PART I
Company Overview
Spectrum Pharmaceuticals, Inc. and its wholly-owned subsidiaries (Spectrum, the Company,
we, our, or us), is a biotechnology company with fully integrated commercial and drug development operations with a primary focus in hematology and oncology. Our strategy is comprised of acquiring, developing and
commercializing a broad and diverse pipeline of late-stage clinical and commercial products.
We currently market four
oncology drugs:
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FUSILEV injection for patients in the U.S. with advanced metastatic colorectal cancer and to counteract certain side effects of methotrexate therapy;
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ZEVALIN injection for patients in the U.S. and various international markets with follicular non-Hodgkins lymphoma;
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FOLOTYN injection for patients in the U.S. with relapsed or refractory peripheral T-cell lymphoma; and
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MARQIBO injection for patients in the U.S. with relapsed Philadelphia chromosomenegative acute lymphoblastic leukemia.
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We also have ongoing indication expansion studies with several of our marketed products, and a diversified
pipeline of product candidates in advanced-stage Phase 2 and Phase 3 studies. We have assembled an integrated in-house scientific team, including formulation development, clinical development, medical affairs, regulatory affairs, biostatistics
and data management, and have established a commercial infrastructure for the marketing of our drug products. We also leverage the expertise of our worldwide partners to assist in the execution of our business strategy described in detail below.
Business Strategy
Our business strategy is comprised of the following three initiatives:
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Maximizing the revenue potential of our four currently-marketed drugs for the treatment of cancer.
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Our near-term outlook largely depends on sales and marketing successes for our four marketed
drugs. It is this base business, along with potential additional indications for these drugs, that provides the working capital needed to operate our daily business and provides the necessary capital for opportunistic acquisitions.
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Developing and commercializing the drugs for the treatment of cancer within our pipeline.
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Our strategy for our development portfolio is to focus on late-stage development drugs. We strive to complete clinical studies to
demonstrate the safety and efficacy of these drugs in order to obtain regulatory approval in a timely manner. Upon obtaining approval, our sales and marketing function educates physicians on the safety of the drug and its effectiveness in treating
patients for the approved indication, with the goal of achieving maximum commercial success.
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Expanding our pipeline of development-stage and commercial-stage drugs through business development activities.
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It is our goal to identify new strategic opportunities that are synergistic with our currently-marketed drugs. We will continue to
(i) explore strategic collaborations as they relate to drugs that are either in clinical trials or are currently on the market, and (ii) identify and secure drugs that have significant growth potential through enhanced marketing and
sales efforts and/or through pursuit of additional clinical development. We may also identify and pursue partnerships for out-licensing certain of our drugs in development.
Cancer Background and Market Size
Cancer is a group of diseases
characterized by the uncontrolled growth and spread of abnormal cells, which can result in death. The development of cancer is multi-factorial and includes both external factors (tobacco, infectious organisms, chemicals, and radiation) and internal
factors (inherited mutations, hormones, immune conditions, and mutations that occur from exposure to environmental factors or errors in making DNA (deoxyribonucleic acid) during normal cell division). These causal factors may act together or in
sequence to initiate or promote the development of cancer. Ten or more years often pass between exposure to these factors and the development of detectable cancer. Cancer is treated through surgery, radiation, chemotherapy, hormone therapy, immune
therapy, and/or targeted drug therapy.
According to the American Cancer Societys publication
Cancer Facts &
Figures 2014
, cancer is the second leading cause of death in the U.S. (only behind heart disease). In the U.S., approximately 1.7 million new cancer cases are expected to be diagnosed in 2014 and over 585,000 persons are expected to
die from the disease in 2014. Anyone can develop cancer. Since the risk of being diagnosed with cancer increases with age, most cases occur in adults who are middle aged or older. About 77% of all cancers are diagnosed in people 55 years of age and
older. In the U.S., men have slightly less than a 1 in 2 lifetime risk of developing cancer; for women, the risk is a little more than 1 in 3. These probabilities are estimated based on the overall experience of the general population. Individuals
within the population may have higher or lower risk because of differences in exposures (e.g., smoking), and/or genetic susceptibility. In addition, currently available treatments are variably effective in the different cancers and individual
patients. Together these patients risks and the treatment limitations suggest a significant current and long-term demand for improved and novel cancer treatments.
All cancers involve the malfunction of genes that control cell growth and division. Only a small proportion of cancers are strongly hereditary, in that an inherited genetic alteration confers a very high
risk for developing cancer. Inherited factors play a larger role in determining risk for some cancers (e.g., colorectal, breast, and prostate) than for others. It is now thought that many familial cancers arise from the interplay between common gene
variations and lifestyle/environmental risk factors. However, most cancers do not result from inherited genes but rather from damage to genes occurring during a persons lifetime. Genetic damage may result from internal factors, such as
hormones or the metabolism of nutrients within cells, or external factors, such as tobacco, or excessive exposure to chemicals, sunlight, or ionizing radiation.
Cancer cell growth is different from normal cell growth. Instead of being regulated and stopping to grow in a controlled manner, cancer cells continue to grow and form new, abnormal cells. Cancer cells
can also invade (grow into) other tissues, something that normal cells do not do. Cells become cancer cells because of DNA damage. DNA is in every cell and it directs all of the cells actions. In a normal cell, when DNA is damaged, the cell
either repairs the damage, or the cell dies. In cancer cells, the damaged DNA is not repaired, and the cell doesnt die. Instead, it continues to make new cells in an uncontrolled manner that the body doesnt require. People can inherit
abnormal DNA, but most DNA damage is caused by abnormal cellular reproduction, usually triggered by environmental causes. In most cases, the cancer cells form a tumor, though some cancers, like leukemia, involve the blood and blood-forming organs
and circulate through other tissues where they grow.
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Cancer cells often travel to other parts of the body where they begin to grow and form new
tumors. This happens when the cancer cells get into the bodys bloodstream or lymph vessels; this process of cancer spreading is called metastasis. No matter where a cancer may spread, it is always named for the place where it originated. For
example, breast cancer that has spread to the liver is called metastatic breast cancer, not liver cancer. Likewise, prostate cancer that has spread to the bone is called metastatic prostate cancer, not bone cancer. Different types of cancer can
behave very differently. For instance, lung cancer and skin cancer are very different diseases. They grow at different rates and respond to different treatments.
Product Portfolio
We have a product portfolio consisting of both
commercial stage and development stage products that address various cancer types (see Research & Development section below for our pipeline of cancer therapeutics that are in various development stages). We remain committed to
growing the sales of our currently marketed products, as we strive to maintain a robust development pipeline.
Commercialized Products
Our commercialized drug products, and their approved indications, are summarized in the following table:
FUSILEV
FUSILEV (levoleucovorin), a novel folate analog formulation and the pharmacologically active isomer (the
levo
-isomer) of the racemic compound, calcium leucovorin. Leucovorin is a mixture of equal
part of both isomers: the pharmacologically active
levo
-isomer and the inactive
dextro
-isomer. Preclinical studies have demonstrated that the inactive
dextro
-isomer may compete with the active
levo
-isomer for uptake at
the cellular level. By removing the inactive
dextro
form, the dosage of FUSILEV is one-half that of leucovorin and patients are spared the administration of an inactive substance. FUSILEV is approved as a ready-to-use solution, and as
freeze-dried powder.
FUSILEV has the following indications for use:
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in combination chemotherapy with 5-fluorouracil in the palliative treatment of patients with advanced metastatic colorectal cancer.
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for rescue after high-dose methotrexate therapy in osteosarcoma.
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to diminish the toxicity and counteract the effects of impaired methotrexate elimination and of inadvertent overdosage of folic acid antagonists.
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The product similar to FUSILEV is marketed outside the U.S. by Pfizer, Sanofi-Aventis, and Takeda.
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FOLOTYN
FOLOTYN, (pralatrexate injection), a folate analogue metabolic inhibitor, was discovered by Memorial Sloan-Kettering Cancer Center, SRI
International and Southern Research Institute and developed by Allos Therapeutics, Inc. (Allos). In September 2009, the FDA granted accelerated approval for FOLOTYN for use as a single agent for the treatment of patients with relapsed or
refractory peripheral T-cell lymphoma (PTCL). FOLOTYN was the first chemotherapy approved by the FDA for the treatment of relapsed or refractory PTCL and has been available to patients in the U.S. since October 2009.
According to the Lymphoma Research Foundation, lymphoma is the most common blood cancer. Hodgkins lymphoma and non-Hodgkins
lymphoma (NHL) are the two main forms of lymphoma. Lymphoma occurs when lymphocytes, a type of white blood cell, grow abnormally and accumulate in one or more lymph nodes or lymphoid tissues. The body has two main types of lymphocytes that can
develop into lymphomas: B-lymphocytes (B-cells) and T-lymphocytes (T-cells). PTCL comprises a group of rare and aggressive NHLs that develop from mature T-cells. PTCL accounts for approximately 10 to 15% of all NHL cases in the United States.
Based on preclinical studies, we believe that FOLOTYN selectively enters cells expressing RFC, a protein that is frequently
over expressed on cancer cells compared to normal cells. Once inside cancer cells, FOLOTYN is efficiently polyglutamylated, which makes it less susceptible to efflux-based drug resistance and leads to high intracellular drug retention compared to
other antifolates. Inside the cell, FOLOTYN targets the inhibition of DHFR, an enzyme critical in the folate pathway, thereby interfering with DNA and RNA synthesis and triggering cancer cell death.
We are exploring additional settings for FOLOTYN where methotrexate (MTX), a drug in the same category as FOLOTYN, has been
successfully used for decades in the treatment of breast cancer, bladder cancer, and lung cancer. We will be testing FOLOTYNs benefits in these settings because FOLOTYN is designed to provide greater activity than MTX. In addition to its use
alone as a single agent, we are evaluating FOLOTYN as part of different chemotherapy combinations.
ZEVALIN
ZEVALIN (ibritumomab tiuxetan) injection for intravenous use is a prescription medication that is part of a three step
treatment regimen consisting of: two treatments of rituximab and one treatment of Yttrium-90 (Y-90) ZEVALIN. Rituximab is used to reduce the number of B-cells in the blood and Y-90 ZEVALIN is then given to treat non-Hodgkins lymphoma. It is
currently approved in the U.S. and more than 40 countries outside the U.S. including countries in Europe, Latin America and Asia for the treatment of patients with:
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Recurring, low-grade or follicular B-cell NHL, after other anticancer drugs are no longer working.
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Newly diagnosed follicular NHL following a response to initial anticancer therapy.
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We are currently working towards a new indication for ZEVALIN for diffuse large B-cell lymphoma (DLBCL). An estimated 40,000
new cases of DLBCL were diagnosed in major markets in 2010. The need for improved treatments for DLBCL is high because the two-year progression-free survival rate is only approximately 55% and the estimated two-year overall survival rate is 71%.
ZEVALIN would be used as an add-on to frontline therapy in which there is currently no competitor. A number of Phase 2
studies have been completed by investigators with high response rates in this indication. We plan to complete our Phase 3 study enrollment in early 2016 and file a supplemental Biologics License Application (sBLA) in 2018.
MARQIBO
MARQIBO is a novel, sphingomyelin/cholesterol liposome-encapsulated formulation of the FDA-approved anticancer drug vincristine. MARQIBOs approved indication is for the treatment of adult patients
with Philadelphia chromosome-negative acute lymphoblastic leukemia (ALL) in second or greater relapse or whose disease has progressed following two or more lines of anti-leukemia therapy. In the U.S., approximately 6,000 patients per
year are diagnosed with ALL, of which approximately 1,600 can be categorized as ALL in second or greater relapse.
MARQIBO is
also currently being explored for the treatment of the broader ALL indication as well as in NHL in addition to its approved treatment for Philadelphia chromosome-negative ALL. During 2014, we also intend to conduct an additional Phase 2 study for
MARQIBO in patients with NHL.
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Product Pipeline
BELEODAQ
BELEODAQ (belinostat) is a histone deacytelase, (HDAC) inhibitor that is being studied in multiple clinical trials, both as a single drug and in combination with chemotherapeutic drugs for the
treatment of various hematological and solid tumors. Its anticancer effect is thought to be mediated through multiple mechanisms of action, including the inhibition of cell proliferation, induction of apoptosis (programmed cell death), inhibition of
angiogenesis, induction of differentiation, and the activity in tumors that had become resistant to anticancer agents such as the platinums, taxanes and topoisomerase II inhibitors. We are currently seeking FDA approval for the treatment of patients
with relapsed or refractory peripheral T-cell lymphoma.
BELEODAQ is differentiated from other HDAC inhibitors that
selectively inhibit a single class of HDAC enzymes because it inhibits all 3 classes of the zinc-dependent HDAC enzymes (Class I, Class II and Class IV); this leads to different alterations in histone and non-histone protein acetylation that, in
turn, could importantly influence chromatin accessibility, gene transcription, and activity in different cancer patients, including those who develop drug resistant disease.
Based on the data from the clinical studies, we believe there are many potential attributes associated with BELEODAQ that separate it from other currently marketed HDACs, including efficacy when used
alone and in combination, less toxicities (when compared to the reported rates of some adverse events with the other currently-marketed HDACs), including less bone marrow toxicity, and a lack of other severe side effects, such as mucositis, that may
enable full dose combinations of this drug with several other cytotoxic agents. Hence, BELEODAQ is currently being investigated in multiple indications, both as monotherapy and in combination with other treatment regimens. Numerous studies have been
conducted, or are ongoing, through the National Cancer Institute (the NCI) and other well-known oncologic academic institutions. Additionally, we have a comprehensive development plan for BELEODAQ, which includes both hematologic
indications, such as PTCL, and solid tumor indications, such as ovarian cancer, colorectal cancer and non-small cell lung cancer. Based upon the foregoing, we believe BELEODAQ potentially has broad applicability and hence, commercial potential
beyond that of its currently targeted indication.
BELEODAQ is currently the only HDAC inhibitor in clinical development with
multiple potential routes of administration, including intravenous administration, continuous intravenous infusion and oral administration, which we believe may afford BELEODAQ a significant competitive advantage.
In December 2013, we filed our NDA with the FDA. Our application was subsequently accepted by the FDA with Priority Review in February
2014.
Captisol-Enabled
®
MELPHALAN
Captisol-enabled MELPHALAN (C-E MELPHALAN) is a novel intravenous formulation of MELPHALAN that has the
potential to offer multiple advantages for clinicians and patients in the multiple myeloma transplant setting. Multiple myeloma is a cancer of plasma cells, a type of white blood cell present mainly in the bone marrow that produces antibodies. In
multiple myeloma, a group of plasma cells (myeloma cells) become cancerous and multiply, raising the number of plasma cells to a higher-than-normal level, which can crowd out normal blood cells and lead to abnormally high proteins in the blood or
urine. Per NCI and the ACS, there were an estimated 22,000 new cases of multiple myeloma in the U.S. in 2013, with the incidence of new cases increasing by approximately 1.7% per year. The current intravenous MELPHALAN market is approximately
$130 million annually, with predominant use in stem cell transplants. The rate of autologous stem cell transplantation for patients with multiple myeloma is growing by approximately 3.3% annually.
The C-E MELPHALAN formulation avoids the use of propylene glycol (PG), which is required as a co-solvent in the current
MELPHALAN formulation; PG has been reported to cause renal and cardiac side-effects that limit the ability to deliver higher quantities of intended therapeutic compounds. The use of Captisol technology to reformulate MELPHALAN is anticipated to
allow for longer administration durations and slower infusion rates, potentially enabling clinicians to safely achieve a higher dose intensity for pre-transplant chemotherapy.
C-E MELPHALAN was granted Orphan Drug status by the FDA for use as a high-dose conditioning regimen prior to hematopoietic progenitor (stem) cell transplantation. If approved, the propylene glycol-free
formulation of MELPHALAN will be the first product approved for this indication.
Currently, C-E MELPHALAN is a Phase 2B drug
(Pivotal Trial) with an NDA filing anticipated in 2014.
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APAZIQUONE
APAZIQUONE is an anti-cancer agent that becomes activated by certain enzymes often present in higher amounts in cancer cells than in
normal cells. It is currently being investigated for the treatment of Non- muscle Invasive Bladder Cancer (NMIBC), which is a cancer that is only in the innermost layer of the bladder and has not spread to deeper layers of the bladder.
The ACS estimated that the 2013 incidence and prevalence of bladder cancer in the U.S. was approximately 74,690 and over
500,000 respectively. According to Botteman et al., (PharmacoEconomics 2003), bladder cancer is the most expensive cancer to treat on a lifetime basis.
The initial treatment of this cancer is to attempt a complete surgical removal of the tumor. However, bladder cancer is a highly recurrent disease with approximately 75% of patients recurring within 5
years, and a majority of patients recurring within 2 years. This high recurrence rate is attributed to:
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the highly implantable nature of cancer cells that are dispersed during surgery,
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(2)
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incomplete tumor resection, and
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(3)
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tumors present in multiple locations in the bladder which may be missed or too small to visualize at the time of resection.
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Despite evidence in the published literature and guidance from the American and European Urology Associations, instillation of a
chemotherapeutic agent immediately following surgery is not a standard clinical practice. Currently, there are no FDA approved drugs for this indication which may, in part, explain the difference between the literature and urology guidelines and
actual clinical management of this disease. For more than 30 years, no new drugs have been introduced in the market for treatment of NMIBC.
APAZIQUONE is a bio-reductive alkylating indoloquinone that is enzymatically activated by enzymes that are over expressed by bladder tumors that is being tested in NMIBC. Pharmacokinetic studies have
verified that APAZIQUONE is rarely detectable in the bloodstream of patients when it is administered either after surgical resection or as a part of a delayed multi-instillation protocol. APAZIQUONE is inactivated in the systemic circulation by the
red blood cell fraction. The proposed dose therefore carries a minimal risk of systemic toxicity that could arise from absorption of a drug through the bladder wall into the bloodstream. These features of APAZIQUONE are distinct from other
intravesical agents currently in use for the treatment of recurrent bladder cancer. An immediate instillation of APAZIQUONE may help by:
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(1)
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reducing tumor recurrence by destroying dispersed cancer cells that would otherwise re-implant onto the inner lining of the bladder,
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(2)
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by destroying remaining cancer cells at the site of tumor resection (also known as chemo-resection), and
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(3)
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by destroying tumors not observed during resection (also known as chemo-ablation).
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We expect to commence a confirmatory Phase 3 study for APAZIQUONE in 2014 and expect to prepare and submit a NDA at the end of 2014.
SPI-2012
SPI-2012, our third biologic drug, is used for the treatment of chemotherapy-induced neutropenia. In January 2012, we entered into a co-development and commercialization agreement with Hanmi
Pharmaceutical Company, for SPI-2012 based on Hanmis proprietary LAPSCOVERY Technology. Chemotherapy can cause myelosuppression and unacceptably low levels of white blood cells, making patients prone to infections, hospitalizations, and
interruption of additional chemotherapy treatments.
Granulocyte colony-stimulating factor, or GCSF, stimulates the production
of white blood cells by the bone marrow. A recombinant form of GCSF is used in appropriate cancer patients to accelerate recovery from neutropenia after chemotherapy, allowing higher-intensity treatment regimens to be given at full-dose and on
schedule. We believe the worldwide market for GCSF-related drugs was over $5.0 billion in 2013.
We are currently enrolling a
Phase 2 study with clinical trial results expected in the second half of 2014.
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Manufacturing
We currently do not have internal manufacturing capabilities; therefore, all of our products are manufactured on a contract basis. We expect to continue to contract with third-party providers for
manufacturing and packaging services, including active pharmaceutical ingredients (API) and finished-dosage products. We believe that our current agreements with third-party manufacturers provide for sufficient operating capacity to
support the anticipated commercial demand for our products. However, we have only one approved contract manufacturer for each aspect of the manufacturing process for ZEVALIN and MARQIBO. We have multiple drug product contract manufacturers for
FUSILEV and FOLOTYN.
We believe these third-party manufacturers have the capability to meet our projected worldwide clinical
trial and commercial requirements for our products. We attempt to prevent disruption of supplies through supply agreements, appropriate forecasting, maintaining stock levels and other strategies. We believe that the market for such manufacturers and
suppliers is such that we could quickly enter into another supply or manufacturing agreement on substantially similar terms if we were required to do so.
Sales and Marketing
We market and sell our drugs through a direct sales
force in the U.S., and through distributors in Europe and Japan. We divide the U.S. market between corporate accounts and oncology accounts. The primary decision makers for our products are oncologists and hematologists. As
of December 31, 2013, our U.S. sales force (management, representatives, and direct support) numbered 81 employees.
Our
corporate accounts are divided among four regions and 20 territories, led by our Vice President of Corporate Accounts and Executive Director of Corporate Accounts Sales. Each region is managed by an Associate Director of Corporate Accounts who
oversees four Regional Business Managers.
Our oncology accounts are divided among six regions and 40 territories, led by our
Vice President of Sales. Each region is managed by a Regional Sales Director who oversees six or seven Oncology Account Managers (sales representatives), an Oncology Nurse Specialist (sales support), and a Clinical Logistical Specialist (sales
support).
Customers
Our product sales are concentrated to large pharmaceutical distributors (that ship and bill to hospitals and clinics). The customers that represent 10% or more of our total product sales in 2013, 2012,
and 2011 are as follows:
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2013
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2012
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2011
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Oncology Supply
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35.4
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%
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26.5
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%
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57.0
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%
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McKesson Specialty
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19.8
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%
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23.2
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%
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19.1
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%
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ICS
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15.8
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%
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19.4
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%
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*
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Cardinal Health
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*
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15.7
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%
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*
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We are exposed
to credit risk associated with trade receivables that result from these product sales. We do not require collateral or deposits from our customers due to our assessment of their creditworthiness and our long-standing relationship with them. We
maintain reserves for potential bad debt, though credit losses have historically been nominal and within managements expectations. A summary of our customers that represent 10% or more of our accounts receivables, net, as of December 31,
2013 and 2012 are as follows:
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December 31,
2013
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December 31,
2012
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Oncology Supply
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37.7
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%
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37.7
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%
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McKesson Specialty
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30.7
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%
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26.0
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%
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ICS
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10.3
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%
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19.1
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%
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Competition
The pharmaceutical industry is characterized by rapidly-evolving biotechnology and intense competition, which we expect will continue. Many companies are engaged in research and development of compounds
that are similar to ours both commercialized and in development. In the event that one or more of our competitors programs are successful, the market for some of our drug products could be reduced or eliminated. Any product for which we
obtain FDA approval must also compete for market acceptance and market share.
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Successful marketing of branded products depends primarily on the ability to communicate the
effectiveness, safety, and value of the products to healthcare professionals in private practice, group practices, hospitals, academic institutions, and managed care organizations. Competition for branded drugs is less driven by price and is more
focused on innovation in treatment of disease, advanced drug delivery, and specific clinical benefits over competitive drug therapies. Unless our products are shown to be differentiated, i.e., have a better safety profile, efficacy, and
cost-effectiveness, as compared to other alternatives, they may not gain acceptance by medical professionals and may therefore never be commercially successful.
Companies that have products on the market or in research and development that target the same indications as our product targets include, among others, Astra Zeneca PLC, Bayer AG, Endo Pharmaceuticals,
Inc., Eli Lilly and Co., Novartis AG, Genentech, Inc. (Roche), Bristol-Myers Squibb Company, GlaxoSmithKline, Biogen-IDEC Pharmaceuticals, Inc., OSI Pharmaceuticals, Inc. (Astellas Pharma), Cephalon, Inc. (Teva Pharmaceuticals), Sanofi-Aventis,
Inc., Pfizer, Inc., Genta Incorporated, Merck, Celgene Corporation, BiPar Sciences, Inc., Genzyme Corporation, Shire Pharmaceuticals, Abbott Laboratories, Poniard Pharmaceuticals, Inc., and Johnson & Johnson.
Each of the aforementioned companies may be more advanced in development of competing drug products. Many of these competitors are large
and well-capitalized companies focusing on a wide range of cancers and drug indications, and have substantially greater resources and expertise than we do.
The general competitive landscape for each of our commercialized products is summarized below:
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(a)
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FUSILEV is the levo-isomeric form of the racemic compound calcium, leucovorin, a product already approved for the same indication as FUSILEV. As there are currently
three generic companies approved by the FDA to sell the leucovorin product, we are competing with a low-cost alternative.
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(b)
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ZEVALIN has three competitive products for its currently approved indications:
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Rituxan
®
(rituximab), marketed by Genentech and Biogen, is indicated for the treatment of patients with relapsed or refractory, low-grade or follicular, CD20-positive, B-cell NHL as a single agent; previously untreated follicular, CD20-positive, B-cell NHL
in combination with CVP (cyclophosphamide, vincristine and prednisone combination) chemotherapy; and non-progressing (including stable disease), low-grade, CD20-positive B-cell NHL, as a single agent, after first-line CVP chemotherapy. Rituxan is
administered as a part of various chemotherapy regimens and schedules, the vast majority of which, could be used in concert with other therapeutic agents, such as ZEVALIN, as part of a treatment plan.
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Treanda
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(bendamustine hydrochloride) for Injection, for Intravenous Infusion, marketed by Cephalon, is indicated for the treatment of patients with indolent B-cell NHL that has progressed during or within six months of treatment with rituximab or a
rituximab-containing regimen.
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Bexxar
®
therapeutic regimen (Tositumomab and Iodine I
131
Tositumomab), a radiopharmaceutical marketed by GlaxoSmithKline, is indicated for the treatment of patients with CD20 antigen-expressing relapsed or refractory, low-grade, follicular, or transformed NHL, including patients with Rituximab-refractory
NHL. In August 2013, the manufacturer of this product announced the discontinuation of both the manufacture and sale of Bexxar as of February 20, 2014.
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(c)
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FOLOTYN, the first agent approved by the FDA for treatment of patients with relapsed or refractory PTCL, has two competitive products for its currently approved
indications:
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Romidepsin, marketed by Celgene, Inc., was granted accelerated approval by the FDA in June 2011 for the treatment of patients with PTCL who have
received at least one prior therapy. This was the second indication approved for romidepsin, which was initially approved by the FDA in November 2009 for the treatment of patients with CTCL who have received at least one prior systemic therapy.
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Brentuximab vedotin, marketed by Seattle Genetics, Inc., was also granted accelerated approval by the FDA in August 2011 for two indications, one of
which was for the treatment of patients with systemic anaplastic large cell lymphoma (ALCL) after failure of at least one prior multi-agent chemotherapy regimen. ALCL is one of the subtypes of PTCL included in the labels of both FOLOTYN
and romidepsin.
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We are aware of multiple investigational agents that are currently being studied in clinical
trials for PTCL, including BELEODAQ and alisertib, which, if approved, may compete with FOLOTYN in the United States. Because of the natural history of PTCL with repeated treatment failures, it is likely that many patients would receive treatment
with more than one agent, e.g., BELEODAQ and FOLOTYN. In addition, there are many existing approaches used in the treatment of relapsed or refractory PTCL, including combination chemotherapy and single agent regimens, which represent competition for
FOLOTYN.
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(d)
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MARQIBO is a next generation liposomal form of standard vincristine. In its current indication, MARQIBO is approved for adult patients with relapsed or refractory
Ph-ALL who have not responded or relapsed after two prior treatments. Currently, standard vincristine is not approved for the same indication as MARQIBO.
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Research and Development
New drug development is the process whereby drug
product candidates are tested for the purpose of filing a new drug application (NDA) or a Biologistics License Application (BLA) in the U.S. (or similar filing in other countries). Obtaining marketing approval from the FDA or
similar regulatory authorities outside of the U.S., is an inherently uncertain, lengthy and expensive process that requires several phases of clinical trials to demonstrate to the satisfaction of the appropriate regulatory authorities that the
products are both safe and effective for their respective indications. Our development focus is primarily based on acquiring and developing late-stage development drugs as compared to new drug discovery, which is particularly uncertain and lengthy.
Our in-development products are summarized below:
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Our research and development expenses for drug development are comprised of personnel
expenses, contract services, license fees and milestone payments, clinical trials, laboratory supplies and drug products, and certain allocations of corporate costs. The below table summarizes our research and development expenses by project in
2013, 2012, and 2011:
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Research and Development Expenses for the Year Ended
December
31,
(in thousands)
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
APAZIQUONE
|
|
$
|
1,078
|
|
|
$
|
6,642
|
|
|
$
|
7,695
|
|
BELEODAQ
|
|
|
6,733
|
|
|
|
3,742
|
|
|
|
7,207
|
|
FUSILEV
|
|
|
4,517
|
|
|
|
1,416
|
|
|
|
1,239
|
|
FOLOTYN
|
|
|
2,992
|
|
|
|
1,586
|
|
|
|
|
|
ZEVALIN
|
|
|
8,572
|
|
|
|
5,040
|
|
|
|
167
|
|
SPI-2012
|
|
|
1,403
|
|
|
|
1,049
|
|
|
|
|
|
LUCANTHONE
|
|
|
795
|
|
|
|
792
|
|
|
|
|
|
MARQIBO
|
|
|
4,099
|
|
|
|
|
|
|
|
|
|
MELPHALAN
|
|
|
3,400
|
|
|
|
|
|
|
|
|
|
OZARELIX
|
|
|
247
|
|
|
|
724
|
|
|
|
740
|
|
ORTATAXEL
|
|
|
421
|
|
|
|
554
|
|
|
|
107
|
|
RenaZorb
|
|
|
346
|
|
|
|
1,299
|
|
|
|
476
|
|
Other development drugs
|
|
|
1,823
|
|
|
|
4,695
|
|
|
|
1,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Direct costs
|
|
|
36,426
|
|
|
|
27,539
|
|
|
|
19,048
|
|
Add: Indirect costs (including stock-based compensation of $2,000, $1,800, and $1,600, respectively)
|
|
|
13,335
|
|
|
|
21,404
|
|
|
|
16,502
|
|
(Less): Reimbursements from development partners
|
|
|
(804
|
)
|
|
|
(7,383
|
)
|
|
|
(8,888
|
)
|
(Less): Mundipharma deferred payment contingency
|
|
|
(2,287
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Research and development expenses
|
|
$
|
46,670
|
|
|
$
|
41,560
|
|
|
$
|
26,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents and Proprietary Rights
Our Patents and Proprietary Rights
We in-license from third parties
certain patent and related intellectual property rights related to our proprietary drug products. Under most of these license arrangements, we are generally responsible for all development, patent filing and maintenance costs, sales, marketing and
liability insurance costs related to the drug products.
In addition, these licenses and agreements may require us to make
royalty and other payments and to reasonably exploit the underlying technology of applicable patents. If we fail to comply with these and other terms in these licenses and agreements, we could lose the underlying rights to one or more of our
potential products, which would adversely affect our product development and harm our business.
The protection, preservation
and infringement-free commercial exploitation of these patents and related intellectual property rights are very important to the successful execution of our strategy. However, the issuance of a patent is neither conclusive as to its validity nor as
to the enforceable scope of the claims of the patent. Accordingly, our patents and the patents we have licensed may not prevent other companies from developing similar or functionally equivalent products or from successfully challenging the validity
of our patents. If our patent applications are not allowed or, even if allowed and issued as patents, if such patents or the patents we have in-licensed are circumvented or not upheld by the courts, our ability to competitively exploit our patented
products and technologies may be significantly reduced. Also, such patents may or may not provide competitive advantages for their respective products or they may be challenged or circumvented by competitors, in which case our ability to
commercially exploit these products may be diminished.
12
From time-to-time, we may need to obtain licenses to patents and other proprietary rights
held by third parties to develop, manufacture and market our products. If we are unable to timely obtain these licenses on commercially reasonable terms, our ability to commercially exploit such products may be inhibited or prevented.
We believe that our patents and licenses are critical to operating our business, as summarized below by commercialized and in-development
drugs products.
FUSILEV:
We have one U.S. composition of matter patent that expires in March 2022.
ZEVALIN:
We have sublicensed U.S. patents that cover the processes and tools for making monoclonal anti-bodies or MABs, in
general, licensed U.S. patents that cover the CD-20 MAB in ZEVALIN as well as the use of ZEVALIN to treat NHL, and acquired patents covering the ZEVALIN compounding process (i.e., process of linking the CD-20 MAB to a radioactive isotope to make the
patient-ready dosage form of ZEVALIN). These patents expire over a wide range of dates, but the licensed patents covering the CD-20 MAB itself do not begin to expire until 2015. Additionally, we have U.S. patents covering the compounding process
expiring in 2019, and will consider filing more patent applications, if the opportunity arises.
FOLOTYN:
We have a
composition of matter patent due to expire in 2022 following a five-year patent term extension in U.S. The composition of matter patent is due to expire in Europe in 2017 but is eligible for a similar patent term extension following regulatory
approval in Europe. We also have patents covering the use of FOLOTYN for PTCL that will not expire until 2025. Additionally, we have issued patents and pending patent applications in U.S. and many other countries claiming different uses of FOLOTYN,
and we may consider filing new patent applications if the opportunity arises.
MARQIBO:
We have patents covering the
use of MARQIBO for leukemia, lymphoma and melanoma and a patent claiming Marqibo kit in US that expire in 2020. We have filed an application for patent term extension through December 2024 for one of the patents covering the use of MARQIBO for
relapsed leukemia and lymphoma in the U.S. However, it is not certain if the patent term extension will be granted by the USPTO. We also have issued patents covering the use of MARQIBO in Europe and other countries that expire in 2020. We have
recently filed a PCT application claiming a method of encapsulating vincristine sulphate into liposomes
BELEODAQ:
The
composition of matter patents that cover BELEODAQ and related compounds do not begin to expire until 2021. Currently, there are multiple U.S. and foreign patent applications pending that cover BELEODAQ formulations, uses and manufacturing and
synthesis processes. We plan to file additional U.S. and foreign patent applications covering new formulations, uses and manufacturing and synthesis processes, where appropriate.
APAZIQUONE:
The U.S. formulation patent does not expire until 2022, and method of treatment of bladder cancer using a stabilized
formulation that does not expire until 2024. Formulation patents outside U.S. are due to expire in 2022. We have filed and plan to file additional U.S. and foreign patent applications covering new formulations and/or uses for this product.
OZARELIX:
In the U.S. as well as outside the U.S., a composition of matter patent expires in 2020, and a formulation
patent expires in 2023. We also have method of use patent applications on file.
ORTAXTEL:
Two U.S. composition patents
expired in 2013. Corresponding European patents expire in 2014, while multiple manufacturing and synthesis patents in U.S. and Europe do not begin to expire until 2021. We anticipate filing new method of use and formulation patent applications in
the future.
LUCANTHONE:
Our U.S. method of use patent expires in 2019.
RENAZORB:
We have one method of use patent that is expiring in 2024, and pending U.S. and foreign patent applications covering
compositions of matter, manufacturing process, and methods directed to treating hyperphosphatemia.
SPI-1620:
We have
filed method of use patent applications in the U.S. and Europe. We also have multiple U.S. method of use patents that expire in 2024, and there is ongoing prosecution for their European counterparts. We have also filed another method of use patent
applications in the U.S. and Europe, and anticipate filing future patent applications pending the continued development of new methods of use and new formulations.
SPI-2012:
Composition of matter patents covering SPI-2012 are due to expire in 2025 in the U.S. and in 2024 outside the U.S. SPI-2012 is also covered by additional patents claiming various aspects
of the technology that are due to expire between 2024 and 2030 and recently-filed patent applications for its formulation.
13
C-E MELPHALAN:
Melphalan is covered by issued patents claiming
improved Captisol
®
technology that are due to expire between 2025 and 2029 in the U.S. Outside the U.S., we
have issued patents that cover improved Captisol technology that are due to expire in 2025 and pending applications with anticipated expiry in 2029, if issued. We also have a recently filed patent application covering Captisol-based formulation of
melphalan in the U.S. and a number of other countries.
***
We are constantly evaluating our patent portfolio and are currently prosecuting patent applications for our drug products and are
considering new patent applications in order to maximize the life cycle of each of our products.
While the U.S. and the
European Union are currently the largest potential markets for most of our products, we also have patents issued and patent applications pending outside of the U.S. and Europe. Limitations on patent protection in these countries, and the differences
in what constitutes patentable subject matter in countries outside the U.S., may limit the protection we have on patents issued or licensed to us outside of the U.S. In addition, laws of foreign countries may not protect our intellectual property to
the same extent as would laws in the U.S.
To minimize our costs and expenses and to maintain effective protection, we usually
focus our patent and licensing activities within the U.S., the European Union, Canada and Japan. In determining whether or not to seek a patent or to license any patent in a certain foreign country, we weigh the relevant costs and benefits, and
consider, among other things, the market potential and profitability, the scope of patent protection afforded by the law of the jurisdiction and its enforceability, and the nature of terms with any potential licensees. Failure to obtain adequate
patent protection for our proprietary drugs and technology would impair our ability to be commercially competitive in these markets.
In conducting our business generally, we rely upon trade secrets, know-how, and licensing arrangements and use customary practices for the protection of our confidential and proprietary information such
as confidentiality agreements and trade secret protection measures. It is possible that these agreements will be breached or will not be enforceable in every instance, and that we will not have adequate remedies for any such breach. It is also
possible that our trade secrets or know-how will otherwise become known or independently developed by competitors. The protection of know-how is particularly important because the know-how is often the necessary or useful information that allows us
to practice the claims in the patents related to our proprietary drug products.
In addition to the
specific intellectual property subjects discussed above, we have trademark protection in the U.S. for Spectrum Pharmaceuticals,
Inc.
®
, FUSILEV
®
, MARQIBO
®
, EOquin
®
, Spectrum Therapy Access Resources, STAR, ZEVALIN
®
, FOLOTYN flower design associated with FOLOTYN and RenaZorb
®
. We also have the FOLOTYN trademark and the associated flower design registered in Europe and other countries. Additionally, for some other of these and other works
related to our business, we have pending U.S. and ex-U.S. trademark applications.
The Patent Process
The U.S. Constitution provides Congress with the authority to provide inventors the exclusive right to their
discoveries. Congress codified this right in U.S. Code Title 35, which gave the U.S. Patent and Trademark Office, or USPTO, the right to grant patents to inventors and defined the process for securing a U.S. patent. This process involves
the filing of a patent application that instructs a person having ordinary skill in the respective art how to make and use the invention in clear and concise terms. The invention must be novel (not previously known) and non-obvious (not an obvious
extension of what is already known). The patent application concludes with a series of claims that specifically describe the subject matter that the patent applicant considers his invention.
The USPTO undertakes an examination process that can take from one to seven years, or more, depending on the complexity of the patent and
the problems encountered during examination.
In exchange for disclosing the invention to the public, for all U.S. patent
applications filed after 1995, the successful patent applicant is currently provided a right to exclude others from making, using or selling the claimed invention for a period of 20 years from the effective filing date of the patent
application.
Under certain circumstances, a patent term may be extended. Patent extensions are most frequently granted in the
pharmaceutical and medical device industries under the Drug Price Competition and Pricing Term Restoration Act of 1984, or Hatch 1984, or Hatch-Waxman Act, to recover some of the time lost during the FDA regulatory process, subject to a number of
limitations and exceptions. The patent term may be extended up to a maximum of five years; however, as a general rule, the average extension period granted for a new drug is approximately three years. Only one patent can be extended per FDA approved
product, and a patent can only be extended once.
14
Product Exclusivity
Under the Hatch-Waxman Act, drug products are provided exclusivity whereby the FDA will not accept applications to market a generic form
of an innovator reference listed drug product until the end of the prescribed period. A product is granted a five-year period of exclusivity if it contains a chemical entity never previously approved by the FDA either alone or in combination,
although generic applications may be submitted after four years if they contain a certification of patent invalidity or non-infringement as further discussed below. A three-year period of exclusivity is granted to a previously approved product based
on certain changes,
e.g.,
in strength, dosage form, route of administration or conditions of use, where the application is supported by new clinical investigations that are essential to approval. In addition, in 1997 Congress amended the law
to provide an additional six months of exclusivity as a reward for studying drugs in children. This pediatric exclusivity, which can be obtained during the approval process or after approval, effectively delays the approval of a generic application
until six months after the expiration of any patent or other exclusivity that would otherwise delay approval, thus providing an additional six months free of generic competition. In order to qualify for pediatric exclusivity, the FDA must make a
written request for pediatric studies, the application holder must agree to the request and complete the studies with required timeframe, and the studies must be accepted by the FDA based on a determination that the studies fairly respond to the
request. The provisions were enacted with a five-year sunset date, and have been reauthorized in 2002, 2007 and 2012.
Generic Approval and Patent Certification
The Hatch-Waxman Act also created the abbreviated new drug application, or ANDA, approval process, which permits the approval of a generic version of a previously approved branded drug without the
submission of a full new drug application, or NDA, and based in part on the FDAs finding of safety and effectiveness for the reference listed drug. Applicants submitting an NDA are required to list patents associated with the drug product,
which are published in the FDA Orange Book, and the timing of an ANDA approval depends in part on patent protection for the branded drug. When an ANDA is filed, the applicant must file a certification for each of the listed patents for the branded
drug, stating one of the following: (1) that there is no patent information listed; (2) that such patent has expired; (3) that the patent will expire on a particular date (indicating that the ANDA may be approved on that date); or
(4) that the drug for which approval is sought either does not infringe the patent or the patent is invalid, otherwise known as paragraph IV certification. If an ANDA applicant files a paragraph 4 certification, it is required to
provide the patent holder with notice of that certification. If the patent holder brings suit against the ANDA applicant for patent infringement within 45 days of receiving notice, the FDA may not approve the ANDA until the earlier of
(i) 30 months from the patent holders receipt of the notice (the 30-month stay) or (ii) the issuance of a final, non-appealed, or non-appealable court decision finding the patent invalid, unenforceable or not infringed.
The Hatch-Waxman Act also provided an incentive for generic manufacturers to file paragraph 4 certifications challenging
patents that may be invalid unenforceable, or not infringed, whereby the first company to successfully challenge a listed patent and receive ANDA approval is protected from competition from subsequent generic versions of the same drug product for
180 days after the earlier of (1) the date of the first commercial marketing of the first-filed ANDA applicants generic drug or (2) the date of a decision of a court in an action holding the relevant patent invalid,
unenforceable, or not infringed. These 180-day exclusivity provisions have been the subject of litigation and administrative review, and the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or MMA, amended the provisions in
several ways, including by providing that an ANDA applicant entitled to 180-day exclusivity may lose such exclusivity if any of the following events occur: (1) failure to market; (2) withdrawal of the ANDA; (3) change in patent
certification; (4) failure to obtain tentative approval; (5) illegal settlement agreement; and (6) patent expiration.
With respect to the illegal settlement prong, the MMA amendments require that certain types of settlement agreements entered into between branded and generic pharmaceutical companies related to the
manufacture, marketing and sale of generic versions of branded drugs are required to be filed with the Federal Trade Commission and the Department of Justice for review of potential anti-competitive practices. This requirement could affect the
manner in which generic drug manufacturers resolve intellectual property litigation and other disputes with branded pharmaceutical companies, and could result generally in an increase in private-party litigation against pharmaceutical companies. The
impact of this requirement, and the potential governmental investigations and private-party lawsuits associated with arrangements between brand name and generic drug manufacturers, remains uncertain and could adversely affect our business. In
addition, Congress has considered enacting legislation that would prohibit such settlements between brand name and generic drug manufacturers. Such a provision was considered as part of the Patient Protection and Affordable Care Act, or PPACA,
signed into law on March 23, 2010. However, Congress removed the provision prior to passage. It is possible that Congress will again consider a ban on such settlements between brand name and generic drug manufacturers in the future.
15
The PPACA provides exclusivity protections for certain innovator biological products and a
framework for FDA review and approval of biosimilar and interchangeable versions of innovator biologic products. The PPACA provides that no application for a biosimilar product may be approved until 12 years after the date on which the
innovator product was first licensed, and no application may be submitted until four years after the date of first licensure. Products deemed interchangeable (as opposed to biosimilar) are also eligible for certain exclusivity.
Orphan Drug Designation
Some jurisdictions, including Europe and the U.S., may designate drugs for relatively small patient populations as orphan drugs. The FDA may grant orphan drug designation to a drug intended to
treat a rare disease or condition that affects fewer than 200,000 individuals in the U.S., and a drug may also be considered an orphan even if the drug treats a disease or condition affecting more than 200,000 individuals in the U.S. where the drug
has no expected profitability. Orphan drug designation does not necessarily convey any advantage in, or shorten the duration of, the regulatory review and process for marketing approval. If a product with an orphan drug designation subsequently
receives the first FDA approval for the indication for which it has such designation, the product is entitled to seven years of orphan drug exclusivity, during which time FDA will not approve any other application to market the same drug for the
same indication except in limited circumstances, such as a showing of clinical superiority to the product with orphan exclusivity. Also, competitors are not prohibited from receiving approval to market the same drug or biologic for a different
indication than that which received orphan approval.
Under European Union medicines laws, the criteria for designating an
orphan medicinal product are similar in principle to those in the U.S. Criteria for orphan designation are set out in Article 3 of Regulation (EC) 141/2000 on the basis of two alternative conditions. A medicinal product may be
designated as orphan if it is intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition affecting not more than five in 10 thousand persons in the European Union, or EU, when the application
is made. This is commonly known as the disease prevalence criterion Alternatively, a product may be so designated if it is intended for the diagnosis, prevention or treatment of a life-threatening, seriously debilitating or serious and
chronic condition in the EU and if without incentives it is unlikely that the marketing of the product in the EU would generate sufficient return to justify the necessary investment. This is commonly known as the insufficient return
criterion.
These two alternative criteria must cumulatively meet the second condition that there exists no satisfactory
method of diagnosis, prevention or treatment of the condition in question that has been authorized in the EU, or if such a method exists, the product will be of significant benefit to those affected by the condition. Significant benefit
is defined in Regulation (EC) 847/2000 as a clinically relevant advantage or a major contribution to patient care.
Upon grant
of a marketing authorization, orphan medicinal products are entitled to ten years of market exclusivity in respect of the approved therapeutic indication. Within the period of market exclusivity, no competent authority in the EU is permitted to
accept an application for marketing authorization, a variation or a line-extension for the same approved therapeutic indication in respect of a similar medicinal product pursuant to Article 8.1 of Regulation 141/2000 unless one of
derogations set out in Article 8.3 of the same Regulation applies. In order to determine whether two products are considered similar, Regulation 847/2000 requires an assessment of the principal molecular structure and the underlying mode
of action. Any minor variation or modification of the principal molecular structure would not ordinarily render the second product dissimilar to the first authorized product.
In order for the second applicant to break the market exclusivity granted to the first authorized similar medicinal product in respect of the same therapeutic indication, the second applicant would
principally rely upon data to demonstrate that his product is safer, more efficacious or clinically superior to the first product pursuant to Article 8.3I of Regulation 141/2000. Ordinarily, such an assessment will require a head-to-head
comparative clinical trial for the purpose of demonstrating clinical superiority.
The 10-year market exclusivity may be
reduced to 6 years if at the end of the fifth year it is established that the product no longer meets the criteria for orphan designation on the basis of available evidence.
FUSILEV has been granted orphan drug designations for its use in conjunction with high dose methotrexate in the treatment of osteosarcoma
and for its use in combination chemotherapy with the approved agent 5-fluorouracil in the palliative treatment of metastatic adenocarcinoma of the colon and rectum (colorectal cancer). In addition, FOLOTYN has been granted an orphan drug designation
for PTCL and CTCL and BELEODAQ has been granted an orphan drug designation for PTCL. As discussed above, a drug with orphan designation status may obtain orphan exclusivity upon marketing approval under specified conditions set out in the applicable
laws and regulations.
16
Governmental Regulation
The development, production and marketing of our proprietary and generic drug and biologic products are subject to regulation for safety, efficacy and quality by numerous governmental authorities in the
U.S. and other countries. In the U.S., drugs and biologics are subject to rigorous regulation. The Federal Food, Drug, and Cosmetic Act, as amended from time to time, and the regulations promulgated there under, as well as other federal and state
statutes and regulations, govern, among other things, the development, approval, manufacture, safety, labeling, storage, record keeping, distribution, promotion, and advertising of our products. Product development and approval within this
regulatory framework, including for drugs already at a clinical stage of development, can take many years and require the expenditure of substantial resources, and to obtain FDA approval, a product must satisfy mandatory quality, safety and efficacy
requirements. In addition, each drug-manufacturing establishment must be registered with the FDA. Domestic manufacturing establishments must comply with the FDAs current good manufacturing practice (GMP), regulations and are
subject to inspections by the FDA. To supply drug ingredients or products for use in the U.S., foreign manufacturing establishments must also comply with GMP and are subject to inspections by the FDA or by other regulatory authorities in certain
countries under reciprocal agreements with the FDA.
General Information about the Drug Approval Process and
Post-Marketing Requirements
The U.S. system of new drug and biologics approval is a rigorous process. Only a small
percentage of compounds that enter the pre-clinical testing stage are ever approved for commercialization. Our strategy focuses on in-licensing clinical stage drug products that are already in or about to enter human clinical trials. A late-stage
focus helps us to effectively manage the high cost of drug development by focusing on compounds that have already passed the many hurdles in the pre-clinical and early clinical process.
The following general comments about the drug approval process are relevant to the development activities we are undertaking with our
proprietary products.
Pre-clinical Testing:
During the pre-clinical testing stage, laboratory and animal studies
are conducted to show biological activity of a drug or biologic compound against the targeted disease. The compound is evaluated for safety. While all of our compounds are currently in clinical trials, it is possible that additional pre-clinical
testing could be requested by a regulatory authority for any of our compounds.
Investigational New Drug
Application:
After certain pre-clinical studies are completed, an Investigational New Drug (IND) application is submitted to the FDA to request the ability to begin human testing of the drug or biologic. An IND becomes effective
thirty days after the FDA receives the application (unless the FDA notifies the sponsor of a clinical hold), or upon prior notification by the FDA.
Phase 1 Clinical Trials:
These trials, typically involving small numbers of healthy volunteers or patients and usually define a drug candidates safety profile, including the safe dosage
range.
Phase 2 Clinical Trials:
In Phase 2 clinical trials, controlled studies of human patients with the
targeted disease are conducted to assess the drugs effectiveness. These studies are designed primarily to determine the appropriate dose levels, dose schedules and route(s) of administration, and to evaluate the effectiveness of the drug or
biologic on humans, as well as to determine if there are any side effects on humans to expand the safety profile following Phase 1. These clinical trials, and Phase 3 trials discussed below, are designed to evaluate the products overall
benefit-risk profile, and to provide information for physician labeling.
Phase 3 Clinical Trials:
This phase
usually involves larger number of patients with the targeted disease. Investigators (typically physicians) monitor the patients to determine the drug candidates efficacy and to observe and report any adverse reactions that may result from
long-term use of the drug on a large, more widespread, patient population. During the Phase 3 clinical trials, typically the drug candidate is compared to either a placebo or a standard treatment for the target disease.
New Drug Application or Biologic License Application:
After completion of all three clinical trial Phases, if the data
indicates that the drug is safe and effective, a NDA or BLA is filed with the FDA requesting FDA approval to market the new drug as a treatment for the target disease.
17
Fast Track and Priority Review:
The FDA has established procedures for
accelerating the approval of drugs to be marketed for serious or life threatening diseases for which the manufacturer can demonstrate the potential to address unmet medical needs. BELEODAQ has received both Fast Track status and its NDA as a
Priority Review.
Abbreviated New Drug Application:
An ANDA is an abbreviated new drug application for generic
drugs created by the Hatch-Waxman Act. When a company files an ANDA, it must make a patent certification regarding the patents covering the branded product listed in the FDAs Orange Book. The ANDA drug development process generally takes less
time than the NDA drug development process since the ANDA process usually does not require new clinical trials establishing the safety and efficacy of the drug product.
NDA/BLA and ANDA Approval:
The FDA approves drugs and biologics that are subject to NDA and BLA review based on data in the application demonstrating the product is safe and effective in its
proposed use(s) and that the products benefits outweigh its risks. The FDA will also review the NDA or BLA applicants manufacturing process and controls to ensure they are adequate to preserve the drugs identity, strength, quality,
and purity. Finally, the FDA will review and approve the products proposed labeling. As for the ANDA approval process, these abbreviated applications are generally not required to include preclinical or clinical data to establish
safety and effectiveness. Rather, an ANDA must demonstrate both chemical equivalence and bio-equivalence (the rate and extent of absorption in the body) to the innovator drug unless a bio-equivalence waiver is granted by the FDA.
Phase 4 Clinical Trials:
After a drug has been approved by the FDA, Phase 4 studies may be conducted to explore
additional patient populations, compare the drug to a competitor, or to further study the risks, benefits and optimal use of a drug. These studies may be a requirement as a condition of the initial approval of the NDA or BLA.
Post-Approval Studies Requirements under FDAAA:
The Food and Drug Administration Amendments Act of 2007, or FDAAA
significantly added to the FDAs authority to require post-approval studies. Under the FDAAA, if the FDA becomes aware of new safety information after approval of a product, they may require us to conduct further clinical trials to assess a
known serious risk, signals of serious risk or to identify an unexpected serious risk. If required to conduct a post-approval study, periodic status reports must be submitted to the FDA. Failure to conduct such post-approval studies in a timely
manner may result in administrative action being taken by FDA, including substantial civil fines.
Risk Evaluation and
Mitigation Strategy Authority under FDAAA:
The FDAAA also gave the FDA new authority to require the implementation of a Risk Evaluation and Mitigation Strategy, or REMS, for a product when necessary to minimize known and preventable safety
risks associated with the product. The FDA may require the submission of a REMS before a product is approved, or after approval based on new safety information, including new analyses of existing safety information. A REMS may include a
medication guide, patient package insert, a plan for communication with healthcare providers, or other elements as the FDA deems are necessary to assure safe use of the product, which could include imposing certain restrictions on distribution or
use of a product. A REMS must include a timetable for submission of assessments of the strategy at specified time intervals. Failure to comply with a REMS, including the submission of a required assessment, may result in substantial civil or
criminal penalties.
Other Issues Related to Product Safety:
Adverse events that are reported after marketing
approval also can result in additional limitations being placed on a products use and, potentially, withdrawal of the product from the market. In addition, under the FDAAA, the FDA has authority to mandate labeling changes to products at any
point in a products lifecycle based on new safety information derived from clinical trials, post-approval studies, peer-reviewed medical literature, or post-market risk identification and analysis systems data.
FDA Enforcement
The development of drug and biologic products, as well as the marketing of approved drugs and biologics, is subject to substantial continuing regulation by the FDA, including regulation of adverse event
reporting, manufacturing practices and the advertising and promotion of the product. Failure to comply with the FDA and other governmental regulations can result in fines, unanticipated compliance expenditures, recall or seizure of products, total
or partial suspension of production and/or distribution, suspension of the FDAs review of NDAs, BLAs, ANDAs or other product applications, enforcement actions, injunctions and criminal prosecution. Under certain circumstances, the FDA also has
the authority to revoke previously granted drug approvals. Although we have internal compliance programs, if these programs do not meet regulatory agency standards or if our compliance is deemed deficient in any significant way, it could have a
material adverse effect on our business.
18
With respect specifically to information submitted to FDA in support of marketing
applications, the FDA, under its Fraud, Untrue Statements of Material Facts, Bribery and Illegal Gratuities Policy, can significantly delay the approval of a marketing application, or seek to withdraw an approved application where it identifies
fraud or discrepancies in regulatory submissions. Such actions by the FDA may significantly delay or suspend substantive scientific review of a pending application during validity assessment or remove approved products from the market until the
assessment is complete and questions regarding reliability of the data are resolved. In addition, the Generic Drug Enforcement Act of 1992 established penalties for wrongdoing in connection with the development or submission of an ANDA. Under this
Act, the FDA has the authority to permanently or temporarily bar companies or individuals from submitting or assisting in the submission of an ANDA, and to temporarily deny approval and suspend applications to market generic drugs. The FDA may also
suspend the distribution of all drugs approved or developed in connection with certain wrongful conduct and/or withdraw approval of an ANDA and seek civil penalties.
Healthcare Reform
Continuing studies of the proper utilization, safety and
efficacy of pharmaceuticals and other health care products are being conducted by industry, government agencies and others. Such studies, which increasingly employ sophisticated methods and techniques, can call into question the utilization, safety
and efficacy of previously marketed products and in some cases have resulted, and may in the future result, in the discontinuance of their marketing.
The Patient Centered Outcomes Research Institute, a private, non-profit corporation created as a result of the PPACA, is tasked with assisting patients, clinician, purchasers, and policy-makers in making
informed health decisions. One of the Institutes initiatives will be to conduct comparative clinical effectiveness research, which is defined as research evaluating and comparing health outcomes and the clinical effectiveness, risks, and
benefits of 2 or more medical treatments, services, and items. It is important to note that the Institute would not be permitted to mandate coverage, reimbursement, or other policies for any public or private payer, however the outcome of the
Institutes initiatives could influence prescriber behavior.
Foreign Regulation
Whether or not we obtain FDA approval for a product, we must obtain approval of a product by the comparable regulatory authorities of
foreign countries before we can commence clinical trials or marketing of the product in those countries. The approval process varies from country/region to country/region, and the time may be longer or shorter than that required for FDA approval.
The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement also may vary, sometimes significantly, from country/region to country/region.
Under the EU regulatory systems, we may submit marketing authorization applications either under a centralized procedure or decentralized
procedure or the mutual recognition procedure. The centralized procedure is mandatory for medicines produced by a biotechnological process. The procedure is also mandatory for new active substances which are indicated for treatment of several
diseases or conditions, including cancer and orphan conditions. Companies may apply for centralized assessment if the product contains a new active substance or the product constitutes significant therapeutic, scientific or technical innovation or
the granting of authorization under the centralized procedure is in the interests of the EU patients. A centralized marketing authorization is valid in all European Union member states. This marketing authorization is issued in the form of a
European Commission decision which is legally binding in its entirety to which it is addressed.
Directive 2004/27/EC
introduced two parallel procedures to the centralized procedure to allow a product to be progressively authorized in each of the member states of the EU. They are the decentralized procedure and the mutual recognition procedure. The mutual
recognition procedure applies where the product has already been authorized in a member state of the EU that will act as reference member state. The national marketing authorization granted by the reference member state forms the basis for mutual
recognition in the member states chosen by the applicant. In the decentralized procedure, the product in question is not authorized in any one the EU member states. In such a situation, the applicant company will request a member state to act as the
reference member state to lead the scientific assessment for the benefit/risk balance for agreement by the concerned member states. In both cases, the concerned member states have up to 90 days to accept or raise reasoned objections to the
assessment made by the reference member state.
In addition, pricing and reimbursement is subject to negotiation and
regulation in most countries outside the U.S. Increasingly, adoption of a new product for use in national health services is subject to health technology assessment under the national rules and regulations to establish the clinical effectiveness and
cost-effectiveness of a new treatment. In some countries, in order to contain health care expenditures, reference price is introduced in order for the national healthcare providers to achieve a price comparable to the reference price in the same
therapeutic category. We may therefore face the risk that the resulting prices would be insufficient to generate an acceptable return to us.
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Third Party Reimbursement and Pricing Controls
In the U.S. and elsewhere, sales of pharmaceutical products depend in significant part on the availability of reimbursement to the
consumer from third-party payers, such as government and private insurance plans. Third-party payers are increasingly challenging the prices charged for medical products and services. It is time-consuming and expensive for us to go through the
process of seeking reimbursement from Medicare and private payers. Our products may not be considered cost effective, and coverage and reimbursement may not be available or sufficient to allow us to sell our products on a competitive and profitable
basis.
The PPACA enacted significant reforms, including revising the definition of average manufacturer price for
reporting purposes, increasing Medicaid rebates, expanding the 340B drug discount program, and making changes to affect the Medicare Part D coverage gap, or donut hole. In the coming years, additional significant changes could be
made to governmental healthcare programs, and the U.S. healthcare system as a whole, that may result in significantly increased rebates, decreased pricing flexibility, diminished negotiating flexibility, coverage and reimbursement limitations based
upon comparative and cost-effectiveness reviews, and other measures that could significantly impact the success of our products.
In many foreign markets, including the countries in the EU, pricing of pharmaceutical products is subject to governmental control. In the U.S., there have been, and we expect that there will continue to
be, a number of federal and state proposals to implement similar governmental pricing control. While we cannot predict whether such legislative or regulatory proposals will be adopted, the adoption of such proposals could have a material adverse
effect on our business, financial condition and profitability.
Employees
As of December 31, 2013, we had 226 employees (as compared to 193 employees as of December 31, 2012), 13 of whom hold an
M.D. degree, and eight of whom hold a Ph.D. degree. We believe that the success of our business will depend, in part, on our ability to attract and retain qualified personnel. Our employees are not subject to any collective bargaining agreements. We
believe that we have good relations with our employees.
General Information
We are a Delaware corporation. We originally incorporated in Colorado in December 1987 as Americus Funding Corporation. We changed our
corporate name in August 1996 to NeoTherapeutics, Inc., and reincorporated in Delaware in June 1997. We changed our corporate name in December 2002 to Spectrum Pharmaceuticals, Inc.
Our principal executive office is located at 11500 South Eastern Avenue, Suite 240, Henderson, Nevada 89052. Our telephone number is
(702) 835-6300. Our website is located at
www.sppirx.com
and
www.spectrumpharm.com
. The information on, or that can be accessed through, our website is not incorporated by reference into this Annual Report on Form
10-K and should not be considered to be a part hereof.
We make our proxy statements, annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K (and related amendments to these reports, as applicable) available on our website free of charge as soon as practicable after filing or furnishing with the SEC.
All such reports are also available free of charge via EDGAR through the SEC website at
www.sec.gov
. In addition, the
public may read and copy materials filed by us with the SEC at the SECs public reference room located at 100 F Street, NE, Washington, D.C., 20549. Information regarding operation of the SECs public reference room can be obtained by
calling the SEC at 1-800-SEC-0330.
Before
deciding to invest in our company, or to maintain or increase your investment, you should carefully consider the risks described below, in addition to the other information contained in this Annual Report on Form 10-K and other reports we have filed
with the SEC. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us, or that we currently deem immaterial, may also affect our business operations. If any of these
risks are realized, our business, financial condition, or results of operations could be seriously harmed and in that event, the market price for our common stock could decline, and you may lose all or part of your investment.
20
These risk factors should be considered in connection with evaluating the forward-looking
statements contained in this Annual Report on Form 10-K. These factors could cause actual results and conditions to differ materially from those projected in our forward-looking statements.
Risks Related to Our Business
Our drug product FUSILEV may not be
more cost-effective than competing drugs and otherwise may not have any competitive advantage, which could adversely affect sales performance.
FUSILEV is a novel folate analog formulation and the pharmacologically active isomer (the levo-isomer) of the racemic compound calcium leucovorin, a product already approved for the same indications for
which FUSILEV is approved. Leucovorin has been sold as a generic product on the market for a number of years. There are generic companies currently selling the product and therefore, FUSILEV competes against a low-cost alternative. Also, FUSILEV is
offered as part of a treatment regimen, and that regimen may change to exclude FUSILEV. Accordingly, it may not continue to be accepted by the medical field or remain commercially successful.
Our revenue may not be sustainable and our customer concentration for FUSILEV AND FOLOTYN is significant. The loss of, or
significant reduction or cancellation in sales to, any one of these customers could adversely affect our results of operations.
There is no assurance that FUSILEV sales will be sustainable at their current levels. Our customer concentration of FUSILEV is high. A summary of our FUSILEV customers that represent 10% or more of our
total consolidated gross product sales in 2013, 2012, and 2011 is as follows:
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2013
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2012
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2011
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Oncology Supply
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32.0
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%
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25.8
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%
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57.0
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%
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McKesson Specialty
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19.8
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%
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23.2
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%
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19.1
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%
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ICS
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*
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16.1
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%
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*
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Cardinal Health
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*
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15.7
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%
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*
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For the years
ended December 31, 2013, 2012 and 2011, three companies affiliated with AmerisourceBergen Corporation accounted for substantially all of Allos Therapeutics FOLOTYN sales. We expect significant customer concentration to continue for the
foreseeable future. The loss of any large customer, a significant reduction in sales we make to them, any cancellation of orders they have made with us or any failure to pay for the products we have shipped to them could materially and adversely
affect our results of operations, as it would likely take time for those sales to transition to another customer.
If
the distributors that we rely upon to sell our products fail to perform, our business may be adversely affected.
Our
success depends on the continued customer support efforts of our network of distributors. In the United States, we sell our products to a small number of distributors who in turn sell-through to patient health care providers. These distributors also
provide multiple logistics services relating to the distribution of our products, including transportation, warehousing, cross-docking, inventory management, packaging and freight-forwarding. We do not promote products to these distributors and they
do not set or determine demand for products. The use of distributors involves certain risks, including, but not limited to, risks that these distributors will:
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not provide us with accurate or timely information regarding their inventories, the number of patients who are using our products or complaints about
our products;
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not purchase sufficient inventory on hand to fulfill end user orders in a timely manner;
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be unable to satisfy financial obligations to us or others; and
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Any such actions may result in decreased sales of our products, which would harm our business.
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Wholesaler actions could increase competitive and pricing pressures on pharmaceutical
manufacturers, including us.
We sell certain of our products primarily through wholesalers. These wholesale customers
comprise a significant part of the distribution network for pharmaceutical products in the U.S. A small number of large wholesale distributors control a significant share of the market, which can increase competitive and pricing pressures on
pharmaceutical manufacturers, including us. In addition, wholesalers may apply pricing pressure through fee-for-service arrangements, and their purchases may exceed customer demand, resulting in reduced wholesaler purchases in later quarters. We
cannot assure you that we can manage these pressures or that wholesaler purchases will not decrease as a result of this potential excess buying.
Even though we have obtained accelerated approval to market FOLOTYN for the treatment of patients with relapsed or refractory PTCL, we are subject to ongoing regulatory obligations and review,
including post-approval requirements.
FOLOTYN was approved for the treatment of patients with relapsed or refractory
PTCL under the FDAs accelerated approval regulations, which allow the FDA to approve products for cancer or other serious or life threatening diseases based on initial positive data from clinical trials. Under these provisions, we are subject
to certain post-approval requirements pursuant to which we are required to conduct two randomized Phase 3 trials to confirm FOLOTYNs clinical benefit in patients with T-cell lymphoma. The FDA has also required that we conduct two Phase 1
trials to assess whether FOLOTYN poses a serious risk of altered drug levels resulting from organ impairment. Failure to complete the studies or adhere to the timelines established by the FDA could result in penalties, including fines or withdrawal
of FOLOTYN from the market. The FDA may also initiate proceedings to withdraw approval or request that we voluntarily withdraw FOLOTYN from the market if our Phase 3 studies fail to confirm FOLOTYNs clinical benefit. Further, the FDA may
require us to amend the FOLOTYN package insert, including by strengthening the warnings and precautions section or institute a risk evaluation and mitigation strategy based on the results of these studies or clinical experience. We are also subject
to additional, continuing post-approval regulatory obligations, including the possibility of additional clinical studies required by the FDA, safety reporting requirements and regulatory oversight of the promotion and marketing of FOLOTYN. In
addition, we or our third-party manufacturers are required to adhere to the FDAs current Good Manufacturing Practices, or cGMP. The cGMP regulations cover all aspects of the manufacturing, storage, testing, quality control and record keeping
relating to FOLOTYN. Furthermore, we or our third-party manufacturers are subject to periodic inspection by the FDA and foreign regulatory authorities to ensure compliance with cGMP or other applicable government regulations and corresponding
foreign standards. We have limited control over a third-party manufacturers compliance with these regulations and standards. If we or our third-party manufacturers fail to comply with applicable regulatory requirements, we may be subject to
fines, suspension, modification or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.
Our collaboration partner, Mundipharma, may not be successful in obtaining regulatory approval for FOLOTYN in a number of countries and FOLOTYN is subject to numerous complex regulatory
requirements.
Our collaboration partner, Mundipharma, may not be successful in obtaining regulatory approval for
FOLOTYN in a number of countries and FOLOTYN is subject to numerous complex regulatory requirements. Failure to comply with, or changes to, the regulatory requirements that are applicable to FOLOTYN outside the United States may result in a variety
of consequences, including the following:
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restrictions on FOLOTYN or our manufacturing processes;
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withdrawal of FOLOTYN from the market;
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voluntary or mandatory recall of FOLOTYN;
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suspension or withdrawal of regulatory approvals for FOLOTYN;
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suspension or termination of any of our ongoing clinical trials of FOLOTYN;
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refusal to permit import or export of FOLOTYN;
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refusal to approve pending applications or supplements to approved applications that we submit;
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denial of permission to file an application or supplement in a jurisdiction;
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injunctions, consent decrees, or the imposition of civil or criminal penalties against us.
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If actual future payments for allowances, discounts, returns, rebates and chargebacks
exceed the estimates we made at the time of the sale of our products, including, without limitation, due to a change in the composition of our sales over time, our financial position, results of operations and cash flows may be materially and
negatively impacted.
We recognize product revenue net of estimated allowances for discounts, returns, rebates and
chargebacks. Such estimates require our most subjective and complex judgment due to the need to make estimates about matters that are inherently uncertain. Based on industry practice, pharmaceutical companies, including us, have liberal return
policies. Generally, we are obligated to accept from customers the return of pharmaceuticals that have reached their expiration date up to twelve months after their expiration. We authorize returns for damaged products and exchanges for expired
products in accordance with our return goods policy and procedures. In addition, like our competitors, we also give credits for chargebacks to wholesale customers that have contracts with us for their sales to hospitals, group purchasing
organizations, pharmacies or other retail customers. A chargeback is the difference between the price the wholesale customer (in our case, the GPOs) pays (wholesale acquisition cost) and the price that the GPOs end-customer pays for a product
(contracted customer). For instance, our products are subject to certain programs with federal government qualified entities whereby pricing on products is discounted to such entities and results in a chargeback claim to us. To the extent that our
sales to discount purchasers, such as federal government qualified entities, increases, our chargebacks will also increase. We do not have significant historical data on returns and allowances given our limited commercial distribution history.
Although we believe that we have estimated the allowances very conservatively, actual results may differ significantly from our estimated allowances for discounts, returns, rebates and chargebacks. Changes in estimates and assumptions based upon
actual results may have a material impact on our results of operations and/or financial condition. Such changes to estimates will be made to the financial statements in the year in which the estimate is charged. In addition, our financial position,
results of operations and cash flows may be materially and negatively impacted if actual future payments for allowances, discounts, returns, rebates and chargebacks exceed the estimates we made at the time of the sale of our products.
Reports of adverse events or safety concerns involving our products or similar agents could delay or prevent us from obtaining or
maintaining regulatory approval or negatively impact sales.
Certain of our products may cause serious adverse events.
Discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, could interrupt, delay or halt clinical trials of such products, including the FDA-required post-approval studies, and could
result in the FDA or other regulatory authorities denying or withdrawing approval of our products for any or all indications. The FDA, other regulatory authorities or we may suspend or terminate clinical trials at any time. We may also be required
to update the package inserts based on reports of adverse events or safety concerns or implement a risk evaluation and mitigation strategy, which could adversely affect such products acceptance in the market. In addition, the public perception of
our products might be adversely affected, which could harm our business and results of operations and cause the market price of our common stock to decline, even if the concern relates to another companys product or product candidate. Our
planned trials to demonstrate efficacy in a variety of indications and to better manage side effect profiles of certain of our products may not be successful.
The marketing and sale of our products may be adversely affected by the marketing and sales efforts of third parties who sell our products or similar products outside of our territories.
We have only licensed the rights to develop, market and our products in limited territories. Other companies market
and sell the same products in other parts of the world. If, as a result of other companies actions, negative publicity is associated with our products or similar products, our own efforts to successfully market and sell our products in our
markets may be adversely impacted.
Our sales depend on coverage and reimbursement from third-party payors and a
reduction in the coverage and/or reimbursement for our products could have a material adverse effect on our product sales, business and results of operations.
Sales of our products are dependent on the availability and extent of coverage and reimbursement from third-party payors, including government programs and private insurance plans. Governments and private
payors may regulate prices, reimbursement levels and/or access to our products to contain costs or to affect levels of use. We rely in large part on the reimbursement of our products through government programs such as Medicare and Medicaid in the
United States, and a reduction in the coverage and/or reimbursement for our products could have a material adverse effect on our product sales, business and results of operations.
23
A substantial portion of our U.S. business relies on reimbursement from the U.S. federal
government under Medicare Part B coverage. Most of our products furnished to Medicare beneficiaries in both a physician office setting and hospital outpatient setting are reimbursed under the Medicare Part B Average Sales Price, or ASP, payment
methodology. ASP-based reimbursement of our products under Medicare may be below or could fall below the cost that some medical providers pay for such products, which could materially and adversely affect sales of our products. We also face risks
relating to the reporting of pricing data that affect the U.S. reimbursement of and discounts for our products. ASP data are calculated by the manufacturer based on a formula defined by statute and regulation and are then submitted to the Centers
for Medicare & Medicaid Services, the agency responsible for administering the Medicare program, or CMS, on a quarterly basis. CMS uses those ASP data to determine the applicable reimbursement rates for our products under Medicare Part B.
However, the statute, regulations and CMS guidance do not define specific methodologies for all aspects of the reporting of ASP data. For example, CMS has not provided specific guidance regarding administrative fees paid to group purchasing
organizations, or GPOs, in the ASP calculation. CMS directs that manufacturers make reasonable assumptions in their calculation of ASP data in the absence of specific CMS guidance on a topic. As a result, we are required to apply our
reasonable judgment to certain aspects of calculating ASP data. If our submitted ASP data are incorrect, we may become subject to substantial fines and penalties or other government enforcement actions, which could have a material adverse impact on
our business and results of operations.
We are aware of several competitors attempting to develop and market products
competitive to our products, which may reduce or eliminate our commercial opportunities.
The pharmaceutical and
biotechnology industries are intensely competitive and subject to rapid and significant technological changes, and a number of companies are pursuing the development of pharmaceuticals and products that target the same diseases and conditions that
our products target. We cannot predict with accuracy the timing or impact of the introduction of potentially competitive products or their possible effect on our sales. Certain potentially competitive products to our products are in various stages
of development, some of which have pending applications for approval with the FDA or have been approved by regulatory authorities in other countries. Also, there are many ongoing studies with currently marketed products and other developmental
products, which may yield new data that could adversely impact the use of our products in their current and potential future indications. The introduction of competitive products could significantly reduce our sales, which, in turn would adversely
impact our financial and operating results.
Servicing our debt requires a significant amount of cash, and we may not
have sufficient cash flow from our business to pay our substantial debt.
We had $120 million of long term debt as of
December 31, 2013. Any such indebtedness will require the dedication of a portion of our expected cash flow from operations to service our indebtedness, thereby reducing the amount of our cash flow available for other purposes. In addition, our
ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, including our convertible notes, depends on our future performance, which is subject to regulatory, economic, financial, competitive and
other factors beyond our control, and our ability to raise equity capital. Our business may not continue to generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are unable to
generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our
indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt
obligations.
Clinical trials may fail to demonstrate the safety and efficacy of our drug products, which could prevent
or significantly delay obtaining regulatory approval.
Prior to receiving approval to commercialize any of our drug
products, we must demonstrate with substantial evidence from well-controlled clinical trials, and to the satisfaction of the FDA, and other regulatory authorities in the U.S. and other countries, that each of the products is both safe and effective.
For each drug product, we will need to demonstrate its efficacy and monitor its safety throughout the process. If such development is unsuccessful, our business and reputation would be harmed and our stock price would be adversely affected.
All of our drug products are prone to the risks of failure inherent in drug development. Clinical trials of new drug products
sufficient to obtain regulatory marketing approval are expensive, uncertain, and take years to complete. We may not be able to successfully complete clinical testing within the time frame we have planned, or at all. We may experience numerous
unforeseen events during, or as a result of, the clinical trial process that could delay or prevent us from receiving regulatory approval or commercializing our drug products. In addition, the results of pre-clinical studies and early-stage
24
clinical trials of our drug products do not necessarily predict the results of later-stage clinical trials. Later-stage clinical trials may fail to demonstrate that a drug product is safe and
effective despite having progressed through initial clinical testing. Even if we believe the data collected from clinical trials of our drug products is promising, data are susceptible to varying interpretations, and such data may not be sufficient
to support approval by the FDA or any other U.S. or foreign regulatory approval. Pre-clinical and clinical data can be interpreted in different ways.
Accordingly, FDA officials could interpret such data in different ways than we or our partners do which could delay, limit or prevent regulatory approval. The FDA, other regulatory authorities, our
institutional review boards, our contract research organizations, or we may suspend or terminate our clinical trials for our drug products. Any failure or significant delay in completing clinical trials for our drug products, or in receiving
regulatory approval for the sale of any drugs resulting from our drug products, may severely harm our business and reputation. Even if we receive FDA and other regulatory approvals, our drug products may later exhibit adverse effects that may limit
or prevent their widespread use, may cause the FDA to revoke, suspend or limit their approval, or may force us to withdraw products derived from those drug products from the market.
Moreover, the commencement and completion of clinical trials may be delayed by many factors that are beyond our control, including:
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delays obtaining regulatory approval to commence a trial;
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reaching agreement on acceptable terms with contract research organizations, or CROs, and clinical trial sites;
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obtaining institutional review board, or IRB, approval at each site;
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slower than anticipated patient enrollment;
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scheduling conflicts with participating clinicians and clinical institutions;
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negative or inconclusive results;
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patient noncompliance with the protocol;
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adverse medical events or side effects among patients during the clinical trials;
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negative or problematic FDA inspections of our clinical operations or manufacturing operations; and
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real or perceived lack of effectiveness or safety of mifepristone.
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We could encounter delays if a clinical trial is suspended or terminated by us, the IRBs of the clinical trial sites in which such trials
are being conducted, or by the FDA or other regulatory authorities. Such authorities may impose such a suspension or termination due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements
or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate
a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. For example, any delay in final data results in the second quarter of 2014 in the pivotal trial of
our Captisol-enabled MELPHALAN product candidate for use as a conditioning treatment prior to autologous stem cell transplant for patients with multiple myeloma could delay a new drug application filing with respect to that product candidate.
Our supply of active pharmaceutical ingredients, or APIs, and drug products will be dependent upon the production
capabilities of contract manufacturing organizations, or CMOs, component and packaging supply sources, other third-party suppliers, and other providers of logistical services, some of whom are based overseas and, if these parties are not able to
meet our demands and FDA scrutiny, we may be limited in our ability to meet demand for our products, ensure regulatory compliance or maximize profit on the sale of our products.
We have no internal manufacturing capacity for APIs or our drug products, and, therefore, we have entered into agreements with CMOs and
other suppliers to supply us with APIs and our finished dose drug products. Success in the development and marketing of our drug products depends, in part, upon our ability to maintain, expand and enhance our
25
existing relationships and establish new sources of supply. Some of the third-party manufacturing facilities used in the production of APIs and our drug products are located outside the U.S. The
manufacture of APIs and finished drug products, including the acquisition of compounds used in the manufacture of the finished drug product, may require considerable lead times. We have little or no control over the production processes of
third-party manufacturers, CMOs or other suppliers. Our ability to source APIs and drug products is also dependent on providers of logistical services who may be subject to disruptions that we cannot predict or sufficiently plan around. Accordingly,
while we do not currently anticipate shortages of supply, circumstances could arise in which we will not have adequate supplies to timely meet our requirements or market demand for a particular drug product could outstrip the ability of our supply
source to timely manufacture and deliver the product, thereby causing us to lose sales. In addition, our ability to make a profit on the sale of our drug products depends on our ability to obtain price arrangements that ensure a supply of product at
favorable prices.
Additionally, we are in the process of transitioning to a new supplier for ZEVALIN cold kits, and currently
no qualified alternative suppliers exist. Furthermore, we have multiple but a limited number of suppliers of FUSILEV. If problems arise during the production of a batch of our drug products, that batch of product may have to be discarded. This
could, among other things, lead to increased costs, lost revenue, damage to customer relations, time and expense spent investigating the cause and, depending on the cause, similar losses with respect to other batches or products. If problems are not
discovered before the product is released to the market, recall and product liability costs may also be incurred. To the extent that one of our suppliers experiences significant manufacturing problems, this could have a material adverse effect on
our revenues and profitability.
Finally, reliance on CMOs entails risks to which we would not be subject if we manufactured
products ourselves, including reliance on the third party for regulatory compliance and adherence to the FDAs current Good Manufacturing Practice, or cGMP, requirements, the possible breach of the manufacturing agreement by the CMO and the
possibility of termination or non-renewal of the agreement by the CMO, based on its own business priorities, at a time that is costly or inconvenient for us. Before we can obtain marketing approval for our drug products, our CMO facilities must pass
an FDA pre-approval inspection. In order to obtain approval, all of the facilitys manufacturing methods, equipment and processes must comply with cGMP requirements. The cGMP requirements govern all areas of record keeping, production processes
and controls, personnel and quality control. In addition, our CMOs will be subject to on-going periodic inspection by the FDA and corresponding state and foreign agencies for compliance with cGMP regulations, similar foreign regulations and other
regulatory standards. We do not have control over our CMOs compliance with these regulations and standards. Any failure of our third party manufacturers or us to comply with applicable regulations, including an FDA pre-approval inspection and
cGMP requirements, could result in sanctions being imposed on them or us, including warning letters, fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing approval of our products, delay, suspension or withdrawal
of approvals, license revocation, seizures or recalls of product, operation restrictions and criminal prosecutions, any of which could significantly and adversely affect our business.
Adverse economic conditions may have material adverse consequences on our business, results of operations and financial condition.
Unpredictable and unstable changes in economic conditions, including recession, inflation, increased government
intervention, or other changes, may adversely affect our general business strategy. We rely upon our ability to generate positive cash flow from operations to fund our business. If we are not able to generate positive cash flow from operations, we
may need to utilize sources of financing or other sources of cash. We may need to raise additional funds through public or private debt or equity financings in order to fund existing operations or to take advantage of opportunities, including
acquisitions of complementary businesses or technologies. In addition, if our business deteriorates, we may not be able to maintain compliance with any covenants or representations and warranties in any such financings which could result in reduced
availability of such financings, an event of default under such financings, or could make other sources of financing unavailable to us. Any such event would have a material adverse impact on our business, results of operations and financial
condition.
While we believe we have adequate capital resources to meet current working capital and capital expenditure
requirements, an economic downturn or an increase in our expenses could require additional financing on less than attractive rates or on terms that are excessively dilutive to existing stockholders. Failure to secure any necessary financing in a
timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and stock price and could require us to delay or abandon clinical development plans or plans to acquire additional technology.
Volatile economic conditions may not only limit our access to capital, but may also make it difficult for our customers and
us to accurately forecast and plan future business activities, and they could cause businesses to slow spending on our products, which would delay and lengthen sales cycles. Furthermore, during challenging economic times, our customers may face
issues gaining timely access to sufficient credit, which could result in an impairment of their ability to make timely payments to us. In addition, adverse economic conditions could also adversely impact our suppliers ability to provide us
with materials which would negatively impact on our business, financial condition and results of operations.
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Our dependence on key executives, scientists and sales and marketing personnel could
impact the development and management of our business.
We are highly dependent upon our ability to attract and retain qualified
scientific, technical sales and marketing and managerial personnel. There is intense competition for qualified personnel in the pharmaceutical and biotechnology industries, and we cannot be sure that we will be able to continue to attract and retain
the qualified personnel necessary for the development and management of our business. Although we do not believe the loss of one individual would materially harm our business, our business might be harmed by the loss of the services of multiple
existing personnel, as well as the failure to recruit additional key scientific, technical and managerial personnel in a timely manner. Much of the know-how we have developed resides in our scientific and technical personnel and is not readily
transferable to other personnel. While we have employment agreements with each of our Chief Executive Officer and our Chief Operating Officer, we do not have employment agreements with any of our other key scientific, technical and managerial
employees.
As we evolve from a company primarily involved in development to a company also involved in
commercialization, we may encounter difficulties in managing our growth and expanding our operations successfully.
Our commercial sales history is limited and we have had to increase our personnel to accommodate such sales, including establishing a
direct sales force and complete commercial team. In addition, as we advance our drug products through clinical trials, we will need to expand our development, regulatory, manufacturing, marketing and sales capabilities or contract with third parties
to provide these capabilities for us. As our operations expand, we expect that we will need to manage additional relationships with such third parties, as well as additional collaborators and suppliers. Maintaining these relationships and managing
our future growth will impose significant added responsibilities on members of our management. We must be able to: manage our development efforts effectively; manage our clinical trials effectively; hire, train and integrate additional management,
development, administrative and sales and marketing personnel; improve our managerial, development, operational and finance systems and expand our facilities, all of which may impose a strain on our administrative and operational infrastructure. If
we are not able to effectively manage our growth, our product sales and resulting revenues will be negatively impacted.
Expansion into international markets is important to our long-term success, and our inexperience in international operations
increases the risk that our international expansion efforts will not be successful.
We currently maintain offices
outside of the United States and have sales personnel or independent consultants in several countries. Additionally, we conduct clinical trials and manufacture our drug products internationally. We have limited experience operating in foreign
jurisdictions and are rapidly building our international operations. Managing a global organization is difficult, time consuming and expensive. Our inexperience in operating our business outside of the United States increases the risk that any
international expansion efforts that we may undertake will not be successful. In addition, conducting international operations subjects us to new risks that we have not generally faced in the United States, many of which are beyond our control.
These risks include, among other things:
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challenges caused by distance, language and cultural differences;
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maintaining compliance with foreign legal requirements, including employment law;
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unexpected changes in foreign regulatory requirements, including quality standards and other certification requirements;
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potentially adverse tax consequences, including the complexities of foreign value added tax systems and restrictions on the repatriation of earnings;
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tariffs, customs, duties and other trade barriers;
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increased financial accounting and reporting burdens and complexities;
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changing economic conditions in countries where our products are manufactured;
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product liability, intellectual property and other claims;
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reduced or varied protection for intellectual property rights in some countries;
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political and social instability;
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new export license requirements; and
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difficulties in managing and staffing foreign operations.
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Operating in international markets also requires significant management attention and
financial resources. The investment and additional resources required to establish operations and manage growth in other countries may not produce the desired levels of revenue or profitability, which could have an adverse effect on our business,
financial condition and results of operations.
We may not be able to successfully integrate our recent acquisitions and
any additional businesses we may acquire.
We regularly evaluate and, as appropriate, may make selective acquisitions
of businesses that we believe complement or augment our existing business. In September 2012, we acquired Allos Therapeutics, pursuant to which we obtained FOLOTYN, and in July 2013, we acquired Talon, pursuant to which we obtained MARQIBO. We may
not be able to integrate any acquired business successfully or operate any acquired business profitably. Issues that could delay or prevent integration of the acquired business into our own include:
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conforming standards, controls, procedures and policies, business cultures and compensation structures;
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conforming information technology and accounting systems;
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consolidating corporate and administrative infrastructures;
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consolidating sales and marketing operations;
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retaining existing customers and attracting new customers;
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retaining key employees;
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identifying and eliminating redundant and underperforming operations and assets;
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minimizing the diversion of managements attention from ongoing business concerns;
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coordinating geographically dispersed organizations;
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managing tax costs or inefficiencies associated with integrating operations; and
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making any necessary modifications to operating control standards to comply with the Sarbanes-Oxley Act of 2002 and the rules and regulations
promulgated thereunder.
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If we are unable to successfully integrate our acquisitions with our existing
business, we may not obtain the advantages that the acquisitions were intended to create, which may materially adversely affect our business, results of operations, financial condition and cash flows, our ability to develop and introduce new
products and the market price of our stock. Actual costs and sales synergies, if achieved at all, may be lower than we expect and may take longer to achieve than we anticipate. Furthermore, the products of companies we acquire may overlap with our
products or those of our customers, creating conflicts with existing relationships or with other commitments that are detrimental to the integrated businesses.
Our collaborations with outside scientists may be subject to change, which could limit our access to their expertise.
We work with scientific advisors and collaborators at research institutions. These scientists are not our employees and may have other
commitments that would limit their availability to us. If a conflict of interest between their work for us and their work for another entity arises, we may lose their services, which could negatively impact our research and development activities.
We may rely on contract research organizations and other third parties to conduct clinical trials and, in such cases,
we are unable to directly control the timing, conduct and expense of our clinical trials.
We may rely, in full or in
part, on third parties to conduct our clinical trials. In such situations, we have less control over the conduct of our clinical trials, the timing and completion of the trials, the required reporting of adverse events and the management of data
developed through the trial than would be the case if we were relying entirely upon our own staff. Communicating with outside parties can also be challenging, potentially leading to mistakes as well as difficulties in coordinating activities.
Outside parties may have staffing difficulties, may undergo changes in priorities or may become financially distressed, adversely affecting their willingness or ability to conduct our trials. We may experience unexpected cost increases that are
beyond our control. Problems with the timeliness or quality of the work of a contract research organization may lead us to seek to terminate the relationship and use an alternative service provider. However, making this change may be costly and may
delay our trials, and contractual restrictions may make such a change difficult or impossible. Additionally, it may be impossible to find a replacement organization that can conduct our trials in an acceptable manner and at an acceptable cost.
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We may have conflicts with our partners that could delay or prevent the development or
commercialization of our drug products.
We may have conflicts with our partners, such as conflicts concerning the
interpretation of preclinical or clinical data, the achievement of milestones, the interpretation of contractual obligations, payments for services, development obligations or the ownership of intellectual property developed during our
collaboration. If any conflicts arise with any of our partners, such partner may act in a manner that is adverse to our best interests. Any such disagreement could result in one or more of the following, each of which could delay or prevent the
development or commercialization of our drug product, and in turn prevent us from generating revenues from such drug product:
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unwillingness on the part of a partner to pay us milestone payments or royalties that we believe are due to us under a collaboration;
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uncertainty regarding ownership of intellectual property rights arising from our collaborative activities, which could prevent us from entering into
additional collaborations;
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unwillingness by the partner to cooperate in the development or manufacture of the product, including providing us with product data or materials;
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unwillingness on the part of a partner to keep us informed regarding the progress of its development and commercialization activities or to permit
public disclosure of the results of those activities;
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initiation of litigation or alternative dispute resolution options by either party to resolve the dispute;
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attempts by either party to terminate the collaboration;
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our ability to maintain or defend our intellectual property rights may be compromised by our partners acts or omissions;
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a partner may utilize our intellectual property rights in such a way as to invite litigation that could jeopardize or invalidate our intellectual
property rights or expose us to potential liability;
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a partner may change the focus of its development and commercialization efforts due to internal reorganizations, mergers, consolidations and otherwise;
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unwillingness of a partner to fully fund or commit sufficient resources to the testing, marketing, distribution or development of our products;
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unwillingness or ability of a partner to fulfill their obligations to us due to the pursuit of alternative products, conflicts of interest that arise
or changes in business strategy or other business issues; and/or
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we may not be able to guarantee supplies of development or marketed products.
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Given these risks, it is possible that any collaborative arrangements which we have or may enter into may not be successful.
Our efforts to acquire or in-license and develop additional drug products may fail, which might limit our ability to grow our
business.
To remain competitive and grow our business, our long-term strategy includes the acquisition or in-license
of additional drug products. We are actively seeking to acquire, or in-license, additional commercial drug products as well as drug products that have demonstrated positive pre-clinical and/or clinical data. We have certain criteria that we are
looking for in any drug product acquisition and in-license and we may not be successful in locating and acquiring, or in-licensing, additional desirable drug products on acceptable terms.
To accomplish our acquisition and in-license strategy, we intend to commit efforts, funds and other resources to research and development
and business development. Even with acquired and in-licensed drug products, a high rate of failure is inherent in the development of such products. We must make ongoing substantial expenditures without any assurance that our efforts will be
commercially successful. Failure can occur at any point in the process, including after significant funds have been invested. For example, promising new drug product candidates may fail to reach the market or may only have limited commercial success
because of efficacy or safety concerns, failure to achieve positive clinical outcomes, inability to obtain necessary regulatory approvals, limited scope of approved uses, excessive costs to manufacture, the failure to establish or maintain
intellectual property rights or infringement of the intellectual property rights of others.
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In addition, many other large and small companies within the pharmaceutical and
biotechnology industry seek to establish collaborative arrangements for product research and development, or otherwise acquire products in late-stage clinical development, in competition with us. We face additional competition from public and
private research organizations, academic institutions and governmental agencies in establishing collaborative arrangements for drug products in late-stage clinical development. Many of the companies and institutions that compete against us have
substantially greater capital resources, research and development staffs and facilities than we have, and greater experience in conducting business development activities. These entities represent significant competition to us as we seek to expand
our portfolio through the in-license or acquisition of compounds. Finally, while it is not feasible to predict the actual cost of acquiring and developing additional drug products, that cost could be substantial and we may need to raise additional
financing for such purpose, which may further dilute existing stockholders.
From time to time we may need to license
patents, intellectual property and proprietary technologies from third parties, which may be difficult or expensive to obtain.
We may need to obtain licenses to patents and other proprietary rights held by third parties to successfully develop, manufacture and market our drug products. As an example, it may be necessary to use a
third partys proprietary technology to reformulate one of our drug products in order to improve upon the capabilities of the drug product. If we are unable to timely obtain these licenses on reasonable terms, our ability to commercially
exploit our drug products may be inhibited or prevented.
We are a small company relative to our principal competitors,
and our limited financial resources may limit our ability to develop and market our drug products.
Many companies,
both public and private, including well-known pharmaceutical companies and smaller niche-focused companies, are developing products to treat many, if not all, of the diseases we are pursuing or are currently distributing drug products that directly
compete with the drugs that we sell or that we intend to develop, market and distribute. Many of these companies have substantially greater financial, research and development, manufacturing, marketing and sales experience and resources than us. As
a result, our competitors may be more successful than us in developing their products, obtaining regulatory approvals and marketing their products to consumers.
Competition for branded or proprietary drugs is less driven by price and is more focused on innovation in the treatment of disease, advanced drug delivery and specific clinical benefits over competitive
drug therapies. We may not be successful in any or all of our current clinical studies; or if successful, and if one or more of our drug products is approved by the FDA, we may encounter direct competition from other companies who may be developing
products for similar or the same indications as our drug products. Companies that have products on the market or in research and development that target the same indications as our products target include, among others, Abraxis Bioscience, Inc.,
Astra Zeneca LP, Bayer AG, Endo Pharmaceuticals, Eli Lilly and Co., Novartis Pharmaceuticals Corporation, Genentech, Inc., Bristol-Myers Squibb Company, GlaxoSmithKline, Biogen-IDEC Pharmaceuticals, Inc., OSI Pharmaceuticals, Inc., Cephalon, Inc.,
Sanofi-aventis, Inc., Pfizer, Inc., Genta Incorporated, Merck, Celgene Corporation, BiPar Sciences, Inc., Genzyme Corporation, Shire Pharmaceuticals, Abbott Laboratories, Poniard Pharmaceuticals, Inc., Roche Pharmaceuticals and Johnson &
Johnson who may be more advanced in the development of competing drug products or are more established. Many of our competitors are large and well-capitalized companies focusing on a wide range of diseases and drug indications, and have
substantially greater financial, research and development, marketing, human and other resources than we do. Furthermore, large pharmaceutical companies have significantly more experience than we do in pre-clinical testing, human clinical trials and
regulatory approval procedures, among other things.
The potential size of the market for our drug products is
uncertain.
We often provide estimates of the number of people who suffer from the diseases that our drugs are
targeting. However, there is limited information available regarding the actual size of these patient populations. In addition, it is uncertain whether the results from previous or future clinical trials of drug products will be observed in broader
patient populations, and the number of patients who may benefit from our drug products may be significantly smaller than the estimated patient populations.
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Changes in our effective income tax rate could adversely affect our profitability.
We are subject to federal and state income taxes in the U.S. and our tax liabilities are dependent upon the
distribution of income among these different jurisdictions. Various factors may have favorable or unfavorable effects on our effective income tax rate. These factors include, but are not limited to:
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interpretations of existing tax laws;
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the accounting for stock options and other share-based compensation;
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changes in tax laws and rates;
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future levels of research and development spending;
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changes in accounting standards;
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changes in the mix of earnings in the various tax jurisdictions in which we operate;
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the outcome of examinations by the Internal Revenue Service and other jurisdictions;
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the accuracy of our estimates for unrecognized tax benefits;
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realization of deferred tax assets; and
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changes in overall levels of pre-tax earnings.
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The impact on our income tax provision resulting from the above-mentioned factors may be significant and could have an impact on our profitability.
Earthquakes or other natural or man-made disasters and business interruptions could adversely affect our business.
Our operations are vulnerable to interruption by fire, power loss, floods, telecommunications failure and other
events beyond our control. In addition, our operations are susceptible to disruption as a result of natural disasters such as earthquakes. So far we have never experienced any significant disruption of our operations as a result of earthquakes or
other natural or man-made disasters. Although we have a contingency recovery plan, any significant business interruption could cause delays in our drug development and future sales and harm our business.
Risks Related to Our Industry
If we are unable to adequately protect our technology or enforce our patent rights, our business could suffer.
Our success with the drug products that we develop will depend, in part, on our ability and the ability of our licensors to obtain and maintain patent protection for these products. We currently have a
number of U.S. and foreign patents issued and pending, however, we primarily rely on patent rights licensed from others. Our license agreements generally give us the right and/or obligation to maintain and enforce the subject patents. We may not
receive patents for any of our pending patent applications or any patent applications we may file in the future. If our pending and future patent applications are not allowed or, if allowed and issued into patents, if such patents and the patents we
have licensed are not upheld in a court of law, our ability to competitively exploit our drug products would be substantially harmed. Also, such patents may or may not provide competitive advantages for their respective products or they may be
challenged or circumvented by our competitors, in which case our ability to commercially exploit these products may be diminished.
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
pharmaceutical and biotechnology patents has emerged to date in the U.S. The laws of many countries may not protect intellectual property rights to the same extent as U.S. laws, and those countries may lack adequate rules and procedures for
defending our intellectual property rights. Filing, prosecuting and defending patents on all our products or product candidates throughout the world would be prohibitively expensive. Competitors may use our technologies in jurisdictions and may not
be covered by any of our patent claims or other intellectual property rights.
Changes in either patent laws or in
interpretations of patent laws in the U.S. and other countries may diminish the value of our intellectual property. We do not know whether any of our patent applications will result in the issuance of any patents, and we cannot predict the breadth
of claims that may be allowed in our patent applications or in the patent applications we license from others.
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The degree of future protection for our proprietary rights is uncertain because legal means
afford only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage. For example:
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in certain jurisdictions, we or our licensors might not have been the first to make the inventions covered by each of our or our licensors
pending patent applications and issued patents, and we may have to participate in expensive and protracted interference proceedings to determine priority of invention;
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we or our licensors might not have been the first to file patent applications for these inventions;
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others may independently develop similar or alternative product candidates or duplicate any of our or our licensors product candidates;
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our or our licensors pending patent applications may not result in issued patents;
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our or our licensors issued patents may not provide a basis for commercially viable products or may not provide us with any competitive
advantages or may be challenged by third parties;
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others may design around our or our licensors patent claims to produce competitive products that fall outside the scope of our or our
licensors patents;
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we may not develop or in-license additional patentable proprietary technologies related to our product candidates; or
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the patents of others may prevent us from marketing one or more of our product candidates for one or more indications that may be valuable to our
business strategy.
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Moreover, an issued patent does not guarantee us the right to practice the patented
technology or commercialize the patented product. Third parties may have blocking patents that could be used to prevent us from commercializing our patented products and practicing our patented technology. Our issued patents and those that may be
issued in the future may be challenged, invalidated or circumvented, which could limit our ability to prevent competitors from marketing related product candidates or could limit the length of the term of patent protection of our product candidates.
For example, on January 20, 2012 and February 17, 2012, respectively, we filed suit against Sandoz Inc. and Innopharma Inc, respectively following Paragraph IV certifications in connection with their filing separate Abbreviated New Drug
Applications, or ANDAs, to manufacture a generic version of FUSILEV. On December 9, 2013, three parties collaborating with Innopharma were joined to Innopharma case: Mylan Teoranta, Mylan Institutional LLC; and Mylan Institutional, Inc.
(collectively Mylan). While we believe our patent rights are strong, the ultimate outcome of these cases is uncertain, and if we do not prevail in the litigation, Sandoz Inc. and Innopharma Inc.,/Mylan, subject to fulfilling the
applicable regulatory requirements, may be able to launch a generic version that would compete with FUSILEV, which could result in an immediate and substantial decrease in our revenues. In addition, our competitors may independently develop similar
technologies. Moreover, because of the extensive time required for development, testing and regulatory review of a potential product, it is possible that, before any of our product candidates can be commercialized, any related patent may expire or
remain in force for only a short period following commercialization, thereby reducing any advantage of the patent.
We also
rely on trade secret protection and contractual protections for our unpatented, confidential and proprietary technology. Trade secrets are difficult to protect. While we enter into confidentiality agreements with our employees, consultants and
others, these agreements may not successfully protect our trade secrets or other confidential and proprietary information. It is possible that these agreements will be breached, or that they will not be enforceable in every instance, and that we
will not have adequate remedies for any such breach. Likewise, although we conduct periodic trade secret audits of certain partners, vendors and contract manufacturers, these trade secret audits may not protect our trade secrets or other
confidential and proprietary information. It is possible that despite having certain trade secret audited security measures in place, trade secrets or other confidential and proprietary information may still be leaked or disclosed to a third party.
It is also possible that our trade secrets will become known or independently developed by our competitors.
We also rely on
trademarks to protect the names of our products. These trademarks may be challenged by others. If we enforce our trademarks against third parties, such enforcement proceedings may be expensive. Some of our trademarks, including ZEVALIN are owned by,
or assignable to, our licensors and, upon expiration or termination of the applicable license agreements, we may no longer be able to use these trademarks.
If we are unable to adequately protect our technology, trade secrets or proprietary know-how, or enforce our patents and trademarks, our business, financial condition and prospects could suffer.
Intellectual property rights are complex and uncertain and therefore may subject us to infringement claims.
The patent positions related to our drug products are inherently uncertain and involve complex legal and factual
issues. We believe that there is significant litigation in the pharmaceutical and biotechnology industry regarding patent and other intellectual property rights. A patent does not provide the patent holder with freedom to operate in a way that
infringes the
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patent rights of others. We may be accused of patent infringement at any time. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. If
we are sued for patent infringement, we would need to demonstrate that our products or methods do not infringe the patent claims of the relevant patent and/or that the patent claims are invalid or unenforceable, and we may not be able to do this.
Proving invalidity, in particular, is difficult since it requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents in the U.S.
Although we are not aware of any infringement by any of our drug products on the rights of any third party, there may be third party
patents or other intellectual property rights, including trademarks and copyrights, relevant to our drug products of which we are not aware. Third parties may assert patent or other intellectual property infringement claims against us, or our
licensors and collaborators, with products. Any claims that might be brought against us relating to infringement of patents may cause us to incur significant expenses and, if successfully asserted against us, may cause us to pay substantial damages
and result in the loss of our use of the intellectual property that is critical to our business strategy.
In the event that
we or our partners are found to infringe any valid claim of a patent held by a third party, we may, among other things, be required to:
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pay damages, including up to treble damages and the other partys attorneys fees, which may be substantial;
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cease the development, manufacture, use and sale of our products that infringe the patent rights of others through a court-imposed sanction such as an
injunction;
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expend significant resources to redesign our products so they do not infringe others patent rights, which may not be possible;
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discontinue manufacturing or other processes incorporating infringing technology; or
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obtain licenses to the infringed intellectual property, which may not be available to us on acceptable terms, or at all.
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Rapid bio-technological advancement may render our drug products obsolete before we are able to recover expenses incurred in
connection with their development. As a result, some of our drug products may never become profitable.
The
pharmaceutical industry is characterized by rapidly evolving biotechnology. Biotechnologies under development by other pharmaceutical companies could result in treatments for diseases and disorders for which we are developing our own treatments.
Several other companies are engaged in research and development of compounds that are similar to our research. A competitor could develop a new biotechnology, product or therapy that has better efficacy, a more favorable side-effect profile or is
more cost-effective than one or more of our drug products and thereby cause our drug products to become commercially obsolete. Some of our drug products may become obsolete before we recover the expenses incurred in their development. As a result,
such products may never become profitable.
Failure to obtain regulatory approval outside the U.S. will prevent us from
marketing our product candidates abroad.
We intend to market certain of our existing and future product candidates in
outside of the U.S. In order to market our existing and future product candidates in the European Union and many other foreign jurisdictions, we must obtain separate regulatory approvals according to the applicable domestic laws and regulations. We
have had limited interactions with foreign regulatory authorities, and the approval procedures vary among countries and can involve additional testing, and the time required to obtain approval may differ from that required to obtain FDA approval.
Approval by the FDA does not guarantee approval by regulatory authorities in other countries, and approval by one or more foreign regulatory authorities does not necessarily ensure approval by regulatory authorities in other countries or by the FDA.
A failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory approval process in others. The foreign regulatory approval process may include all of the risks associated with obtaining FDA approval
as well as other risks specific to the jurisdictions in which we may seek approval. We may not obtain foreign regulatory approvals on a timely basis, if at all. We may not be able to file for foreign regulatory approvals and may not receive
necessary approvals to commercialize our existing and future product candidates in any market.
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Competition for patients in conducting clinical trials may prevent or delay product
development and strain our limited financial resources.
Many pharmaceutical companies are conducting clinical trials
involving patients with the disease indications that our drug products target. As a result, we must compete with them for clinical sites, physicians and the limited number of patients who fulfill the stringent requirements for participation in
clinical trials. Also, due to the confidential nature of clinical trials, we do not know how many of the eligible patients may be enrolled in competing studies and who are consequently not available to us for our clinical trials. Our clinical trials
may be delayed or terminated due to the inability to enroll enough patients. Patient enrollment depends on many factors, including the size of the patient population, the nature of the trial protocol, the proximity of patients to clinical sites and
the eligibility criteria for the study. The delay or inability to meet planned patient enrollment may result in increased costs and delays or termination of the trial, which could have a harmful effect on our ability to develop products.
Even after we receive regulatory approval to market our drug products, the market may not be receptive to our drug products upon
their commercial introduction, which would negatively impact our ability to achieve profitability.
Our drug products
may not gain market acceptance among physicians, patients, healthcare payors and the medical community. The degree of market acceptance of any approved drug products will depend on a number of factors, including:
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the effectiveness of the drug product;
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the prevalence and severity of any side effects;
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potential advantages or disadvantages over alternative treatments;
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relative convenience and ease of administration;
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the strength of marketing and distribution support;
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the price of the drug product, both in absolute terms and relative to alternative treatments; and
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sufficient third-party coverage and reimbursement.
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If our drug products receive regulatory approval but do not achieve an adequate level of acceptance by physicians, healthcare payors and patients, we may not generate drug product revenues sufficient to
attain profitability.
Guidelines and recommendations published by various organizations can reduce the use of our
products.
Government agencies such as the Centers for Medicare & Medicaid Services promulgate regulations,
and issue guidelines, directly applicable to us and to our products. In addition, third parties such as professional societies, practice management groups, insurance carriers, physicians, private health/science foundations and organizations involved
in various diseases from time to time may publish guidelines or recommendations to healthcare providers, administrators and payors, and patient communities. Recommendations may relate to such matters as utilization, dosage, route of administration
and use of related therapies and coverage and reimbursement of our products by government and private payors. Third-party organizations like the above have in the past made recommendations about our products. Recommendations or guidelines that are
followed by patients and healthcare providers could result in decreased utilization and/or dosage of our products, any of which could adversely affect our product sales and operating results materially.
The sale of our products is subject to regulatory approvals, and our business is subject to extensive regulatory requirements, and
if we are unable to obtain regulatory approval for our product candidates, or if we fail to comply with governmental regulations we will be limited in our ability to commercialize our products and product candidates and/or subject us to penalties.
We are not permitted to market or promote any of our product candidates before we receive regulatory approval from
the FDA or comparable foreign regulatory authorities, and we may never receive such regulatory approval for any of our product candidates. Obtaining regulatory approval of a new drug is an uncertain, lengthy and expensive process, and success is
never guaranteed. Despite the time, resources and effort expended, failure can occur at any stage. In order to receive approval from the FDA for each product candidate, we must demonstrate that the new drug product is safe and effective for its
intended use and that the manufacturing processes for the product candidate comply with the FDAs cGMPs. cGMPs include requirements related to production processes, quality control and assurance, and recordkeeping. The FDA has substantial
discretion in the approval process for human medicines.
The FDA and comparable agencies in foreign countries impose many
requirements related to the drug development process through lengthy and rigorous clinical testing and data collection procedures, and other costly and time consuming compliance procedures. While we believe that we are currently in compliance with
applicable FDA regulations, if our partners, the contract research organizations or contract manufacturers with which we have relationships, or we fail to comply with the regulations applicable to our clinical testing, the FDA may delay, suspend or
cancel our clinical trials, or the FDA might not accept the test results. The FDA, an institutional review board, third party investigators, any comparable regulatory agency in another country, or we, may suspend clinical trials at any time if the
trials expose subjects participating in such
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trials to unacceptable health risks. Further, human clinical testing may not show any current or future drug product to be safe and effective to the satisfaction of the FDA or comparable
regulatory agencies, or the data derived from the clinical tests may be unsuitable for submission to the FDA or other regulatory agencies. Once we submit an application seeking approval to market a drug product, the FDA or other regulatory agencies
may not issue their approvals on a timely basis, if at all. If we are delayed or fail to obtain these approvals, our business and prospects may be significantly damaged. In addition, any regulatory approvals that we receive for our future product
candidates may also be subject to limitations on the indicated uses for which they may be marketed or contain requirements for potentially costly post-marketing follow-up studies and surveillance to monitor the safety and efficacy of the product.
If we obtain regulatory approval for our drug products, we, our partners, our manufacturers, and other contract entities will
continue to be subject to extensive requirements by a number of national, foreign, state and local agencies. These regulations will impact many aspects of our operations, including testing, research and development, manufacturing, safety,
effectiveness, labeling, storage, quality control, adverse event reporting, record keeping, approval, advertising and promotion of our future products. FDA and foreign regulatory authorities strictly regulate the promotional claims that may be made
about prescription products and our product labeling, advertising and promotion is subject to continuing regulatory review. Physicians may nevertheless prescribe our product to their patients in a manner that is inconsistent with the approved label,
or that is off-label. The FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and if we are found to have improperly promoted off-label uses we may be subject to significant
sanctions, civil and criminal fines and injunctions prohibiting us from engaging in specified promotional conduct. Moreover, our failure to comply with any applicable regulatory requirements could, among other things, result in:
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changes in advertising;
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revocation or suspension of regulatory approvals of products;
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product recalls or seizures;
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delays, interruption, or suspension of product distribution, marketing and sales;
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civil or criminal sanctions;
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suspension or termination of ongoing clinical trials;
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imposition of restrictions on our operations;
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close the facilities of our contract manufacturers; and
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refusals to approve new products.
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The discovery of previously unknown safety risks with drug products approved to go to market may raise costs or prevent us from marketing such products or change the labeling of our products or take
other potentially limiting or costly actions if we or others identify safety risks after our products are on the market.
The later discovery of previously unknown safety risks with our products may result in the imposition of restrictions on distribution or use of the drug product, including withdrawal from the market. The
FDA may revisit and change its prior determinations with regard to the safety and efficacy of our products. If the FDAs position changes, we may be required to change our labeling or to cease manufacture and marketing of the products at issue.
Even prior to any formal regulatory action, we could voluntarily decide to cease the distribution and sale or recall any of our products if concerns about their safety or effectiveness develop.
The FDA has significant authority to take regulatory actions in the event previously unknown safety risks are identified or if data
suggest that our products may present a risk to safety. For example, the FDA may:
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require sponsors of marketed products to conduct post-approval clinical studies to assess a known serious risk, signals of serious risk or to identify
an unexpected serious risk;
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mandate labeling changes to products, at any point in a products lifecycle, based on new safety information; and
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require sponsors to implement a Risk Evaluation and Mitigation Strategy, or REMS, for a product which could include a medication guide, patient package
insert, a communication plan to healthcare providers, or other elements as the FDA deems are necessary to assure safe use of the drug (either prior to approval or post-approval as necessary).
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Failure to comply with a REMS could result in significant civil monetary penalties or other
administrative actions by FDA. Further, regulatory agencies could change existing, or promulgate new, regulations at any time which may affect our ability to obtain or maintain approval of our existing or future products or require significant
additional costs to obtain or maintain such approvals.
Legislative or regulatory reform of the healthcare system and
pharmaceutical industry related to pricing, coverage or reimbursement may hurt our ability to sell our products profitably or at all.
Our ability to commercialize any products successfully will depend in part on the availability of coverage and reimbursement from third-party payors such as government authorities, private health
insurers, health maintenance organizations including pharmacy benefit managers and other health care-related organizations, both in the U.S. and foreign markets. Even if we succeed in bringing one or more products to the market, the amount
reimbursed for our products may be insufficient to allow us to compete effectively and could adversely affect our profitability. Coverage and reimbursement by governmental and other third-party payors may depend upon a number of factors, including a
governmental or other third-party payors determination that use of a product is:
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a covered benefit under its health plan;
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safe, effective and medically necessary;
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appropriate for the specific patient;
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neither experimental nor investigational.
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Obtaining coverage and reimbursement approval for a product from each third-party and governmental payor is a time-consuming and costly process that could require us to provide supporting scientific,
clinical and cost-effectiveness data for the use of our products to each payor. We may not be able to provide data sufficient to obtain coverage and adequate reimbursement.
In both the U.S. and certain foreign jurisdictions, there have been and may continue to be a number of legislative and regulatory proposals related to coverage and reimbursement that could impact our
ability to sell our products profitably. The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, collectively referred to as the Healthcare Reform Law, was signed into law on
March 30, 2010. The Healthcare Reform Law substantially changed the way healthcare is financed by both governmental and private insurers and significantly impacted the pharmaceutical industry. The Healthcare Reform Law included, among other
things, an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs and biologic agents, revisions to the definition of average manufacturer price for reporting purposes, increases in the
amount of rebates owed by drug manufacturers under the Medicaid Drug Rebate Program, expansion of the 340B drug discount program that mandates discounts to certain hospitals, community centers and other qualifying providers, and changes to affect
the Medicare Part D coverage gap, or donut hole. The full effects of these provisions will become apparent as these laws are implemented and the Centers for Medicare & Medicaid Services and other agencies issue applicable
regulations or guidance as required by the Healthcare Reform Law. Moreover, in the coming years, additional changes could be made to governmental healthcare programs that could significantly impact the success of our products.
The high cost of pharmaceuticals continues to generate substantial government interest. It is possible that proposals will be adopted, or
existing regulations that affect the coverage and reimbursement of pharmaceutical and other medical products may change, that may impact our products currently on the market and any of our products approved for marketing in the future. Cost control
initiatives could decrease the price that we receive for any of our products or product candidates. In addition, third-party payors are increasingly challenging the price and cost-effectiveness of medical products and services. Significant
uncertainty exists as to the coverage and reimbursement status of newly-approved pharmaceutical products. Future developments may require us to decrease the price that we charge for our products, thereby negatively affecting our financial results.
In some foreign countries, particularly in the European Union, prescription drug pricing is subject to governmental control.
Drug pricing may be made against a reference price set by the healthcare providers as a measure for healthcare cost containment. Pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval
for a product. If coverage and reimbursement of our products are unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels for the purpose of adoption of these products in the national health services in these
jurisdictions, our profitability will likely be negatively affected.
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If we market products in a manner that violates health care fraud and abuse laws, we
may be subject to civil or criminal penalties, including exclusion from participation in government health care programs.
As a pharmaceutical company, even though we do not provide healthcare services or receive payments directly from or bill directly to Medicare, Medicaid or other third-party payors for our products,
certain federal and state healthcare laws and regulations pertaining to fraud and abuse are and will be applicable to our business. We are subject to healthcare fraud and abuse by both the federal government and the states in which we conduct our
business.
The laws that may affect our ability to operate include the federal health care program Anti-Kickback Statute,
which prohibits, among other things, knowingly and willfully offering, paying, soliciting, or receiving remuneration to induce or in return for purchasing, leasing, ordering, or arranging for the purchase, lease or order of any health care item or
service reimbursable under Medicare, Medicaid or other federally financed health care programs. This statute applies to arrangements between pharmaceutical manufacturers and prescribers, purchasers and formulary managers. Although there are a number
of statutory exceptions and regulatory safe harbors protecting certain common activities, the exceptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchases or recommendations may be
subject to scrutiny if they do not qualify for an exception or safe harbor.
Federal false claims laws prohibit any person
from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, or knowingly making, or causing to be made, a false statement to get a false claim paid. Pharmaceutical companies have been prosecuted under
these laws for a variety of alleged promotional and marketing activities, such as providing free product to customers with the expectation that the customers would bill federal programs for the product; reporting to pricing services inflated average
wholesale prices that were then used by federal programs to set reimbursement rates; engaging in off-label promotion that caused claims to be submitted to Medicaid for non-covered off-label uses; and submitting inflated best price information to the
Medicaid Drug Rebate Program.
The Health Insurance Portability and Accountability Act of 1996 also created prohibitions
against health care fraud and false statements relating to health care matters. The health care fraud statute prohibits knowingly and willfully executing a scheme to defraud any health care benefit program, including private payors. The false
statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for health care benefits,
items or services.
In addition, there has been a recent trend of increased federal and state regulation of payments made to
physicians. The Healthcare Reform Law imposed new requirements on manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Childrens Health Insurance Program (with certain
exceptions) to report annually to CMS information related to payments or other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, and
applicable manufacturers and group purchasing organizations to report annually to CMS ownership and investment interests held by physicians (as defined above) and their immediate family members and payments or other transfers of value to
such physician owners and their immediate family members. Manufacturers were required to begin data collection on August 1, 2013 and will be required to report such data to the government by March 31, 2014 and by the 90th calendar day of
each year thereafter.
The majority of states also have statutes or regulations similar to these federal laws, which apply to
items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor. In addition, some states have laws that require pharmaceutical companies to adopt comprehensive compliance programs. For
example, under California law, pharmaceutical companies must comply with both the April 2003 Office of Inspector General Compliance Program Guidance for Pharmaceutical Manufacturers and the PhRMA Code on Interactions with Healthcare Professionals,
as amended. Certain states also mandate the tracking and reporting of gifts, compensation, and other remuneration paid by us to physicians and other health care providers. We have adopted and implemented a compliance program designed to comply with
applicable federal, state and local requirements wherever we operate, including but not limited to the laws of the states of California and Nevada.
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. Moreover, achieving and sustaining compliance with applicable federal
and state laws may prove costly.
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Because of the breadth of these laws and the narrowness of the safe harbors, it is possible
that some of our business activities could be subject to challenge under one or more of such laws. The Healthcare Reform Law also make several important changes to the federal Anti-Kickback Statute, false claims laws, and health care fraud statute
by weakening the intent requirement under the anti-kickback and health care fraud statutes that may make it easier for the government, or whistleblowers to charge such fraud and abuse violations. A person or entity no longer needs to have actual
knowledge of this statute or specific intent to violate it. In addition, the Health Care Reform Law provides that the government may assert that a claim including items or services resulting from a violation of the federal anti-kickback statute
constitutes a false or fraudulent claim for purposes of the false claims statutes. In addition, the Healthcare Reform Law increases penalties for fraud and abuse violations. If our past, present or future operations are found to be in violation of
any of the laws described above or other similar governmental regulations to which we are subject, we may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion from government funded
healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and negatively impact our financial results.
We may be subject to product liability claims, and may not have sufficient product liability insurance to cover any such claims,
which may expose us to substantial liabilities.
We may be held liable if any product we or our partners develop
causes injury or is found otherwise unsuitable during product testing, manufacturing, clinical trials, marketing or sale. Regardless of merit or eventual outcome, product liability claims could result in decreased demand for our product candidates,
injury to our reputation, withdrawal of patients from our clinical trials, substantial monetary awards to trial participants and the inability to commercialize any products that we may develop. These claims might be made directly by consumers,
health care providers, pharmaceutical companies or others selling or testing our products. Although we currently carry product liability insurance in the amount of at least $15.0 million in the aggregate, it is possible that this coverage will
be insufficient to protect us from future claims. Additionally, our insurance may not reimburse us or may not be sufficient to reimburse us for expenses or losses we may suffer. Moreover, if insurance coverage becomes more expensive, we may not be
able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. Failure to maintain sufficient insurance coverage could have a material adverse effect on our business, prospects and
results of operations if claims are made that exceed our coverage.
On occasion, juries have awarded large judgments in class
action lawsuits for claims based on drugs that had unanticipated side effects. In addition, the pharmaceutical and biotechnology industries, in general, have been subject to significant medical malpractice litigation. A successful product liability
claim or series of claims brought against us could harm our reputation and business and financial condition.
The use of
hazardous materials, including radioactive and biological materials, in our research and development and commercial efforts imposes certain compliance costs on us and may subject us to liability for claims arising from the use or misuse of these
materials.
Our research and development, manufacturing (including a radiolabeling step for ZEVALIN) and
administration of our drugs involves the controlled use of hazardous materials, including chemicals, radioactive and biological materials, such as radioactive isotopes. We are subject to federal, state, local and foreign environmental laws and
regulations governing, among other matters, the handling, storage, use and disposal of these materials and some waste products. We cannot completely eliminate the risk of contamination or injury from these materials and we could be held liable for
any damages that result, which could exceed our financial resources. We currently maintain insurance coverage for injuries resulting from the hazardous materials we use; however, future claims may exceed the amount of our coverage. Also, we do not
have insurance coverage for pollution cleanup and removal. Currently the costs of complying with such federal, state, local and foreign environmental regulations are not significant, and consist primarily of waste disposal expenses. However, they
could become expensive, and current or future environmental laws or regulations may impair our research, development, production and commercialization efforts.
Risks Related to Our Common Stock
There are a substantial number of
shares of our common stock eligible for future sale in the public market. The sale of these shares could cause the market price of our common stock to fall. Any future equity issuances by us may have dilutive and other effects on our existing
stockholders.
As of December 31, 2013, there were 64,104,173 shares of our common stock outstanding. Security
holders held outstanding options, warrants, preferred stock and convertible notes which, if vested, exercised or converted, would obligate us to issue up to approximately 11.9 million additional shares of common stock. A substantial number of
those shares, when
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we issue them upon vesting, conversion or exercise, will be available for immediate resale in the public market. In addition, we have reserved an aggregate of 16.2 million shares of our
common stock for future issuance under our equity compensation plans. We may also sell additional shares of common stock or securities convertible or exercisable into common stock in public or private offerings, which would be available for resale
in the market. Certain issuances by us of equity securities may be at or below the prevailing market price of our common stock and may have a dilutive impact on our existing stockholders. These issuances or other dilutive issuances would also cause
our net income, if any, per share to decrease in future periods. The market price of our common stock could fall as a result of sales of any of these shares of common stock due to the increased number of shares available for sale in the market.
The convertible note hedge and warrant transactions that we entered into in December 2013 may affect the value of our
common stock.
In connection with the pricing of our convertible notes in December 2013, we entered into convertible
note hedge transactions and separate warrant transactions with RBC Capital Markets, LLC, or RBC. The convertible note hedge transactions are expected generally to reduce the potential dilution upon any conversion of the notes and/or offset any cash
payments we are required to make in excess of the principal amount of converted notes, as the case may be. The warrant transactions could separately have a dilutive effect to the extent that the market price per share of our common stock exceeds the
strike price of the warrants. RBC and/or its affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock in secondary market
transactions prior to the maturity of the convertible notes (and is likely to do so during any observation period related to a conversion of notes). This activity could cause or avoid an increase or a decrease in the market price of our common
stock.
In addition, if the convertible note hedge and warrant transactions fail to become effective, through the failure of
counterparties to perform or otherwise, RBC and/or its affiliates may unwind its hedge positions with respect to our common stock, which could adversely affect the value of our common stock. The potential effect, if any, of these transactions and
activities on the market price of our common stock will depend in part on market conditions and cannot be ascertained at this time. Any of these activities could adversely affect the value of our common stock.
The market price and trading volume of our common stock fluctuate significantly and could result in substantial losses for
individual investors.
The stock market from time to time experiences significant price and trading volume
fluctuations that are unrelated to the operating performance of particular companies. These broad market fluctuations may cause the market price and trading volume of our common stock to decrease. In addition, the market price and trading volume of
our common stock is often highly volatile.
Factors that may cause the market price and volume of our common stock to decrease
include:
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recognition on up-front licensing or other fees or revenues;
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payments of non-refundable up-front or license fees, or payment for cost-sharing expenses, to third parties;
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adverse results or delays in our clinical trials;
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fluctuations in our results of operations;
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timing and announcements of our technological innovations or new products or those of our competitors;
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developments concerning any strategic alliances or acquisitions we may enter into;
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announcements of FDA non-approval of our drug products, or delays in the FDA or other foreign regulatory review process or actions;
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changes in recommendations or guidelines of government agencies or other third parties regarding the use of our drug products;
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adverse actions taken by regulatory agencies with respect to our drug products, clinical trials, manufacturing processes or sales and marketing
activities;
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concerns about our products being reimbursed;
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any lawsuit involving us or our drug products;
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developments with respect to our patents and proprietary rights;
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public concern as to the safety of products developed by us or others;
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regulatory developments in the U.S. and in foreign countries;
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changes in stock market analyst recommendations regarding our common stock or lack of analyst coverage;
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the pharmaceutical industry generally and general market conditions;
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failure of our results of operations to meet the expectations of stock market analysts and investors;
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sales of our common stock by our executive officers, directors and five percent stockholders or sales of substantial amounts of our common stock;
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hedging or arbitrage transactions by holders of our convertible notes;
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changes in accounting principles; and
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loss of any of our key scientific or management personnel.
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Also, certain dilutive securities such as warrants can be used as hedging tools which may increase volatility in our stock and cause a price decline. While a decrease in market price could result in
direct economic loss for an individual investor, low trading volume could limit an individual investors ability to sell our common stock, which could result in substantial economic loss as well. Since January 2, 2013 through
February 28, 2014, the closing price of our common stock ranged between $7.00 and $13.01, and the daily trading volume was as high as 22,555,500 shares and as low as 143,200 shares.
Following periods of volatility in the market price of a companys securities, securities class action litigation may be instituted
against that company. Regardless of their merit, these types of lawsuits generally result in substantial legal fees and managements attention and resources being diverted from the operations of a business.
Provisions of our charter, bylaws and stockholder rights plan may make it more difficult for someone to acquire control of us or
replace current management even if doing so would benefit our stockholders, which may lower the price an acquirer or investor would pay for our stock.
Provisions of our certificate of incorporation and bylaws, both as amended, may make it more difficult for someone to acquire control of us or replace our current management. These provisions include:
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the ability of our board of directors to amend our bylaws without stockholder approval;
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the inability of stockholders to call special meetings;
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the ability of members of the board of directors to fill vacancies on the board of directors;
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the inability of stockholders to act by written consent, unless such consent is unanimous; and
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the establishment of advance notice requirements for nomination for election to our board of directors or for proposing matters that can be acted on by
stockholders at stockholder meetings.
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These provisions may make it more difficult for stockholders to take
certain corporate actions and could delay, discourage or prevent someone from acquiring our business or replacing our current management, even if doing so would benefit our stockholders. These provisions could limit the price that certain investors
might be willing to pay for shares of our common stock.
We have a stockholder rights plan pursuant to which we distributed
rights to purchase units of our series B junior participating preferred stock. The rights become exercisable upon the earlier of ten days after a person or group of affiliated or associated persons has acquired 15% or more of the outstanding
shares of our common stock or ten business days after a tender offer has commenced that would result in a person or group beneficially owning 15% or more of our outstanding common stock. These rights could delay or discourage someone from acquiring
our business, even if doing so would benefit our stockholders. We currently have no stockholders who own 15% or more of the outstanding shares of our common stock.
We have identified a material weakness in our internal control over financial reporting as of December 31, 2013, which also existed as of December 31, 2012, and has not yet been adequately
remediated. The continuation of this material weakness, or any others, could impact our ability to produce accurate and timely financial statements. As a result, our stock price could be adversely impacted and investors views of us could be
harmed.
We have determined that we have a material weakness in our internal control over financial reporting which
also existed as of December 31, 2012. See
Item 9A
,
Controls and Procedures
for a complete discussion of this material weakness in our internal control over financial reporting. Although we are undertaking steps to address
this material weakness, the
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existence of a material weakness is an indication that there is more than a remote likelihood that a material misstatement of our financial statements will not be prevented or detected in
the current or any future period. There can be no assurance that we will be able to fully implement our plans and controls, as described in
Item 9A
, to address this material weakness, or that the plans and
controls, if implemented, will be successful in fully remediating this material weakness. In addition, we may in the future identify further material weaknesses in our internal control over financial reporting that we have not discovered to date. If
we fail to successfully remediate the identified material weakness, or we identify further material weaknesses in our internal controls, the markets confidence in our financial statements could decline and the market price of our common stock
could be adversely impacted.
Our publicly-filed SEC reports are reviewed by the SEC from time to time and
any significant changes required as a result of any such review may result in material liability to us and have a material adverse impact on the trading price of our common stock.
The reports of publicly-traded companies are subject to review by the SEC from time to time for the purpose of assisting companies in
complying with applicable disclosure requirements and to enhance the overall effectiveness of companies public filings, and reviews of such reports are now required at least every three years under the Sarbanes-Oxley Act of 2002. SEC reviews
may be initiated at any time, and we could be required to modify or reformulate information contained in prior filings as a result of an SEC review. Any modification or reformulation of information contained in such reports could be significant and
could result in material liability to us and have a material adverse impact on the trading price of our common stock.