current fair value, at each subsequent reporting date. This results in a change to the amount previously
recorded in respect of the equity award grant, and additional expense or a reversal of expense may be recorded in subsequent periods based on changes in the assumptions used to calculate fair value, such as changes in market price, until the
measurement date is reached and the compensation expense is finalized.
Accruals for Clinical Research Organization and Clinical Site
Costs. We make estimates of costs incurred in relation to external clinical research organizations, or CROs, and clinical site costs. We analyze the progress of clinical trials, including levels of patient enrollment, invoices received and
contracted costs when evaluating the adequacy of the amount expensed and the related prepaid asset and accrued liability. Significant judgments and estimates must be made and used in determining the accrued balance and expense in any accounting
period. We review and accrue CRO expenses and clinical trial study expenses based on work performed and rely upon estimates of those costs applicable to the stage of completion of a study. Accrued CRO costs are subject to revisions as such trials
progress to completion. Revisions are charged to expense in the period in which the facts that give rise to the revision become known. With respect to clinical site costs, the financial terms of these agreements are subject to negotiation and vary
from contract to contract. Payments under these contracts may be uneven, and depend on factors such as the achievement of certain events, the successful recruitment of patients, and the completion of portions of the clinical trial or similar
conditions. The objective of our policy is to match the recording of expenses in our financial statements to the actual services received and efforts expended. As such, expense accruals related to clinical site costs are recognized based on our
estimate of the degree of completion of the event or events specified in the specific clinical study or trial contract.
Revenue.
We recognize license revenue in accordance with the revenue recognition guidance of the Codification. We analyze each element of our licensing agreement to determine the appropriate revenue recognition. The terms of the license agreement may include
payment to us of non-refundable up-front license fees, milestone payments if specified objectives are achieved, and/or royalties on product sales. We recognize revenue from upfront payments over the period of significant involvement under the
related agreements unless the fee is in exchange for products delivered or services rendered that represent the culmination of a separate earnings process and no further performance obligation exists under the contract. We recognize milestone
payments as revenue upon the achievement of specified milestones only if (1) the milestone payment is non-refundable, (2) substantive effort is involved in achieving the milestone, (3) the amount of the milestone is reasonable in
relation to the effort expended or the risk associated with achievement of the milestone, and (4) the milestone is at risk for both parties. If any of these conditions are not met, we defer the milestone payment and recognize it as revenue over
the estimated period of performance under the contract.
For arrangements for which royalty revenue information becomes available and
collectability is reasonably assured, we recognize revenue during the applicable period earned. When collectability is reasonably assured but a reasonable estimate of royalty revenue cannot be made, the royalty revenue is recognized in the
quarter that the licensee provides the written report and related information to us.
We recognize other revenues at the time such fees
and payments are earned.
53
Our commercial launch of Auryxia occurred in December 2014. We sell product to a limited
number of major wholesalers, our Distributors, as well as certain pharmacies, or collectively, our Customers. Our Distributors resell the product to retail pharmacies for purposes of their reselling the product to fill patient prescriptions. In
accordance with GAAP, until we have the ability to reliably estimate returns of Auryxia from our Customers, revenue will be recognized based on the resale of Auryxia for the purposes of filling patient prescriptions, and not based on sales from us
to such Customers. Consistent with industry practice, once we achieve sufficient history such that we can reliably estimate returns based on sales to our Customers, we anticipate that our revenues will be recognized based on sales to our Customers.
We currently defer Auryxia revenue recognition until the earlier of the product being resold for purposes of filling patient prescriptions and the expiration of the right of return (twelve months after the expiration date of the product). The
deferred revenue is recorded net of discounts, rebates, and chargebacks. We also defer the related cost of product sales and record such amounts as finished goods inventory held by others, which is included in inventory on our consolidated balance
sheet, until revenue related to such product sales is recognized.
Inventory. Inventories are stated at the lower of cost or
estimated realizable value. We determine the cost of our inventories, which include amounts related to materials, third-party contract manufacturing and packaging services, and manufacturing overhead, on a first-in, first-out basis. We capitalize
inventory costs at our suppliers when, based on managements judgment, the realization of future economic benefit is probable at each given supplier. We received FDA approval for Auryxia on September 5, 2014, and on that date began
capitalizing inventory purchases of saleable product from certain suppliers. Prior to FDA approval, all saleable product purchased from such suppliers were included as a component of research and development expense.
Accounts Receivable, Allowances for Doubtful Accounts and Cash Discounts. We extend credit to our customers for product sales resulting
in accounts receivable. Customer accounts are monitored for past due amounts. Past due accounts receivable, determined to be uncollectible, are written off against the allowance for doubtful accounts. Allowances for doubtful accounts are estimated
based upon past due amounts, historical losses and existing economic factors, and are adjusted periodically. We offer cash discounts to our customers, generally 2% of the sales price, as an incentive for prompt payment. The estimate of cash
discounts is recorded at the time of sale. We account for the cash discounts by reducing revenue and accounts receivable by the amount of the discounts we expect our customers to take. The accounts receivable are reported in the consolidated balance
sheets, net of the allowances for doubtful accounts and cash discounts. There was no allowance for doubtful accounts at December 31, 2014 and 2013.
Accounting Related to Goodwill. As of December 31, 2014, there was approximately $3.2 million of goodwill on our consolidated
balance sheet. Goodwill is reviewed for impairment annually, or when events arise that could indicate that an impairment exists. We test for goodwill impairment using a two-step process. The first step compares the fair value of the reporting unit
with the units carrying value, including goodwill. When the carrying value of the reporting unit is greater than fair value, the units goodwill may be impaired, and the second step must be completed to measure the amount of the goodwill
impairment charge, if any. In the second step, the implied fair value of the reporting units goodwill is compared with the carrying amount of the units goodwill. If the carrying amount is greater than the implied fair value, the carrying
value of the goodwill must be written down to its implied fair value.
We are required to perform impairment tests annually, at
December 31, and whenever events or changes in circumstances suggest that the carrying value of an asset may not be recoverable. For all of our acquisitions, various analyses, assumptions and estimates were made at the time of each acquisition
that were used to determine the valuation of goodwill and intangibles. In future years, the possibility exists that changes in forecasts and estimates from those used at the acquisition date could result in impairment indicators.
Accounting For Income Taxes. In preparing our consolidated financial statements, we are required to estimate our income taxes in each
of the jurisdictions in which we operate. This process involves management estimation of our actual current tax exposure and assessment of temporary differences resulting from differing
54
treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities. We must then assess the likelihood that our deferred tax assets will be
recovered from future taxable income and, to the extent we believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a period, we must include an
expense within the tax provision in the consolidated statement of operations. Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded
against our net deferred tax assets. We have fully offset our deferred tax assets with a valuation allowance. Our lack of earnings history and the uncertainty surrounding our ability to generate taxable income prior to the reversal or expiration of
such deferred tax assets were the primary factors considered by management in maintaining the valuation allowance.
For the year ended
December 31, 2014, we recognized $0.7 million in income tax expense related to the recording of a deferred tax liability associated with capitalized goodwill, an indefinite-lived intangible asset that is being amortized for tax purposes.
Indefinite-lived intangibles are non-monetary assets which are not amortized under GAAP since there is no foreseeable limit to the cash flows provided by them. Our lack of earnings history and the uncertainty surrounding our ability to generate
taxable income prior to the reversal or expiration of such deferred tax liability were the primary factors considered by management when recording the deferred tax liability.
RECENTLY ISSUED ACCOUNTING STANDARDS
In
August 2014, the Financial Accounting Standards Board issued a new standard, Accounting Standards Update No. 2014-15, Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern. This new standard will explicitly
require management to assess an entitys ability to continue as a going concern and to provide footnote disclosures in certain cases. Currently there is no guidance in GAAP about managements responsibility to evaluate whether there is
substantial doubt about an entitys ability to continue as a going concern. The new standard applies to all entities and provides an explicit requirement that management assesses and discloses going concern uncertainties. Previous guidance in
auditing standards required auditors to evaluate going concern. The new standard will be effective for all entities in the first annual period ending after December 15, 2016, which is December 31, 2016 for calendar year-end entities.
Earlier application is permitted.
In May 2014, the Financial Accounting Standards Board issued a comprehensive new standard which amends
revenue recognition principles and provides a single set of criteria for revenue recognition among all industries. The new standard provides a five step framework whereby revenue is recognized when promised goods or services are transferred to a
customer at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard also requires enhanced disclosures pertaining to revenue recognition in both interim and annual
periods. The standard is effective for interim and annual periods beginning after December 15, 2016 and allows for adoption using a full retrospective method, or a modified retrospective method. We are currently assessing the method of adoption
and the expected impact the new standard has on our financial position and results of operations.
ITEM 7A. |
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. |
The primary objective of our
investment activities is to preserve principal while maximizing our income from investments and minimizing our market risk. We currently invest in government and investment-grade corporate debt in accordance with our investment policy, which we may
change from time to time. The securities in which we invest have market risk. This means that a change in prevailing interest rates, and/or credit risk, may cause the fair value of the investment to fluctuate. For example, if we hold a security that
was issued with a fixed interest rate at the then-prevailing rate and the prevailing interest rate later rises, the fair value of our investment will probably decline. As of December 31, 2014, our portfolio of financial instruments consists of
cash equivalents and short-term interest bearing securities, including government debt and money market funds. The
55
average duration of all of our held-to-maturity investments held as of December 31, 2014, was less than 12 months. Due to the short-term nature of these financial instruments, we believe
there is no material exposure to interest rate risk, and/or credit risk, arising from our portfolio of financial instruments.
ITEM 8. |
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. |
Our consolidated financial statements and
the notes thereto, included in Part IV, Item 15(a), part 1, are incorporated by reference into this Item 8.
ITEM 9. |
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. |
None.
ITEM 9A. |
CONTROLS AND PROCEDURES. |
Evaluation of Disclosure Controls and Procedures. As of
December 31, 2014, management carried out, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of the design and operation of our disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Our disclosure controls and procedures are designed to provide reasonable assurance that information we are required to disclose in the reports that we file or
submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of
December 31, 2014, our disclosure controls and procedures were effective.
Managements Report on Internal Control over
Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) or Rule 15d-15(f) under the Exchange Act). Our management assessed the
effectiveness of our internal control over financial reporting as of December 31, 2014. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission, known as
COSO, in Internal Control-Integrated Framework (2013). Our management has concluded that, as of December 31, 2014, our internal control over financial reporting was effective based on these criteria. UHY LLP, our independent registered public
accounting firm, has audited the accompanying consolidated balance sheets as of December 31, 2014 and 2013, and the related consolidated statements of operations, stockholders equity and cash flows for each of the years in the three-year
period ended December 31, 2014, included in this annual report on page F-1. UHY LLP has issued an attestation report on our internal control over financial reporting as of December 31, 2014, which is found below.
Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting during the
quarter ended December 31, 2014, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls. Our management, including our Chief Executive Officer and Chief Financial Officer, does
not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.
56
Report of Independent Registered Public Accounting Firm
To the Board of Directors and
Stockholders of Keryx
Biopharmaceuticals, Inc.
We have audited Keryx Biopharmaceuticals, Inc.s (the Company) internal control over financial reporting as of
December 31, 2014, based on criteria established in Internal ControlIntegrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Companys management is
responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in Part II, Item 9A of this Form 10-K. Our
responsibility is to express an opinion on the Companys internal control over financial reporting based on our audit.
We conducted our audit in
accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material
effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
In our opinion, Keryx Biopharmaceuticals, Inc. maintained, in all material respects, effective internal control over financial reporting as
of December 31, 2014, based on criteria established in Internal ControlIntegrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets and
the related consolidated statements of operations, stockholders equity, and cash flows of Keryx Biopharmaceuticals, Inc., and our report dated February 27, 2015, expressed an unqualified opinion thereon.
/s/ UHY LLP
New York, New York
February 27, 2015
ITEM 9B. |
OTHER INFORMATION. |
None.
57
PART III
ITEM 10. |
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. |
The information required by
this Item is incorporated herein by reference from our Proxy Statement for our 2015 Annual Meeting of Stockholders.
ITEM 11. |
EXECUTIVE COMPENSATION. |
The information required by this Item is incorporated herein by
reference from our Proxy Statement for our 2015 Annual Meeting of Stockholders.
ITEM 12. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. |
The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2015 Annual Meeting of Stockholders.
ITEM 13. |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE. |
The
information required by this Item is incorporated herein by reference from our Proxy Statement for our 2015 Annual Meeting of Stockholders.
ITEM 14. |
PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
The information required by this Item is
incorporated herein by reference from our Proxy Statement for our 2015 Annual Meeting of Stockholders.
58
PART IV
ITEM 15. |
EXHIBITS and FINANCIAL STATEMENT SCHEDULES. |
|
(a) |
1. Consolidated Financial Statements |
The following consolidated
financial statements of Keryx Biopharmaceuticals, Inc. are filed as part of this report.
2. Consolidated Financial Statement Schedules
All schedules are omitted as the information required is inapplicable or the information is presented in the consolidated financial statements
or the related notes.
3. Exhibits
|
|
|
Exhibit Number |
|
Exhibit Description |
|
|
3.1 |
|
Amended and Restated Certificate of Incorporation of Keryx Biopharmaceuticals, Inc., filed as Exhibit 3.1 to the Registrants Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, filed on August 12, 2004 (File No.
000-30929), and incorporated herein by reference. |
|
|
3.2 |
|
Amended and Restated Bylaws of Keryx Biopharmaceuticals, Inc., filed as Exhibit 3.2 to the Registrants Annual Report on Form 10-K for the year ended December 31, 2001, filed on March 26, 2002 (File No. 000-30929), and
incorporated herein by reference. |
|
|
3.3 |
|
Amendment to Amended and Restated Certificate of Incorporation of Keryx Biopharmaceuticals, Inc., dated July 24, 2007, filed as Exhibit 3.3 to the Registrants Quarterly Report on Form 10-Q for the quarter ended June 30, 2007,
filed on August 9, 2007 and incorporated herein by reference. |
|
|
3.4 |
|
Amendment Number 3 to Amended and Restated Certificate of Incorporation of Keryx Biopharmaceuticals, Inc. dated June 18, 2013, filed as Exhibit 3.4 to the Registrants Quarterly Report on Form 10-Q for the quarter ended June
30, 2013, filed on August 2, 2013 and incorporated herein by reference. |
|
|
4.1 |
|
Specimen Common Stock Certificate, filed as Exhibit 4.1 to the Registrants First Amendment to the Registration Statement on Form S-1 filed on June 30, 2000 (File No. 333-37402), and incorporated herein by reference. |
|
|
10.1 |
|
1999 Stock Option Plan, as amended, filed as Exhibit 10.2 to the Registrants Quarterly Report of Form 10-Q for the quarter ended March 31, 2003 filed on May 15, 2003 (File No. 000-30929) and incorporated herein by
reference. |
59
|
|
|
|
|
10.2 |
|
Keryx Biopharmaceuticals, Inc. 2004 Long-Term Incentive Plan, filed with the Registrants Definitive Proxy Statement for the Annual Meeting of Stockholders on June 10, 2004, filed on April 29, 2004, and incorporated herein
by reference. |
|
|
10.3! |
|
License Agreement between Keryx Biopharmaceuticals, Inc. and Panion & BF Biotech, Inc. dated as of November 7, 2005, filed as Exhibit 10.21 to the Registrants Annual Report on Form 10-K for the year ended
December 31, 2005, filed on March 8, 2006, and incorporated herein by reference. |
|
|
10.4 |
|
Amendment to the Keryx Biopharmaceuticals, Inc. 2004 Long-Term Incentive Plan dated April 11, 2006, filed as Exhibit 10.1 to the Registrants Quarterly Report on Form 10-Q for the quarter ended June 30, 2006, filed on August 9,
2006, and incorporated herein by reference. |
|
|
10.5 |
|
2007 Incentive Plan, filed as Annex D to the Registrants Definitive Proxy Statement on Schedule 14A (File No. 000-30929) filed on April 30, 2007, and incorporated herein by reference. |
|
|
10.6 |
|
Keryx Biopharmaceuticals, Inc. 2013 Incentive Plan, filed with the Registrants Definitive Proxy Statement for the Annual Meeting of Stockholders on June 18, 2013, filed on April 30, 2013, and incorporated herein by
reference. |
|
|
10.7 |
|
Amendment to Keryx Biopharmaceuticals, Inc. 2013 Incentive Plan, filed with the Registrants Definitive Proxy Statement for the Special Meeting of Stockholders on November 17, 2014, filed on October 10, 20072014, and
incorporated herein by reference. |
|
|
10.8! |
|
Amended and Restated License Agreement by and between Panion & BF Biotech, Inc. and Keryx Biopharmaceuticals, Inc. dated March 17, 2008, filed as Exhibit 10.1 to the Registrants Quarterly Report on Form 10-Q for the
quarter ended March 31, 2008, filed on May 12, 2008, and incorporated herein by reference. |
|
|
10.9! |
|
First Amendment to Amended and Restated License Agreement by and between Panion & BF Biotech, Inc. and Keryx Biopharmaceuticals, Inc. dated March 17, 2008, filed as Exhibit 10.16 to the Registrants Annual Report on Form
10-K for the year ended December 31, 2008, filed on March 31, 2009, and incorporated herein by reference. |
|
|
10.10! |
|
Amended and Restated Sub-License Agreement dated June 8, 2009, by and between Keryx Biopharmaceuticals, Inc., Japan Tobacco, Inc. and Japan Torii Pharmaceutical Co. Ltd., filed as Exhibit 10.1 to the Registrants quarterly
report on Form 10-Q for the quarter ended June 30, 2009, filed on August 8, 2009, and incorporated herein by reference. |
|
|
10.11! |
|
License Termination and Technology Transfer Agreement dated May 4, 2012, among AOI Pharma, Inc., Keryx Biopharmaceuticals, Inc., AEterna Zentaris GmbH, filed as Exhibit 10.1 to the Registrants quarterly report on Form 10-Q for
the quarter ended March 31, 2012, filed on May 9, 2012, and incorporated herein by reference. |
|
|
10.12 |
|
Employment Agreement with Ron Bentsur dated September 14, 2009, filed as Exhibit 10.1 to the Registrants Form 8-K filed on September 16, 2009, and incorporated herein by reference. |
|
|
10.13 |
|
First Amendment to Employment Agreement with Ron Bentsur dated January 13, 2012, filed as Exhibit 10.1 to the Registrants Form 8-K filed on January 19, 2012, and incorporated herein by reference. |
|
|
10.14 |
|
Second Amendment to Employment Agreement with Ron Bentsur dated June 11, 2013, filed as Exhibit 10.1 to the Registrants Form 8-K filed on June 13, 2013, and incorporated herein by reference. |
|
|
10.15 |
|
Third Amended and Restated Directors Equity Compensation Plan, filed as Exhibit 10.1 to the Registrants Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, filed on August 7, 2014, and incorporated herein by
reference. |
60
|
|
|
|
|
10.16 |
|
Employment Agreement with James F. Oliviero, dated February 26, 2015. |
|
|
10.17! |
|
Manufacturing Services Agreement by and between Keryx Biopharmaceuticals, Inc. and Norwich Pharmaceuticals, Inc. dated January 17, 2014, filed as Exhibit 10.1 to the Registrants Quarterly Report on Form 10-Q for the quarter
ended September 30, 2014, filed on November 6, 2014, and incorporated herein by reference. |
|
|
10.18! |
|
First Addendum to Manufacturing Services Agreement by and between Keryx Biopharmaceuticals, Inc. and Norwich Pharmaceuticals, Inc. dated October 24, 2014, filed as Exhibit 10.2 to the Registrants Quarterly Report on Form 10-Q
for the quarter ended September 30, 2014, filed on November 6, 2014, and incorporated herein by reference. |
|
|
21.1 |
|
List of subsidiaries of Keryx Biopharmaceuticals, Inc. |
|
|
23.1 |
|
Consent of UHY LLP. |
|
|
24.1 |
|
Power of Attorney of Director and Officers of Keryx Biopharmaceuticals, Inc. (included herein). |
|
|
31.1 |
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated February 27, 2015. |
|
|
31.2 |
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated February 27, 2015. |
|
|
32.1 |
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated February 27, 2015. |
|
|
32.2 |
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated February 27, 2015. |
|
|
101 |
|
The following financial information from Keryx Biopharmaceuticals, Inc.s Annual Report on Form 10-K for the year ended December 31, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated
Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Stockholders Equity, (iv) Consolidated Statements of Cash Flows, (v) the Notes to Consolidated Financial Statements. |
! |
Confidential treatment has been granted with respect to the omitted portions of this exhibit. |
|
Indicates management contract or compensatory plan or arrangement. |
61
Keryx Biopharmaceuticals, Inc.
Consolidated Financial Statements as of December 31, 2014
Report of Independent Registered Public
Accounting Firm
To the Board of Directors and
Stockholders of Keryx Biopharmaceuticals, Inc.
We have audited
the accompanying consolidated balance sheets of Keryx Biopharmaceuticals, Inc. (the Company) as of December 31, 2014 and 2013, and the related consolidated statements of operations, stockholders equity, and cash flows for each
of the years in the three-year period ended December 31, 2014. The Companys management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of
Keryx Biopharmaceuticals, Inc. as of December 31, 2014 and 2013, and the consolidated results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2014 in conformity with accounting
principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Companys internal control over financial reporting as of December 31, 2014, based on criteria established in Internal ControlIntegrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 27, 2015, expressed an unqualified opinion thereon.
/s/
UHY LLP
New York, New York
February 27, 2015
F-1
Keryx Biopharmaceuticals, Inc.
Consolidated Balance Sheets as of December 31,
(in thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
|
2013 |
|
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
74,284 |
|
|
$ |
55,696 |
|
Short-term investment securities |
|
|
11,508 |
|
|
|
|
|
Interest receivable |
|
|
48 |
|
|
|
|
|
Inventory |
|
|
7,830 |
|
|
|
|
|
Accounts receivable, net |
|
|
834 |
|
|
|
|
|
Other current assets |
|
|
4,092 |
|
|
|
1,232 |
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
98,596 |
|
|
|
56,928 |
|
|
|
|
Property, plant and equipment, net |
|
|
1,532 |
|
|
|
349 |
|
Goodwill |
|
|
3,208 |
|
|
|
3,208 |
|
Other assets, net |
|
|
292 |
|
|
|
281 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
103,628 |
|
|
$ |
60,766 |
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
24,146 |
|
|
$ |
14,004 |
|
Accrued compensation and related liabilities |
|
|
4,751 |
|
|
|
1,324 |
|
Deferred revenue |
|
|
414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
29,311 |
|
|
|
15,328 |
|
|
|
|
Deferred tax liability |
|
|
700 |
|
|
|
|
|
Other liabilities |
|
|
133 |
|
|
|
38 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
30,144 |
|
|
|
15,366 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Notes 14 and 15) |
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value per share (5,000,000 shares authorized, no shares issued and outstanding) |
|
|
|
|
|
|
|
|
Common stock, $0.001 par value per share (130,000,000 shares authorized, 92,758,789 and 82,723,145 shares issued, 92,678,841 and
82,643,197 shares outstanding at December 31, 2014 and 2013, respectively) |
|
|
93 |
|
|
|
83 |
|
Additional paid-in capital |
|
|
624,606 |
|
|
|
485,014 |
|
Treasury stock, at cost, 79,948 shares at December 31, 2014 and 2013, respectively |
|
|
(357 |
) |
|
|
(357 |
) |
Accumulated deficit |
|
|
(550,858 |
) |
|
|
(439,340 |
) |
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
73,484 |
|
|
|
45,400 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
103,628 |
|
|
$ |
60,766 |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
F-2
Keryx Biopharmaceuticals, Inc.
Consolidated Statements of Operations for the Year Ended December 31,
(in thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
License revenue |
|
$ |
10,825 |
|
|
$ |
7,000 |
|
|
$ |
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
License expenses |
|
|
495 |
|
|
|
|
|
|
|
|
|
Research and development |
|
|
51,502 |
|
|
|
34,734 |
|
|
|
20,031 |
|
Selling, general and administrative |
|
|
70,057 |
|
|
|
19,349 |
|
|
|
7,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
122,054 |
|
|
|
54,083 |
|
|
|
27,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
(111,229 |
) |
|
|
(47,083 |
) |
|
|
(27,079 |
) |
|
|
|
|
Interest and other income, net |
|
|
411 |
|
|
|
351 |
|
|
|
1,719 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and extraordinary gain |
|
|
(110,818 |
) |
|
|
(46,732 |
) |
|
|
(25,360 |
) |
|
|
|
|
Income taxes |
|
|
700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before extraordinary gain |
|
|
(111,518 |
) |
|
|
(46,732 |
) |
|
|
(25,360 |
) |
|
|
|
|
Extraordinary gain |
|
|
|
|
|
|
|
|
|
|
2,639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(111,518 |
) |
|
$ |
(46,732 |
) |
|
$ |
(22,721 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Loss before extraordinary gain |
|
$ |
(1.23 |
) |
|
$ |
(0.58 |
) |
|
$ |
(0.36 |
) |
Extraordinary gain |
|
|
|
|
|
|
|
|
|
|
0.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per common share |
|
$ |
(1.23 |
) |
|
$ |
(0.58 |
) |
|
$ |
(0.32 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing basic and diluted net loss per common share |
|
|
91,000,902 |
|
|
|
81,009,561 |
|
|
|
71,633,464 |
|
The accompanying notes are an integral part of the consolidated financial statements.
F-3
Keryx
Biopharmaceuticals, Inc.
Consolidated Statements of Stockholders Equity
for the Years Ended December 31, 2014, 2013 and 2012
(in thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
Additional paid-in capital |
|
|
Treasury stock |
|
|
Accumulated deficit |
|
|
Total |
|
|
|
Shares |
|
|
Amount |
|
|
|
Shares |
|
|
Amount |
|
|
|
Balance at January 1, 2012 |
|
|
71,102,899 |
|
|
$ |
71 |
|
|
$ |
401,220 |
|
|
|
79,948 |
|
|
$ |
(357 |
) |
|
$ |
(369,887 |
) |
|
$ |
31,047 |
|
|
|
|
|
|
|
|
|
Issuance of restricted stock |
|
|
997,300 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Forfeiture of restricted stock |
|
|
(97,250 |
) |
|
|
( |
)* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
)* |
Compensation in respect of options and restricted stock granted to employees, directors and third-parties |
|
|
|
|
|
|
|
|
|
|
2,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,167 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,721 |
) |
|
|
(22,721 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2012 |
|
|
72,002,949 |
|
|
$ |
72 |
|
|
$ |
403,387 |
|
|
|
79,948 |
|
|
$ |
(357 |
) |
|
$ |
(392,608 |
) |
|
$ |
10,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock in public offering (net of offering costs of $5,640) |
|
|
9,469,100 |
|
|
|
10 |
|
|
|
74,743 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,753 |
|
Issuance of restricted stock |
|
|
831,020 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Forfeiture of restricted stock |
|
|
(23,737 |
) |
|
|
( |
)* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
)* |
Issuance of common stock in connection with the exercise of options |
|
|
443,813 |
|
|
|
|
* |
|
|
931 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
931 |
|
Compensation in respect of options and restricted stock granted to employees, directors and third-parties |
|
|
|
|
|
|
|
|
|
|
5,953 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,953 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(46,732 |
) |
|
|
(46,732 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2013 |
|
|
82,723,145 |
|
|
$ |
83 |
|
|
$ |
485,014 |
|
|
|
79,948 |
|
|
$ |
(357 |
) |
|
$ |
(439,340 |
) |
|
$ |
45,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock in public offering (net of offering costs of $7,525) |
|
|
7,935,000 |
|
|
|
8 |
|
|
|
107,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107,532 |
|
Issuance of restricted stock |
|
|
1,451,558 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Forfeiture of restricted stock |
|
|
(88,859 |
) |
|
|
( |
)* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
)* |
Issuance of common stock in connection with the exercise of options |
|
|
737,945 |
|
|
|
1 |
|
|
|
5,053 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,054 |
|
Compensation in respect of options and restricted stock granted to employees, directors and third-parties |
|
|
|
|
|
|
|
|
|
|
27,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,015 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(111,518 |
) |
|
|
(111,518 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014 |
|
|
92,758,789 |
|
|
$ |
93 |
|
|
$ |
624,606 |
|
|
|
79,948 |
|
|
$ |
(357 |
) |
|
$ |
(550,858 |
) |
|
$ |
73,484 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Amount less than one thousand dollars. |
The accompanying notes are an integral part
of the consolidated financial statements.
F-4
Keryx Biopharmaceuticals, Inc.
Consolidated Statements of Cash Flows for the Year Ended December 31,
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
|
2013 |
|
|
2012 |
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(111,518 |
) |
|
$ |
(46,732 |
) |
|
$ |
(22,721 |
) |
Extraordinary gain |
|
|
|
|
|
|
|
|
|
|
2,639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before extraordinary gain |
|
|
(111,518 |
) |
|
|
(46,732 |
) |
|
|
(25,360 |
) |
Adjustments to reconcile loss to cash flows used in operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation expense |
|
|
26,957 |
|
|
|
5,953 |
|
|
|
2,167 |
|
Depreciation and amortization |
|
|
306 |
|
|
|
54 |
|
|
|
35 |
|
Deferred income taxes |
|
|
700 |
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in other current assets |
|
|
(2,860 |
) |
|
|
(802 |
) |
|
|
104 |
|
Increase in accounts receivable, net |
|
|
(834 |
) |
|
|
|
|
|
|
|
|
(Increase) decrease in accrued interest receivable |
|
|
(48 |
) |
|
|
|
|
|
|
7 |
|
Increase in inventory |
|
|
(7,771 |
) |
|
|
|
|
|
|
|
|
(Increase) decrease in other assets |
|
|
(11 |
) |
|
|
(83 |
) |
|
|
11 |
|
Increase (decrease) in accounts payable and accrued expenses |
|
|
10,142 |
|
|
|
6,792 |
|
|
|
(1,658 |
) |
Increase (decrease) in accrued compensation and related liabilities |
|
|
3,427 |
|
|
|
497 |
|
|
|
(70 |
) |
Increase in deferred revenue |
|
|
414 |
|
|
|
|
|
|
|
|
|
Increase in other liabilities |
|
|
95 |
|
|
|
2 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(81,001 |
) |
|
|
(34,319 |
) |
|
|
(24,763 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
|
(1,489 |
) |
|
|
(346 |
) |
|
|
(24 |
) |
Investment in held-to-maturity short-term securities |
|
|
(49,771 |
) |
|
|
(24,403 |
) |
|
|
(11,263 |
) |
Proceeds from maturity of held-to-maturity short-term securities |
|
|
38,263 |
|
|
|
24,403 |
|
|
|
15,475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities |
|
|
(12,997 |
) |
|
|
(346 |
) |
|
|
4,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross proceeds from public offerings |
|
|
115,057 |
|
|
|
80,393 |
|
|
|
|
|
Offering costs related to public offerings |
|
|
(7,525 |
) |
|
|
(5,640 |
) |
|
|
|
|
Proceeds from exercise of options |
|
|
5,054 |
|
|
|
931 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
112,586 |
|
|
|
75,684 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
|
18,588 |
|
|
|
41,019 |
|
|
|
(20,575 |
) |
|
|
|
|
Cash and cash equivalents at beginning of year |
|
|
55,696 |
|
|
|
14,677 |
|
|
|
35,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF YEAR |
|
$ |
74,284 |
|
|
$ |
55,696 |
|
|
$ |
14,677 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
F-5
Keryx Biopharmaceuticals, Inc.
Notes to the Consolidated Financial Statements
Unless the context requires otherwise, references in this report to Keryx, Company, we, us and
our refer to Keryx Biopharmaceuticals, Inc. and our subsidiaries.
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
We are a biopharmaceutical company focused on bringing innovative therapies to market for patients with renal disease. Our first product,
AuryxiaTM (ferric citrate), an oral, absorbable iron-based compound, received marketing approval from the U.S. Food and Drug Administration, or FDA, in September 2014 for the control of serum
phosphorus levels in patients with chronic kidney disease (CKD) on dialysis. Auryxia, which was launched in December 2014, is being marketed in the U.S. through our specialty salesforce and commercial infrastructure. We currently have 60
sales representatives in the field calling on approximately 5,000 target nephrologists.
Our Japanese partner, Japan Tobacco Inc.
(JT) and Torii Pharmaceutical Co. Ltd. (Torii), received manufacturing and marketing approval of ferric citrate from the Japanese Ministry of Health, Labour and Welfare as an oral treatment for the improvement of
hyperphosphatemia in patients with CKD, including dialysis and non-dialysis dependent CKD (NDD-CKD), in January 2014. JTs subsidiary, Torii, launched the product under the brand name Riona® in May 2014.
We have also submitted, in March 2014, a Marketing Authorization
Application (MAA) with the European Medicines Agency (EMA) for the approval of Auryxia in patients with CKD, including dialysis and NDD-CKD. Also in March 2014, the EMA validated our MAA, confirming that the submission is
sufficiently complete to begin the formal review process.
In September 2014, we announced the initiation of a pivotal Phase 3 study of
Auryxia for the treatment of iron deficiency anemia (IDA) in patients with Stage 3-5 NDD-CKD. This studys primary endpoint is the between group comparison of the proportion of patients achieving a 1 g/dL or greater increase in
hemoglobin at any point during the 16-week randomized period.
Currently, our only drug product is Auryxia. We may engage in business
development activities that include seeking strategic relationships for Auryxia, as well as evaluating other compounds and companies for in-licensing or acquisition. To date, we have not recognized revenue on any prescription sales from Auryxia or
any other drug product. We have generated, and expect to continue to generate, revenue from the sublicensing of rights to Auryxia in Japan to our Japanese partner, JT and Torii.
We own a 100% interest in each of ACCESS Oncology, Inc. (ACCESS Oncology), Neryx Biopharmaceuticals, Inc., and Accumin
Diagnostics, Inc. (ADI), all inactive U.S. corporations incorporated in the State of Delaware. Most of our biopharmaceutical development and substantially all of our administrative operations during 2014, 2013 and 2012 were conducted in
the U.S.
LIQUIDITY AND CAPITAL RESOURCES
Except for 2009, we have incurred substantial operating losses since our inception, and expect to continue to incur operating losses for the
foreseeable future and may never become profitable. As of December 31, 2014, we have an accumulated deficit of $550.9 million.
Our
major sources of cash have been proceeds from various public and private offerings of our common stock, option and warrant exercises, interest income, and from the upfront and milestone payments from our
F-6
Sublicense Agreement with JT and Torii and miscellaneous payments from our other prior licensing activities. Prior to the launch of Auryxia in December 2014, we have not commercialized any drug,
and we may not become profitable. Our ability to achieve profitability depends on a number of factors, including our ability to complete our development efforts, obtain additional regulatory approvals for our drug, successfully complete any
post-approval regulatory obligations and successfully manufacture and commercialize our drug alone or in partnership. We may continue to incur substantial operating losses even after we begin to generate revenues from our drug.
In January 2015, we raised approximately $118.3 million, net of underwriting discounts and offering expenses of approximately $8.2 million, in
an underwritten public offering. The shares were sold under Registration Statements (Nos. 333-201605 and 333-201639) on Form S-3 and Form S-3MEF, respectively, filed by us with the Securities and Exchange Commission.
We currently expect that our existing capital resources combined with future anticipated cash flows will be sufficient to execute our business
plan. The actual amount of cash that we will need to operate is subject to many factors, including, but not limited to, the timing and expenditures associated with the build-up of inventory and capacity expansion, the timing and expenditures
associated with the regulatory review process for our EU MAA filing, the timing and expenditures associated with commercial activities related to Auryxia, and the timing, design and conduct of clinical trials for Auryxia. As a result of these
factors, we may need to seek additional financings to provide the cash necessary to execute our current operations, including beyond the initial commercialization of Auryxia, and to develop any drug candidates we may in-license or acquire.
Our common stock is listed on the Nasdaq Capital Market and trades under the symbol KERX.
CORPORATE
In January 2014, we formed a
subsidiary in the United Kingdom, Keryx Biopharma UK Ltd., related to the submission of our MAA in Europe.
In March 2014, we entered into
a sublease for approximately 10,395 square feet of leased office space in Boston, Massachusetts, with a term through December 31, 2015.
In January 2015, we announced the transitioning of the role of Chief Executive Officer from Ron Bentsur to Greg Madison. Mr. Madison
joined Keryx in February 2014 as Executive Vice President and Chief Operating Officer to transition Keryx from a development-stage organization into a fully integrated commercial entity, bringing to Keryx a wealth of relevant expertise in both the
phosphate binder and iron deficiency anemia markets. Mr. Madison has been appointed President of Keryx and will work with Mr. Bentsur to ensure a successful leadership transition by the end of May, when Mr. Bentsurs contract
expires.
In February 2015, we announced a planned consolidation of our finance and accounting function into our Boston office and that
our Chief Financial Officer, James Oliviero, will be leaving Keryx by October 2015. Mr. Oliviero has been with Keryx for twelve years and has served as the Chief Financial Officer since 2009. We have commenced a search for a new Chief Financial
Officer who will be based in our Boston office. Mr. Oliviero will continue to manage our finance and accounting team during the remainder of his tenure and will assist in the transition of his duties to the new Chief Financial Officer.
RECENTLY ISSUED ACCOUNTING STANDARDS
In
August 2014, the Financial Accounting Standards Board issued a new standard, Accounting Standards Update No. 2014-15, Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern. This new standard will explicitly
require management to assess an entitys ability to continue as a going concern and to provide footnote disclosures in certain cases. Currently there is no guidance in GAAP about managements
F-7
responsibility to evaluate whether there is substantial doubt about an entitys ability to continue as a going concern. The new standard applies to all entities and provides an explicit
requirement that management assesses and discloses going concern uncertainties. Previous guidance in auditing standards required auditors to evaluate going concern. The new standard will be effective for all entities in the first annual period
ending after December 15, 2016, which is December 31, 2016 for calendar year-end entities. Earlier application is permitted.
In
May 2014, the Financial Accounting Standards Board issued a comprehensive new standard which amends revenue recognition principles and provides a single set of criteria for revenue recognition among all industries. The new standard provides a five
step framework whereby revenue is recognized when promised goods or services are transferred to a customer at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard
also requires enhanced disclosures pertaining to revenue recognition in both interim and annual periods. The standard is effective for interim and annual periods beginning after December 15, 2016 and allows for adoption using a full
retrospective method, or a modified retrospective method. We are currently assessing the method of adoption and the expected impact the new standard has on our financial position and results of operations.
PRINCIPLES OF CONSOLIDATION
The
consolidated financial statements include our financial statements and those of our wholly-owned subsidiaries. Intercompany transactions and balances have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of
financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of these consolidated financial statements and the reported amounts of revenues and expenses during the applicable reporting period. Actual results could differ from those estimates. Such differences could be
material to these consolidated financial statements.
CASH AND CASH EQUIVALENTS
We treat liquid investments with original maturities of three months or less when purchased as cash and cash equivalents.
INVESTMENT SECURITIES
We classify our
short-term debt securities as held-to-maturity. Held-to-maturity securities are those securities in which we have the ability and intent to hold the security until maturity. Held-to-maturity securities are recorded at amortized cost, adjusted for
the amortization or accretion of premiums or discounts. Premiums and discounts are amortized or accreted over the life of the related held-to-maturity security as an adjustment to yield using the effective interest method. Available-for-sale
investment securities are recorded at fair value. Other-than-temporary impairment charges are included in interest and other income, net, and unrealized gains (losses), if determined to be temporary, are included in accumulated other comprehensive
income (loss) in stockholders equity.
INVENTORY
Inventories are stated at the lower of cost or estimated realizable value. We determine the cost of our inventories, which include amounts
related to materials, third-party contract manufacturing and packaging services, and manufacturing overhead, on a first-in, first-out basis. We capitalize inventory costs at our suppliers when, based on managements judgment, the realization of
future economic benefit is probable at each given
F-8
supplier. We received FDA approval for Auryxia on September 5, 2014, and on that date began capitalizing inventory purchases of saleable product from certain suppliers. Prior to FDA
approval, all saleable product purchased from such suppliers were included as a component of research and development expense.
ACCOUNTS RECEIVABLE,
NET
We extend credit to our customers for product sales resulting in accounts receivable. Customer accounts are monitored for past due
amounts. Past due accounts receivable, determined to be uncollectible, are written off against the allowance for doubtful accounts. Allowances for doubtful accounts are estimated based upon past due amounts, historical losses and existing economic
factors, and are adjusted periodically. We offer cash discounts to our customers, generally 2% of the sales price, as an incentive for prompt payment. The estimate of cash discounts is recorded at the time of sale. We account for the cash discounts
by reducing revenue and accounts receivable by the amount of the discounts we expect our customers to take. The accounts receivable are reported in the consolidated balance sheets, net of the allowances for doubtful accounts and cash discounts.
There was no allowance for doubtful accounts at December 31, 2014 and 2013.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at historical cost. Depreciation is computed using the straight-line method over the estimated useful
lives of the assets:
|
|
|
|
|
|
|
Estimated useful life (years) |
|
Office furniture and equipment |
|
|
3-7 |
|
Computers, software and related equipment |
|
|
3 |
|
Leasehold improvements are amortized over the shorter of their useful life or the remaining term of the lease
exclusive of renewal options.
PATENT COSTS
We expense patent maintenance costs as incurred. We have classified our patent expenses in selling, general and administrative.
REVENUE RECOGNITION
We recognize license
revenue in accordance with the revenue recognition guidance of the FASB Accounting Standards Codification (the Codification). We analyze each element of our licensing agreement to determine the appropriate revenue recognition. The terms
of the license agreement may include payments to us of non-refundable up-front license fees, milestone payments if specified objectives are achieved, and/or royalties on product sales. We recognize revenue from upfront payments over the period of
significant involvement under the related agreements unless the fee is in exchange for products delivered or services rendered that represent the culmination of a separate earnings process and no further performance obligation exists under the
contract. We recognize milestone payments as revenue upon the achievement of specified milestones only if (1) the milestone payment is non-refundable, (2) substantive effort is involved in achieving the milestone, (3) the amount of
the milestone is reasonable in relation to the effort expended or the risk associated with achievement of the milestone, and (4) the milestone is at risk for both parties. If any of these conditions are not met, we defer the milestone payment
and recognize it as revenue over the estimated period of performance under the contract.
For arrangements for which royalty revenue
information becomes available and collectability is reasonably assured, we recognize revenue during the applicable period earned. When collectability is reasonably assured but a reasonable estimate of royalty revenue cannot be made, the royalty
revenue is recognized in the quarter that the licensee provides the written report and related information to us.
F-9
Our commercial launch of Auryxia occurred in December 2014. We sell product to a limited
number of major wholesalers, our Distributors, as well as certain pharmacies, or collectively, our Customers. Our Distributors resell the product to retail pharmacies for purposes of their reselling the product to fill patient prescriptions. In
accordance with GAAP, until we have the ability to reliably estimate returns of Auryxia from our Customers, revenue will be recognized based on the resale of Auryxia for the purposes of filling patient prescriptions, and not based on sales from us
to such Customers. Consistent with industry practice, once we achieve sufficient history such that we can reliably estimate returns based on sales to our Customers, we anticipate that our revenues will be recognized based on sales to our Customers.
We currently defer Auryxia revenue recognition until the earlier of the product being resold for purposes of filling patient prescriptions and the expiration of the right of return (twelve months after the expiration date of the product). The
deferred revenue is recorded net of discounts, rebates, and chargebacks. We also defer the related cost of product sales and record such amounts as finished goods inventory held by others, which is included in inventory on our consolidated balance
sheet, until revenue related to such product sales is recognized.
LICENSE EXPENSES
License expenses include royalty and other expenses due to the licensor of Auryxia related to our license agreement with JT and Torii. With
regard to royalty expense, such expense is directly related to the royalty revenue received from JT and Torii and is recognized in the same period as the revenue is recorded. Other expenses are recognized in the period they are incurred.
RESEARCH AND DEVELOPMENT COSTS
Research
and development costs are expensed as incurred. Pre-approval inventory expenditures are recorded as research and development expense as incurred. The capitalization of inventory for our product candidate(s) commence when it is probable that the
product will be approved for commercial marketing. Nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities are deferred and amortized over the period that the goods are
delivered or the related services are performed, subject to an assessment of recoverability. We make estimates of costs incurred in relation to external clinical research organizations (CROs) and clinical site costs. We analyze the
progress of clinical trials, including levels of patient enrollment, invoices received and contracted costs when evaluating the adequacy of the amount expensed and the related prepaid asset and accrued liability. Significant judgments and estimates
must be made and used in determining the accrued balance and expense in any accounting period. We review and accrue CRO expenses and clinical trial study expenses based on work performed and rely upon estimates of those costs applicable to the stage
of completion of a study. Accrued CRO costs are subject to revisions as such trials progress to completion. Revisions are charged to expense in the period in which the facts that give rise to the revision become known. With respect to clinical site
costs, the financial terms of these agreements are subject to negotiation and vary from contract to contract. Payments under these contracts may be uneven, and depend on factors such as the achievement of certain events, the successful recruitment
of patients, the completion of portions of the clinical trial or similar conditions. The objective of our policy is to match the recording of expenses in our consolidated financial statements to the actual services received and efforts expended. As
such, expense accruals related to clinical site costs are recognized based on our estimate of the degree of completion of the event or events specified in the specific clinical study or trial contract.
INCOME TAXES
Income taxes are accounted
for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases, operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The
F-10
effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. If the likelihood of realizing the deferred tax
assets or liability is less than more likely than not, a valuation allowance is then created.
We, and our subsidiaries, file
income tax returns in the U.S. federal jurisdiction and in various states. Our subsidiary, Keryx Biopharma UK Ltd., files annual returns and accounts in the United Kingdom. We have tax net operating loss carryforwards that are subject to examination
for a number of years beyond the year in which they were generated for tax purposes. Since a portion of these net operating loss carryforwards may be utilized in the future, many of these net operating loss carryforwards will remain subject to
examination.
We are continuing our practice of recognizing interest and penalties related to uncertain income tax positions in income tax
expense.
STOCK - BASED COMPENSATION
We recognize all share-based payments to employees and to non-employee directors for service on our board of directors as compensation expense
in the consolidated financial statements based on the grant date fair values of such payments. Stock-based compensation expense recognized each period is based on the value of the portion of share-based payment awards that is ultimately expected to
vest during the period. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
For share-based payments to consultants and other third-parties, compensation expense is determined at the measurement date. The
expense is recognized over the vesting period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. We record compensation expense based on the fair value of the award at the reporting date.
The awards to consultants and other third-parties are then revalued, or the total compensation is recalculated based on the then current fair value, at each subsequent reporting date.
BASIC AND DILUTED NET LOSS PER COMMON SHARE
Basic net loss per share is computed by dividing the losses allocable to common stockholders by the weighted average number of shares of common
stock outstanding for the period. Diluted net loss per share does not reflect the effect of shares of common stock to be issued upon the exercise of stock options and warrants, as their inclusion would be anti-dilutive. The options outstanding as of
December 31, 2014, 2013 and 2012, which are not included in the computation of net loss per share amounts, were 5,132,426, 3,845,370 and 3,401,671, respectively. No warrants were outstanding during each of these periods.
SEGMENT REPORTING
We operate in only one
reportable segment: the Products segment.
ACQUISITIONS
We adopted Accounting Standards Codification (ASC) Topic 805, Business Combinations, as of January 1, 2009. The adoption of
ASC Topic 805 was effective on a prospective basis. Prior to the adoption of ASC Topic 805, we accounted for acquired businesses using the purchase method of accounting which required that the assets acquired and liabilities assumed be recorded at
the date of acquisition at their respective fair values. Our consolidated financial statements and results of operations through 2008 reflected an acquired business after the completion of the acquisition and were not retroactively restated. The
cost to acquire a business, including transaction costs, was allocated to the underlying net assets of the acquired business in proportion to their respective fair values. Any excess of the purchase price over the estimated fair values of the net
assets acquired was recorded as goodwill. Any excess of the net assets acquired over the purchase price represented negative goodwill.
F-11
IMPAIRMENT
Long lived assets are reviewed for an impairment loss when circumstances indicate that the carrying value of long-lived tangible and intangible
assets with finite lives may not be recoverable. Managements policy in determining whether an impairment indicator exists, a triggering event, comprises measurable operating performance criteria as well as qualitative measures. If an analysis
is necessitated by the occurrence of a triggering event, we make certain assumptions in determining the impairment amount. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future
undiscounted cash flows expected to be generated by the asset or used in its disposal. If the carrying amount of an asset exceeds its estimated future undiscounted cash flows, an impairment charge is recognized.
Goodwill is reviewed for impairment annually, or when events arise that could indicate that an impairment exists. We test for goodwill
impairment using a two-step process. The first step compares the fair value of the reporting unit with the units carrying value, including goodwill. When the carrying value of the reporting unit is greater than fair value, the units
goodwill may be impaired, and the second step must be completed to measure the amount of the goodwill impairment charge, if any. In the second step, the implied fair value of the reporting units goodwill is compared with the carrying amount of
the units goodwill. If the carrying amount is greater than the implied fair value, the carrying value of the goodwill must be written down to its implied fair value. As of December 31, 2012, 2013 and 2014, management conducted its annual
assessments of goodwill and concluded that there were no impairments. We will continue to perform impairment tests annually, at December 31, and whenever events or changes in circumstances suggest that the carrying value of an asset may not be
recoverable.
CONCENTRATIONS OF CREDIT RISK
We do not have significant off-balance-sheet risk or credit risk concentrations. We maintain our cash and cash equivalents and held-to-maturity
investments, when applicable, with multiple financial institutions that invest in investment-grade securities with average maturities of less than twelve months. See Note 3 Investment Securities and Note 4 Fair Value Measurements.
NOTE 2 CASH AND CASH EQUIVALENTS
|
|
|
|
|
|
|
|
|
(in thousands) |
|
December 31, 2014 |
|
|
December 31, 2013 |
|
Money market funds |
|
$ |
69,591 |
|
|
$ |
29,904 |
|
Checking and bank deposits |
|
|
4,693 |
|
|
|
25,792 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
74,284 |
|
|
$ |
55,696 |
|
|
|
|
|
|
|
|
|
|
A significant portion of our cash is maintained in Federal Deposit Insurance Corporation (FDIC)
insured accounts at credit qualified financial institutions. At times, such amounts may exceed the FDIC insurance limits. At December 31, 2014, uninsured cash balances totaled approximately $73.8 million.
NOTE 3 - INVESTMENT SECURITIES
We record our investments as either held-to-maturity or available-for-sale. Held-to-maturity investments are recorded at
amortized cost. Available-for-sale investment securities are recorded at fair value (see Note 4 Fair Value Measurements). Other-than-temporary impairment charges are included in interest and other income, net, and unrealized gains (losses),
if determined to be temporary, are included in accumulated other comprehensive income (loss) in stockholders equity.
F-12
The following tables summarize our investment securities at December 31, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014 |
|
(in thousands) |
|
Amortized cost, as adjusted |
|
|
Gross unrealized holding gains |
|
|
Gross unrealized holding losses |
|
|
Estimated fair value |
|
Short-term investments (held-to-maturity): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of domestic governmental agencies (mature January 2015) |
|
$ |
11,508 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
11,508 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investment securities |
|
$ |
11,508 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
11,508 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We were not invested in investment securities at December 31, 2013.
NOTE 4 FAIR VALUE MEASUREMENTS
We measure certain financial assets and liabilities at fair value on a recurring basis in the financial statements. The
hierarchy ranks the quality and reliability of inputs, or assumptions, used in the determination of fair value and requires financial assets and liabilities carried at fair value to be classified and disclosed in one of the following three
categories:
|
|
|
Level 1 quoted prices in active markets for identical assets and liabilities; |
|
|
|
Level 2 inputs other than Level 1 quoted prices that are directly or indirectly observable; and |
|
|
|
Level 3 unobservable inputs that are not corroborated by market data. |
We review
investment securities for impairment and to determine the classification of the impairment as temporary or other-than-temporary. Losses are recognized in our consolidated statement of operations when a decline in fair value is determined to be
other-than-temporary. We review our investments on an ongoing basis for indications of possible impairment. Once identified, the determination of whether the impairment is temporary or other-than-temporary requires significant judgment.
The following table provides the fair value measurements of applicable financial assets as of December 31, 2014 and 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets at fair value as of December 31, 2014 |
|
(in thousands) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Money market funds (1) |
|
$ |
69,591 |
|
|
$ |
|
|
|
$ |
|
|
Obligations of domestic governmental agencies (held-to-maturity) (2) |
|
|
11,508 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
81,099 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets at fair value as of December 31, 2013 |
|
(in thousands) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Money market funds (1) |
|
$ |
29,904 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
29,904 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Included in cash and cash equivalents on our consolidated balance sheet. The carrying amount of money market funds approximates fair value. |
(2) |
Amortized cost approximates fair value. |
F-13
NOTE 5 - INVENTORY
Upon approval of Auryxia on September 5, 2014 by the FDA, we began capitalizing our purchases of saleable inventory of
Auryxia from suppliers. Inventories consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014 |
|
|
December 31, 2013 |
|
Raw materials |
|
$ |
111 |
|
|
$ |
|
|
Work in process |
|
|
7,263 |
|
|
|
|
|
Finished goods |
|
|
409 |
|
|
|
|
|
Finished goods inventory held by others |
|
|
47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total inventory |
|
$ |
7,830 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
NOTE 6 - PROPERTY, PLANT AND EQUIPMENT
|
|
|
|
|
|
|
|
|
(in thousands) |
|
December 31, 2014 |
|
|
December 31, 2013 |
|
Leasehold improvements |
|
$ |
39 |
|
|
$ |
32 |
|
Office furniture and equipment |
|
|
853 |
|
|
|
556 |
|
Computers, software and related equipment |
|
|
1,823 |
|
|
|
638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
2,715 |
|
|
|
1,226 |
|
Accumulated depreciation and amortization |
|
|
(1,183 |
) |
|
|
(877 |
) |
|
|
|
|
|
|
|
|
|
Net book value |
|
$ |
1,532 |
|
|
$ |
349 |
|
|
|
|
|
|
|
|
|
|
The following table summarizes depreciation expense for the years ended December 31, 2014, 2013 and 2012.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, |
|
(in thousands) |
|
2014 |
|
|
2013 |
|
|
2012 |
|
Depreciation expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
$ |
56 |
|
|
$ |
32 |
|
|
$ |
21 |
|
Selling, general and administrative |
|
|
250 |
|
|
|
22 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
306 |
|
|
$ |
54 |
|
|
$ |
35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 7 GOODWILL
On April 6, 2006, ADI, our wholly-owned subsidiary, completed the acquisition of AccuminTM, a novel, patent protected, diagnostic for the direct measurement of total, intact urinary albumin, from AusAm Biotechnologies, Inc. The purchase price of Accumin was $4.0 million. We accounted
for the ADI transaction as a purchase. The excess of the purchase price over the net assets acquired in the ADI transaction represented goodwill of approximately $3.2 million, which was allocated to our Products segment based on the proposed
synergies with our then existing drug pipeline activities. In September 2008, we terminated our license agreement related to the ADI product.
F-14
NOTE 8 - OTHER ASSETS
|
|
|
|
|
|
|
|
|
(in thousands) |
|
December 31, 2014 |
|
|
December 31, 2013 |
|
Patents |
|
$ |
352 |
|
|
$ |
352 |
|
Deposits |
|
|
279 |
|
|
|
163 |
|
Deferred registration fees |
|
|
13 |
|
|
|
118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
644 |
|
|
|
633 |
|
|
|
|
Accumulated amortization |
|
|
(352 |
) |
|
|
(352 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
292 |
|
|
$ |
281 |
|
|
|
|
|
|
|
|
|
|
There were no amortization expenses for the years ended December 31, 2014, 2013 and 2012. We do not
expect to record amortization expenses going forward, as all definite-lived intangible assets are fully amortized.
NOTE 9 - LICENSE AGREEMENTS
In November 2005, we entered into a license agreement with Panion & BF Biotech, Inc. (Panion). Under
the license agreement, we acquired the exclusive worldwide rights, excluding certain Asian-Pacific countries, for the development and marketing of Auryxia. To date, we have paid an aggregate of $9.6 million to Panion, including the $3.0 million
milestone payment paid upon the FDA approval of Auryxia, and Panion is eligible to receive one additional milestone payment of $2.0 million upon our successful achievement of European marketing approval, in addition to royalty payments based on a
mid-single digit percentage of net sales of Auryxia.
In September 2007, we entered into a Sublicense Agreement with JT and Torii,
JTs pharmaceutical business subsidiary, under which JT and Torii obtained the exclusive sublicense rights for the development and commercialization of ferric citrate in Japan, which is being marketed in the U.S. under the trade name Auryxia.
JT and Torii are responsible for the future development and commercialization costs in Japan. Effective as of June 8, 2009, we entered into an Amended and Restated Sublicense Agreement (the Revised Agreement) with JT and Torii,
which, among other things, provided for the elimination of all significant on-going obligations under the sublicense agreement.
In
January 2013, JT and Torii filed its new drug application (NDA) with the Japanese Ministry of Health, Labour and Welfare for marketing approval of ferric citrate in Japan for the treatment of hyperphosphatemia in patients with CKD. Under
the terms of the license agreement with JT and Torii, we received a non-refundable milestone payment of $7.0 million in January 2013 for the achievement of the NDA filing milestone. As a result, we recorded license revenue of $7.0 million in
accordance with our revenue recognition policy, which is included in the year ended December 31, 2013.
In January 2014, JT and Torii
received manufacturing and marketing approval of ferric citrate from the Japanese Ministry of Health, Labour and Welfare. Ferric citrate, launched in May 2014 and being marketed in Japan by JTs subsidiary, Torii Pharmaceutical Co., Ltd., under
the brand name Riona®, is indicated as an oral treatment for the improvement of hyperphosphatemia in patients with CKD. Under the terms of the license agreement with JT and Torii, we
received a non-refundable payment of $10.0 million in February 2014 for the achievement of the marketing approval milestone. As a result, we recorded license revenue of $10.0 million in accordance with our revenue recognition policy, which is
included in the year ended December 31, 2014. We also receive royalty payments based on a tiered double-digit percentage of net sales of Riona® in Japan escalating up to the
mid-teens, as well as up to an additional $55.0 million upon the achievement of certain annual net sales milestones. In accordance with our revenue recognition policy, royalty revenues are recognized in the quarter that JT and Torii provide their
written report and related information to us regarding sales of Riona®, which generally will be one quarter following the quarter in which the underlying sales by JT and Torii occurred. For
the year ended December 31, 2014, we recorded $0.8 million in license revenue related to royalties earned on net
F-15
sales of Riona® in Japan. We record the associated mid-single digit percentage of net sales royalty expense due Panion, the licensor of
Auryxia, in the same period as the royalty revenue from JT and Torii is recorded. For the year ended December 31, 2014, we recorded $0.5 million in license expenses related to royalties due to the licensor of Auryxia relating to sales of Riona® in Japan.
On April 2, 2012, we reported that the Phase 3 X-PECT
(Xeloda® + Perifosine Evaluation in Colorectal cancer Treatment) clinical trial evaluating perifosine (KRX-0401) + capecitabine (Xeloda) in patients with refractory advanced colorectal cancer
did not meet the primary endpoint of improving overall survival versus capecitabine + placebo. On May 4, 2012, we executed a License Termination and Technology Transfer Agreement with Aeterna Zentaris GmbH (Zentaris), whereby the
license agreement for KRX-0401 (perifosine) was terminated, and in exchange for the transfer of the U.S. Investigational New Drug Application, development data, intellectual property and contracts to Zentaris, we will receive a royalty on future net
sales, if any, of perifosine in the U.S., Canada and Mexico. Zentaris has assumed all costs related to the Perifosine program going forward.
NOTE 10 CONTINGENT EQUITY RIGHTS
On February 5, 2004, we acquired ACCESS Oncology, a related party, for a purchase price of approximately $19.5 million.
The purchase price included our assumption of certain liabilities of ACCESS Oncology equal to approximately $8.7 million, the issuance of shares of our common stock valued at approximately $6.3 million, contingent equity rights valued at
approximately $4.0 million and transaction costs of approximately $0.5 million.
At the effective date of the merger, each share of ACCESS
Oncology common stock, including shares issuable upon the exercise of options exercised before March 1, 2004, and upon the exercise of outstanding warrants, was converted into the right to share in the contingent equity rights pro rata with the
other holders of ACCESS Oncology common stock. Pursuant to the merger agreement, 623,145 shares of our common stock valued at approximately $6.3 million have been issued to the former preferred stockholders of ACCESS Oncology. An additional 4,433
shares of our common stock are issuable to those preferred stockholders of ACCESS Oncology who have yet to provide the necessary documentation to receive shares of our common stock.
On December 16, 2009, we announced the initiation of a Phase 3 registration trial of KRX-0401 (perifosine) for the treatment of patients
with relapsed / refractory multiple myeloma. The achievement of this event triggered contingent milestone stock consideration payable to the former stockholders of ACCESS Oncology in the amount of an aggregate of 500,000 shares of our common stock
valued at $1.4 million.
Due to the termination of the license for KRX-0401 in May 2012, we were no longer committed to pay to the former
stockholders of ACCESS Oncology, Inc. certain contingent equity rights (up to 2,872,422 shares of our common stock). For the year ended December 31, 2012, we recognized a non-cash extraordinary gain of $2.6 million relating to the write-off of
the contingent equity rights liability.
NOTE 11 - STOCKHOLDERS EQUITY
Preferred Stock
Our amended and restated certificate of incorporation authorizes the issuance of up to 5,000,000 shares of preferred stock, $0.001 par value,
with rights senior to those of our common stock.
Common Stock
On June 18, 2013, at the 2013 Annual Meeting of Stockholders, the Companys stockholders approved an amendment to the Companys
amended and restated certificate of incorporation increasing the shares of authorized common stock from 95,000,000 shares to 130,000,000 shares $0.001 par value common stock. The number of authorized shares of preferred stock remains unchanged at
5,000,000 shares.
F-16
On January 22, 2014, we announced the pricing of an underwritten public offering in which we
sold 7,935,000 shares of our common stock at a price of $14.50 per share for gross proceeds of approximately $115.1 million. Net proceeds from this offering were approximately $107.5 million, net of underwriting discounts and offering expenses of
approximately $7.5 million. The shares were sold under a Registration Statement (No. 333-190353) on Form S-3, filed by us with the Securities and Exchange Commission.
On January 21, 2015, we announced the pricing of an underwritten public offering in which we sold 10,541,667 shares of our common stock
at a price of $12.00 per share for gross proceeds of approximately $126.5 million. Net proceeds from this offering were approximately $118.3 million, net of underwriting discounts and offering expenses of approximately $8.2 million. The shares were
sold under Registration Statements (Nos. 333-201605 and 333-201639) on Form S-3 and Form S-3MEF, respectively, filed by us with the Securities and Exchange Commission.
Treasury Stock
As of
December 31, 2014 and 2013, we held a total of 79,948 shares of our common stock in treasury, at a total cost of $0.4 million.
Equity
Incentive Plans
We have in effect the following stock option and incentive plans.
a. The 1999 Stock Option Plan was adopted in November 1999. Under the 1999 Stock Option Plan, our board of directors could grant stock-based
awards to directors, consultants and employees. The plan authorizes grants to purchase up to 4,230,000 shares of authorized but unissued common stock. The plan limits the term of each option, to no more than 25 years from the date of the grant,
unless otherwise authorized by the board. The plan permits the board of directors or a committee appointed by the board to administer the plan. The administrator has the authority, in its discretion, to determine the terms and conditions of any
option granted to a service provider, including the vesting schedule. As of December 31, 2014, no additional shares of our common stock may be issued under the 1999 Stock Option Plan.
b. The 2004 Long-Term Incentive Plan was adopted in June 2004 by our stockholders. Under the 2004 Long-Term Incentive Plan, the compensation
committee of our board of directors is authorized to grant stock-based awards to directors, consultants and employees. The 2004 plan authorizes grants to purchase up to 4,000,000 shares of authorized but unissued common stock. The plan limits the
term of each option to no more than 10 years from the date of grant. As of December 31, 2014, no additional shares of our common stock may be issued under the 2004 Long-Term Incentive Plan.
c. The 2007 Incentive Plan was adopted in June 2007 by our stockholders. Under the 2007 Incentive Plan, the compensation committee of our
board of directors is authorized to grant stock-based awards to directors, consultants, employees and officers. The 2007 Incentive Plan authorizes grants to purchase up to 6,000,000 shares of authorized but unissued common stock. The plan limits the
term of each option to no more than 10 years from the date of grant. As of December 31, 2014, up to an additional 11,921 shares may be issued under the 2007 Incentive Plan.
d. The 2009 CEO Incentive Plan was adopted in May 2009. Under the 2009 CEO Incentive Plan, our board of directors granted an option to Ron
Bentsur, our Chief Executive Officer, to purchase up to 600,000 shares of authorized but unissued common stock. The option has a term of 10 years from the date of grant. As of December 31, 2014, the option is fully vested and exercisable.
e. The 2013 Incentive Plan was adopted in June 2013 by our stockholders at our 2013 Annual Meeting of Stockholders. The 2013 Incentive plan
was amended by our stockholders at a special meeting of our stockholders
F-17
in November 2014, which increased the number of authorized shares issuable thereunder from 3,500,000 to 9,500,000. Under the 2013 Incentive Plan, the compensation committee of the Companys
board of directors is authorized to grant stock-based awards to directors, officers, employees and consultants. The plan limits the term of each option to no more than 10 years from the date of their grant. As of December 31, 2014, up to an
additional 5,516,605 shares may be issued under the 2013 Incentive Plan.
Total shares available for the issuance of stock options or
other stock-based awards under our stock option and incentive plans were 5,528,526 shares at December 31, 2014.
Stock Options
The following table summarizes stock option activity for all plans for the years ended December 31, 2014, 2013 and 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares |
|
|
Weighted- average exercise price |
|
|
Weighted- average Contractual Term |
|
|
Aggregate Intrinsic Value |
|
Outstanding at January 1, 2012 |
|
|
3,517,000 |
|
|
|
6.40 |
|
|
|
|
|
|
$ |
2,139,130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
521,500 |
|
|
|
2.36 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(266,621 |
) |
|
|
7.77 |
|
|
|
|
|
|
|
|
|
Expired |
|
|
(370,208 |
) |
|
|
11.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2012 |
|
|
3,401,671 |
|
|
|
5.17 |
|
|
|
|
|
|
$ |
2,373,509 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
932,366 |
|
|
|
6.29 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(443,813 |
) |
|
|
2.10 |
|
|
|
|
|
|
$ |
4,614,741 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(44,854 |
) |
|
|
8.70 |
|
|
|
|
|
|
|
|
|
Expired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2013 |
|
|
3,845,370 |
|
|
|
5.75 |
|
|
|
|
|
|
$ |
28,361,438 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
2,264,550 |
|
|
|
14.69 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(737,945 |
) |
|
|
6.85 |
|
|
|
|
|
|
$ |
6,252,223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(239,549 |
) |
|
|
10.38 |
|
|
|
|
|
|
|
|
|
Expired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2014 |
|
|
5,132,426 |
|
|
$ |
9.32 |
|
|
|
7.0 |
|
|
$ |
26,916,823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at December 31, 2014 |
|
|
5,046,754 |
|
|
$ |
9.25 |
|
|
|
6.9 |
|
|
$ |
26,784,040 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2014 |
|
|
2,575,056 |
|
|
$ |
5.29 |
|
|
|
4.8 |
|
|
$ |
22,953,150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes information about stock options outstanding at December 31, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding |
|
|
Options exercisable |
|
Range of
exercise prices |
|
Number outstanding |
|
|
Weighted- average remaining contractual life (years) |
|
|
Weighted- average exercise price |
|
|
Number exercisable |
|
|
Weighted- average exercise price |
|
$0.10 - $ 3.00 |
|
|
1,417,063 |
|
|
|
5.6 |
|
|
$ |
1.44 |
|
|
|
1,243,990 |
|
|
$ |
1.29 |
|
3.70 - 8.56 |
|
|
818,900 |
|
|
|
6.5 |
|
|
|
5.72 |
|
|
|
683,482 |
|
|
|
5.29 |
|
9.34 - 17.23 |
|
|
2,896,463 |
|
|
|
7.7 |
|
|
|
14.20 |
|
|
|
647,584 |
|
|
|
12.98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.10 - $ 17.23 |
|
|
5,132,426 |
|
|
|
7.0 |
|
|
$ |
9.32 |
|
|
|
2,575,056 |
|
|
$ |
5.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-18
Upon the exercise of stock options, we issue new shares of our common stock. As of
December 31, 2014, 125,000 options issued to employees are unvested, milestone-based options.
Restricted Stock
Certain employees, directors and consultants have been awarded restricted stock under our equity incentive plans. The time-vesting restricted
stock grants vest primarily over a period of three to four years. The following table summarizes restricted share activity for the years ended December 31, 2014, 2013 and 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares |
|
|
Weighted Average Grant Date Fair Value |
|
|
Aggregate Intrinsic Value |
|
Outstanding at January 1, 2012 |
|
|
621,581 |
|
|
$ |
3.16 |
|
|
$ |
1,572,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
997,300 |
|
|
|
1.94 |
|
|
|
|
|
Vested |
|
|
(339,954 |
) |
|
|
2.91 |
|
|
$ |
965,496 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(97,250 |
) |
|
|
2.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2012 |
|
|
1,181,677 |
|
|
|
2.27 |
|
|
$ |
3,095,994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
831,020 |
|
|
|
7.68 |
|
|
|
|
|
Vested |
|
|
(568,030 |
) |
|
|
2.43 |
|
|
$ |
4,612,275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(23,737 |
) |
|
|
8.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2013 |
|
|
1,420,930 |
|
|
|
5.27 |
|
|
$ |
18,401,044 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
1,451,558 |
|
|
|
14.38 |
|
|
|
|
|
Vested |
|
|
(1,856,682 |
) |
|
|
8.78 |
|
|
$ |
28,608,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(88,859 |
) |
|
|
8.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2014 |
|
|
926,947 |
|
|
$ |
12.22 |
|
|
$ |
13,116,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2014, 75,000 shares of restricted stock issued to employees are unvested,
milestone-based shares.
On September 14, 2009, we entered in an employment agreement with Ron Bentsur, our Chief Executive Officer,
which was amended on January 13, 2012, and further amended on September 11, 2013. The agreement, as amended, terminates on May 20, 2015, subject to certain early termination events. As of December 31, 2014, Mr. Bentsur
has been granted a total of 1,250,000 shares of restricted stock based on the achievement of certain milestone awards described in his employment agreement. In addition, as of December 31, 2014, Mr. Bentsur has the opportunity to earn
certain milestone awards as follows:
|
|
|
100,000 shares of restricted stock will be granted to Mr. Bentsur upon each event of our outlicensing Auryxia in a foreign market, other than Japan, resulting in a greater than $10 million non-refundable cash
payment to us with a gross deal value to us of at least $50 million. Such restricted stock will vest in equal installments over each of the first three anniversaries of the date of grant, provided that Mr. Bentsur remains an employee
during such vesting period. |
As per his employment agreement, in December 2014, 500,000 shares of fully vested common stock
were granted to Mr. Bentsur, upon the first commercial sale of Auryxia in the U.S. off an approved NDA. In addition, upon reaching the same milestone, 266,666 shares of restricted stock previously issued to Mr. Bentsur were vested. We
recorded $10.1 million of stock-based compensation expense associated with the granting and vesting of the 766,666 shares of restricted stock in December 2014, which is included in selling, general and administrative expenses in the year ended
December 31, 2014.
F-19
Stock-Based Compensation
The following tables summarize stock-based compensation expense information about equity incentive grants for the years ended December 31,
2014, 2013 and 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, |
|
(in thousands) |
|
2014 |
|
|
2013 |
|
|
2012 |
|
Research and development expenses |
|
$ |
6,379 |
|
|
$ |
2,347 |
|
|
$ |
662 |
|
Selling, general and administrative expenses |
|
|
20,578 |
|
|
|
3,606 |
|
|
|
1,505 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
26,957 |
|
|
$ |
5,953 |
|
|
$ |
2,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, |
|
(in thousands) |
|
2014 |
|
|
2013 |
|
|
2012 |
|
Stock-based compensation expense associated with restricted stock |
|
$ |
20,031 |
|
|
$ |
3,859 |
|
|
$ |
967 |
|
Stock-based compensation expense associated with stock options |
|
|
6,926 |
|
|
|
2,094 |
|
|
|
1,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
26,957 |
|
|
$ |
5,953 |
|
|
$ |
2,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation costs capitalized as part of inventory were immaterial for the year ended
December 31, 2014.
The twelve months ended December 31, 2014, included $4.6 million and $11.0 million of stock-based
compensation in research and development and selling, general and administrative expense, respectively, related to the vesting of milestone-based stock options and restricted shares upon the FDA approval and first commercial sale of Auryxia.
The fair value of stock options granted is estimated at the date of grant using the Black-Scholes pricing model. The expected term of options
granted is derived from historical data and the expected vesting period. Expected volatility is based on the historical volatility of our common stock. The risk-free interest rate is based on the U.S. Treasury yield for a period consistent with the
expected term of the option in effect at the time of the grant. We have assumed no expected dividend yield, as dividends have never been paid to stock or option holders and will not be paid for the foreseeable future.
|
|
|
|
|
|
|
|
|
|
|
|
|
Black-Scholes Option Valuation Assumptions |
|
2014 |
|
|
2013 |
|
|
2012 |
|
Risk-free interest rates |
|
|
1.9% |
|
|
|
0.7% |
|
|
|
0.6% |
|
Dividend yield |
|
|
|
|
|
|
|
|
|
|
|
|
Volatility |
|
|
103.0% |
|
|
|
102.0% |
|
|
|
106.3% |
|
Weighted-average expected term |
|
|
6.0 years |
|
|
|
3.8 years |
|
|
|
4.0 years |
|
The weighted average grant date fair value of options granted was $11.81, $4.28 and $1.73 per option for the
years ended December 31, 2014, 2013 and 2012, respectively. We used historical information to estimate forfeitures within the valuation model. As of December 31, 2014, there was $20.6 million and $8.1 million of total unrecognized
compensation cost related to non-vested stock options and restricted stock, respectively, which is expected to be recognized over weighted-average periods of 2.3 years and 2.2 years, respectively. These amounts do not include, as of
December 31, 2014, 125,000 options outstanding and 75,000 shares of restricted stock outstanding which are milestone-based and vest upon certain corporate milestones, such as change in control. Stock-based compensation will be measured and
recorded if and when it is probable that the milestone will occur.
NOTE 12 INCOME TAXES
We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are determined based
on differences between the financial reporting and tax basis of assets and liabilities and are
F-20
measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is established when necessary to reduce deferred tax
assets to the amount expected to be realized. In determining the need for a valuation allowance, management reviews both positive and negative evidence, including current and historical results of operations, future income projections and the
overall prospects of our business. Based upon managements assessment of all available evidence, we believe that it is more-likely-than-not that the deferred tax assets will not be realizable; and therefore, a full valuation allowance is
established. The valuation allowance for deferred tax assets was $205.0 million and $162.8 million as of December 31, 2014 and 2013, respectively.
As of December 31, 2014, we have U.S. net operating loss carryforwards (NOLs) of approximately $509.0 million, of which
approximately $77.6 million were derived from certain stock option exercises and any such benefit realized will be credited to additional paid in capital. For income tax purposes, these NOLs will expire in the years 2019 through 2034. Due to
our various equity transactions, the utilization of certain NOLs could be subject to annual limitations imposed by Internal Revenue Code Section 382 relating to the change of control provision and/or the separate return limitation year
losses limitation.
For the year ended December 31, 2014, we recognized $0.7 million in income tax expense related to the recording
of a deferred tax liability associated with capitalized goodwill, an indefinite-lived intangible asset that is being amortized for tax purposes. Indefinite-lived intangibles are non-monetary assets which are not amortized under GAAP since there is
no foreseeable limit to the cash flows provided by them. Our lack of earnings history and the uncertainty surrounding our ability to generate taxable income prior to the reversal or expiration of such deferred tax liability were the primary factors
considered by management when recording the deferred tax liability. There was no income tax expense for the year ended December 31, 2013.
The income tax provision consists of the following:
|
|
|
|
|
|
|
|
|
(in thousands) |
|
December 31, 2014 |
|
|
December 31, 2013 |
|
Current: |
|
|
|
|
|
|
|
|
Federal |
|
$ |
|
|
|
$ |
|
|
State |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
Federal |
|
|
640 |
|
|
|
|
|
State |
|
|
60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred |
|
|
700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income taxes |
|
$ |
700 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
F-21
Income tax expense differed from amounts computed by applying the US federal income tax rate of
34% to pretax loss as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, |
|
(in thousands) |
|
2014 |
|
|
2013 |
|
|
2012 |
|
Loss before income taxes, as reported in the consolidated statements of operations |
|
$ |
(110,818 |
) |
|
$ |
(46,732 |
) |
|
$ |
(25,360 |
) |
|
|
|
|
Computed expected tax (benefit) expense |
|
|
(37,678 |
) |
|
|
(15,889 |
) |
|
|
(8,622 |
) |
|
|
|
|
Increase (decrease) in income taxes resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
Expected (benefit) expense from state & local taxes |
|
|
(3,594 |
) |
|
|
(1,523 |
) |
|
|
(827 |
) |
Stock compensation |
|
|
(7,178 |
) |
|
|
(1,842 |
) |
|
|
905 |
|
Deferred impact rate change |
|
|
|
|
|
|
|
|
|
|
|
|
Permanent differences |
|
|
97 |
|
|
|
66 |
|
|
|
(196 |
) |
Impact of state NOL carryforward change |
|
|
6,726 |
|
|
|
|
|
|
|
|
|
Prior year true-up |
|
|
70 |
|
|
|
(409 |
) |
|
|
(6,450 |
) |
|
|
|
|
Change in the balance of the valuation allowance for deferred tax assets allocated to income tax expense |
|
|
42,257 |
|
|
|
19,597 |
|
|
|
15,190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
700 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The significant components of deferred income tax expense (benefit) attributable to loss from operations are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, |
|
(in thousands) |
|
2014 |
|
|
2013 |
|
|
2012 |
|
Deferred tax (benefit) expense |
|
$ |
(41,557 |
) |
|
$ |
(19,597 |
) |
|
$ |
(15,190 |
) |
Federal deferred tax benefit relating to the exercise of stock options |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Increase (decrease) in the valuation allowance for deferred tax asset |
|
|
42,257 |
|
|
|
19,597 |
|
|
|
15,190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
700 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and
deferred tax liabilities at December 31, 2014 and 2013 are presented below.
|
|
|
|
|
|
|
|
|
(in thousands) |
|
December 31, 2014 |
|
|
December 31, 2013 |
|
Deferred tax assets (liabilities): |
|
|
|
|
|
|
|
|
Net operating loss carryforwards |
|
$ |
182,864 |
|
|
$ |
149,510 |
|
Stock-based compensation expense |
|
|
11,379 |
|
|
|
7,022 |
|
Unrealized / realized loss on securities |
|
|
1,052 |
|
|
|
1,164 |
|
Capitalized Inventory |
|
|
7,106 |
|
|
|
3,061 |
|
Research and development |
|
|
2,087 |
|
|
|
2,088 |
|
Intangible assets due to different amortization methods |
|
|
(321 |
) |
|
|
(135 |
) |
Accrued expenses |
|
|
|
|
|
|
53 |
|
Deferred revenue |
|
|
154 |
|
|
|
|
|
Other temporary differences |
|
|
9 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset, excluding valuation allowance |
|
|
204,330 |
|
|
|
162,774 |
|
|
|
|
Less valuation allowance |
|
|
(205,030 |
) |
|
|
(162,774 |
) |
|
|
|
|
|
|
|
|
|
Net deferred tax (liabilities) assets |
|
$ |
(700 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
F-22
We file income tax returns in the U.S federal and various state and local jurisdictions. For
federal and state income tax purposes, the 2011, 2012 and 2013 tax years remain open for examination under the normal three year statute of limitations. The statute of limitations for income tax audits in the U.S. will commence upon utilization of
net operating losses and will expire three years from the filing of the tax return.
There was no accrual for uncertain tax positions or
for interest and penalties related to uncertain tax positions for 2014, 2013 and 2012. We do not believe that there will be a material change in our unrecognized tax positions over the next twelve months. All of the unrecognized tax
benefits, if recognized, would be offset by the valuation allowance.
NOTE 13 INTEREST AND OTHER INCOME, NET
The components of interest and other income, net are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, |
|
(in thousands) |
|
2014 |
|
|
2013 |
|
|
2012 |
|
Interest income |
|
$ |
290 |
|
|
$ |
190 |
|
|
$ |
52 |
|
Other income |
|
|
121 |
|
|
|
161 |
|
|
|
166 |
|
Compensatory damage award, net |
|
|
|
|
|
|
|
|
|
|
1,501 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
411 |
|
|
$ |
351 |
|
|
$ |
1,719 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2012, we recorded other income due to the award of $1.5 million in compensatory damages, net of fees and
legal expenses, relating to the statement of claim we filed with the Financial Institution Regulatory Authority against an SEC registered broker-dealer for damages arising from that broker-dealers recommendations and purchases of auction rate
securities for our cash management account.
NOTE 14 COMMITMENTS AND CONTINGENCIES
As of December 31, 2014, we have known contractual obligations, commitments and contingencies of $46.4 million. Of this
amount, $13.9 million relates to selling, general and administrative agreements primarily associated with the launch and commercialization of Auryxia, of which $10.0 million is due within the next year, $4.4 million relates to research and
development agreements (relating to our Auryxia clinical and regulatory programs), of which $4.1 million is due within the next year, and $25.7 million relates to various third-party contract manufacturing agreements for the production and packaging
of Auryxia drug substance and drug product, of which $24.7 million is due within the next year. The additional $2.4 million relates to our operating lease obligations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
Payment due by period |
|
|
|
Total |
|
|
Less than 1 year |
|
|
1-3 years |
|
|
3-5 years |
|
|
More than 5 years |
|
Contractual obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative agreements |
|
$ |
13,938 |
|
|
$ |
10,031 |
|
|
$ |
3,807 |
|
|
$ |
100 |
|
|
$ |
|
|
Research and development agreements |
|
|
4,406 |
|
|
|
4,073 |
|
|
|
333 |
|
|
|
|
|
|
|
|
|
Manufacturing agreements |
|
|
25,712 |
|
|
|
24,663 |
|
|
|
1,049 |
|
|
|
|
|
|
|
|
|
Operating leases |
|
|
2,375 |
|
|
|
1,521 |
|
|
|
854 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
46,431 |
|
|
$ |
40,288 |
|
|
$ |
6,043 |
|
|
$ |
100 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leases
In March and September 2013, we extended our lease on our corporate and executive office located in New York City, adding approximately 6,800
square feet of additional leased space and extending its term through September 30, 2016. We also executed an amendment to our office sharing agreement with a third party for a portion of our leased space, which term ended on September 29,
2014.
F-23
In March 2014, we entered into a sublease for approximately 10,395 square feet of leased office
space in Boston, Massachusetts, with a term through December 31, 2015.
Total rental expense was approximately $1.6 million, $0.7
million and $0.5 million for the years ended December 31, 2014, 2013, and 2012, respectively. We recognized sublet income of $0.1 million, $0.2 million and $0.2 million for the years ended December 31, 2014, 2013, and 2012, respectively,
related to the office sharing agreement which ended in September 2014.
Future minimum lease commitments as of December 31, 2014, in
the aggregate total approximately $2.4 million through September 2016. The following table shows future minimum lease commitments, which include our office leases in New York and Boston, by period as of December 31, 2014.
Royalty and Contingent Milestone Payments
Under the license agreement with Panion, we acquired the exclusive worldwide rights, excluding certain Asian-Pacific countries, for the
development and marketing of Auryxia. To date, we have paid an aggregate of $9.6 million to Panion, including the $3.0 million milestone payment paid upon the FDA approval of Auryxia, and Panion is eligible to receive one additional milestone
payment of $2.0 million upon our successful achievement of European marketing approval, in addition to royalty payments based on a mid-single digit percentage of net sales of Auryxia. The $2.0 million contingent milestone payment is included in
research and development agreements in the table above.
NOTE 15 LITIGATION
In October 2009, we filed a statement of claim with the Financial Institution Regulatory Authority, or FINRA, to commence an
arbitration proceeding against an SEC registered broker-dealer. In this arbitration proceeding, we sought damages arising from that broker-dealers recommendations and purchases of auction rate securities for our cash management
account. On May 7, 2012, we received the arbitrators award, which required the broker-dealer to pay us compensatory damages in the amount of approximately $1.8 million. In June 2012, we received the award, which amounted to,
after fees and legal expenses, approximately $1.5 million.
On February 1, 2013, a lawsuit was filed against us and our chief
executive officer on behalf of a putative class of all of our shareholders (other than the defendants) who acquired our shares between June 1, 2009 and April 1, 2012. Smith v. Keryx Biopharmaceuticals, Inc., et al., Case
No. 1:13-CV-0755-TPG (S.D.N.Y.). On February 26, 2013, a substantially similar lawsuit was filed against us and our chief executive officer as well as our chief financial officer. Park v. Keryx Biopharmaceuticals, Inc., et al., Case
No. 1:13-CV-1307-TPG (S.D.N.Y.). On June 10, 2013, the Court entered an Order consolidating the two lawsuits and appointing a lead plaintiff. The case was styled In re Keryx Biopharmaceuticals, Inc. Securities Litigation, Case
No. 1:13-CV-0755-KBF (S.D.N.Y.). On July 10, 2013, the lead plaintiff filed a Consolidated Amended Complaint that, in substance, repeated the claims alleged in the consolidated lawsuits. The Consolidated Amended Complaint asserted claims
against (i) us for alleged violations of Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 promulgated thereunder and (ii) our chief executive officer for alleged violations of Sections
10(b) and 20(a) of the Exchange Act and Rule 10b-5. The claims in the Consolidated Amended Complaint were premised on general allegations that we and the individual defendant participated directly or indirectly in the preparation and/or issuance of
purportedly false and misleading earnings reports, SEC filings, press releases, and other public statements, which allegedly caused our stock to trade at artificially inflated prices. On August 26, 2013, we filed a motion to dismiss the
Consolidated Amended Complaint. On February 14, 2014, the Court entered an Opinion and Order granting the motion to dismiss. The Court entered Judgment for the Defendants on February 24, 2014. The lead plaintiff did not appeal the Judgment
and this matter is now concluded.
F-24
NOTE 16 QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
|
|
Mar. 31 |
|
|
June 30 |
|
|
Sept. 30 |
|
|
Dec. 31 |
|
|
|
(in thousands, except per share data) |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License revenue |
|
$ |
10,000 |
|
|
$ |
|
|
|
$ |
256 |
|
|
$ |
569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License expenses: |
|
|
|
|
|
|
|
|
|
|
154 |
|
|
|
341 |
|
Research and development |
|
|
16,359 |
|
|
|
10,275 |
|
|
|
19,053 |
|
|
|
5,815 |
|
Selling, general and administrative |
|
|
7,292 |
|
|
|
12,268 |
|
|
|
16,447 |
|
|
|
34,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
23,651 |
|
|
|
22,543 |
|
|
|
35,654 |
|
|
|
40,206 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
(13,651 |
) |
|
|
(22,543 |
) |
|
|
(35,398 |
) |
|
|
(39,637 |
) |
|
|
|
|
|
Other income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income, net |
|
|
121 |
|
|
|
129 |
|
|
|
109 |
|
|
|
52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(13,530 |
) |
|
|
(22,414 |
) |
|
|
(35,289 |
) |
|
|
(39,585 |
) |
|
|
|
|
|
Income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(13,530 |
) |
|
$ |
(22,414 |
) |
|
$ |
(35,289 |
) |
|
$ |
(40,285 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per common share* |
|
$ |
(0.15 |
) |
|
$ |
(0.24 |
) |
|
$ |
(0.38 |
) |
|
$ |
(0.44 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
|
Mar. 31 |
|
|
June 30 |
|
|
Sept. 30 |
|
|
Dec. 31 |
|
|
|
(in thousands, except per share data) |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License revenue |
|
$ |
7,000 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
6,430 |
|
|
|
7,177 |
|
|
|
10,670 |
|
|
|
10,457 |
|
Selling, general and administrative |
|
|
2,728 |
|
|
|
4,277 |
|
|
|
5,062 |
|
|
|
7,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
9,158 |
|
|
|
11,454 |
|
|
|
15,732 |
|
|
|
17,739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
(2,158 |
) |
|
|
(11,454 |
) |
|
|
(15,732 |
) |
|
|
(17,739 |
) |
|
|
|
|
|
Other income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income, net |
|
|
103 |
|
|
|
96 |
|
|
|
81 |
|
|
|
71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
Income taxes |
|
|
(2,055 |
) |
|
|
(11,358 |
) |
|
|
(15,651 |
) |
|
|
(17,668 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(2,055 |
) |
|
$ |
(11,358 |
) |
|
$ |
(15,651 |
) |
|
$ |
(17,668 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per common share* |
|
$ |
(0.03 |
) |
|
$ |
(0.14 |
) |
|
$ |
(0.19 |
) |
|
$ |
(0.21 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
The aggregate of quarterly computed basic and diluted net loss per common share may not agree with the annual amount due to rounding. |
NOTE 17 SUBSEQUENT EVENTS
On January 21, 2015, we announced the pricing of an underwritten public offering in which we sold 10,541,667 shares of
our common stock at a price of $12.00 per share for gross proceeds of approximately $126.5 million. Net proceeds from this offering were approximately $118.3 million, net of underwriting discounts and offering expenses of approximately $8.2 million.
The shares were sold under Registration Statements (Nos. 333-201605 and 333-201639) on Form S-3 and Form S-3MEF, respectively, filed by us with the Securities and Exchange Commission.
F-25
In January 2015, we announced the transitioning of the role of Chief Executive Officer
from Ron Bentsur to our current Chief Operating Officer, Greg Madison. Mr. Madison joined Keryx in February 2014 as Chief Operating Officer to transition the Company from a development-stage organization into a fully
integrated commercial entity, bringing to Keryx a wealth of relevant expertise in both the phosphate binder and iron deficiency anemia markets. Mr. Madison has been appointed President of Keryx and will work with Mr. Bentsur to ensure a
successful leadership transition by the end of May, when Mr. Bentsurs contract expires.
In February 2015, we announced a
planned consolidation of our finance and accounting function into our Boston office and that our Chief Financial Officer, James Oliviero, will be leaving Keryx by October 2015. Mr. Oliviero has been with Keryx for twelve years and has served as
the Chief Financial Officer since 2009. We have commenced a search for a new Chief Financial Officer who will be based in our Boston office. Mr. Oliviero will continue to manage our finance and accounting team during the remainder of his tenure
and will assist in the transition of his duties to the new Chief Financial Officer.
F-26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Date: February 27, 2015
|
|
|
KERYX BIOPHARMACEUTICALS, INC. |
|
|
By: |
|
/s/ Ron Bentsur |
|
|
Ron Bentsur Chief Executive
Officer and Director |
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints each of Ron Bentsur and James F.
Oliviero, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and his name, place and stead, in any and all capacities, to sign any or all amendments to this annual report on Form 10-K, and to
file the same, with all exhibits thereto and other documents in connection therewith, with the SEC, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or any of his substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Form 10-K has been signed by the following
persons on behalf of the Registrant on February 27, 2015, and in the capacities indicated:
|
|
|
Signatures |
|
Title |
|
|
/s/ Ron Bentsur
Ron Bentsur |
|
Chief Executive Officer and Director (principal
executive officer) |
|
|
/s/ James F. Oliviero
James F. Oliviero, CFA |
|
Chief Financial Officer (principal financial
and accounting officer) |
|
|
/s/ Michael P. Tarnok
Michael P. Tarnok |
|
Chairman of the Board of Directors |
|
|
/s/ Kevin Cameron
Kevin Cameron |
|
Director |
|
|
/s/ Joseph Feczko, M.D
Joseph Feczko, M.D |
|
Director |
|
|
/s/ Senator Wyche Fowler, Jr.
Senator Wyche Fowler, Jr. |
|
Director |
|
|
/s/ Jack Kaye
Jack Kaye |
|
Director |
|
|
/s/ Daniel P. Regan
Daniel P. Regan |
|
Director |
EXHIBIT INDEX
|
|
|
Exhibit Number |
|
Exhibit Description |
|
|
10.16 |
|
Employment Agreement with James F. Oliviero, dated February 26, 2015. |
|
|
21.1 |
|
List of Subsidiaries. |
|
|
23.1 |
|
Consent of UHY LLP. |
|
|
24.1 |
|
Power of Attorney of Director and Officers of Keryx Biopharmaceuticals, Inc. (included herein). |
|
|
31.1 |
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated February 27, 2015. |
|
|
31.2 |
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated February 27, 2015. |
|
|
32.1 |
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated February 27, 2015. |
|
|
32.2 |
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated February 27, 2015. |
|
|
101 |
|
The following financial information from Keryx Biopharmaceuticals, Inc.s Annual Report on Form 10-K for the year ended December 31, 2014, formatted in XBRL (eXtensible Business Reporting Language):
(i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Stockholders Equity, (iv) Consolidated Statements of Cash Flows, and (v) the Notes to Consolidated Financial
Statements. |
|
Indicates management contract or compensatory plan or arrangement. |
Exhibit 10.16
EMPLOYMENT AGREEMENT
BETWEEN
JAMES F.
OLIVIERO
AND
KERYX BIOPHARMACEUTICALS, INC.
|
|
|
|
|
|
|
EMPLOYMENT AGREEMENT |
|
|
|
1. |
|
Effective Date |
|
1 |
|
|
|
2. |
|
Employment |
|
1 |
|
|
|
3. |
|
Employment Period |
|
1 |
|
|
|
4. |
|
Extent of Service |
|
2 |
|
|
|
5. |
|
Compensation and Benefits |
|
2 |
|
|
|
|
|
|
(a) |
|
Base Salary |
|
2 |
|
|
|
|
|
|
(b) |
|
Incentive, Savings and Retirement Plans |
|
2 |
|
|
|
|
|
|
(c) |
|
Welfare Benefit Plans |
|
2 |
|
|
|
|
|
|
(d) |
|
Expenses |
|
2 |
|
|
|
|
|
|
(e) |
|
Vacation |
|
3 |
|
|
|
6. |
|
Termination of Employment |
|
3 |
|
|
|
|
|
|
(a) |
|
Death |
|
3 |
|
|
|
|
|
|
(b) |
|
Disability |
|
3 |
|
|
|
|
|
|
(c) |
|
Termination by the Company |
|
3 |
|
|
|
|
|
|
(d) |
|
Termination by Executive |
|
4 |
|
|
|
|
|
|
(e) |
|
Notice of Termination |
|
5 |
|
|
|
|
|
|
(f) |
|
Date of Termination |
|
5 |
|
|
|
7. |
|
Obligations of the Company upon Termination |
|
5 |
|
|
|
|
|
|
(a) |
|
Termination by Executive for Good Reason; |
|
|
|
|
|
|
Termination by the Company without Cause |
|
5 |
|
|
|
|
|
|
(b) |
|
Death or Disability |
|
6 |
|
|
|
|
|
|
(c) |
|
Termination by the Company for Cause; |
|
|
|
|
|
|
Resignation by Executive Other than for Good |
|
|
|
|
|
|
Reason |
|
7 |
|
|
|
|
|
|
(d) |
|
Expiration of Employment Period |
|
7 |
|
|
|
8. |
|
Change in Control |
|
7 |
|
|
|
|
|
|
(a) |
|
Definition |
|
7 |
|
|
|
|
|
|
(b) |
|
Severance Benefits |
|
9 |
|
|
|
9. |
|
Non-exclusivity of Rights |
|
9 |
|
|
10. No Mitigation |
|
9 |
|
|
11. Mandatory Reduction of Payments in Certain Events |
|
10 |
|
|
12. Restrictions on Conduct of Executive |
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
General |
|
10 |
|
|
|
|
|
|
(b) |
|
Definitions |
|
11 |
|
|
|
|
|
|
(c) |
|
Restrictive Covenants |
|
12 |
|
|
|
|
|
|
(d) |
|
Enforcement of Restrictive Covenants |
|
13 |
|
|
|
13. |
|
Invention Assignment |
|
14 |
|
|
|
14. |
|
Return of Materials |
|
14 |
|
|
|
15. |
|
Successors and Assigns |
|
15 |
|
|
|
16. |
|
Cooperation |
|
15 |
|
|
|
17. |
|
Code Section 409A |
|
15 |
|
|
|
|
|
|
(a) |
|
General |
|
15 |
|
|
|
|
|
|
(b) |
|
Definitional Restrictions |
|
15 |
|
|
|
|
|
|
(c) |
|
Six-Month Delay in Certain Circumstances |
|
16 |
|
|
|
18. |
|
Miscellaneous |
|
17 |
|
|
|
|
|
|
(a) |
|
Governing Law |
|
17 |
|
|
|
|
|
|
(b) |
|
Captions |
|
17 |
|
|
|
|
|
|
(c) |
|
Amendments |
|
17 |
|
|
|
|
|
|
(d) |
|
Notices |
|
17 |
|
|
|
|
|
|
(e) |
|
Severability |
|
17 |
|
|
|
|
|
|
(f) |
|
Withholding |
|
17 |
|
|
|
|
|
|
(g) |
|
Waivers |
|
17 |
|
|
|
|
|
|
(h) |
|
Entire Agreement |
|
17 |
|
|
|
|
|
|
(i) |
|
Arbitration |
|
18 |
|
|
|
|
|
|
(j) |
|
Timing of Release |
|
18 |
|
|
|
|
|
|
(k) |
|
Counterparts; Scanned Signatures |
|
19 |
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this Agreement) is made and entered into this 26th day of February, 2015 by and between Keryx Biopharmaceuticals, Inc., a Delaware corporation (the Company), and James F. Oliviero (Executive), to be effective as of the
Effective Date, as defined in Section 1.
BACKGROUND
The Company desires to continue to engage Executive as Chief Financial Officer of the Company in accordance with the terms of
this Agreement. Executive is willing to serve as such in accordance with the terms and conditions of this Agreement.
NOW
THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. Effective Date. The effective date of this Agreement
(the Effective Date) shall be the date first written above.
2. Employment. In his capacity as Chief Financial Officer of
the Company, Executive shall have the duties, responsibilities and authority commensurate with such position as shall be assigned to him by the Chief Executive Officer (the CEO) and the Board of Directors of the Company (the
Board), including but not limited to, (a) managing the finance and accounting function at the Company; (b) using Executives reasonable efforts to transition his duties to Executives successor (or another Company
designee(s)) prior to the conclusion of the Employment Period (as defined below) including but not limited to transferring work knowledge, providing guidance and support regarding job functions and requirements, and transition information such as
contacts, passwords, scheduling requirements, deadlines, etc., in each case provided that Company has identified a designee to whom such information should be transferred within a reasonable time prior to completion of the Employment Period; and
(c) other corporate efforts, as requested and agreed to with the CEO. In his capacity as Chief Financial Officer, Executive will report directly to the CEO. The principal location of the Executives employment shall be at the
Companys offices in New York, NY. The Executive understands and agrees that he may be required to travel from time to time for business reasons, including travel to/from the Companys offices in Boston, Massachusetts.
3. Employment Period. Unless earlier terminated herein in
accordance with Section 6 hereof, Executives employment shall be for a term beginning on the Effective Date and ending on October 1, 2015 (the Employment Period). The Employment Period may be extended upon the mutual,
written agreement of the parties. In the case of any such extension, the terms and conditions of this Agreement shall continue to govern unless otherwise agreed to in writing by the parties.
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4. Extent of Service. During the Employment
Period, Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to Executive hereunder, to use
Executives reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for Executive to (A) manage personal investments, or
(B) devote time to charitable and community activities or, with the approval of the CEO, which approval shall not be unreasonably withheld, industry or professional activities including service on the board of directors of another corporation,
so long as such activities do not interfere or conflict with the performance of Executives responsibilities as an employee of the Company in accordance with this Agreement.
5. Compensation and Benefits.
(a) Base Salary. During the Employment Period, the Company will pay to
Executive a base salary at the rate of U.S. $365,000 annualized (Base Salary), less normal withholdings, payable in approximately equal bi-weekly or other installments as are or become customary under the Companys payroll practices
for its employees from time to time. In no event shall the Executives Base Salary be reduced during the Employment Period. If the Employment Period is extended pursuant to Section 3 above, then the Compensation Committee of the Board
shall review Executives Base Salary annually and, in its sole discretion, may increase Executives Base Salary from year to year. Such adjusted salary then shall become Executives Base Salary for purposes of this Agreement. The
annual review of Executives Base Salary by the Board will consider, among other things, Executives own performance and the Companys performance.
(b) Incentive, Savings and Retirement Plans. During the Employment
Period, Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs available to other senior executive officers of the Company (Peer Executives), and on the same basis as
such Peer Executives.
(c) Welfare Benefit Plans. During the
Employment Period, Executive and Executives eligible dependents shall be eligible for participation in, and shall receive all benefits under, the welfare benefit plans, practices, policies and programs provided by the Company (including,
without limitation, medical, prescription drug, dental, disability, and employee life insurance plans and programs) (Welfare Plans) to the extent available to other Peer Executives.
(d) Expenses. During the Employment Period, Executive shall be entitled
to receive prompt reimbursement for all reasonable expenses incurred by Executive in the course of performing his duties and responsibilities under this Agreement, in accordance with the policies, practices and procedures of the Company with respect
to travel, entertainment and other business expenses.
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(e) Vacation. During the
Employment Period, Executive will be entitled to four weeks of paid vacation per calendar year, subject to and in accordance with the Companys vacation policies.
6. Termination of Employment.
(a) Death. Executives employment shall terminate automatically
upon Executives death during the Employment Period.
(b) Disability. If the Company determines in good faith that Executive
has become Disabled (as defined below) during the Employment Period, it may give to Executive written notice of its intention to terminate Executives employment. In such event, Executives employment with the Company shall terminate
effective on the 30th day after receipt of such written notice by Executive (the Disability Effective Date), provided that, within the 30 days after such receipt, Executive shall not have returned to full-time performance of
Executives duties. For purposes of this Agreement, Executive shall be Disabled if either of the following conditions is met, as determined by the Board in good faith:
(i) Executive is unable to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for one or more periods totaling one hundred and twenty (120) days in any twelve (12) month period; or
(ii) Executive is, by reason of any medically determinable physical or
mental impairment that can be expected to result in death or can be expected to last for one or more periods totaling one hundred and twenty (120) days in any twelve (12) month period, receiving income replacement benefits for a period of
not less than three months under an accident and health plan covering employees of the Company.
(c) Termination by the Company. The Company may terminate
Executives employment during the Employment Period with or without Cause. For purposes of this Agreement, a termination shall be considered to be for Cause if it occurs in conjunction with a determination by the Board that any of
the following has occurred:
(i) Executives conviction of,
pleading guilty to, or confession to a felony or any crime involving any act of dishonesty, fraud, misappropriation or embezzlement;
(ii) Executives willful misconduct or gross negligence in connection with
the performance of his duties hereunder, including a material violation of the Companys written policies or Code of Conduct and Ethics;
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(iii) Executives engaging in
any fraudulent, disloyal or unprofessional conduct which is, or is likely to be, injurious to the Company, its financial condition, or its reputation;
(iv) Executives failure to perform his duties with the Company (other than
any such failure resulting from Executives Disability); or
(v) Executives material breach of the covenants set forth in
Section 12 of this Agreement, or material breach of any other provisions of this Agreement.
If the Company
determines that it has grounds to terminate Executives employment for Cause pursuant to the provisions of clauses (iv) or (v) of this subsection (c), then it will first deliver to Executive a written notice setting forth with
specificity the occurrence deemed to give rise to a right to terminate his employment for Cause, and Executive will have 30 days after the receipt of such written notice to cease such actions or otherwise correct any such failure or breach. If
Executive does not cease such actions or otherwise correct such failure or breach within such 30-day period, or having once received such written notice and ceased such actions or corrected such failure or breach, Executive at any time thereafter
again so acts, fails, or breaches, the Company may terminate his employment for Cause immediately. The Company may terminate Executives employment without Cause, or for Cause pursuant to the provisions of clauses (i), (ii), or (iii) of
this subsection (c), immediately.
(d) Termination by Executive.
Executives employment may be terminated by Executive with or without Good Reason. Executives termination without Good Reason shall require 30 days prior written notice to the Company. Executives termination for Good Reason
must occur within a period of 90 days after the occurrence of an event of Good Reason. For purposes of this Agreement, Good Reason shall mean any of the following, without Executives consent:
(i) a reduction in Executives Base Salary;
(ii) a material diminution in Executives title or position;
(iii) a material change in the geographic location of the Executives
principal place of business, which for purposes of this Agreement shall mean a location more than thirty-five (35) miles from the Companys offices in New York, NY at which the Executive was principally employed except for required travel
on the Companys business; or
(iv) any other action or inaction that
constitutes a material breach by the Company of this Agreement.
A termination by Executive shall not constitute
termination for Good Reason unless Executive shall first have delivered to the Company a written notice setting forth with specificity the occurrence deemed to give rise to a right to terminate for Good
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Reason (which notice must be given no later than 60 days after the initial occurrence of such event), and there shall have passed a reasonable time (not less than 30 days) within which the
Company may take action to correct, rescind or otherwise substantially reverse the occurrence supporting termination for Good Reason as identified by Executive. Good Reason shall not include Executives death or Disability. The parties intend,
believe and take the position that a resignation by the Executive for Good Reason as defined above effectively constitutes an involuntary separation from service within the meaning of Section 409A of the Code and Treas. Reg.
§1.409A-1(n)(2).
(e) Notice of Termination. Any termination
by the Company or Executive shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 18(d) of this Agreement. For purposes of this Agreement, a Notice of Termination means a written
notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of
Executives employment under the provision so indicated, and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date. The failure by the Company or Executive to
set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Cause or Good Reason shall not waive any right of the Company or Executive hereunder or preclude the Company or Executive from asserting such fact or
circumstance in enforcing its rights hereunder.
(f) Date of
Termination. Date of Termination means (i) if Executives employment is terminated other than by reason of death or Disability, the date of receipt of the Notice of Termination or any later date specified therein, or
(ii) if Executives employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of Executive or the Disability Effective Date, as the case may be.
7. Obligations of the Company upon Termination.
(a) Termination by Executive for Good Reason; Termination by the
Company without Cause. If the Company shall terminate Executives employment without Cause, or Executive shall terminate his employment for Good Reason, in either event prior to the conclusion of the Employment Period, then and, with
respect to the payments and benefits described in clause (ii) and (iv), and below, only if Executive shall have executed and not revoked a general release of claims in a form satisfactory to the Company:
(i) the Company shall pay to Executive in a lump sum in cash within 60
days after the Date of Termination, the exact payment date to be determined by the Company (or such later date as may be required pursuant to Section 17 hereof), the sum of (1) Executives Base Salary through the Date of Termination
to the extent not theretofore paid, and (2) any accrued but unused vacation pay to the extent not theretofore paid (the sum of the amounts described in clauses (1) and (2) shall be hereinafter referred to as the Accrued
Obligations); and
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(ii) the Company shall pay to
Executive in a lump sum in cash within 60 days after the Date of Termination, the exact payment date to be determined by the Company (or such later date as may be required pursuant to Section 17 hereof), twelve (12) months of severance pay
based on Executives Base Salary as of the Date of Termination (the Severance Pay). In addition, the Executive shall receive a cash payment equal to the total monthly premium payment (both the Companys portion and the
Executives portion of such premium) under the Companys group healthcare plan(s) as in effect on the Date of Termination multiplied by twelve (12), payable in a lump sum within sixty (60) days following the Date of Termination (the
Benefits Pay); and
(iii) to the extent not theretofore paid or
provided, the Company shall timely pay or provide to Executive any other amounts or benefits required to be paid or provided or which Executive is entitled to receive under any plan, program, policy or practice or contract or agreement of the
Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the Other Benefits); and
(iv) any vested portion of stock options granted to Executive by the Company
shall remain exercisable by the Executive for a period of nine (9) months following the Date of Termination (or, if earlier, the normal expiration date of such stock options), and any unvested portions of stock options and restricted stock
granted to Executive by the Company shall accelerate in full and be immediately vested and exercisable by the Executive for a period of nine (9) months following the Date of Termination.
(b) Death or Disability. If Executives employment is terminated
by reason of Executives death or Disability during the Employment Period, this Agreement shall terminate without further obligations to Executive or Executives legal representatives under this Agreement, other than for payment of Accrued
Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to Executive or Executives estate or beneficiaries, as applicable, in a lump sum in cash within 60 days after the Date of Termination. With
respect to the provision of Other Benefits, the term Other Benefits as used in this Section 7(b) shall include without limitation, and Executive or Executives estate and/or beneficiaries shall be entitled to receive, benefits
under such plans, programs, practices and policies relating to death, disability or retirement benefits, if any, as are applicable to Executive on the Date of Termination. In addition, in the event of such a termination, and provided that Executive
or his estate or beneficiaries, if applicable, executes and does not revoke a general release of claims in a form acceptable to the Company, any vested portion of stock options granted to Executive by the Company shall remain exercisable by the
Executive and/or his estate or beneficiaries for a period of nine (9) months following the Date of Termination (or, if earlier, the normal expiration date of such stock options), and any unvested portion of stock options granted to Executive by
the Company shall lapse and be forfeited without consideration as of the Date of Termination; and
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(c) Termination by the Company
for Cause; Resignation by Executive Other than for Good Reason. If Executives employment shall be terminated for Cause during the Employment Period, or Executive shall resign other than for Good Reason during the Employment Period, this
Agreement shall terminate without further obligations to Executive, other than for payment of Accrued Obligations, to the extent not theretofore paid, and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to
Executive in a lump sum in cash within 60 days after the Date of Termination. In addition, in the event of such a termination, any unvested equity awards shall lapse and be forfeited without consideration on the Date of Termination.
(d) Expiration of Employment Period. If Executives employment
shall be terminated by the Company or by the Executive upon the normal expiration of the Employment Period as provided for in Section 3 hereof, this Agreement shall terminate without further obligations to Executive, other than for payment of
Accrued Obligations, which shall be paid to Executive in a lump sum in cash within 60 days after the Date of Termination, the timely payment or provision of Other Benefits, and, provided that Executive or his estate or beneficiaries, if applicable,
executes and does not revoke a general release of claims in a form acceptable to the Company:
(i) the Company shall pay Executive the Severance Pay and Benefits Pay, as such terms are defined
in Section 7(a) of this Agreement, in a lump sum in cash within 60 days after the Date of Termination, the exact payment date to be determined by the Company (or such later date as may be required pursuant to Section 17 hereof); and
(ii) any vested portion of stock options granted to Executive by the Company shall remain exercisable by
the Executive and/or his estate or beneficiaries for a period of nine (9) months following the Date of Termination (or, if earlier, the normal expiration date of such stock options), and any unvested portions of stock options and restricted
stock granted to Executive by the Company shall accelerate in full and be immediately vested and exercisable by the Executive and/or his estate or beneficiaries for a period of nine (9) months following the Date of Termination.
8. Change in Control.
(a) Definition. For the purposes of this Agreement, a Change in
Control shall mean:
(i) the acquisition by an
individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the 1934 Act) of beneficial ownership of any capital stock of the Company if, after such acquisition, such individual, entity or group beneficially owns (within
the meaning of Rule 13d-3 promulgated under the 1934 Act) 30% or more of either (x) the then-outstanding shares of
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common stock of the Company (the Outstanding Company Common Stock) or (y) the combined voting power of the then-outstanding securities of the Company entitled to vote generally
in the election of directors (the Outstanding Company Voting Securities); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change in Control: (A) any
acquisition directly from the Company (excluding an acquisition pursuant to the exercise, conversion or exchange of any security exercisable for, convertible into or exchangeable for common stock or voting securities of the Company, unless the
individual, entity or group exercising, converting or exchanging such security acquired such security directly from the Company or an underwriter or agent of the Company), (B) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled by the Company, or (C) any acquisition by any corporation pursuant to a Business Combination (as defined below) which complies with clauses (x) and (y) of subsection
(iii) of this definition; or
(ii) such time as the Continuing
Directors (as defined below) do not constitute a majority of the Board (or, if applicable, the Board of Directors of a successor corporation to the Company), where the term Continuing Director means at any date a member of the Board
(x) who was a member of the Board on the Start Date of this Agreement or (y) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or
election or whose election to the Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; provided, however, that there shall be excluded from
this clause (y) any individual whose initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or
consents, by or on behalf of a person other than the Board; or
(iii) the
consummation of a merger, consolidation, reorganization, recapitalization or share exchange involving the Company or a sale or other disposition of all or substantially all of the assets of the Company (a Business Combination), unless,
immediately following such Business Combination, each of the following two conditions is satisfied: (x) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding
securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall include, without limitation, a corporation which as a result of such transaction
owns the Company or substantially all of the Companys assets either directly or through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as the
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Acquiring Corporation) in substantially the same proportions as their ownership of the Outstanding Company Common Stock and Outstanding Company Voting Securities, respectively,
immediately prior to such Business Combination and (y) no Person (excluding the Acquiring Corporation or any employee benefit plan (or related trust) maintained or sponsored by the Company or by the Acquiring Corporation) beneficially owns,
directly or indirectly, 30% or more of the then-outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of the then-outstanding securities of such corporation entitled to vote generally in the election of
directors (except to the extent that such ownership existed prior to the Business Combination).
(b) Severance Benefits. Upon the occurrence of a Change in Control, if,
within one year after the effective date of the Change in Control, Executives employment is terminated by the Company or the successor corporation to the Company without Cause, or Executive resigns for Good Reason, then in addition to payment
of the Accrued Obligations and Other Benefits, and provided that Executive shall have executed and not revoked a general release of claims in a form satisfactory to the Company: (i) the Executive shall receive a cash payment equal to the sum of
(A) 100% of the Executives annual Base Salary as of the Date of Termination or, if higher, at the rate in effect immediately prior to a Change in Control, and (B) the Annual Bonus earned by the Executive for the fiscal year
immediately prior to the year in which the Date of Termination occurs, if any, payable in a lump sum within sixty (60) days following the Date of Termination; and (ii) the Executive shall receive a cash payment equal to the total monthly
premium payment (both the Companys portion and the Executives portion of such premium) under the Companys group healthcare plan as in effect on the Date of Termination multiplied by twelve (12), payable in a lump sum within sixty
(60) days following the Date of Termination. The foregoing shall be in lieu of and not in addition to any amounts that Executive would otherwise be entitled to receive under Section 7 hereof in the event of a termination without Cause or
resignation for Good Reason.
9. Non-exclusivity of
Rights. Nothing in this Agreement shall prevent or limit Executives continuing or future participation in any employee benefit plan, program, policy or practice provided by the Company or its affiliated companies and for which Executive
may qualify, except as specifically provided herein. Amounts that are vested benefits or which Executive is otherwise entitled to receive under any plan, policy, practice or program of the Company or any of its affiliated companies at or subsequent
to the Date of Termination shall be payable in accordance with such plan, policy, practice or program except as explicitly modified by this Agreement.
10. No Mitigation. In no event shall Executive be obligated to seek
other employment or take any other action by way of mitigation of the severance amounts payable to Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not Executive obtains other employment.
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11. Mandatory
Reduction of Payments in Certain Events.
(a) Anything in this
Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise) (a Payment) would be subject to the excise tax imposed by Section 4999 of the Code (the Excise Tax), then, prior to the making of any Payment to Executive, a calculation shall be made comparing
(i) the net benefit to Executive of the Payment after payment of the Excise Tax, to (ii) the net benefit to Executive if the Payment had been limited to the extent necessary to avoid being subject to the Excise Tax. If the amount
calculated under (i) above is less than the amount calculated under (ii) above, then the Payment shall be limited to the extent necessary to avoid being subject to the Excise Tax (the Reduced Amount). The reduction of the
Payments due hereunder, if applicable, shall be made in such a manner as to maximize the economic present value of all Payments actually made to Executive, determined by the Determination Firm (as defined in Section 11(b) below) as of the date
of the Change in Control using the discount rate required by Section 280G(d)(4) of the Code.
(b) The determination of whether an Excise Tax would be imposed, the amount of
such Excise Tax, and the calculation of the amounts referred to Section 12(a)(i) and (ii) above shall be made by an independent, nationally recognized accounting firm or compensation consulting firm mutually acceptable to the Company and
Executive (the Determination Firm) which shall provide detailed supporting calculations. Any determination by the Determination Firm shall be binding upon the Company and Executive. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the Determination Firm hereunder, it is possible that Payments which Executive was entitled to, but did not receive pursuant to Section 11(a), could have been made
without the imposition of the Excise Tax (Underpayment). In such event, the Determination Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the
benefit of Executive, but no later than December 31 of the year after the year in which the Underpayment is determined to exist.
(c) In the event that the provisions of Code Section 280G and 4999 or any
successor provisions are repealed without succession, this Section 11 shall be of no further force or effect.
12. Restrictions on Conduct of Executive.
(a) General. Executive and the Company understand and agree that the
purpose of the provisions of this Section 12 is to protect the legitimate business interests of the Company, as more fully described below, and is not intended to impair or infringe upon Executives right to work, earn a living, or acquire
and possess property from the fruits of his labor. Executive hereby acknowledges that Executive has received good and valuable consideration for the post-employment restrictions set forth in this Section 12 in the form of the compensation and
benefits provided for herein. Executive
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hereby further acknowledges that the post-employment restrictions set forth in this Section 12 are reasonable and that they do not, and will not, unduly impair his ability to earn a living
after the termination of this Agreement.
In addition, the parties acknowledge: (A) that Executives services
under this Agreement require special expertise and talent in the provision of Competitive Services and that Executive will have substantial contacts with customers, suppliers, advertisers and vendors of the Company; (B) that pursuant to this
Agreement, Executive will be placed in a position of trust and responsibility and he will have access to a substantial amount of Confidential Information and Trade Secrets and that the Company is placing him in such position and giving him access to
such information in reliance upon his agreement to comply with the obligations set forth in this Section 12; (C) that due to his management duties, Executive will be the repository of a substantial portion of the goodwill of the Company
and would have an unfair advantage in competing with the Company; (D) that due to Executives special experience and talent, the loss of Executives services to the Company under this Agreement cannot reasonably or adequately be
compensated solely by damages in an action at law; (E) that Executive is capable of competing with the Company; and (F) that Executive is capable of obtaining gainful, lucrative and desirable employment that does not violate the
restrictions contained in this Agreement.
Therefore, subject to the limitations of reasonableness imposed by law,
Executive shall be subject to the restrictions set forth in this Section 12.
(b) Definitions. The following capitalized terms used in this
Section 12 shall have the meanings assigned to them below, which definitions shall apply to both the singular and the plural forms of such terms:
Competitive Services means services involving the acquisition, development or commercialization of oral
iron pharmaceutical products that are the same as or substantially similar to the oral iron pharmaceutical products offered or provided by the Company or are in competition with the Companys products.
Confidential Information means all data and information relating to the business of the Company that is
disclosed to Executive or of which Executive becomes aware as a consequence of his employment and that has value to the Company and is not generally disclosed to those not employed or otherwise engaged by the Company.. Confidential
Information shall include, but is not limited to, financial plans and data concerning the Company; management planning information; business plans; operational methods; market studies; marketing plans or strategies; product development
techniques or plans; customer lists; details of customer contracts; current and anticipated customer requirements; past, current and planned research and development; business acquisition plans; and new personnel acquisition plans.
Confidential Information shall not include information that has become generally available to the public by the act of one who has the right to disclose such information without violating any right or privilege of the Company. This
definition shall not limit any definition of confidential information or any equivalent term under state or federal law.
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End Date means the last day of Executives employment
with the Company for any reason whatsoever.
Person means any individual or any corporation,
partnership, joint venture, limited liability company, association or other entity or enterprise.
Principal or
Representative means a principal, owner, partner, shareholder, joint venturer, investor, member, trustee, director, officer, manager, employee, agent, representative or consultant.
Protected Employees and Contractors means employees and independent contractors of the Company who were
employed or engaged by the Company at any time within six (6) months prior to the End Date.
Protected
Providers means any service provider, vendor or supplier with whom the Company conducted business or solicited to conduct business during the twelve (12) months prior to the End Date.
Restricted Period means the Employment Period and the six (6) month period following the End Date.
Restrictive Covenants means the restrictive covenants contained in Section 12(c) hereof.
Trade Secret means all information, without regard to form, including, but not limited to, technical or
nontechnical data, a formula, a pattern, a compilation, a program, a device, a method, a technique, a drawing, a process, financial data, financial plans, product plans, distribution lists or a list of actual or potential customers, advertisers or
suppliers which is not commonly known by or available to the public and which information: (A) derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons
who can obtain economic value from its disclosure or use; and (B) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. This definition shall not limit any definition of trade secret or any
equivalent term under state or federal law.
(c) Restrictive
Covenants.
(i) Restriction on Disclosure and Use of
Confidential Information and Trade Secrets. Executive understands and agrees that the Confidential Information and Trade Secrets constitute valuable assets of the Company, and may not be converted to Executives own use. Accordingly,
Executive hereby agrees that throughout the Employment Period and at all times after the End Date, for so long as the information at issue remains either
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Confidential Information or a Trade Secret, Executive will not, directly or indirectly, reveal, divulge, or disclose to any Person not expressly authorized by the Company any Confidential
Information or Trade Secrets and will not, directly or indirectly, use or make use of any Confidential Information or Trade Secrets in connection with any business activity other than that of the Company.
Anything herein to the contrary notwithstanding, Executive shall not be restricted from disclosing or using
Confidential Information or Trade Secrets that are required to be disclosed by law, court order or other valid legal process; provided, however, that in the event disclosure is required by law, Executive shall provide the Company with
prompt, written notice of such requirement so that the Company may seek an appropriate protective order prior to any such required disclosure by Executive.
(ii) Non-Solicitation of Protected Employees and
Contractors. Executive understands and agrees that the relationship between the Company and each of its Protected Employees and Contractors constitutes a valuable asset of the Company and may not be converted to Executives own use.
Accordingly, Executive hereby agrees that, during the Restricted Period, Executive shall not, directly or indirectly, on Executives own behalf or as a Principal or Representative of any Person or otherwise, solicit or induce any Protected
Employee or Contractor to terminate his or her relationship with the Company or to enter into an employment, consulting or similar relationship with any other Person.
(iii) Non-Interference with Protected Providers.
Executive understands and agrees that the relationship between the Company and each of its Protected Providers constitutes a valuable asset of the Company and may not be converted to Executives own use. Executive hereby agrees that, during the
Restricted Period, Executive shall not, directly or indirectly, solicit or induce or attempt to solicit or induce any Protected Provider to cease, reduce or alter its relationship with the Company.
(d) Enforcement of Restrictive Covenants.
(i) Rights and Remedies Upon Breach. In the event
Executive breaches, or threatens to commit a breach of, any of the provisions of the Restrictive Covenants, the Company shall have the right and remedy to enjoin, preliminarily and permanently, without the necessity of posting bond, Executive from
violating or threatening to violate the Restrictive Covenants and to have the Restrictive Covenants specifically enforced by any court of competent jurisdiction, it being agreed that any breach or threatened breach of the Restrictive Covenants could
cause irreparable injury to the Company and that money damages may not provide an adequate remedy to the Company. The foregoing rights and remedies shall be in addition to, and not in lieu of, any other rights and remedies available to the Company
at law or in equity.
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(ii) Severability of Covenants. The parties hereunder
agree that the Restrictive Covenants shall be considered and construed as separate and independent covenants. Should any part or provision of any Restrictive Covenant be held invalid, void or unenforceable in any court of competent jurisdiction,
such invalidity, voidness or unenforceability shall not render invalid, void or unenforceable any other part or provision of this Agreement.
(iii) Reformation. The parties hereunder agree that it
is their intention that the Restrictive Covenants be enforced in accordance with their terms to the maximum extent possible under applicable law. The parties further agree that, in the event any court of competent jurisdiction shall find that any
provision hereof is not enforceable in accordance with its terms, the court shall reform the Restrictive Covenants such that they shall be enforceable to the maximum extent permissible at law.
13. Invention Assignment. Executive agrees that he will
promptly and fully disclose in writing to the Company all inventions, designs, concepts, discoveries, developments, improvements, and innovations, whether or not they merit patent, trademark or copyright protection, conceived of, designed or reduced
to practice by Executive, either solely or in concert with others, at any time during his employment, which (i) relate in any manner, whether at the time of conception, design or reduction to practice, to the Companys business or its
actual or demonstrably anticipated research or development; (ii) result from any work performed by Executive on behalf of the Company; or (iii) result from the use of the Companys equipment, supplies, facilities, Confidential
Information or Trade Secrets (collectively referred to as Inventions).
Executive acknowledges and agrees that
he will keep and maintain adequate written records of all such Inventions at all stages thereof in the form of notes, sketches, drawings, photographs, printouts, and/or reports relating thereto. These records are and shall remain the property of,
and be available to, the Company or its designee(s) at all times. Executive further acknowledges that all such Inventions shall be the exclusive property of the Company. As such, Executive hereby assigns his entire right, title, and interest in and
to all such Inventions to the Company or its designee(s). Executive will, at the Companys request and expense, execute specific transfers, assignments, documents or other instruments and take such further action as may be considered necessary
by the Company at any time during or subsequent to Executives employment to obtain and defend any intellectual property rights and vest complete title and ownership to such Inventions to the Company or its designee(s).
14. Return of Materials. Executive agrees that he will not
retain or destroy, and will immediately return to the Company on or prior to his last day of employment, or at any other time the Company requests such return, any and all property of the Company that is in his possession or subject to his control,
including, but not limited to, keys, credit and identification cards, equipment, client files and information, and all Confidential Information and Trade Secrets. Executive will not make, distribute or retain copies of
14
any such information or property. Executive agrees that he will reimburse the Company for all of its costs, including reasonable attorneys fees, of recovering the above materials and
otherwise enforcing compliance with this provision if he does not return the materials in compliance with this provision.
15. Successors and Assigns.
(a) This Agreement is personal to Executive and shall not be assignable by
Executive. This Agreement shall inure to the benefit of and be enforceable by Executives legal representatives.
(b) The Company may assign this Agreement without the consent of Executive.
This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.
16. Cooperation. Both during and after his employment,
Executive shall provide Executives reasonable cooperation in connection with any action or proceeding (or any appeal from any action or proceeding) which relates to events occurring during Executives employment hereunder. The Company
shall reimburse Executive for any reasonable out-of-pocket expenses incurred in connection with Executives performance of obligations under this Section 16 at the request of the Company. If Executive is entitled to be paid or reimbursed
for any expenses under this Section 16, the amount reimbursable in any one calendar year shall not affect the amount reimbursable in any other calendar year, and the reimbursement of an eligible expense must be made no later than
December 31 of the year after the year in which the expense was incurred. Executives obligations under this Section 16.
17. Code Section 409A.
(a) General. This Agreement shall be interpreted and administered in a
manner so that any amount or benefit payable hereunder shall be paid or provided in a manner that is either exempt from or compliant with the requirements Section 409A of the Code and applicable Internal Revenue Service guidance and Treasury
Regulations issued thereunder (and any applicable transition relief under Section 409A of the Code). Nevertheless, the tax treatment of the benefits provided under the Agreement is not warranted or guaranteed. Neither the Company nor its
directors, officers, employees or advisers shall be held liable for any taxes, interest, penalties or other monetary amounts owed by Executive as a result of the application of Section 409A of the Code.
(b) Definitional Restrictions. Notwithstanding anything in this
Agreement to the contrary, to the extent that any amount or benefit that would constitute non-exempt deferred compensation for purposes of Section 409A of the Code would otherwise be payable or distributable hereunder, or a
different form of payment would be effected, by reason of a Change in Control or the Executives Disability or termination of employment, such amount or benefit will not be payable or distributable to the Executive, and/or such different form
of payment will not be effected, by reason of such
15
circumstance unless (i) the circumstances giving rise to such Change in Control, Disability or termination of employment, as the case may be, meet any description or definition of
change in control event, disability or separation from service, as the case may be, in Section 409A of the Code and applicable regulations (without giving effect to any elective provisions that may be
available under such definition), or (ii) the payment or distribution of such amount or benefit would be exempt from the application of Section 409A of the Code by reason of the short-term deferral exemption or otherwise. This provision
does not prohibit the vesting of any amount upon a Change in Control, Disability or termination of employment, however defined. If this provision prevents the payment or distribution of any amount or benefit, such payment or distribution
shall be made on the date, if any, on which an event occurs that constitutes a Section 409A-compliant change in control event, disability or separation from service, as the case may be, or such later date as
may be required by subsection (c) below. If this provision prevents the application of a different form of payment of any amount or benefit, such payment shall be made in the same form as would have applied absent such designated event or
circumstance.
(c) Six-Month Delay in Certain Circumstances.
Notwithstanding anything in this Agreement to the contrary, if any amount or benefit that would constitute non-exempt deferred compensation for purposes of Section 409A of the Code would otherwise be payable or distributable under
this Agreement by reason of Executives separation from service during a period in which he is a Specified Employee (as defined below), then, subject to any permissible acceleration of payment by the Company under Treas. Reg.
Section 1.409A-3(j)(4)(ii) (domestic relations order), (j)(4)(iii) (conflicts of interest), or (j)(4)(vi) (payment of employment taxes):
(i) the amount of such non-exempt deferred compensation that
would otherwise be payable during the six-month period immediately following Executives separation from service will be accumulated through and paid or provided on the first day of the seventh month following Executives separation from
service (or, if Executive dies during such period, within 30 days after Executives death) (in either case, the Required Delay Period); and
(ii) the normal payment or distribution schedule for any remaining
payments or distributions will resume at the end of the Required Delay Period.
For purposes of this Agreement, the term
Specified Employee has the meaning given such term in Code Section 409A and the final regulations thereunder: provided, however, that the Companys Specified Employees and its application of the six-month delay rule of
Code Section 409A(a)(2)(B)(i) shall be determined in accordance with rules adopted by the Board or a committee thereof, which shall be applied consistently with respect to all nonqualified deferred compensation arrangements of the Company,
including this Agreement.
16
18. Miscellaneous.
(a) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without reference to principles of conflict of laws.
(b) Captions. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect.
(c) Amendments. This Agreement may not be amended or modified otherwise
than-by a written agreement executed by the parties hereto or their respective successors and legal representatives.
(d) Notices. All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
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|
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If to Executive: |
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James F. Oliviero |
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415 Washington Street, Apt. 6C |
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New York, NY 10013 |
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If to the Company: |
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Keryx Biopharmaceuticals, Inc. |
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One Marina Park Drive |
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Boston, MA 02110 |
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Attention: General Counsel |
or to such other address as either party shall have furnished to the other in writing in accordance herewith.
Notice and communications shall be effective when actually received by the addressee.
(e) Severability. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.
(f) Withholding. The Company may withhold from any amounts payable
under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.
(g) Waivers. Executives or the Companys failure to insist
upon strict compliance with any provision of this Agreement or the failure to assert any right Executive or the Company may have hereunder, shall not be deemed to be a waiver of such provision or right or any other provision or right of this
Agreement.
(h) Entire Agreement. This Agreement contains the
entire agreement between the Company and Executive with respect to the subject matter hereof and, from and after the Effective Date, this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof.
17
(i) Arbitration. In the
event that a dispute arises between the parties regarding the formation, interpretation and/or the terms and conditions of this Agreement and/or if there arises any other claim or legal dispute between the parties with respect to Executives
employment or the termination thereof (the Dispute), the complaining party shall submit the Dispute in writing to the other party for resolution. If the Dispute is not resolved between the parties within thirty (30) days of the date
the Dispute is submitted in writing to the other party, the complaining party must make a demand for final and binding arbitration in New York, New York before an arbitrator pursuant to the Employment Arbitration Rules of the American Arbitration
Association in effect at the time of the Dispute (the AAA Rules) if the complaining party wishes to pursue the Dispute (Demand for Arbitration). Provided, however, that the foregoing shall not preclude the Company from
immediately seeking injunctive or other equitable relief in a court of competent jurisdiction in connection with Executives breach or threatened breach of the Restrictive Covenants or the provisions set forth in Sections 13 or 14 of this
Agreement. The parties expressly understand that by agreeing to this arbitration provision, they are agreeing to waive any rights to a civil action and/or jury trial regarding any Disputes between them. The parties shall share all costs, filing
fees, and administrative fees for the arbitration equally as they come due; the parties shall be responsible for their own attorneys fees, witness fees, and travel costs. The arbitrator shall have the authority to rule on any and all issues
properly presented in the Demand for Arbitration and/or pursuant to the AAA Rules and may award any and all relief provided under applicable law. The arbitrators award may be enforced, vacated, modified or corrected as set forth in the Federal
Arbitration Act, 9 U.S.C § 1 et seq. This Agreement shall be governed by the Federal Arbitration Act, 9 U.S.C § 1 et seq., as amended, and the applicable rules of the American Arbitration Association set forth in this Agreement. This
Agreement shall be binding upon, and shall inure to the benefit of Executive, the Company and their respective permitted successors and assigns.
(j) Timing of Release. Whenever in this Agreement a payment or benefit
is conditioned on the Executives execution of a release of claims, the Company shall provide such release to the Executive promptly following the Date of Termination, and such release must be executed and all revocation periods shall have
expired in accordance with terms set forth in the release, but in no case later than sixty (60) days after the Date of Termination; failing which, upon at least ten (10) days written notice to Executive of such failure to execute, such
payment or benefit shall be forfeited. If such payment or benefit constitutes non-exempt deferred compensation, then, subject to Section 17(c) above, such payment or benefit (including any installment payments) that would have
otherwise been payable during such 60-day period shall be accumulated and paid on the 60th day after the Date of Termination provided such release shall have been executed and such revocation periods shall have expired. If such payment or benefit is
exempt from Section 409A of the Code, the Company may elect to make or commence payment at any time during such 60-day period.
18
(k) Counterparts; Scanned
Signatures. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become a binding agreement when one or more counterparts have been signed by each party and delivered
to the other party. A counterpart executed and delivered by PDF or facsimile shall be sufficient for the Agreement to become effective.
IN WITNESS WHEREOF, Executive has hereunto set Executives hand and, pursuant to the authorization from the Board, the
Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written.
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/s/ James F. Oliviero |
James F. Oliviero |
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KERYX BIOPHARMACEUTICALS, INC. |
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By: /s/ Greg
Madison |
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Print: Greg
Madison |
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Its: President &
COO |
19
Exhibit 21.1
Keryx Biopharmaceuticals, Inc.
List of Subsidiaries
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|
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Name of Subsidiary |
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State/Jurisdiction of Incorporation |
ACCESS Oncology, Inc. |
|
Delaware |
Accumin Diagnostics, Inc. |
|
Delaware |
AOI Pharma, Inc. |
|
Delaware |
AOI Pharmaceuticals, Inc. |
|
Delaware |
Neryx Biopharmaceuticals, Inc. |
|
Delaware |
Online Collaborative Oncology Group, Inc. |
|
Delaware |
Keryx Biomedical Technologies Ltd. |
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Israel |
Keryx (Israel) Ltd. |
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Israel |
Keryx Biopharma UK Ltd. |
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United Kingdom |
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
The Board of Directors
Keryx Biopharmaceuticals, Inc.:
We hereby consent to the incorporation by reference in the following registration statements of our reports dated February 27, 2015, with respect to the
consolidated balance sheets of Keryx Biopharmaceuticals, Inc. (the Company) as of December 31, 2014 and 2013, and the related consolidated statements of operations, stockholders equity, and cash flows for each of the years in
the three-year period ended December 31, 2014, and the effectiveness of Keryx Biopharmaceuticals, Inc. internal control over financial reporting, which appear in this annual report on Form 10-K of the Company for the year ended
December 31, 2014:
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Form S-8 dated February 5, 2001 (File No. 333-55006) |
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Form S-8 dated September 29, 2004 (File No. 333-119377) |
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Form S-8 dated April 6, 2006, as amended (File No. 333-133052) |
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|
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Form S-8 dated July 31, 2007 (File No. 333-145003) |
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Form S-8 dated March 25, 2010 (File No. 333-165710) |
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Form S-8 dated August 2, 2013 (File No. 333-190358) |
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Form S-3 dated August 2, 2013 (File No. 333-190353) |
/s/ UHY LLP
New York, New York
February 27, 2015
Exhibit 31.1
CERTIFICATION OF PERIODIC REPORT
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Ron Bentsur, certify that:
1. |
I have reviewed this annual report on Form 10-K of Keryx Biopharmaceuticals, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) |
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and |
|
d) |
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter
in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. |
The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the
registrants board of directors (or persons performing the equivalent functions): |
|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record,
process, summarize and report financial information; and |
|
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
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|
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Date: February 27, 2015 |
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|
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/s/ Ron Bentsur |
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|
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|
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Ron Bentsur Chief Executive Officer
Principal Executive Officer |
Exhibit 31.2
CERTIFICATION OF PERIODIC REPORT PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, James F.
Oliviero, certify that:
1. |
I have reviewed this annual report on Form 10-K of Keryx Biopharmaceuticals, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) |
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and |
|
d) |
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter
in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. |
The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the
registrants board of directors (or persons performing the equivalent functions): |
|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record,
process, summarize and report financial information; and |
|
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
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|
|
Date: February 27, 2015 |
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|
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/s/ James F. Oliviero |
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|
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James F. Oliviero, CFA Chief Financial
Officer Principal Financial and Accounting Officer |
Exhibit 32.1
STATEMENT OF CHIEF EXECUTIVE OFFICER OF
KERYX BIOPHARMACEUTICALS, INC.
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report of Keryx Biopharmaceuticals, Inc. (the Company) on Form 10-K for the period ended
December 31, 2014 as filed with the Securities and Exchange Commission (the Report), I, Ron Bentsur, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the
Sarbanes-Oxley Act of 2002, that, based on my knowledge:
1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and
2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the Company.
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|
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Date: February 27, 2015 |
|
|
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/s/ Ron Bentsur |
|
|
|
|
Ron Bentsur Chief Executive Officer
Principal Executive Officer |
Exhibit 32.2
STATEMENT OF CHIEF FINANCIAL OFFICER OF
KERYX BIOPHARMACEUTICALS, INC.
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report of Keryx Biopharmaceuticals, Inc. (the Company) on Form 10-K for the period ended
December 31, 2014 as filed with the Securities and Exchange Commission (the Report), I, James F. Oliviero, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the
Sarbanes-Oxley Act of 2002, that, based on my knowledge:
1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and
2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the Company.
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|
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Date: February 27, 2015 |
|
|
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/s/ James F. Oliviero |
|
|
|
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James F. Oliviero, CFA Chief Financial
Officer Principal Financial and Accounting Officer |
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