Indicate by
check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
¨
No
x
Indicate by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes
¨
No
x
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. Yes
x
No
¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
x
No
¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form
10-K.
¨
Indicate by check mark whether the registrant is a large accelerated
filed, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act).
(Check one):
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes
¨
No
x
The aggregate market value of voting common stock held by non-affiliates of the registrant (assuming, for purposes of this calculation,
without conceding, that all executive officers and directors are affiliates) was $597,771,011 as of June 28, 2013, based on the closing sale price of such stock as reported on the NASDAQ Capital Market.
There were 90,912,023 shares of the registrants common stock outstanding as of March 1, 2014.
Portions of the registrants Proxy Statement for the 2014 Annual Meeting of Stockholders are incorporated by reference in Part III of this Annual Report
on Form 10-K.
This Annual Report on Form 10-K contains trademarks and trade names of Keryx Biopharmaceuticals, Inc., including our name and
logo. All other trademarks, service marks, and trade names referenced in this Annual Report on Form 10-K are the property of their respective owners.
Certain matters discussed in this report, including matters discussed under the caption Managements Discussion and Analysis of
Financial Condition and Results of Operations, may constitute forward-looking statements for purposes of the Securities Act of 1933, as amended, or the Securities Act, and the Securities Exchange Act of 1934, as amended, or the Exchange Act,
and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from the future results, performance or achievements expressed or implied by such
forward-looking statements. The words anticipate, believe, estimate, may, expect and similar expressions are generally intended to identify forward-looking statements. Our actual results
may differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including, without limitation, those discussed under the captions Risk Factors, Managements Discussion and
Analysis of Financial Condition and Results of Operations and elsewhere in this report, as well as other factors which may be identified from time to time in our other filings with the Securities and Exchange Commission, or the SEC, or in the
documents where such forward-looking statements appear. All written or oral forward-looking statements attributable to us are expressly qualified in their entirety by these cautionary statements. Such forward-looking statements include, but are not
limited to, statements about our:
The forward-looking statements contained in
this report reflect our views and assumptions only as of the date that this report is signed. Except as required by law, we assume no responsibility for updating any forward-looking statements.
We qualify all of our forward-looking statements by these cautionary statements. In addition, with respect to all of our forward-looking
statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
PART I
Unless the context requires otherwise, references in this report to Keryx, Company, we, us
and our and similar designations refer to Keryx Biopharmaceuticals, Inc. and our subsidiaries.
ITEM 1.
BUSINESS.
OVERVIEW
We are a
biopharmaceutical company focused on the acquisition, development and commercialization of pharmaceutical products for the treatment of renal disease. We are developing Zerenex
TM
(ferric citrate
coordination complex), an oral, ferric iron-based compound. We have completed a U.S.-based Phase 3 clinical program for Zerenex for the treatment of hyperphosphatemia (elevated phosphate levels) in patients with chronic kidney disease, or CKD, on
dialysis, conducted pursuant to a Special Protocol Assessment, or SPA, agreement with the U.S. Food and Drug Administration, or FDA. Our New Drug Application, or NDA, is currently under review by the FDA with an assigned Prescription Drug User Fee
Act, or PDUFA, goal date of June 7, 2014. In addition, in March 2014, we submitted a Marketing Authorization Application, or MAA, with the European Medicines Agency, or EMA, seeking the approval of Zerenex as a treatment for hyperphosphatemia
in patients with CKD, including dialysis and non-dialysis dependent CKD, or NDD-CKD.
We have also completed a U.S.-based Phase 2 study of
Zerenex for the management of elevated serum phosphorus levels and iron deficiency anemia in subjects with Stage 3 to 5 NDD-CKD.
In
January 2014, our Japanese partner, Japan Tobacco Inc., or JT, and Torii Pharmaceutical Co., Ltd., or Torii, received manufacturing and marketing approval of ferric citrate from the Japanese Ministry of Health, Labour and Welfare. Ferric citrate, to
be marketed in Japan by JTs subsidiary, Torii, under the brand name Riona
®
, is indicated as an oral treatment for the improvement of hyperphosphatemia in patients with CKD.
Currently, our only drug candidate is Zerenex. We may engage in business development activities that include seeking strategic relationships
for Zerenex, as well as evaluating compounds and companies for in-licensing or acquisition. To date, we have not received approval for the sale of any drug candidate in any market. Therefore, we have not generated any product sales from any drug
candidate. We have generated, and expect to continue to generate, revenue from the sublicensing of rights to Zerenex in Japan to our Japanese partner, JT and Torii.
OUR STRATEGY
Our mission is to create
long-term stockholder value by acquiring, developing and commercializing pharmaceutical products for the treatment of life-threatening diseases. Our strategy to achieve this mission is to:
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utilize our clinical development capabilities to manage and progress Zerenex, and any drug candidates we may in-license or acquire, through the clinical development and regulatory processes to approval;
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identify and explore licensing, partnership and other business development opportunities for Zerenex, and any drug candidates we may in-license or acquire;
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seek to acquire medically important drug candidates in early clinical development; and
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commercialize our drug candidate(s), either alone or in partnership, which we believe can provide maximum stockholder value.
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CORPORATE INFORMATION
We were
incorporated in Delaware in October 1998. We commenced operations in November 1999, following our acquisition of substantially all of the assets and certain of the liabilities of Partec Ltd., our predecessor company that began its operations in
January 1997. Our executive offices are located at 750 Lexington Avenue, New York, New York 10022. Our telephone number is 212-531-5965, and our e-mail address is info@keryx.com.
We maintain a website with the address www.keryx.com. We make available free of charge through our Internet website our annual reports on Form
10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and any amendments to these reports, as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the SEC. We are not including
the information on our website as a part of, nor incorporating it by reference into,
2
this report. You may read and copy any materials we file at the SECs Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 on official business days during the hours of 10:00
a.m. to 3:00 p.m. Please call the SEC at 1-800-SEC-0330 for information on the Public Reference Room. Additionally, the SEC maintains a website that contains annual, quarterly, and current reports, proxy statements, and other information that
issuers (including us) file electronically with the SEC. The SECs website address is http://www.sec.gov.
PRODUCT UNDER DEVELOPMENT
Zerenex (ferric citrate coordination complex)
Overview
Zerenex (ferric citrate
coordination complex) is an oral, ferric iron-based compound that has the capacity to bind to phosphate in the gastrointestinal tract and form non-absorbable complexes and can potentially also treat iron deficiency anemia.
In April 2011, we reported the final results from the Phase 3 short-term efficacy study of Zerenex for the treatment of hyperphosphatemia in
patients with CKD on dialysis. Positive top-line results from this Phase 3 short-term study were announced in November 2010.
In January
2013, we announced successful top-line results from our long-term Phase 3 study of Zerenex for the treatment of elevated serum phosphorus levels, or hyperphosphatemia, in patients with CKD on dialysis. Updated results were presented in June 2013 at
the World Congress of Nephrology. In this study, Zerenex met the studys primary endpoint, demonstrating a highly statistically significant change in serum phosphorus versus placebo over the four-week Efficacy Assessment Period of the study. In
addition, Zerenex met the key secondary endpoints of increasing ferritin and transferrin saturation, or TSAT, and reducing the use of intravenous, or IV, iron and erythropoiesis-stimulating agents, or ESAs, versus the active control group over the
52-week Safety Assessment Period of the study. This long-term Phase 3 study was the final component of our Phase 3 registration program, which was conducted pursuant to an SPA agreement with the FDA. In August 2013, we submitted an NDA to the FDA
seeking approval for the marketing and sale of Zerenex. In October 2013, our NDA was accepted for filing by the FDA and was assigned a PDUFA goal date of June 7, 2014. The acceptance for filing of the NDA indicates the determination by the FDA
that the application is sufficiently complete to permit a substantive review.
In May 2011, we announced positive Scientific Advice from
the EMA for the development of Zerenex for the management and control of serum phosphorus in CKD patients undergoing dialysis, and in NDD-CKD patients. The Scientific Advice from the EMA indicates that our completed Phase 3 program in the U.S., in
conjunction with safety data generated from other clinical studies with Zerenex, is considered sufficient to support a European MAA for this indication in CKD patients on dialysis. The Scientific Advice also provided us with a regulatory path
forward in the NDD-CKD setting in Europe. As a result, following the successful completion of our Phase 3 program in CKD patient on dialysis, and our Phase 2 study in NDD-CKD patients, we believe that we will not need to conduct any additional
clinical trials with Zerenex in order to obtain European approval in the dialysis and NDD-CKD settings. Accordingly, in March 2014, we submitted a MAA with the EMA, for marketing approval in Europe for both dialysis and NDD-CKD.
In January 2013, we announced that JT filed its NDA with the Japanese Ministry of Health, Labour and Welfare, or MHLW, for marketing approval
of ferric citrate in Japan for the treatment of hyperphosphatemia in patients with CKD. The Japanese NDA filing was supported by efficacy and safety data from several successfully completed Phase 3 studies in CKD patients with hyperphosphatemia in
Japan. In January 2014, JT received manufacturing and marketing approval of ferric citrate from the MHLW. Ferric citrate, to be marketed in Japan by JTs subsidiary, Torii, under the brand name
Riona
®
, is indicated as an oral treatment for the improvement of hyperphosphatemia in patients with CKD.
In November 2013, we announced successful top-line results from the U.S.-based Phase 2 study of Zerenex in managing serum phosphorus and iron
deficiency anemia in patients with NDD-CKD. The Phase 2 study was a multicenter, randomized, double-blind, placebo-controlled clinical trial in subjects with Stage 3 to 5 NDD-CKD, with elevated serum phosphorus
³
4.0 mg/dL and iron deficiency anemia. The study consisted of a 2-week washout period (for subjects on a phosphate binder at screening) followed by a 12-week treatment period in which subjects were
randomized 1:1 to receive either Zerenex or placebo. One hundred forty-nine (149) subjects were randomized into the study from 20 sites in the U.S. In this study, Zerenex met both co-primary endpoints, demonstrating highly statistically
significant changes in serum phosphorus and TSAT versus placebo over the 12-week treatment period. In addition, Zerenex met the key secondary endpoints of increasing ferritin and hemoglobin, and decreasing fibroblast growth factor-23, or FGF-23,
versus placebo.
3
Market Opportunity
In the U.S., according to data from the U.S. Renal Data System, there are approximately 600,000 patients with end-stage renal disease, or ESRD,
and the number of ESRD patients is projected to continue to rise in the future. The majority of ESRD patients, over 400,000, require dialysis. Worldwide, there are approximately 3 million patients with ESRD, with the majority of ESRD patients,
over 2.3 million, requiring dialysis. Phosphate retention and the resulting hyperphosphatemia in patients with ESRD on dialysis are usually associated with secondary hyperparathyroidism, renal osteodystrophy, soft tissue mineralization and the
progression of renal failure. ESRD patients usually require treatment with phosphate-binding agents to lower and maintain serum phosphorus at acceptable levels.
Aluminum-type phosphate binders were widely used in the past. However, the systemic absorption of aluminum from these agents and the potential
toxicity associated with their use no longer make this type of binder a viable long-term treatment option.
Calcium-type phosphate binders
are commonly used to bind dietary phosphate; however, they promote positive net calcium balance and an increased risk of metastatic calcification in many patients, especially in those patients taking vitamin D analogs and those with adynamic bone
disease. Calcification of the cardiovascular system is believed to represent a significant risk factor for morbidity and mortality in patients with CKD.
Non-calcium-based, non-absorbed phosphate binders, including sevelamer hydrochloride and sevelamer carbonate are among the most prescribed
phosphate binders in the U.S. Compared to the calcium-type binders, fewer coronary and aortic calcifications have been documented, however, there is a risk of metabolic acidosis with sevelamer hydrochloride, as well as the potential for
gastrointestinal problems, and sevelamer can affect concomitant vitamin K and vitamin D treatment.
Lanthanum-type phosphate binders are
another alternative. Lanthanum is a rare earth element and is minimally absorbed in the gastrointestinal tract. Lower level tissue deposition, particularly in bone and liver, has been observed in animals. However, the long-term, potentially harmful,
effects due to the accumulation of lanthanum in these tissues have not been clearly determined.
The need for alternative
phosphate-binding agents has long been recognized, especially given the increasing prevalence of ESRD and shortcomings with current therapies available to such patients.
In addition, it is estimated that more than 10% of the U.S. adult population is affected by NDD-CKD, a condition generally characterized by
greater than 50% reduction of normal kidney function. In addition, elevated levels of serum phosphorus become more prevalent in Stage 3 to 5 NDD-CKD patients. Several studies have shown that higher serum phosphorus concentrations may be associated
with increased mortality and morbidity in CKD, however, no phosphate binders are currently FDA approved for NDD-CKD.
Iron deficiency
anemia, which develops early in the course of CKD and worsens with disease progression, is extremely prevalent in the NDD-CKD population and is associated with fatigue, lethargy, decreased quality of life and is also believed to be associated with
cardiovascular complications, hospitalizations, and increased mortality. Based on data contained in a 2009 publication in the Journal of the American Society of Nephrology, it is estimated that over 1.5 million adults with NDD-CKD in the U.S.
alone are also afflicted with iron deficiency anemia. To combat this anemia, iron replacement therapy is essential to increase iron stores, which is reflected in ferritin and TSAT levels, and raise hemoglobin levels. Currently available oral iron
supplements are associated with limited efficacy and dose-limiting tolerability issues. No oral iron agents are currently FDA approved to treat iron deficiency anemia in NDD-CKD. ESAs and IV iron are not frequently administered in NDD-CKD due to
both the FDA boxed warning label of potential cardiovascular risk for ESAs and logistical complications associated with administering IV medicines in office settings which lack the necessary facilities, such as emergency equipment and/or emergency
medical access. Consequently, the NDD-CKD patient population remains underserved.
Zerenex has the potential to be an effective and safe
treatment for lowering and/or maintaining serum phosphorus levels, and treating iron deficiency anemia, in patients with CKD on dialysis and NDD-CKD.
CKD on Dialysis: Phase 3 Registration Clinical Program Short-Term Study
In April 2011, we reported the final results from the Phase 3 short-term clinical trial of Zerenex for the treatment of hyperphosphatemia in
CKD patients on dialysis. Top-line results from this Phase 3 short-term study were announced in November 2010. The final results were presented at the National Kidney Foundation Spring Clinical Meetings held in Las Vegas, Nevada, in an oral
presentation. In this study, conducted pursuant to a SPA agreement with the FDA, Zerenex met the studys primary endpoint, described below, demonstrating a highly statistically significant dose response. In addition, key secondary endpoints
were also met.
4
Study Design
The Phase 3 short-term study was a multicenter, randomized, open-label trial with a two-week washout period, following which patients were
randomized 1:1:1 to receive a fixed dose of Zerenex of either 1 gram, 6 grams or 8 grams per day for a treatment period of 28 days. Zerenex was administered using a 1 gram oral tablet formulation, and the fixed-dose arms of 1 gram, 6 grams and 8
grams per day represented 1, 6 and 8 pills per day, respectively. One hundred fifty-one dialysis patients were enrolled into the study. The ITT group included 146 patients, representing all patients who took at least one dose of Zerenex and provided
a Baseline (at the end of washout) and at least one post-Baseline efficacy assessment. Efficacy assessments were taken weekly starting at Baseline and subsequently at days 7, 14, 21 and 28.
Study Results
The primary endpoint of
the study was to determine whether there was a dose response in the change in serum phosphorus from Baseline to Day 28 in the ITT group, using a regression analysis to evaluate this objective. The study met the primary endpoint, with the regression
analysis indicating a highly statistically significant dose response (p<0.0001). Additional efficacy results are as follows:
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Mean Serum Phosphorus (mg/dL) ITT (n=146)
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1g/Day
(n=50)
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6g/Day
(n=51)
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8g/Day
(n=45)
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Baseline (End of Washout)
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7.3
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7.6
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7.5
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Day 28 (End of Treatment)
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7.4
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5.6
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5.3
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Change from Baseline at Day 28
P-Value
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0.1
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-2.0
<0.0001
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-2.2
<0.0001
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% Change from Baseline at Day 28
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0.5
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%
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-25.7
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%
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-29.6
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%
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In addition, a statistically significant dose response increase in serum bicarbonate was observed in the
study, indicating the potential ability of Zerenex to address metabolic acidosis. Metabolic acidosis is a condition that occurs in many dialysis patients when the kidneys do not remove sufficient acid from the body, leading to low blood pH. The
consequences of metabolic acidosis can be severe. The inability to manage metabolic acidosis is believed to be a drawback for some of the currently marketed phosphate binders.
Importantly, no clinically meaningful change in serum calcium was observed in the study. Additionally, a statistically significant dose
response reduction in calcium-phosphorus product was also observed in the study. Elevated levels of serum calcium, or hypercalcemia, and high levels of calcium-phosphorus product, both of which are believed to be drawbacks from the use of some of
the currently marketed phosphate binders, increase the risk of soft tissue calcification and may contribute to the substantial morbidity and mortality seen in patients with ESRD.
Certain iron parameters, including ferritin and TSAT, were measured in the study. Over the 28-day treatment period, modest upward trends in
ferritin and TSAT levels were observed in the 6 grams/day and 8 grams/day dose groups.
We believe that Zerenex appeared to be safe and
well-tolerated in this clinical study, with no serious adverse events deemed to be drug-related by the Data Safety Monitoring Committee.
CKD on
Dialysis: Phase 3 Registration Clinical Program Long-Term Study
In January 2013, we announced successful top-line results from
the long-term Phase 3 study of Zerenex for the treatment of hyperphosphatemia in patients with CKD on dialysis. In this study, Zerenex met the studys primary endpoint, described below, demonstrating a highly statistically significant change in
serum phosphorus versus placebo over the four-week Efficacy Assessment Period of the study. In addition, Zerenex met the key secondary endpoints of increasing ferritin and TSAT and reducing the use of IV iron and ESAs versus the active control group
(Renvela
®
[sevelamer carbonate] and/or Phoslo
®
[calcium acetate]) over the 52-week Safety Assessment Period of the study. This
long-term study was the final component of our Phase 3 registration program, which was conducted pursuant to a SPA agreement with the FDA.
5
Study Design
This Phase 3 long-term study was a multicenter, randomized, open-label, safety and efficacy clinical trial in 441 CKD patients on hemodialysis
or peritoneal dialysis. The study consisted of a 2-week washout period followed by a 52-week Safety Assessment Period in which subjects were randomized 2:1 to receive either Zerenex or an active control (Renvela
®
[sevelamer carbonate] and/or Phoslo
®
[calcium acetate]). The 52-week Safety Assessment Period was followed by a 4-week Efficacy Assessment
Period. During the Efficacy Assessment Period, only those subjects randomized to treatment with Zerenex during the Safety Assessment Period were randomized in a 1:1 ratio to either continue treatment with Zerenex or switch to placebo for a 4-week
treatment period. Subjects were titrated during the study to achieve serum phosphorus levels that ranged between 3.5 to 5.5 mg/dL.
The
primary objectives of this study were to determine the long-term safety of Zerenex in subjects with CKD undergoing either hemodialysis or peritoneal dialysis, and the efficacy of Zerenex following 52 weeks of treatment in a four-week, randomized,
open-label, placebo-controlled Efficacy Assessment Period. Zerenex was administered using a 1 gram oral tablet formulation.
Oral iron
therapy was not permitted during the course of the study. IV iron therapy was not permitted if a subjects serum ferritin level was greater than 1000 ng/mL or TSAT was greater than 30%. The use of ESAs was at the physicians discretion.
Top line results were as follows:
Primary Efficacy Endpoint
The primary
efficacy endpoint of this trial was the mean change in serum phosphorus from baseline (Week 52) to end of the four-week Efficacy Assessment Period (Week 56) versus placebo in the Intent-to-Treat, or ITT, group. The ITT group included 182 subjects,
representing all subjects who took at least one dose of Zerenex or placebo in the Efficacy Assessment Period and provided at least one post-baseline efficacy assessment.
Zerenex met the primary efficacy endpoint with a highly statistically significant result (p<0.0001).
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Mean Serum Phosphorus (mg/dL)
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Placebo
(n=91)
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Zerenex
(n=91)
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Baseline (Week 52)
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5.4
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5.1
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End of Treatment
1
(Week 56)
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7.2
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4.9
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Mean Change from Baseline at Week 56
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1.8
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-0.2
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Least Squares (LS) Mean Difference from
Placebo
2
p-value
2
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-2.2
p<0.0001
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1
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Last observation carried forward was used for missing data.
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2
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The LS Mean treatment difference and p-value is created via an ANCOVA model with treatment as the fixed effect and baseline as the covariate.
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Key Secondary Efficacy Endpoints Related to Serum Phosphorus
During the 52-week Safety Assessment Period, Zerenex maintained serum phosphorus in the normal range, with highly statistically significant
changes in mean serum phosphorus concentration at Weeks 12, 24, 36, 48, and 52 as compared to baseline (Day 0).
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Baseline
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Week
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n=281
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12
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24
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36
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48
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52
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Zerenex Mean Serum Phosphorus (mg/dL)
1
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7.4
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5.4
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5.3
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5.2
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5.3
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5.4
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Mean Change from Baseline
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-2.0
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-2.1
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-2.2
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-2.1
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-2.0
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% Change from Baseline
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-27.0
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%
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-28.4
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%
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-29.7
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%
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-28.4
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%
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-27.0
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%
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p-value
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<0.0001
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<0.0001
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<0.0001
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<0.0001
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<0.0001
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1
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Last observation carried forward was used for missing data.
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6
In addition, as agreed to with the EMA, the treatment difference between Zerenex and Renvela
®
(sevelamer carbonate) at Week 12 of the Safety Assessment Period in terms of change from baseline (Day 0) in serum phosphorus was analyzed. Zerenex successfully achieved the non-inferiority
endpoint versus Renvela
®
.
Key Secondary Efficacy Endpoints Related to Iron
The objectives of the key iron-related secondary endpoints, which were all pre-specified in the statistical analysis plan in a sequential
strategy to control overall Type I error rate, were to corroborate prior data which suggested that Zerenex may increase iron storage parameters and reduce the need for IV iron and/or ESAs. Zerenex met all the key pre-defined secondary efficacy
endpoints related to iron with statistically significant treatment differences versus the active control group (Renvela
®
[sevelamer carbonate] and/or Phoslo
®
[calcium acetate]), as follows:
Mean Change in Ferritin
Zerenex demonstrated a statistically significant treatment difference versus the active control group in mean change in serum ferritin from
baseline (Day 0) to Week 52.
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Mean Ferritin (ng/mL)
1
|
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Active Controls
(n=137)
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Zerenex
(n=253)
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Baseline (Day 0)
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610
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593
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Week 12
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649
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750
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Week 24
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651
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847
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Week 36
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633
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864
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Week 48
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622
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886
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Week 52
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632
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|
895
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Mean Change from Baseline at Week 52
% Change from Baseline
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22
3.6
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%
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302
50.9
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%
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LS Mean Difference from Active Control Group at Week
52
2
p-value
2
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274
p<0.0001
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1
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Last observation carried forward was used for missing data.
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2
|
The LS Mean treatment difference and p-value is created via an ANCOVA model with treatment as the fixed effect and baseline as the covariate.
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Mean Change in TSAT
Zerenex demonstrated
a statistically significant treatment difference versus the active control group in mean change in TSAT from baseline (Day 0) to Week 52.
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Mean TSAT (%)
1
|
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Active Controls
(n=137)
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Zerenex
(n=252)
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Baseline (Day 0)
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31
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|
31
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Week 12
|
|
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31
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40
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Week 24
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31
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40
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Week 36
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31
|
|
|
|
40
|
|
Week 48
|
|
|
29
|
|
|
|
41
|
|
Week 52
|
|
|
30
|
|
|
|
39
|
|
Mean Change from Baseline at Week 52
% Change from Baseline
|
|
|
-1
-3.2
|
%
|
|
|
8
25.8
|
%
|
LS Mean Difference from Active Control Group at Week
52
2
p-value
2
|
|
|
|
|
|
|
9
p<0.0001
|
|
1
|
Last observation carried forward was used for missing data.
|
2
|
The LS Mean treatment difference and p-value is created via an ANCOVA model with treatment as the fixed effect and baseline as the covariate.
|
7
Cumulative IV iron Use
Each subjects average cumulative IV iron intake was calculated over the 52-week Safety Assessment Period. The ITT group consisted of 271
subjects and 138 subjects for the Zerenex and active control groups, respectively. Zerenex demonstrated a 51% decrease in median IV iron intake as compared to the active control group (median 1.87 mg/day for Zerenex versus 3.83 mg/day for active
control, p<0.0001).
Cumulative Erythropoiesis-Stimulating Agent (ESA) Use
Each subjects average cumulative ESA intake was calculated over the 52-week Safety Assessment Period. The ITT group consisted of 273
subjects and 141 subjects for the Zerenex and active control groups, respectively. Zerenex demonstrated a 24% decrease in median ESA intake as compared to the active control group (median 756 units/day for Zerenex versus 993 units/day for active
control, p<0.05).
Mean Change in Hemoglobin
Zerenex demonstrated a statistically significant treatment difference versus the active control group in mean change in hemoglobin from
baseline (Day 0) to Week 52.
|
|
|
|
|
|
|
|
|
Mean Hemoglobin (g/dL)
1
|
|
Active Controls
(n=133)
|
|
|
Zerenex
(n=248)
|
|
Baseline (Day 0)
|
|
|
11.7
|
|
|
|
11.6
|
|
Week 52
|
|
|
11.2
|
|
|
|
11.4
|
|
Mean Change from Baseline at Week 52
|
|
|
-0.6
|
|
|
|
-0.2
|
|
LS Mean Difference from Active Control Group at Week
52
2
p-value
2
|
|
|
|
|
|
|
0.3
p<0.05
|
|
1
|
Last observation carried forward was used for missing data.
|
2
|
The LS Mean treatment difference and p-value is created via an ANCOVA model with treatment as the fixed effect and baseline as the covariate.
|
Safety and Tolerability Profile
For
reference, subjects previously intolerant to Renvela
®
(sevelamer carbonate) and/or Phoslo
®
(calcium acetate) were ineligible to
participate in this study. Consistent with previous studies, we believe that Zerenex appeared safe and well tolerated in this clinical study. Based on an analysis of safety data, the side-effect profile of Zerenex and the active control group
appeared similar, with the most common adverse events gastrointestinal-related. The most common gastrointestinal adverse events were: diarrhea, including soft stools (26% Zerenex vs. 14% Active Control), nausea (14% Zerenex vs. 14% Active Control),
feces discoloration (17% Zerenex vs. 0% Active Control), vomiting (9% Zerenex vs. 15% Active Control) and constipation (8% Zerenex vs. 5% Active Control). Adverse events were generally characterized as mild to moderate in nature.
The overall serious adverse event rates in the study were 39% Zerenex vs. 49% Active Control. Importantly, there were no clinically meaningful
or statistically significant differences between Zerenex and the active control group in serum calcium levels and liver enzymes, as measured by alanine transaminase, or ALT, and aspartate transaminase, or AST.
8
CKD on Dialysis: Open-Label Safety Extension Study
In November 2013, we announced preliminary, unaudited data from an ongoing 48-week safety extension study of Zerenex for the treatment of
hyperphosphatemia in patients with CKD on dialysis. Only patients who had participated in, and successfully completed the 58-week, long-term Phase 3 study were eligible for enrollment into this safety extension study. This extension study, which is
not a regulatory requirement, is being conducted in 35 sites in the U.S. The study commenced enrollment in August 2012 and is anticipated to be completed in the first half of 2014.
Patients in the OLE study are titrated to achieve and maintain normal serum phosphorus levels (3.5 to 5.5 mg/dL) for a period of 48 weeks.
This study, together with the 58-week, long-term Phase 3 safety and efficacy study, represents potential cumulative exposure to Zerenex of up to 2 years. Enrollment in the study included 168 patients, of which 166 patients were dosed with Zerenex,
consisting of 114 and 52 patients from the Zerenex and Active Control arms of the completed long-term Phase 3 study, respectively. The data presented was through October 31, 2013, and appear to corroborate the data observed in the completed
long-term Phase 3 study. Key efficacy-related highlights from this preliminary data include:
|
|
|
Effective control of serum phosphorus within the normal range of 3.5 to 5.5 mg/dL;
|
|
|
|
Increase and plateau of TSAT and ferritin at weeks 12 and 24, respectively, with ferritins decreasing after week 36;
|
|
|
|
Limited use of IV iron in the study, with 69% of patients not receiving any IV iron throughout the study; and
|
|
|
|
Substantially lower use of IV iron and ESAs as compared to national averages, while maintaining hemoglobin.
|
The data presented appeared to corroborate the results observed in the completed long-term Phase 3 study.
NDD-CKD: Phase 2 Clinical Study
In
November 2013, we announced successful top-line results from the U.S.-based Phase 2 study of Zerenex in managing serum phosphorus and iron deficiency anemia in patients with Stage 3 to 5 NDD-CKD. In this study, Zerenex met both co-primary endpoints,
demonstrating highly statistically significant changes in serum phosphorus and TSAT versus placebo over the 12-week treatment period. In addition, Zerenex met the key secondary endpoints of increasing ferritin and hemoglobin, and decreasing
fibroblast growth factor-23, or FGF-23, versus placebo.
Study Design
This Phase 2 study was a multicenter, randomized, double-blind, placebo-controlled clinical trial in subjects with stage 3 to 5 NDD-CKD, with
elevated serum phosphorus
³
4.0 mg/dL and iron deficiency anemia. The study consisted of a 2-week washout period (for subjects on a phosphate binder at screening) followed by a 12-week treatment period in
which subjects were randomized 1:1 to receive either Zerenex or placebo. One hundred forty-nine (149) subjects were randomized into the study from 20 sites in the United States.
The use of IV iron and ESAs were not permitted within 8 weeks and 4 weeks prior to the study, respectively, and not permitted during the
course of the study. Oral iron therapy was also not permitted during the course of the study.
Top line results were as follows:
Co-Primary and Key Secondary Endpoints
Zerenex met both co-primary and all key secondary endpoints with highly statistically significant results. The Intent-to Treat (ITT) group
included 141 subjects, representing all subjects who took at least one dose of Zerenex or placebo and provided at least one post-baseline efficacy assessment. The co-primary efficacy endpoints of this trial were the mean changes in serum phosphorus
and TSAT from baseline to the end of the 12-week treatment period versus placebo in the ITT group.
|
|
|
|
|
|
|
|
|
Mean Serum Phosphorus (mg/dL)
|
|
Placebo
(n=69)
|
|
|
Zerenex
(n=72)
|
|
Baseline
|
|
|
4.7
|
|
|
|
4.5
|
|
End of Treatment
1
(Week 12)
|
|
|
4.4
|
|
|
|
3.9
|
|
Treatment Difference p-value
2
|
|
|
|
|
|
|
p<0.001
|
|
1
|
Last observation carried forward was used for missing data.
|
2
|
P-value is created via an ANCOVA model with treatment as the fixed effect and baseline as the covariate.
|
9
|
|
|
|
|
|
|
|
|
TSAT (%)
|
|
Placebo
(n=69)
|
|
|
Zerenex
(n=72)
|
|
Baseline
|
|
|
21
|
|
|
|
22
|
|
End of Treatment
1
(Week 12)
|
|
|
20
|
|
|
|
32
|
|
Treatment Difference p-value
2
|
|
|
|
|
|
|
p<0.001
|
|
1
|
Last observation carried forward was used for missing data.
|
2
|
P-value is created via an ANCOVA model with treatment as the fixed effect and baseline as the covariate.
|
The key secondary endpoints of the study were the mean changes in ferritin, hemoglobin and FGF-23 from baseline to the end of the 12-week
treatment period versus placebo in the ITT group.
|
|
|
|
|
|
|
|
|
Mean Ferritin (ng/mL)
|
|
Placebo
(n=69)
|
|
|
Zerenex
(n=72)
|
|
Baseline
|
|
|
110
|
|
|
|
116
|
|
End of Treatment
1
(Week 12)
|
|
|
106
|
|
|
|
189
|
|
Treatment Difference p-value
2
|
|
|
|
|
|
|
p<0.001
|
|
1
|
Last observation carried forward was used for missing data.
|
2
|
P-value is created via an ANCOVA model with treatment as the fixed effect and baseline as the covariate.
|
|
|
|
|
|
|
|
|
|
Mean Hemoglobin (g/dL)
|
|
Placebo
(n=69)
|
|
|
Zerenex
(n=72)
|
|
Baseline
|
|
|
10.6
|
|
|
|
10.5
|
|
End of Treatment
1
(Week 12)
|
|
|
10.4
|
|
|
|
11.0
|
|
Treatment Difference p-value
2
|
|
|
|
|
|
|
p<0.001
|
|
1
|
Last observation carried forward was used for missing data.
|
2
|
P-value is created via an ANCOVA model with treatment as the fixed effect and baseline as the covariate.
|
|
|
|
|
|
|
|
|
|
Mean Intact FGF-23 (pg/mL)
|
|
Placebo
(n=60)
|
|
|
Zerenex
(n=63)
|
|
Baseline
|
|
|
263
|
|
|
|
319
|
|
End of Treatment
1
(Week 12)
|
|
|
293
|
|
|
|
200
|
|
Treatment Difference p-value
2
|
|
|
|
|
|
|
P=0.017
|
|
1
|
Last observation carried forward was used for missing data. Intact FGF-23 was assessed at baseline, Week 6 and Week 12.
|
2
|
P-value is created via an ANCOVA model with treatment as the fixed effect and baseline as the covariate.
|
10
|
|
|
|
|
|
|
|
|
Mean C-Terminal FGF-23 (pg/mL)
|
|
Placebo
(n=60)
|
|
|
Zerenex
(n=63)
|
|
Baseline
|
|
|
511
|
|
|
|
468
|
|
End of Treatment
1
(Week 12)
|
|
|
579
|
|
|
|
316
|
|
Treatment Difference p-value
2
|
|
|
|
|
|
|
p<0.001
|
|
1
|
Last observation carried forward was used for missing data. C-Terminal FGF-23 was assessed at baseline, Week 6 and Week 12.
|
2
|
P-value is created via an ANCOVA model with treatment as the fixed effect and baseline as the covariate.
|
Zerenex was also highly statistically significant in its mean changes at Week 12 versus baseline for all the above-mentioned co-primary and
key secondary endpoints.
Treatment Failures
Patients were discontinued from the study if they had hemoglobin measurements <9.0 g/dL on two consecutive visits or serum phosphorus
measurements
³
6.0 mg/dL on two consecutive visits following randomization. Treatment Failures in the study were as follows:
|
|
|
|
|
|
|
|
|
Treatment Failures n (%)
|
|
Placebo
(n=74)
|
|
|
Zerenex
(n=75)
|
|
Hemoglobin <9.0 g/dL
|
|
|
9 (12%
|
)
|
|
|
1 (1%
|
)
|
Serum Phosphorus
³
6.0 mg/dL
|
|
|
2 (3%
|
)
|
|
|
0 (0%
|
)
|
Safety and Tolerability Profile
The safety population in the study included all randomized patients who took at least one dose of study drug. We believe that Zerenex appeared
to be safe and well-tolerated in this Phase 2 study, with discontinuation rates of 19% and 32% in the Zerenex and placebo groups, respectively, including Treatment Failures. There were no study discontinuations due to hypophosphatemia in the study.
Serious adverse events occurred in six Zerenex subjects (8%) versus nine placebo subjects (12%). Two deaths were recorded in the
study, both from the placebo group. There were no clinically meaningful or statistically significant differences in serum calcium levels and liver enzymes as measured by ALT and AST.
The full efficacy and safety data from the study is expected to be presented at a future medical conference.
COSTS AND TIME TO COMPLETE PRODUCT DEVELOPMENT
The information below provides estimates regarding the costs associated with the completion of the current development phase and our current
estimated range of the time that will be necessary to complete such development for Zerenex, which is currently our only product candidate. We also direct your attention to the risk factors which could significantly affect our ability to meet these
cost and time estimates found in this report in Item 1A under the heading Risks Associated with Our Product Development Efforts.
|
|
|
|
|
|
|
|
|
Product candidate
|
|
Target indication
|
|
Development status
|
|
Expected
completion of phase
|
|
Estimated cost to
complete phase
|
Zerenex (ferric citrate coordination complex)
|
|
Hyperphosphatemia in CKD on dialysis
|
|
U.S. NDA filed and under review
|
|
Mid-2014
|
|
$1 - $2 million
|
|
|
|
|
|
Zerenex (ferric citrate coordination complex)
|
|
Hyperphosphatemia in CKD
|
|
EU MAA submitted
|
|
Mid-2015
|
|
$2 - $4 million
|
|
|
|
|
|
Zerenex (ferric citrate coordination complex)
|
|
Management of serum phosphorus and iron deficiency anemia in NDD-CKD
|
|
Phase 3 initiation pending
|
|
Mid-2015
|
|
$8 - $10 million
|
11
Completion dates and costs in the above table are estimates and are subject to the uncertainties
associated with regulatory submissions, clinical trials and the related requirements of development. In the cases where the requirements for regulatory submissions, clinical trials and development programs have not been fully defined, or are
dependent on the success of other trials, we cannot estimate trial completion or cost with any certainty. The actual spending on each trial during the year is also dependent on our ability to fund such clinical trials. We therefore direct your
attention to Item 7 under the heading Liquidity and Capital Resources.
INTELLECTUAL PROPERTY AND PATENTS
General
Patents and other
proprietary rights are very important to the development of our business. We will be able to protect our proprietary technologies from unauthorized use by third parties only to the extent that our proprietary rights are covered by valid and
enforceable patents supported by regulatory exclusivity, or are effectively maintained as trade secrets. It is our intention to seek and maintain patent and trade secret protection for our drug candidates and our proprietary technologies. As part of
our business strategy, our policy is to actively file patent applications in the U.S. and, when appropriate, internationally to cover methods of use, processes of manufacture, new chemical compounds, pharmaceutical compositions, dosing of the
compounds and compositions, and improvements in each of these areas. We also rely on trade secret information, technical know-how, innovation and agreements with third parties to continuously expand and protect our competitive position. We have a
number of patents and patent applications related to our compounds and other technology, but we cannot guarantee the scope of protection of the issued patents, or that such patents will survive a validity or enforceability challenge, or that any of
the pending patent applications will issue as patents.
Generally, patent applications in the U.S. are maintained in secrecy for a period
of 18 months or more. Since publication of discoveries in the scientific or patent literature often lag behind actual discoveries, we are not certain that we were the first to make the inventions covered by each of our pending patent
applications or that we were the first to file those patent applications. The patent positions of biotechnology and pharmaceutical companies are highly uncertain and involve complex legal and factual questions. Therefore, we cannot predict the
breadth of claims allowed in biotechnology and pharmaceutical patents, or their enforceability. To date, there has been no consistent policy regarding the breadth of claims allowed in biotechnology patents. Third parties or competitors may challenge
or circumvent our patents or patent applications, if issued. If our competitors prepare and file patent applications in the U.S. that claim technology also claimed by us, we may have to participate in interference or derivation proceedings in front
of the U.S. Patent and Trademark Office to determine priority of invention, which could result in substantial cost, even if the eventual outcome is favorable to us. Because of the extensive time required for development, testing and regulatory
review of a potential product, it is possible that before we commercialize any of our products, any related patent may expire or remain in existence for only a short period following commercialization, thus reducing any advantage of the patent.
However, the life of a patent covering a product that has been subject to regulatory approval may have the ability to be extended through the Patent Term Extension program available under 35 U.S.C. § 156, although any such extension could still
be minimal.
If a patent is issued to a third party containing one or more preclusive or conflicting claims, and those claims are
ultimately determined to be valid and enforceable, we may be required to obtain a license under such patent or to develop or obtain alternative technology. In the event of a litigation involving a third party claim, an adverse outcome in the
litigation could subject us to significant liabilities to such third party, require us to seek a license for the disputed rights from such third party, and/or require us to cease use of the technology. Further, our breach of an existing license or
failure to obtain a license to technology required to commercialize our products may seriously harm our business. We also may need to commence litigation to enforce any patents issued to us or to determine the scope and validity of third-party
proprietary rights. Litigation would involve substantial costs.
Pursuant to our license for Zerenex (ferric citrate coordination complex)
with Panion & BF Biotech, Inc., or Panion, we have the exclusive commercial rights to a series of patent applications worldwide, excluding certain Asian-Pacific countries. These patents and patent applications include claims directed to
compositions of matter, pharmaceutical compositions, methods of treatment, as well as methods for the manufacture of ferric citrate. We have also filed a patent application directed to formulations of certain ferric citrate drug products.
The patent rights that we own or have licensed relating to Zerenex are limited in ways that may affect our ability to exclude third parties
from competing against us if we obtain regulatory approval to market Zerenex. In particular:
|
|
|
The first composition of matter and method patent relating to Zerenex in the United States (U.S. Patent No. 5,753,706) expires in February 2017.
We cannot assure you that we can obtain any extension of the term of this
|
12
|
patent for delays caused by FDA regulatory review (the maximum amount of term extension available under the Patent Term Extension provisions of 35 U.S.C. § 156 would extend the term of this
patent to February 2022). We have additional composition of matter and use patents expiring in 2024 with independent claims covering forms of ferric citrate (the active pharmaceutical ingredient (API) of Zerenex), pharmaceutical compositions that
include the API, pharmaceutical compositions having ferric citrate in an amount effective to reduce serum phosphate levels, and methods of treating hyperphosphatemia and metabolic acidosis. Composition of matter patents can provide protection for
pharmaceutical products to the extent that the specifically covered compositions are key, non-interchangeable components of the pharmaceutical product. Upon expiration of U.S. Patent No. 5,753,706, competitors who obtain the requisite
regulatory approval may potentially offer products with the same composition as our product, so long as the competitors do not infringe any other patents that we may hold, such as other composition of matter patents and/or method of use patents.
|
|
|
|
Our methods of use patents only protect the product when used or sold for the claimed methods. However, these types of patents do not limit a competitor from making and marketing a product that is identical to our
product that is labeled for an indication that is outside of our patented methods, or for which there is a substantial use in commerce outside of our patented methods.
|
|
|
|
Our pending patent applications may not issue as patents and may not issue in all countries in which we develop, manufacture or potentially sell our product(s) or in countries where others develop, manufacture and
potentially sell products using our technologies. Moreover, our pending patent applications, if issued as patents, may not provide additional protection for our product.
|
|
|
|
Because any potential date for regulatory approval is currently unknown, it is possible that the life of these patents following regulatory approval will be minimal, even if the above-discussed Patent Term Extension is
obtained.
|
Obtaining proof of direct infringement by a competitor for a method of use patent can be difficult because the
competitors making and marketing a product may not engage in the patented use. Additionally, obtaining proof that a competitor contributes to, or induces, infringement of a patented method by another can be difficult because an off-label use of a
product could prohibit a finding of contributory infringement. In addition, proving inducement of infringement requires proof of intent by the competitor. If we are required to defend ourselves against claims or to protect our own proprietary rights
against others, it could result in substantial costs to us and the distraction of our management. An adverse ruling in any litigation or administrative proceeding could prevent us from marketing and selling Zerenex if we obtain regulatory approval,
increase the risk that a generic version of Zerenex could enter the market to compete with Zerenex, limit our development and commercialization of Zerenex, or otherwise harm our competitive position and result in additional significant costs. In
addition, any successful claim of infringement asserted against us could subject us to monetary damages or injunction, which could prevent us from making or selling Zerenex. We also may be required to obtain licenses to use the relevant technology.
Such licenses may not be available on commercially reasonable terms, if at all.
Moreover, physicians may prescribe a competitive
identical product for indications other than the one for which the product has been approved, or off-label indications, that are covered by the applicable patents. Although such off-label prescriptions may directly infringe or contribute to or
induce infringement of method of use patents, such infringement is difficult to prevent or prosecute.
In addition, any limitations of our
patent protection described above may adversely affect the value of our product candidate and may inhibit our ability to obtain a corporate partner at terms acceptable to us, if at all.
Other Intellectual Property Rights
We depend upon trademarks, trade secrets, know-how and continuing technological advances to develop and maintain our competitive position. To
maintain the confidentiality of trade secrets and proprietary information, we require our employees, scientific advisors, consultants and collaborators, upon commencement of a relationship with us, to execute confidentiality agreements and, in the
case of parties other than our research and development collaborators, to agree to assign their inventions to us. These agreements are designed to protect our proprietary information and to grant us ownership of technologies that are developed in
connection with their relationship with us. These agreements may not, however, provide protection for our trade secrets in the event of unauthorized disclosure of such information.
In addition to patent protection, we may utilize orphan drug regulations, pediatric exclusivity or other provisions of the Food, Drug and
Cosmetic Act of 1938, as amended, or FDCA, such as new chemical entity exclusivity or new formulation
13
exclusivity, to provide market exclusivity for a drug candidate. Orphan drug regulations provide incentives to pharmaceutical and biotechnology companies to develop and manufacture drugs for the
treatment of rare diseases, currently defined as diseases that exist in fewer than 200,000 individuals in the U.S., or, diseases that affect more than 200,000 individuals in the U.S. but that the sponsor does not realistically anticipate will
generate a net profit. Under these provisions, a manufacturer of a designated orphan drug can seek tax benefits, and the holder of the first FDA approval of a designated orphan product will be granted a seven-year period of marketing exclusivity for
such FDA-approved orphan product. In the U.S., the FDA has the authority to grant additional data protection for approved drugs where the sponsor conducts specified testing in pediatric or adolescent populations. If granted, this pediatric
exclusivity provides an additional six months which are added to the term of data protection as well as to the term of a relevant patent, to the extent these protections have not already expired. We may also seek to utilize market exclusivities in
other territories, such as in the EU. We cannot assure that our drug candidate, Zerenex, or any drug candidates we may acquire or in-license, will obtain such orphan drug designation, pediatric exclusivity, new chemical entity exclusivity or any
other market exclusivity in the U.S., EU or any other territory, or that we will be the first to receive the respective regulatory approval for such drugs so as to be eligible for any market exclusivity protection.
LICENSING AGREEMENTS AND COLLABORATIONS
We have formed strategic alliances with a number of companies for the development, manufacture and commercialization of Zerenex. Our current
key strategic alliances are discussed below.
Panion & BF Biotech, Inc.
In November 2005, we entered into a license agreement with Panion. Under the license agreement, we have acquired the exclusive worldwide
rights, excluding certain Asian-Pacific countries, for the development and marketing of Zerenex. To date, we have paid an aggregate of $6.6 million to Panion, and Panion is eligible to receive additional payments of up to an aggregate of $5.0
million upon our successful achievement of FDA and EMA market approval, in addition to royalty payments based on a mid-single digit percentage of net sales of Zerenex. The license agreement terminates upon the expiration of our obligations to pay
royalties thereunder. In addition, we may terminate the license agreement (i) in its entirety or (ii) with respect to one or more countries of the territory covered by the agreement, in either case upon 90 days notice. We and Panion
also have the right to terminate the license agreement upon the occurrence of a breach of a material provision of the license agreement and certain insolvency events.
Japan Tobacco Inc. and Torii Pharmaceutical Co., Ltd.
In September 2007 (amended and restated in June 2009), we entered into a sublicense agreement with JT and Torii, JTs pharmaceutical
business subsidiary, under which JT and Torii obtained the exclusive rights for the development and commercialization of Zerenex in Japan. The licensing arrangement calls for JT and Torii to pay us up to $100 million in up-front license fees and
payments upon the achievement of pre-specified milestones, of which we have received $45 million, including the milestone payment of $10.0 million received in February 2014 for the achievement of the Japanese marketing approval milestone. In
addition, upon commercialization, JT and Torii will make royalty payments to us based on a tiered double-digit percentage of net sales of ferric citrate in Japan escalating up to the mid-teens. JT and Torii are responsible for the development and
commercialization costs in Japan. The sublicense terminates upon the expiration of all underlying patent rights. Also, JT and Torii may terminate the sublicense agreement with or without cause upon at least six months prior written notice to us.
Additionally, either party may terminate the sublicense agreement for cause upon 60 days prior written notice after the breach of any material provision of the sublicense agreement, or after certain insolvency events.
COMPETITION
The pharmaceutical and
biotechnology industries are highly competitive. Our competitors include pharmaceutical companies and biotechnology companies, as well as universities and public and private research institutions. In addition, companies that are active in different
but related fields represent substantial competition for us. Many of our competitors have significantly greater capital resources, larger research and development staffs and facilities and greater experience in drug development, regulation,
manufacturing and marketing than we do. These organizations also compete with us to recruit qualified personnel, attract partners for joint ventures or other collaborations, and license technologies that are competitive with ours. To compete
successfully in this industry we must identify novel and unique drugs or methods of treatment and then complete the development of those drugs as treatments in advance of our competitors.
Zerenex, currently our only drug candidate, will have to compete with existing therapies. In addition, other companies are pursuing the
development of pharmaceuticals that target the same diseases and conditions that we are targeting with Zerenex, including the treatment of hyperphosphatemia and iron deficiency anemia. Other companies have products or drug
14
candidates in various stages of pre-clinical or clinical development to treat diseases for which we are also seeking to acquire and develop drug products. Some of these potential competing drugs
are further advanced in development than Zerenex and other potential drug candidates we may acquire or in-license, and may be commercialized earlier. Additional information can be found under Item 1ARisk Factors Other Risks Related
to Our Business within this report.
SUPPLY AND MANUFACTURING
We have limited experience in manufacturing products for clinical or commercial purposes. We intend to continue, in whole or in part, to use
third parties to manufacture and analytically test our drug candidate for use in clinical trials and for future sales.
We believe that we
have established contract manufacturing relationships for the supply of Zerenex to ensure that we will have sufficient material for clinical trials and commercial launch. In addition, we are establishing the basis for long-term commercial production
capabilities. We have committed to build inventory in anticipation for the launch of Zerenex in 2014. As with any supply program, obtaining raw materials of the required quality and quantity cannot be guaranteed and we cannot ensure that we will be
successful in this endeavor.
Prior to the time of commercial sale, to the extent possible and commercially practicable, we intend to seek
to engage additional suppliers for Zerenex to produce Zerenex under current Good Manufacturing Practice, or cGMP, regulations. Our third-party manufacturers have a limited number of facilities in which Zerenex can be produced and will have limited
experience in manufacturing Zerenex in quantities sufficient for commercialization. Our third-party manufacturers will have other clients and may have other priorities that could affect their ability to perform the work satisfactorily and/or on a
timely basis. Both of these occurrences would be beyond our control.
We expect to similarly rely on contract manufacturing relationships
for any products that we may in-license or acquire in the future. However, there can be no assurance that we will be able to successfully contract with such manufacturers on terms acceptable to us, or at all.
Contract manufacturers are subject to ongoing periodic and unannounced inspections by the FDA, the Drug Enforcement Administration and
corresponding state and foreign government agencies to ensure strict compliance with cGMP and other state and federal regulations and corresponding foreign standards. Any of our contractors in Europe face similar challenges from the numerous
European Union and member state regulatory agencies and authorized bodies. We do not have control over third-party manufacturers compliance with these regulations and standards, other than through contractual obligations and periodic auditing.
If they are deemed out of compliance with cGMPs, approvals could be delayed, product recalls could result, inventory could be destroyed, production could be stopped and supplies could be delayed or otherwise disrupted.
If we need to change manufacturers after commercialization, the FDA and corresponding foreign regulatory agencies must approve these new
manufacturers in advance, which will involve testing and additional inspections to ensure compliance with FDA regulations and standards and may require significant lead times and delay, and disruption of supply. Furthermore, switching manufacturers
may be difficult because the number of potential manufacturers is limited. It may be difficult or impossible for us to find a replacement manufacturer quickly or on terms acceptable to us, or at all.
GOVERNMENT AND INDUSTRY REGULATION
Numerous governmental authorities, principally the FDA and corresponding state and foreign regulatory agencies, impose substantial regulations
upon the clinical development, manufacture and marketing of our drug candidate(s), as well as our ongoing research and development activities. None of our drug candidates have been approved for sale in any market in which we have, or previously had,
marketing rights. Before marketing in the U.S., any drug that we develop must undergo rigorous pre-clinical testing and clinical trials and an extensive regulatory approval process implemented by the FDA under the FDCA. The FDA regulates, among
other things, the pre-clinical and clinical testing, safety, efficacy, approval, manufacturing, testing, packaging, labeling, storage, recordkeeping, distribution, adverse event reporting, advertising, promotion, and the import and export of
biopharmaceutical products.
The regulatory review and approval process is lengthy, expensive and uncertain. We are required to submit
extensive pre-clinical, clinical and manufacturing data and supporting information to the FDA for each indication or use to establish a drug candidates safety and efficacy before we can secure FDA approval to market or sell a product in the
U.S. The approval process takes many years, requires the expenditure of substantial resources including ongoing requirements for post-market surveillance and possibly post-marketing studies. Before commencing clinical trials in humans, we must
submit an IND to the FDA containing, among other things, pre-clinical data, chemistry, manufacturing and control information, and an investigative plan. Our submission of an IND may not result in FDA authorization to commence a clinical trial.
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The FDA may permit expedited development, evaluation, and marketing of new therapies intended to
treat persons with serious or life-threatening conditions for which there is an unmet medical need under its fast track drug development programs. A sponsor can apply for fast track designation at the time of submission of an IND, or at any time
prior to receiving marketing approval of the new drug application, or NDA. To receive Fast Track designation, an applicant must demonstrate:
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that the drug is intended to treat a serious or life-threatening condition; and
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that the drug demonstrates the potential to address unmet medical needs.
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The FDA must respond
to a request for fast track designation within 60 calendar days of receipt of the request. If the FDA determines that the conditions for fast track designation have been met, the FDA will provide a designation letter stating that fast track
designation has been granted for development of the drug product for use in treating serious or life-threatening conditions, and informing the sponsor that development studies must show that the product fulfills unmet medical needs. A fast track
designation applies to the product coupled with the specific indication for which it is being studied, but not to a product alone.
If the
fast track request is incomplete, or the drug development program fails to meet the criteria for fast track designation, the FDA will issue a nondesignation determination. If the sponsor submits a subsequent request for consideration, the FDA will
respond to that request within 60 calendar days of receipt of the subsequent request.
Over the course of drug development, a product in a
fast track development program must continue to meet the criteria for fast track designation. Sponsors of products in fast track drug development programs must be in regular contact with the reviewing division of the FDA to ensure that the evidence
necessary to support marketing approval will be developed and presented in a format conducive to an efficient review. Sponsors of products in fast track drug development programs ordinarily are eligible for priority review of a completed application
in six months or less, if the application submission is supported by clinical data, and also may be permitted to submit portions of a NDA to the FDA for review before the complete application is submitted.
Sponsors of drugs designated as fast track also may seek approval under the FDAs accelerated approval regulations. Under this authority,
the FDA may grant marketing approval for a new drug product on the basis of adequate and well-controlled clinical trials establishing that the drug product has an effect on a surrogate endpoint that is reasonably likely, based on epidemiologic,
therapeutic, pathophysiologic, or other evidence, to predict clinical benefit or an effect on a clinical endpoint that can be measured earlier than an effect on irreversible morbidity or mortality, taking into account the threat posed by the
condition and whether the drug provides a meaningful advantage over available therapies. Accelerated approval based on a surrogate endpoint or an effect on a clinical endpoint other than survival or irreversible morbidity will be subject to the
requirement that the applicant study the drug further to verify and describe its clinical benefit where there is uncertainty as to the relation of the surrogate endpoint to clinical benefit or uncertainty as to the relation of the observed clinical
benefit to ultimate outcome. When required to be conducted, such post-marketing studies must also be adequate and well-controlled. The applicant must carry out any such post-marketing studies with due diligence. Failure to conduct such studies, or
conducting such studies that do not establish the required safety and efficacy may result in revocation of the original approval. Many companies who have been granted the right to utilize an accelerated approval approach have failed to obtain
approval. In addition, the FDA currently requires as a condition for accelerated approval pre-approval of promotional materials, which could adversely impact the timing of the commercial launch or subsequent marketing of the product.
Clinical testing must meet requirements for institutional review board oversight, informed consent and good clinical practices, and must be
conducted pursuant to an IND, unless exempted.
For purposes of NDA approval, clinical trials are typically conducted in the following
sequential phases:
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Phase 1
: The drug is administered to a small group of humans, either healthy volunteers or patients, to test for safety, dosage tolerance, absorption, metabolism, excretion, and clinical pharmacology. In the case
of some products for severe or life-threatening diseases, the initial human testing is often conducted in patients having the specific disease.
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Phase 2
: Studies are conducted on a larger number of patients to assess the efficacy of the product, to ascertain dose tolerance and the optimal dose range, and to gather additional data relating to safety and
potential adverse events.
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Phase 3
: Studies further evaluate dosage, and establish safety and efficacy in an expanded patient population. Generally, at least two adequate and well-controlled Phase 3 clinical trials are required by the FDA
for approval.
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Phase 4
: The FDA may require Phase 4 post-marketing studies to find out more about the drugs long-term risks, benefits, and optimal use, or to test the drug in different populations.
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The length of time necessary to complete clinical trials varies significantly and may be difficult to predict. Clinical results are frequently
susceptible to varying interpretations that may delay, limit or prevent regulatory approvals. Additional factors that can cause delay or termination of our clinical trials, or that may increase the costs of these trials, include:
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slow patient enrollment due to the nature of the clinical trial plan, the proximity of patients to clinical sites, the eligibility criteria for participation in the study, competing clinical trials or other factors;
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inadequately trained or insufficient personnel at the study site to assist in overseeing and monitoring clinical trials or delays in approvals from a study sites review board;
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longer treatment time required to demonstrate efficacy or determine the appropriate product dose;
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insufficient supply of the drug candidates;
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high drop-out rate in the clinical trial;
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adverse medical events or side effects in treated patients; and
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lack of efficacy of the drug candidates.
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In addition, the FDA, equivalent foreign regulatory
authority, or a data safety monitoring committee for a trial may place a clinical trial on hold or terminate it if it concludes that subjects are being exposed to an unacceptable health risk, or for futility. Any drug is likely to produce some
toxicity or undesirable side effects in animals and in humans when administered at sufficiently high doses and/or for a sufficiently long period of time. Unacceptable toxicity or side effects may occur at any dose level at any time in the course of
studies in animals designed to identify unacceptable effects of a drug candidate, known as toxicological studies, or clinical trials of drug candidates. The appearance of any unacceptable toxicity or side effect could cause us or regulatory
authorities to interrupt, limit, delay or abort the development of any of our drug candidates and could ultimately prevent approval by the FDA or foreign regulatory authorities for any or all targeted indications.
Sponsors of drugs may apply for a Special Protocol Assessment (SPA) from the FDA. Through the SPA process, the FDA provides official
evaluation and written guidance on the design and size of proposed protocols that are intended to form the basis for a new drug application. However, final marketing approval depends on the results of efficacy, the adverse event profile and an
evaluation of the benefit/risk of treatment demonstrated in Phase 3 trials. The SPA agreement may only be changed through a written agreement between the sponsor and the FDA, or if the FDA becomes aware of a substantial scientific issue essential to
product safety or efficacy.
Before receiving FDA approval to market a product, we must demonstrate that the product is safe and effective
for its intended use by submitting to the FDA an NDA containing the pre-clinical and clinical data that have been accumulated, together with chemistry and manufacturing and controls specifications and information, and proposed labeling, among other
things. The FDA may refuse to accept an NDA for filing if certain content criteria are not met and, even after accepting an NDA, the FDA may often require additional information, including clinical data, before approval of marketing a product.
Whether or not the FDA requests additional information, there is no assurance that the NDA will be approved.
It is also becoming more
common for the FDA to request a Risk Evaluation and Mitigation Strategy, or REMS, as part of a NDA. A REMS plan may contain post-market obligations of the sponsor to, among other things, train prescribing physicians, monitor off-label drug use, and
conduct sufficient Phase 4 follow-up studies and registries to ensure the continued safe use of the drug.
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As part of the approval process, the FDA must inspect and approve each manufacturing facility.
Among the conditions of approval is the requirement that a manufacturers quality control and manufacturing procedures conform to current good manufacturing practices (cGMPs), which are established under FDA regulations. Manufacturers must
expend significant time, money and effort to ensure continued compliance, and, in addition to preapproval inspections, the FDA conducts periodic inspections to evaluate continued compliance with cGMP and other requirements. It may be difficult for
our manufacturers or us to comply with applicable cGMPs, as interpreted by the FDA, and other FDA regulatory requirements. If we, or our contract manufacturers, fail to comply, then the FDA may not allow us to market products that have been affected
by the failure to comply.
If the FDA grants approval, the approval will be limited to those disease states, conditions and patient
populations for which the product is deemed by the FDA to be safe and effective, as determined by the FDAs review of the clinical studies and other data submitted in the NDA. Further, a product may be marketed only in those dosage forms and
for those indications approved in the NDA. Certain changes to an approved NDA, including, with certain exceptions, any significant changes to manufacturing, drug product, or labeling, require approval of a supplemental application before the drug
may be marketed as changed. Any products that we manufacture or distribute pursuant to FDA approvals are subject to continuing monitoring and regulation by the FDA, including compliance with cGMPs and the reporting of field alerts and adverse
experiences with the drugs. The nature of marketing claims that the FDA will permit us to make in the labeling and advertising of our products will be limited to those specified in FDA approved labeling, and the promotion and advertising of our
products will be subject to comprehensive monitoring, review and regulation by the FDA. Drugs whose review was accelerated may carry additional restrictions on marketing activities, including the requirement that all promotional materials are
pre-submitted to the FDA. Claims exceeding or deemed inconsistent with those contained in approved labeling, or deemed to be false or misleading, will be deemed by FDA to constitute a violation of the FDCA. Violations of the FDCA or regulatory
requirements at any time during the product development process, approval process, or marketing and sale following approval may result in recalls, warning letters or enforcement actions, including withdrawal of approval, seizure of products,
injunctions, fines and/or civil or criminal penalties. In addition, there may be instances in which the U.S. Department of Justice or Office of Inspector General at the U.S. Department of Health & Human Services pursues an enforcement
action against our company or our contract manufacturers due to manufacturing or marketing activities or due to alleged kickbacks to health care professionals or false claims to the government if we are able to obtain reimbursement for our product.
Any agency enforcement action could have a material adverse effect on our business.
Should we wish to market our products outside the
U.S., we must receive marketing authorization from the appropriate foreign regulatory authorities. The requirements governing the conduct of clinical trials, marketing authorization, pricing and reimbursement vary widely from country to country. At
present, companies may apply for foreign marketing authorizations at a national level. However, within the European Union, registration procedures are available to companies wishing to market a product in more than one European Union member state.
Typically, if the regulatory authority is satisfied that a company has presented adequate evidence of safety, quality and efficacy, then the regulatory authority will grant a marketing authorization. This foreign regulatory approval process,
however, involves risks similar or identical to the risks associated with FDA approval discussed above, and therefore we cannot guarantee that we will be able to obtain the appropriate marketing authorization for any product in any particular
country.
Failure to comply with applicable federal, state and foreign laws and regulations would likely have a material adverse effect on
our business. In addition, federal, state and foreign laws and regulations regarding the manufacture and sale of new drugs are subject to future changes. We cannot predict the likelihood, nature, effect or extent of adverse governmental regulation
that might arise from future legislative or administrative action, either in the U.S. or abroad.
RESEARCH AND DEVELOPMENT
Company sponsored research and development expenses (excluding non-cash compensation and discontinued operations) totaled $26,209,000 in 2011,
$19,369,000 in 2012 and $32,387,000 in 2013. Other research and development expenses consist primarily of salaries and related personnel costs, fees paid to consultants and outside service providers for clinical and laboratory
development, manufacturing, including pre-launch inventory, facilities-related and other expenses relating to the design, development, manufacture, testing, and enhancement of our drug candidates and technologies, as well as expenses related to
in-licensing of new product candidates. See Item 7. Managements Discussion and Analysis of Financial Condition and Results of OperationsOverview.
EMPLOYEES
As of March 1, 2014, we
had 41 full and part-time employees. None of our employees are represented by a collective bargaining agreement, and we have never experienced a work stoppage. We consider our relations with our employees to be good.
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ITEM 1A. RISK FACTORS.
You should carefully consider the following risks and uncertainties. If any of the following occurs, our business, financial condition and/or
operating results could be materially harmed. These factors could cause the trading price of our common stock to decline, and you could lose all or part of your investment.
Risks related to our business
We have a
limited operating history and have incurred substantial operating losses since our inception. We expect to continue to incur losses in the future and may never become profitable.
We have a limited operating history. You should consider our prospects in light of the risks and difficulties frequently encountered by early
stage companies. In addition, we have incurred substantial operating losses since our inception and expect to continue to incur operating losses for the foreseeable future and may never become profitable. As of December 31, 2013, we had an
accumulated deficit of $439.3 million. As we continue our research and development and pre-commercial efforts, we will incur increasing losses. We may continue to incur substantial operating losses even if we begin to generate revenues from our drug
candidate, Zerenex (ferric citrate coordination complex).
We have not yet commercialized any drug candidate and cannot be sure that we
will ever be able to do so. Even if we commercialize Zerenex, or a future drug candidate, we may not become profitable. Our ability to achieve profitability depends on a number of factors, including our ability to complete our development efforts,
obtain regulatory approval for our drug candidate, successfully complete any post-approval regulatory obligations and successfully manufacture and commercialize our drug candidate.
Risks associated with our product development efforts
If we do not receive regulatory approvals to market our product candidate in a timely manner, or at all, our business will be materially harmed and our
stock price may be adversely affected.
We are developing Zerenex (ferric citrate coordination complex), an oral, ferric
iron-based compound that has the capacity to bind to phosphate and form non-absorbable complexes. We have completed a U.S.-based Phase 3 clinical program for Zerenex for the treatment of hyperphosphatemia (elevated phosphate levels) in patients with
chronic kidney disease, or CKD, on dialysis, conducted pursuant to a Special Protocol Assessment, or SPA, agreement with the Food and Drug Administration, or FDA, and the Companys New Drug Application, or NDA, was submitted to the FDA for
review in August 2013. On October 7, 2013, the FDA accepted for review the NDA that we submitted for Zerenex. We subsequently received the Filing Review Notification, also referred to as the Day 74 letter, which designated a standard 10-month
review timeline and a FDA Prescription Drug User Fee Act, or PDUFA, goal date of June 7, 2014, which is the date by which the FDA intends to complete its review and issue a determination. The FDA is not bound by, and has in the past missed, its
PDUFA goals, and it is unknown whether the review of our NDA filing for Zerenex will be completed within the FDA review goal or will be delayed.
In May 2011, we announced positive Scientific Advice from the European Medicines Agency, or EMA, for the development of Zerenex for the
management and control of serum phosphorus in CKD patients undergoing dialysis, and in non-dialysis dependent CKD patients. The Scientific Advice from the EMA indicates that our successful Phase 3 program in dialysis in the U.S., in conjunction with
safety data generated from other clinical studies with Zerenex, will be considered sufficient to support a European marketing authorization application, or MAA, to the EMA for the indication in CKD patients on dialysis. The Scientific Advice also
provided us with a regulatory path forward in the non-dialysis dependent CKD setting in Europe. As a result, we believe that since our Phase 3 program in dialysis, and Phase 2 study in non-dialysis dependent CKD, in the U.S. were successful, we will
not need to conduct any additional clinical trials to assess the safety or efficacy of Zerenex in order to obtain European approval in CKD, including the dialysis and non-dialysis dependent CKD settings. Accordingly, in March 2014, we submitted a
MAA with the EMA for both dialysis and NDD-CKD. Scientific Advice is legally non-binding and is based on the current scientific knowledge, which may be subject to future changes. Many companies which have been provided with positive Scientific
Advice by the EMA have ultimately failed to obtain approval of an MAA for their drugs. Additionally, even if the primary endpoint in a Phase 3, or other pivotal, clinical trial is achieved, the Scientific Advice does not guarantee approval. The EMA
may raise issues of safety, study conduct, bias, deviation from the protocol, statistical power and analyses, patient completion rates, changes in scientific or medical parameters or internal inconsistencies in the data prior to making its final
decision, which may delay or prevent EMA approval of Zerenex.
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Obtaining approval of a NDA and MAA by the FDA and EMA, respectively, is highly uncertain and
like many product candidates, we may fail to obtain the respective approvals even though our NDA for Zerenex has been filed and accepted for review by the FDA. The NDA and MAA review processes are extensive, lengthy, expensive and uncertain, and the
FDA and/or EMA may delay, limit or deny approval of Zerenex for many reasons, including:
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we may not be able to demonstrate to the satisfaction of the respective regulatory authority that Zerenex is safe and effective for any indication;
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the data arising from the clinical trials, including the Phase 3 results for dialysis patients and our recent Phase 2 results for non-dialysis dependent CKD, the development program or the NDA and/or MAA for Zerenex may
not be satisfactory to the FDA and/or EMA;
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the respective regulatory authority may disagree with the number, design, size, conduct or implementation of our clinical trials or conclude that the data fails to meet statistical or clinical significance;
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the respective regulatory authority may not find the data from preclinical and clinical studies sufficient to demonstrate that Zerenexs clinical and other benefits outweigh its safety risks;
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the respective regulatory authority may disagree with our interpretation of data from preclinical studies or clinical trials, and may reject conclusions from preclinical studies or clinical trials, or determine that
primary or secondary endpoints from clinical trials were not met, or reject safety conclusions from such studies;
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the respective regulatory authority may not accept data generated at one or more of our clinical trial sites;
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the respective regulatory authority may determine that we did not properly oversee our clinical trials or follow the regulatory authoritys advice or recommendations in conducting our clinical trials;
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an advisory committee, if convened by the respective regulatory authority, may recommend against approval of our application or may recommend that the respective regulatory authority require, as a condition of approval,
additional preclinical studies or clinical trials, limitations on approved labeling or distribution and use restrictions, or even if an advisory committee, if convened, makes a favorable recommendation, the respective regulatory authority may still
not approve Zerenex; and
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the respective regulatory authority may identify deficiencies in the chemistry, manufacturing and controls, or CMC, sections of our NDA, our manufacturing processes, facilities or analytical methods or those of our
third party contract manufacturers, and this may lead to significant delays in the approval of Zerenex or to the rejection of the Zerenex NDA.
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Additionally, our March 2014 MAA submission to the EMA was our first MAA filing in Europe. The EMAs review of our MAA submission has not
yet commenced and we can provide no assurance that our MAA submission will be accepted for review by the EMA. In addition, during the regulatory review process, regulatory agencies will typically ask questions of drug sponsors. To date, in the NDA
review process by the FDA, we have endeavored to answer all such questions in a timely and complete fashion; however, we cannot assure you that our answers to such questions were, and will continue to be, complete and to the satisfaction of the FDA.
If certain questions asked by the FDA have not been fully and satisfactorily answered by us, our target PDUFA date may be delayed or our NDA filing may be rejected.
We have conducted two Phase 3 clinical trials initiated in May 2010 and September 2010 for Zerenex as a treatment of hyperphosphatemia in
patients with end-stage renal disease pursuant to a SPA agreement with the FDA. Many companies which have been granted SPAs have ultimately failed to obtain final approval to market their drugs. Since we are seeking approval for Zerenex under a SPA,
based on protocol designs negotiated with, and agreed to by, the FDA, we may be subject to enhanced scrutiny. Regardless of the success of our Phase 3 clinical trials, a SPA does not guarantee approval. The FDA may raise issues of safety, study
conduct, bias, deviation from the protocol, statistical power and analyses, patient completion rates, changes in scientific or medical parameters or internal inconsistencies in the data prior to making its final decision. The FDA may also seek the
guidance of an outside advisory committee prior to making its final decision. Additionally, the regulatory approval of new therapies, and other clinical trial results from potential competitors in our proposed indication, could invalidate our SPA
agreement, or require us to conduct additional, expensive clinical trials in order to obtain regulatory approval.
Accordingly, we may not
receive the regulatory approvals needed to market Zerenex. Any failure or delay in completion of the development program or the FDA and/or EMA review processes would delay or foreclose commercialization of Zerenex and severely harm our business and
financial condition.
If we are unable to successfully complete our clinical trial programs, or if such clinical trials take longer to complete than
we project, our ability to execute our current business strategy will be adversely affected.
Whether or not and how quickly we
complete our clinical trials is dependent in part upon the rate at which we are able to engage clinical trial sites and, thereafter, the rate of enrollment of patients, and the rate we collect, clean, lock and analyze
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the clinical trial database. Patient enrollment is a function of many factors, including the size of the patient population, the proximity of patients to clinical sites, the eligibility criteria
for the study, the existence of competitive clinical trials, and whether existing or new drugs are approved for the indication we are studying. We are aware that other companies are currently conducting or planning clinical trials that seek to
enroll patients with the same disease that we are studying. If we experience delays in identifying and contracting with sites and/or in patient enrollment in our clinical trial programs, we may incur additional costs and delays in our development
programs, and may not be able to complete our clinical trials in a cost-effective or timely manner or at all. In addition, conducting multi-national studies adds another level of complexity and risk. As a result, we may be subject to events
affecting countries outside the U.S.
Negative or inconclusive results from the clinical trials we conduct or unanticipated adverse
medical events could cause us to have to repeat or terminate the clinical trials. For example, in May 2012, we abandoned our development efforts and terminated our license for KRX-0401 (perifosine) following negative results from the Phase 3 trial.
We may also opt to change the delivery method, formulation or dosage which could affect efficacy results for the drug candidate. Accordingly, we may not be able to complete our current or future clinical trials within an acceptable time frame, if at
all.
Pre-clinical testing and clinical development are long, expensive and uncertain processes. If our drug candidate does not receive the
necessary regulatory approvals, we will be unable to commercialize our drug candidate, Zerenex.
We have not received, and may
never receive, regulatory approval for the commercial sale of any drug candidate. We may need to conduct significant additional research and human testing before we receive product approvals with the FDA, EMA or with regulatory authorities of other
countries. Pre-clinical testing and clinical development are long, expensive and uncertain processes. Satisfaction of regulatory requirements typically depends on the nature, complexity and novelty of the product. It requires the expenditure of
substantial resources. Data obtained from pre-clinical and clinical tests can be interpreted in different ways, which could delay, limit or prevent regulatory approval. The FDA, EMA or a regulatory authority of another country, as applicable, may
pose additional questions or request further toxicological, drug-drug interaction, pre-clinical or clinical data or substantiation. For example, while ferric citrate is a Generally Recognized as Safe, or GRAS, substance in the U.S., and the FDA and
EMA have not requested us to conduct a two-year carcinogenicity study in animals, there is no assurance that the FDA, EMA or some other regulatory authority will not ask us to conduct such a study in order to obtain regulatory approval. In addition,
the FDA and EMA have not requested us to conduct reproductive toxicity, genotoxicity and single-dose toxicity studies and we are referencing such studies from the published scientific literature in our regulatory submissions. However, we can provide
no assurance that the FDA or EMA will not ask us to conduct additional studies. Similarly, while the results of drug-drug interaction studies conducted in vitro have been submitted in the NDA and the MAA, we are currently in the process of
conducting additional in-vitro drug-drug interaction studies as requested by the FDA during the NDA review process, which need to be completed prior to the target PDUFA date. While we believe that we will be able to complete these in-vitro studies,
as requested, prior to the target PDUFA date, we cannot assure you that such studies will be completed to the satisfaction of the FDA, which could extend the target PDUFA date. In addition, while no requests have been made by the FDA or EMA for
in-vivo (human) drug-drug interaction studies, we cannot assure you that the FDA or EMA will not request such studies in the future. Consequently, it may take us many years to complete the testing of our drug candidate and failure can occur at any
stage of this process. Negative, inconclusive, or insufficient results or medical events during a pre-clinical or clinical trial could cause us to delay or terminate our development efforts. Furthermore, interim results of preclinical or clinical
studies do not necessarily predict their final results, and acceptable results in early studies might not be obtained in later studies.
Safety signals detected during clinical studies and pre-clinical animal studies, such as the gastrointestinal bleeding and liver toxicities
that have been seen in some high-dose, ferric citrate canine studies, may require us to perform additional safety studies or analyses, which could delay the development of the drug or lead to a decision to discontinue development of the drug. We
have submitted to the FDA data from our short-term and long-term rat and canine pre-clinical studies for Zerenex. While the FDA has reviewed the data from these studies and we have conducted our Phase 3 clinical program for CKD patients on dialysis,
and Phase 2 study in non-dialysis dependent CKD patients, we can provide no assurance that the FDA will not raise any safety concerns in the future from these studies. Drug candidates in the later stages of clinical development may fail to show the
desired traits of safety and efficacy despite positive results in earlier clinical testing. Moreover, the risk remains that the safety and efficacy data from our pivotal Phase 3 program for dialysis dependent CKD patients may be insufficiently
persuasive for the approval of the drug, or may raise safety concerns that may prevent approval of the drug, for the indication sought. The risk also remains that a clinical program conducted by one of our partners may raise efficacy or safety
concerns that may prevent approval of the drug. In addition, qualitative, quantitative and statistical interpretation of any of the prior pre-clinical and clinical safety and efficacy data of our drug candidate may be viewed as flawed by the FDA,
EMA or any other regulatory agency. In addition, there can be no assurance that safety and/or efficacy concerns from the prior data were not overlooked or misinterpreted by us or our consultants, which in subsequent, larger studies might appear and
prevent approval of such drug candidate. In addition, top-line results reported on completed clinical trials are based on a preliminary analysis of
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then available data (both safety and efficacy) and there is the risk that such findings and conclusions could change following a more comprehensive review of the data by a regulatory authority.
For example, in January 2013, we announced successful top-line results from our long-term Phase 3 study of Zerenex for the treatment of elevated serum phosphorus levels, or hyperphosphatemia, in patients with ESRD on dialysis. Updated results were
presented in June 2013 at the World Congress of Nephrology. We can provide no assurance that our findings and conclusions from our long-term Phase 3 study of Zerenex will not change following a more comprehensive review of the data by a regulatory
authority.
Clinical trials have a high risk of failure. A number of companies in the pharmaceutical industry, including biotechnology
companies, have suffered significant setbacks in advanced clinical trials, even after achieving what appeared to be promising results in earlier trials. We experienced such a setback with our Phase 3 KRX-0401 (perifosine) results in April 2012, and
we can provide no assurance that we will not experience such setbacks with Zerenex or any other drug candidate we develop. If we experience delays in the testing or approval process for our existing drug candidate or if we need to perform more or
larger clinical trials than originally planned, our financial results and the commercial prospects for our drug candidate may be materially impaired. In addition, we have limited experience in conducting and managing the clinical trials necessary to
obtain regulatory approval in the U.S. and abroad. Accordingly, we may encounter unforeseen problems and delays in the approval process. Although we engage, from time to time, clinical research organizations with experience in conducting regulatory
trials, errors in the conduct, monitoring, data capture and analysis, and/or auditing could potentially invalidate the results.
Because all of our
proprietary technologies are licensed or sublicensed to us by third parties, termination of these license rights would prevent us from developing and commercializing Zerenex.
We do not own our drug candidate, Zerenex. We have licensed and sublicensed the rights, patent or otherwise, to Zerenex from a third party,
Panion & BF Biotech, Inc., or Panion, who in turn licenses certain rights to Zerenex from one of the inventors of Zerenex. The license agreement with Panion requires us to meet development milestones and imposes development and
commercialization due diligence requirements on us. In addition, under the agreement, we must pay royalties based on a mid-single digit percentage of net sales of product resulting from the licensed technologies (including Zerenex) and pay the
patent filing, prosecution and maintenance costs related to the license. If we do not meet our obligations in a timely manner or if we otherwise breach the terms of our license agreement (including upon certain insolvency events), Panion could
terminate the agreement, and we would lose the rights to Zerenex. In addition, if Panion breaches its agreement with the inventor from whom it licenses rights to Zerenex, Panion could lose its license, which could impair or delay our ability to
develop and commercialize Zerenex. From time to time, we may have disagreements with our licensors or collaborators, or they and/or we may have disagreements with the original inventors, regarding the terms of our agreements or ownership of
proprietary rights, which could lead to delays in the research, development and commercialization of our current, and any future, drug candidate, could require or result in litigation or arbitration, which would be time-consuming and expensive, or
could lead to the termination of a license, or force us to negotiate a revised or new license agreement on terms less favorable than the original. In addition, in the event that the owners and/or licensors of the rights we license were to enter into
bankruptcy or similar proceedings, we could potentially lose our rights to our drug candidates or our rights could otherwise be adversely affected, which could prevent us from developing or commercializing our drug candidates. Finally, our rights to
develop and commercialize Zerenex, whether ourselves or with third parties, are subject to and limited by the terms and conditions of our licenses to Zerenex and the licenses and sublicenses we grant to others.
We rely on third parties to manufacture and analytically test our drug candidate. If these third parties do not successfully manufacture and test our
drug candidate, our business will be harmed.
We have limited experience in manufacturing products for clinical or commercial
purposes. We intend to continue, in whole or in part, to use third parties to manufacture and analytically test our drug candidate for use in clinical trials and for future sales. We may not be able to enter into future contract agreements with
these third-parties on terms acceptable to us, if at all.
Our ability to conduct clinical trials, manufacture and commercialize our drug
candidate will depend on the ability of such third parties to manufacture our drug candidate on a large scale at a competitive cost and in accordance with current Good Manufacturing Practices, or cGMP, and other regulatory requirements, including
requirements from federal, state and local environmental and safety regulatory agencies and foreign regulatory requirements, if applicable. Prior to approval, the FDA must review and approve our validation studies for drug substance and drug
product. Significant scale-up of manufacturing may result in unanticipated technical challenges and may require additional validation studies that the FDA must review and approve. Contract manufacturers often encounter difficulties in scaling up
production, including problems involving raw material supplies, production yields, technical difficulties, scaled-up product characteristics, quality control and assurance, shortage of qualified personnel, capacity constraints, changing priorities
within the contract manufacturers, compliance with
22
FDA and foreign regulations, environmental compliance, production costs and development of advanced manufacturing techniques and process controls. Any of these difficulties, if they occur, and
are not overcome to the satisfaction of the FDA or other regulatory agency, could lead to significant delays and possibly the termination of the development program for our drug candidate. These risks become more acute as we scale up for commercial
quantities, where a reliable source of raw material supplies and drug substance and drug product processes become critical to commercial success. For example, given the large quantity of materials required for Zerenex production and the large
quantities of Zerenex that will be required for commercial success, the commercial viability of Zerenex, if approved, will also depend on adequate supply of starting materials that meet quality, quantity and cost standards and the ability of our
contract manufacturers to produce drug substance and drug product in large scale. Failure to achieve this level of supply can jeopardize and prevent the successful commercialization of the product. Moreover, issues that may arise in our current
transition to commercial batch sizes with our third party manufacturers of Zerenex can lead to significant delays in our development timelines.
Our third-party manufacturers may not perform as agreed or may not remain in the contract manufacturing business for the time required by us
to successfully produce and market our drug candidate. In addition, our contract manufacturers will be subject to ongoing periodic and unannounced inspections by the FDA and corresponding foreign governmental agencies to ensure strict compliance
with cGMP, as well as other governmental regulations and corresponding foreign standards. While we periodically audit our contractors for adherence to regulatory requirements, and are ultimately held responsible for their regulatory compliance, we
cannot assure you that unforeseen changes at these contractors will not occur that could change their regulatory standing. The same issues apply to contract analytical services which we use for quality, impurity and release testing of our drug
candidate. We are required by law to have adequate control over raw materials, components and finished products furnished by our third-party manufacturers, which we establish by contract and through periodic oversight, but unforeseen circumstances
could affect our third-party manufacturers compliance with applicable regulations and standards. As we continue to scale up production, we continue to develop analytical tools for ferric citrate drug substance and drug product testing. Failure
to develop effective analytical tools could result in regulatory or technical delay or could jeopardize our ability to obtain FDA approval. Moreover, even with effective analytical methods available, there is no assurance that we will be able to
analyze all the raw materials and qualify all impurities to the satisfaction of the FDA, possibly requiring additional analytical studies, analytical method development, or preclinical studies, which could significantly delay our ability to receive
regulatory approval for our drug candidate. Additionally, changes in the analytical specifications required by the FDA or other regulatory authority, such as United States Pharmacopeial Convention standards, from time to time, could delay our
ability to receive regulatory approval for our drug candidate. Switching or engaging multiple third-party contractors to produce our drug substance or drug product may be difficult and time consuming because the number of potential manufacturers may
be limited and the process by which multiple manufacturers make the drug substance or drug product must meet established specifications at each manufacturing facility. It may be difficult and time consuming for us to find and engage replacement or
multiple manufacturers quickly and on terms acceptable to us, if at all. For Zerenex, the loss of any of our drug substance or drug product manufacturers would result in significant additional costs and delays in our development program. Moreover,
if we need to add or change manufacturers after commercialization, the FDA and corresponding foreign regulatory agencies must approve any new manufacturers in advance, which will involve testing and additional inspections to ensure compliance with
FDA and foreign regulations and standards.
If we do not establish or maintain manufacturing, drug development and marketing arrangements with third
parties, we may be unable to commercialize our products.
We do not possess all of the capabilities to fully commercialize our
product on our own. From time to time, we may need to contract with additional third parties, or renew or revise contracts with existing third parties, to:
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manufacture our product candidate;
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assist us in developing, testing and obtaining regulatory approval for and commercializing our compound and technologies; and
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market and distribute our drug product.
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We can provide no assurance that we will be able to
successfully enter into agreements with such third parties on terms that are acceptable to us, if at all. If we are unable to successfully contract with third parties for these services when needed, or if existing arrangements for these services are
terminated, whether or not through our actions, or if such third parties do not fully perform under these arrangements, we may have to delay, scale back or end one or more of our drug development programs or seek to develop or commercialize our
product independently, which could result in significant delays. Furthermore, such failure could result in the termination of license rights to our product. If these manufacturing, development or marketing agreements take the form of a partnership
or strategic alliance, such arrangements may provide our collaborators with significant discretion in determining the efforts and resources that they will apply to the development and commercialization of our product. We cannot predict the form or
scope that any such collaboration might take, and we may
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pursue other strategic alternatives if terms or proposed collaborations are not attractive. To the extent that we rely on third parties to research, develop or commercialize our product, we are
unable to control whether such product will be scientifically or commercially successful. Additionally, if these third parties fail to perform their obligations under our agreements with them or fail to perform their work in a satisfactory manner,
in spite of our efforts to monitor and ensure the quality of such work, we may face delays in achieving the business or regulatory milestones required for commercialization of our current, and any future, drug candidate.
Our reliance on third parties, such as clinical research organizations, or CROs, may result in delays in completing, or a failure to complete, clinical
trials if such CROs fail to perform under our agreements with them.
In the course of product development, we engage CROs and
other vendors to conduct and manage clinical studies and to assist us in guiding our products through the FDA review and approval process. If the CROs or applicable vendors fail to perform their obligations under our agreements with them or fail to
perform clinical trials in a satisfactory or timely manner, we may face significant delays in completing our clinical trials, submitting our regulatory filings, or approval, as well as the commercialization of one or more drug candidates.
Furthermore, any loss or delay in obtaining contracts with such entities may also delay the completion of our clinical trials and the market approval of drug candidate(s).
Other Risks Related to Our Business
If we
are unable to develop adequate sales, marketing or distribution capabilities or enter into agreements with third parties to perform some of these functions, we will not be able to commercialize our product effectively.
In the event our drug candidate is approved by the FDA and or EMA, we may conduct our own sales and marketing effort to support the drug. We
currently have limited experience in sales, marketing or distribution. To directly market and distribute any product, we must build and train a sales and marketing organization with appropriate technical expertise and distribution capabilities. We
may attempt to build and train such a sales and marketing organization on our own or with the assistance of a contract sales organization. For some market opportunities, we may want or need to enter into co-promotion or other licensing arrangements
with larger pharmaceutical or biotechnology firms in order to increase the commercial success of our product. We may not be able to establish sales, marketing and distribution capabilities of our own or enter into such arrangements with third
parties in a timely manner or on acceptable terms. To the extent that we enter into co-promotion or other licensing arrangements, our product revenues are likely to be lower than if we directly marketed and sold our product, and some or all of the
revenues we receive will depend upon the efforts of third parties, and these efforts may not be successful. Additionally, building marketing and distribution capabilities may be more expensive and time consuming than we anticipate, requiring us to
divert capital from other intended purposes or preventing us from building our marketing and distribution capabilities to the desired levels.
From time to time we may consider offers or hold discussions with companies for partnerships or the acquisition of our company or any of our
current or future products. Any accepted offer may preclude us from commercializing our product(s) effectively.
Even if we obtain regulatory
approval to market Zerenex, if it fails to achieve market acceptance, we may never record meaningful revenues.
Even if Zerenex is
approved for sale, it may not be commercially successful in the marketplace. Market acceptance of our drug product will depend on a number of factors, including:
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perceptions by members of the health care community, including physicians, of the safety and efficacy of our product candidate, including, but not limited to, the perception of the long-term effects of the potential
absorption and/or accumulation of ferric iron or citrate resulting from the use of Zerenex;
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the marketing claims that the FDA will permit us to make in the labeling and advertising of Zerenex, including potential marketing claims related to the effect of Zerenex on iron storage parameters and on the reduction
in the use of IV iron and ESAs;
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the rates of adoption of our product by medical practitioners and the target populations for our product;
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the potential advantages that our product offers over existing treatment methods and competing products;
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the cost-effectiveness of our product relative to competing products, which may be exacerbated as existing treatments go off-patent;
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the pricing and pricing strategies for our product;
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the availability of government or third-party payor reimbursement for our product;
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the side effects or unfavorable publicity concerning our product or similar products; and
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the effectiveness of our sales, marketing and distribution efforts.
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Because we expect sales of our product, if approved, to generate substantially all of our
revenues in the long-term, the failure of our drug to find market acceptance would harm our business and could require us to seek additional financing or other sources of revenue. In addition, our estimates regarding market size and projected growth
are based on third party studies, which while we believe them to be reasonable, may not prove to be accurate when Zerenex becomes available in the market. Some of the studies have also observed a slowdown of growth in the incidence of renal disease
and patients on dialysis.
In addition, we can provide no assurance that Riona
®
will be successfully launched and marketed in Japan by our Japanese partner, Japan Tobacco, Inc. and Torii Pharmaceutical Co., Ltd.
If our
competitors develop and market products that are less expensive, more effective or safer than our drug product, or our drug product does not achieve market acceptance vis-à-vis existing treatments, our commercial opportunities may be reduced
or eliminated.
The pharmaceutical industry is highly competitive. Our competitors include pharmaceutical companies and
biotechnology companies, as well as universities and public and private research institutions. In addition, companies that are active in different but related fields represent substantial competition for us. Many of our competitors have
significantly greater capital resources, larger research and development staffs and facilities and greater experience in drug development, regulation, manufacturing and marketing than we do. These organizations also compete with us to recruit
qualified personnel, attract partners for joint ventures or other collaborations, and license technologies that are competitive with ours. As a result, our competitors may be able to more easily develop technologies and products that could render
our drug product obsolete or noncompetitive. To compete successfully in this industry we must identify novel and unique drugs or methods of treatment and then complete the development of those drugs as treatments in advance of our competitors.
Zerenex, if approved in the U.S., would have to compete with other FDA approved phosphate binders such as Renagel
®
(sevelamer hydrochloride) and Renvela
®
(sevelamer carbonate), both marketed by Genzyme Corporation (a wholly-owned subsidiary of Sanofi),
PhosLo
®
(calcium acetate), marketed by Fresenius Medical Care, Fosrenol
®
(lanthanum carbonate), marketed by Shire Pharmaceuticals Group
plc, and Velphoro
®
(sucroferric oxyhydroxide), marketed by Fresenius Medical Care North America, as well as over-the-counter calcium carbonate products such as TUMS
®
and metal-based options such as aluminum and magnesium. Our strategy to compete against these existing treatments depends in part on physicians and patients accepting that Zerenex is
differentiated in the marketplace versus these FDA approved phosphate binders. In addition, we may have to compete against existing treatments on price, which becomes more challenging as generic versions of these existing treatments come to market.
For example, a generic formulation of PhosLo
®
manufactured by Roxane Laboratories, Inc. was launched in the U.S. in October 2008. In addition, upon the expiration of their core patents,
generic formulations of Renagel
®
and Renvela
®
(expected in the U.S. beginning in March 2014), and generic formulations of Fosrenol
®
, may be launched, which could have a material effect on the pricing of phosphate binders.
In addition, our commercial opportunities may be reduced or eliminated if our competitors develop and market products that are less expensive,
more effective or safer than our drug product. Other companies have drug candidates in various stages of pre-clinical or clinical development to treat diseases for which we are also seeking to acquire and develop drug products. Some of these
potential competing drugs are further advanced in development than our drug candidate and may be commercialized earlier. Even if we are successful in developing effective drugs, our product(s) may not compete successfully with products produced by
our competitors.
If we lose our key personnel or are unable to attract and retain additional personnel, our operations could be disrupted and our
business could be harmed.
As of March 1, 2014, we had 41 full and part-time employees. To successfully develop our drug
candidate, we must be able to attract and retain highly skilled personnel. Our limited resources may hinder our efforts to attract and retain highly skilled personnel. In addition, if we lose the services of our current personnel, in particular, Ron
Bentsur, our Chief Executive Officer and Greg Madison, our Chief Operating Officer, our ability to continue to execute on our business plan could be materially impaired. Although we have employment agreements with Mr. Bentsur and
Mr. Madison, such agreements do not prevent either of them from terminating their respective employment with us.
Any acquisitions we make may
require a significant amount of our available cash and may not be scientifically or commercially successful.
As part of our
business strategy, we may effect acquisitions to obtain additional businesses, products, technologies, capabilities and personnel. If we make one or more significant acquisitions in which the consideration includes cash, we may be required to use a
substantial portion of our available cash.
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Acquisitions involve a number of operational risks, including:
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difficulty and expense of assimilating the operations, technology and personnel of the acquired business;
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our inability to retain the management, key personnel and other employees of the acquired business;
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our inability to maintain the acquired companys relationship with key third parties, such as alliance partners;
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exposure to legal claims for activities of the acquired business prior to the acquisition;
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the diversion of our managements attention from our core business; and
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the potential impairment of goodwill and write-off of in-process research and development costs, adversely affecting our reported results of operations.
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The status of reimbursement from third-party payors for newly approved health care drugs is uncertain and failure to obtain adequate reimbursement could
limit our ability to generate revenue.
Our ability to commercialize pharmaceutical products may depend, in part, on the extent to
which reimbursement for the products will be available from:
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government and health administration authorities;
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private health insurers;
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managed care programs; and
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other third-party payors.
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Significant uncertainty exists as to the coverage and reimbursement
status of newly approved health care products. Third-party payors, including Medicare and Medicaid, are challenging the prices charged for medical products and services. Government and other third-party payors increasingly are attempting to contain
health care costs by limiting both coverage and the level of reimbursement for new drugs and by refusing, in some cases, to provide coverage for uses of approved products for disease indications for which the FDA has not granted labeling approval.
In 2003, Congress passed the Medicare Prescription Drug, Improvement and Modernization Act of 2003, which for the first time established prescription drug coverage for Medicare beneficiaries, under Medicare Part D. Under this program, beneficiaries
purchase insurance coverage from private insurance companies to cover the cost of their prescription drugs. However, third-party insurance coverage may not be available to patients for our product, if approved. If government and other third-party
payors do not provide adequate coverage and reimbursement levels for our product, its market acceptance may be significantly reduced.
Health care
reform measures could adversely affect our business.
The business prospects and financial condition of pharmaceutical and
biotechnology companies are affected by the efforts of governmental and third-party payors to contain or reduce the costs of health care. In the U.S. and in foreign jurisdictions there have been, and we expect that there will continue to be, a
number of legislative and regulatory proposals aimed at changing the health care system, such as proposals relating to the pricing of healthcare products and services in the U.S. or internationally, the reimportation of drugs into the U.S. from
other countries (where they are then sold at a lower price), and the amount of reimbursement available from governmental agencies or other third party payors. For example, drug manufacturers are required to have a national rebate agreement with the
Department of Health and Human Services, or HHS, in order to obtain state Medicaid coverage, which requires manufacturers to pay a rebate on drugs dispensed to Medicaid patients. On January 27, 2012, the Centers for Medicare and Medicaid
Services, or CMS, issued a proposed regulation covering the calculation of Average Manufacturer Price, or AMP, which is the key variable in the calculation of these rebates.
Furthermore, in the U.S., health care reform legislation titled the Patient Protection and Affordable Care Act, or PPACA, was signed into law
in March 2010. The impact of this legislation on our business is inherently difficult to predict as many of the details regarding the implementation of this legislation have not been determined. In a decision issued on June 29, 2012, the United
States Supreme Court upheld the majority of PPACA. The Courts decision allows implementation of key provisions impacting drug and device manufacturers to go forward. This includes PPACA changes to the Medicare Part D Program (including closing
the donut hole), Medicaid Drug Rebate Program (including the definition of AMP), and expansion of the 340B Drug Discount Program. The decision also allows the FDA and CMS to continue with implementation efforts, including related to the
Biologics Price Competition and Innovation Act and the Physician Payments Sunshine Act, both of which were enacted as part of the PPACA. Regulations to implement PPACA could result in a decrease in our stock price or limit our ability to raise
capital or to obtain strategic partnerships or licenses. Government-financed comparative efficacy research could also result in new practice guidelines, labeling or reimbursement policies that discourages use of our product.
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For example, in July 2010, CMS released its final rule to implement a bundled prospective payment
system for end-stage renal disease facilities as required by the Medicare Improvements for Patients and Providers Act, or MIPPA. The final rule delayed the inclusion of oral medications without intravenous equivalents, such as phosphate binders, in
the bundle until January 1, 2014; however, on January 3, 2013, the United States Congress passed legislation known as the American Taxpayer Relief Act of 2012, which, among other things, delays by two years the implementation of oral-only
end-stage renal disease related drugs, including phosphate binders, in the bundled ESRD prospective payment system, until January 1, 2016. If phosphate binders are included in the bundle beginning in 2016, separate Medicare reimbursement will
no longer be available for phosphate binders, as it is today under Medicare Part D. While it is too early to project the impact bundling may have on the phosphate binder industry, the impact could potentially cause dramatic price reductions for
phosphate binders, which could significantly reduce the commercial potential of our drug candidate, if approved.
On September 27,
2007, the Food and Drug Administration Amendments Act of 2007 was enacted, giving the FDA enhanced post-market authority, including the authority to require post-marketing studies and post-marketing clinical trials related to serious risks, labeling
changes based on new safety information, and compliance with risk evaluation and mitigation strategies approved by the FDA. The FDAs exercise of this authority may result in delays or increased costs during the period of product development,
clinical trials and regulatory review and approval, which may also increase costs related to complying with new post-approval regulatory requirements, and increase potential FDA restrictions on the sale or distribution of approved products. Finally,
on July 9, 2012, the Food and Drug Administration Safety and Innovation Act was enacted to, among other things, renew the drug user fee program, expand the FDAs inspection records access and require manufacturers to establish appropriate
oversight and controls over their suppliers and the supply chain, including raw material suppliers and contract manufacturers, as a part of cGMP compliance.
We face product liability risks and may not be able to obtain adequate insurance.
The use of our drug candidate in clinical trials, and the future sale of any approved drug candidate and new technology, exposes us to
liability claims. Although we are not aware of any historical or anticipated product liability claims against us, if we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to
cease clinical trials of our drug candidate or limit commercialization of any approved product.
We intend to expand our insurance
coverage to include the commercial sale of any approved products if marketing approval is obtained; however, insurance coverage is becoming increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost. We also may
not be able to obtain additional insurance coverage that will be adequate to cover product liability risks that may arise. Regardless of merit or eventual outcome, product liability claims may result in:
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decreased demand for a product;
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injury to our reputation;
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our inability to continue to develop a drug candidate;
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withdrawal of clinical trial volunteers; and
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Consequently, a product liability claim or product recall may result in
losses that could be material.
Our corporate compliance efforts cannot guarantee that we are in compliance with all potentially applicable
regulations.
The development, manufacturing, pricing, sale, marketing, and reimbursement of our product(s), together with our
general operations, are subject to extensive regulation by federal, state and other authorities within the U.S. and numerous entities outside of the U.S. We are a relatively small company with 41 full and part-time employees as of March 1,
2014. We also have significantly fewer employees than many other companies that have a product candidate in clinical development, and we rely heavily on third parties to conduct many important functions. While we believe that our corporate
compliance program is sufficient to ensure compliance with applicable regulations, we cannot assure you that we are or will be in compliance with all potentially applicable regulations. If we fail to comply with any of these regulations we could be
subject to a range of regulatory actions, including suspension or termination of clinical trials, the failure to approve a product candidate, issuance of an enforcement or warning letter, restrictions on our product or manufacturing processes,
withdrawal of product(s) from the market, significant fines, or other sanctions or litigation.
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Risks related to our financial condition
Our existing capital resources may not be adequate to finance our operating cash requirements for the length of time that we have estimated.
We currently expect that our existing capital resources combined with future anticipated cash flows will be sufficient to operate our business
plan. The actual amount of cash that we will need to operate is subject to many factors, including, but not limited to, the timing and expenditures associated with the build-up of pre-launch/launch inventory and capacity expansion, the timing and
expenditures associated with the respective regulatory review processes for our U.S. NDA and EU MAA filings, the timing and expenditures associated with pre-commercial/commercial activities related to Zerenex, and the timing, design and conduct of
clinical trials for Zerenex. We may depend upon significant additional financings to provide the cash necessary to execute our current operations, including the commercialization of Zerenex.
Our forecast of the period of time through which our existing capital resources will be adequate to support our current operations is a
forward-looking statement that involves risks and uncertainties. The actual amount of funds we will need to operate is subject to many factors, some of which are beyond our control. These factors include, but are not limited to, the following:
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the timing and expenditures associated with the build-up of pre-launch/launch inventory and capacity expansion;
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the timing and expenditures associated with the respective regulatory review processes for our U.S. NDA and EU MAA filings;
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the timing and expenditures associated with pre-commercial/commercial activities related to Zerenex;
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the timing, design and conduct of, and results from, clinical trials for Zerenex;
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the timing of expenses associated with manufacturing and product development of Zerenex and those proprietary drug candidates that may be in-licensed, partnered or acquired;
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the timing of the in-licensing, partnering and acquisition of new product opportunities;
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the progress of the development efforts of parties with whom we have entered, or may enter, into research and development agreements;
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our ability to achieve our milestones under our licensing arrangement;
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the timing and expenses associated with capital expenditures to expand our manufacturing capabilities;
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the timing and expenses associated with building our own commercial infrastructure to manufacture, market and sell our drug candidate and those that may be in-licensed, partnered or acquired;
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the costs involved in prosecuting and enforcing patent claims and other intellectual property rights; and
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the costs related to litigation.
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If our cash is insufficient to meet future operating
requirements, we will have to raise additional funds. If we are unable to obtain additional funds on terms favorable to us or at all, we may be required to cease or reduce our operating activities or sell or license to third parties some or all of
our intellectual property. If we raise additional funds by selling additional shares of our capital stock, the ownership interests of our stockholders will be diluted. If we need to raise additional funds through the sale or license of our
intellectual property, we may be unable to do so on terms favorable to us, if at all.
Risks related to our intellectual property and third-party
contracts
If we are unable to adequately protect our intellectual property, third parties may be able to use our intellectual property,
which could adversely affect our ability to compete in the market.
Our commercial success will depend in part on our ability, and
the ability of our licensors, to obtain and maintain patent protection on our drug product and technologies, and to successfully defend these patents against third-party challenges. The patent positions of pharmaceutical and biotechnology companies
can be highly uncertain and involve complex legal and factual questions. No consistent policy regarding the breadth of claims allowed in biotechnology patents has emerged to date. Accordingly, the patents we use may not be sufficiently broad to
prevent others from practicing our technologies or from developing competing products. Furthermore, others may independently develop similar or alternative drug products or technologies or design around our patented drug product and technologies
which may have an adverse effect on our business. If our competitors prepare and file patent applications in the U.S. that claim technology also claimed by us, we may have to participate in interference or derivation proceedings in front of the U.S.
Patent and Trademark Office to determine priority of invention, which could result in substantial cost, even if the eventual outcome is favorable to us. Because of the extensive time required for development, testing and regulatory review of a
potential product, it is possible that before we commercialize any of our products, any related patent may expire or remain in existence for only a short period following commercialization, thus
28
reducing any advantage of the patent. The patents we use may be challenged or invalidated or may fail to provide us with any competitive advantage. As many of the patents we use are licensed or
sublicensed from third parties, we may not be able to enforce such licensed patents against third party infringers without the cooperation of the patent owner and the licensor, which may not be forthcoming. In addition, we may not be successful or
timely in obtaining any patents for which we submit applications.
Additionally, the laws of foreign countries may not protect our
intellectual property rights to the same extent as do the laws of the U.S. In addition, in jurisdictions outside the U.S. where we have patent rights, we may be unable to prevent unlicensed parties from selling or importing products or technologies
derived elsewhere using our proprietary technology.
We also rely on trade secrets and know-how to protect our intellectual property where
we believe patent protection is not appropriate or obtainable. Trade secrets are difficult to protect. While we require our employees, licensees, collaborators and consultants to enter into confidentiality agreements, this may not be sufficient to
adequately protect our trade secrets or other proprietary information. In addition, we share ownership and publication rights to data relating to our drug product and technologies with our research collaborators and scientific advisors. If we cannot
maintain the confidentiality of this information, our ability to receive patent protection or protect our trade secrets or other proprietary information will be at risk.
The intellectual property that we own or have licensed relating to our drug candidate, Zerenex, is limited, which could adversely affect our ability to
compete in the market and adversely affect the value of Zerenex.
The patent rights that we own or have licensed relating to
Zerenex are limited in ways that may affect our ability to exclude third parties from competing against us if we obtain regulatory approval to market Zerenex. In particular:
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Composition of matter patents can provide protection for pharmaceutical products to the extent that the specifically covered compositions are key, non-interchangeable components of the pharmaceutical product. The first
composition of matter and method patent relating to Zerenex in the United States (U.S. Patent No. 5,753,706) expires in February 2017. We cannot assure you that we can obtain any extension of the term of this patent for delays caused by FDA
regulatory review (the maximum amount of term of extension available under the Patent Term Extension provisions of 35 U.S.C. § 156 would extend the term of this patent to February 2022). Upon expiration of U.S. Patent No. 5,753,706,
competitors who obtain the requisite regulatory approval may potentially offer products with the same composition as our product, so long as the competitors do not infringe any other patents that we may hold, such as other composition of matter
patents and/or method of use patents. We license additional composition of matter and use patents expiring in 2024 with independent claims covering forms of ferric citrate (the active pharmaceutical ingredient, or API, of Zerenex), pharmaceutical
compositions that include the API, pharmaceutical compositions having ferric citrate in an amount effective to reduce serum phosphate levels, and methods of treating hyperphosphatemia and metabolic acidosis.
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Our methods of use patents only protect the product when used or sold for the claimed methods. However, these types of patents do not limit a competitor from making and marketing a product that is identical to our
product that is labeled for an indication that is outside of our patented methods, or for which there is a substantial use in commerce outside of our patented methods.
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Our pending patent applications may not issue as patents and may not issue in all countries in which we develop, manufacture or potentially sell our product(s) or in countries where others develop, manufacture and
potentially sell products using our technologies. Moreover, our pending patent applications, if issued as patents, may not provide additional protection for our product.
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Because any potential date for regulatory approval is currently unknown, it is possible that the life of these patents following regulatory approval will be minimal, even if the above-discussed Patent Term Extension is
obtained.
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Obtaining proof of direct infringement by a competitor for a method of use patent can be difficult because the
competitors making and marketing a product may not engage in the patented use. Additionally, obtaining proof that a competitor contributes to, or induces, infringement of a patented method by another can be difficult because, for example, an
off-label use of a product could prohibit a finding of contributory infringement. In addition, proving inducement of infringement requires proof of intent by the competitor. If we are required to defend ourselves against claims or to protect our own
proprietary rights against others, it could result in substantial costs to us and the distraction of our management. An adverse ruling in any litigation or administrative proceeding could prevent us from marketing and selling Zerenex if we obtain
regulatory approval, increase the risk that a generic version of Zerenex could enter the market to compete with Zerenex, limit our development and commercialization of Zerenex, or otherwise harm our competitive position and result in additional
significant costs. In addition, any successful claim of infringement asserted against us could subject us to monetary damages or injunction, which could prevent us from making or selling Zerenex. We also may be required to obtain licenses to use the
relevant technology. Such licenses may not be available on commercially reasonable terms, if at all.
29
Moreover, physicians may prescribe a competitive identical product for indications other than the
one for which the product has been approved, or off-label indications, that are covered by the applicable patents. Although such off-label prescriptions may directly infringe or contribute to or induce infringement of method of use patents, such
infringement is difficult to prevent or prosecute.
In addition, any limitations of our patent protection described above may adversely
affect the value of our product candidate and may inhibit our ability to obtain a corporate partner at terms acceptable to us, if at all.
In addition to patent protection, we may utilize orphan drug regulations, pediatric exclusivity or other provisions of the Food, Drug and
Cosmetic Act of 1938, as amended, or FDCA, such as new chemical entity exclusivity, or NCE, or new formulation exclusivity, to provide market exclusivity for a drug candidate.
Orphan drug regulations provide incentives to pharmaceutical and biotechnology companies to develop and manufacture drugs for the treatment of
rare diseases, currently defined as diseases that exist in fewer than 200,000 individuals in the U.S., or, diseases that affect more than 200,000 individuals in the U.S. but that the sponsor does not realistically anticipate will generate a net
profit. Under these provisions, a manufacturer of a designated orphan drug can seek tax benefits, and the holder of the first FDA approval of a designated orphan product will be granted a seven-year period of marketing exclusivity for such
FDA-approved orphan product.
In the U.S., the FDA has the authority to grant additional data protection for approved drugs where the
sponsor conducts specified testing in pediatric or adolescent populations. If granted, this pediatric exclusivity provides an additional six months which are added to the term of data protection as well as to the term of a relevant patent, to the
extent these protections have not already expired.
The FDCA provides a five-year period of non-patent marketing exclusivity within the
U.S. to the first applicant to gain approval of an NDA for a New Chemical Entity, or NCE. A drug is an NCE if the FDA has not previously approved any other new drug containing the same active moiety, which consists of the molecule(s) or ion(s)
responsible for the action of the drug substance. During the exclusivity period, the FDA may not accept for review an abbreviated new drug application, or ANDA, or a 505(b)(2) NDA submitted by another company for another version of such drug where
the applicant does not own or have a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement. The FDCA also
provides three years of marketing exclusivity for an NDA, 505(b)(2) NDA or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to
be essential to the approval of the application (for example, for new indications, dosages, or strengths of an existing drug). This three-year exclusivity covers only the conditions associated with the new clinical investigations and does not
prohibit the FDA from approving ANDAs for drugs containing the original active agent. Five-year and three-year exclusivity will not delay the submission or tentative approval of a full ANDA; however, an applicant submitting a full ANDA would be
required to conduct sufficient studies to demonstrate that their generic product is bioequivalent to Zerenex.
We may also seek to utilize
market exclusivities in other territories, such as in the EU.
We cannot assure that our drug candidate, Zerenex (ferric citrate
coordination complex), or any drug candidates we may acquire or in-license, will obtain such orphan drug designation, pediatric exclusivity, new chemical entity exclusivity or any other market exclusivity in the U.S., EU or any other territory, or
that we will be the first to receive the respective regulatory approval for such drugs so as to be eligible for any market exclusivity protection.
Litigation or third-party claims could require us to spend substantial time and money defending such claims and adversely affect our ability to develop
and commercialize our product.
We may be forced to initiate litigation to enforce our contractual and intellectual property
rights, or we may be sued by third parties asserting claims based on contract, tort or intellectual property infringement. In addition, third parties may have or may obtain patents in the future and claim that Zerenex or any other technologies
infringe their patents. If we are required to defend against suits brought by third parties, or if we sue third parties to protect our rights, we may be required to pay substantial litigation costs, and our managements attention may be
diverted from operating our business. In addition, any legal action against our licensor or us that seeks damages or an injunction of our commercial activities relating to Zerenex or other technologies could subject us to monetary liability, a
temporary or permanent injunction preventing the development,
30
marketing and sale of Zerenex or such technologies, and/or require our licensor or us to obtain a license to continue to use Zerenex or other technologies. We cannot predict whether our licensor
or we would prevail in any of these types of actions or that any required license would be made available on commercially acceptable terms, if at all.
Risks Related to Our Common Stock
Future
sales or other issuances of our common stock could depress the market for our common stock.
Sales of a substantial number of
shares of our common stock, or the perception by the market that those sales could occur, could cause the market price of our common stock to decline or could make it more difficult for us to raise funds through the sale of equity in the future.
On August 2, 2013, we filed with the SEC a shelf registration statement on Form S-3 (File No. 333-190353), which the SEC
declared effective on August 16, 2013, providing for the offering of up to $150 million of our common stock and warrants to purchase our common stock. Subsequent to the underwritten public offering that was completed on January 23, 2014,
there remains approximately $34.9 million of our common stock and warrants available for sale on this shelf registration statement.
Future issuances of common stock could depress the market for our common stock.
If we make one or more significant acquisitions in which the consideration includes stock or other securities, our stockholders holdings
may be significantly diluted. In addition, stockholders holdings may also be diluted if we enter into arrangements with third parties permitting us to issue shares of common stock in lieu of certain cash payments upon the achievement of
milestones.
Our stock price can be volatile, which increases the risk of litigation, and may result in a significant decline in the value of your
investment.
The trading price of our common stock is likely to be highly volatile and subject to wide fluctuations in price in
response to various factors, many of which are beyond our control. These factors include:
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developments concerning our drug candidate, including the safety and efficacy results from clinical trials and regulatory filings and approvals;
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announcements of technological innovations by us or our competitors;
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introductions or announcements of new products by us or our competitors;
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announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments involving us or our competitors;
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changes in financial estimates by securities analysts;
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actual or anticipated variations in quarterly or annual operating results;
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expectations regarding our financial condition;
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expiration or termination of licenses, research contracts or other collaboration agreements;
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developments relating to our intellectual property and those of our competitors, including but not limited to, the commercialization of generic products;
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expectations or investor speculation regarding the strength of our intellectual property position, or the availability of regulatory exclusivity;
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conditions or trends in the regulatory climate and the biotechnology and pharmaceutical industries;
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changes in the market valuations of similar companies;
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negative comments and sentiment in the media; and
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additions or departures of key personnel.
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In addition, equity markets in general, and the
market for biotechnology and life sciences companies in particular,
have experienced extreme price and volume fluctuations that have often been unrelated
or disproportionate to the operating performance of companies traded in those markets. These broad market and industry factors may materially affect the market price of our common stock, regardless of our development and operating performance. In
the past, following periods of volatility in the market price of a companys securities, securities class-action litigation has often been instituted against that company. Such litigation, if instituted against us, could cause us to incur
substantial costs to defend such claims and divert managements attention and resources, which could seriously harm our business.
31
Certain anti-takeover provisions in our charter documents and Delaware law could make a third-party
acquisition of us difficult. This could limit the price investors might be willing to pay in the future for our common stock.
Provisions in our amended and restated certificate of incorporation and bylaws could have the effect of making it more difficult for a third
party to acquire, or of discouraging a third party from attempting to acquire, or control us. These factors could limit the price that certain investors might be willing to pay in the future for shares of our common stock. Our amended and restated
certificate of incorporation allows us to issue preferred stock without the approval of our stockholders. The issuance of preferred stock could decrease the amount of earnings and assets available for distribution to the holders of our common stock
or could adversely affect the rights and powers, including voting rights, of such holders. In certain circumstances, such issuance could have the effect of decreasing the market price of our common stock. Our amended and restated bylaws eliminate
the right of stockholders to call a special meeting of stockholders, which could make it more difficult for stockholders to effect certain corporate actions. Any of these provisions could also have the effect of delaying or preventing a change in
control.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES.
Our corporate and executive office is located in New York, New York. Our New York facility consists of approximately 18,500 square
feet of leased space at 750 Lexington Avenue, New York, New York 10022, with a lease term through September 30, 2016. We are a party to an office sharing agreement with a third-party for a portion of our leased space through September 29,
2014.
ITEM 3. LEGAL PROCEEDINGS.
We, and our subsidiaries, are not a party to, and our property is not the subject of, any material pending legal proceedings, except as stated
below.
On February 1, 2013, a lawsuit was filed against us and our chief executive officer on behalf of a putative class of all of
our shareholders (other than the defendants) who acquired our shares between June 1, 2009 and April 1, 2012. Smith v. Keryx Biopharmaceuticals, Inc., et al., Case No. 1:13-CV-0755-TPG (S.D.N.Y.). On February 26, 2013, a
substantially similar lawsuit was filed against us and our chief executive officer as well as our chief financial officer. Park v. Keryx Biopharmaceuticals, Inc., et al., Case No. 1:13-CV-1307-TPG (S.D.N.Y.). On June 10, 2013, the Court
entered an Order consolidating the two lawsuits and appointing a lead plaintiff. The case is now styled In re Keryx Biopharmaceuticals, Inc. Securities Litigation, Case No. 1:13-CV-0755-KBF (S.D.N.Y.). On July 10, 2013, the lead
plaintiff filed a Consolidated Amended Complaint that, in substance, repeated the claims alleged in the consolidated lawsuits. The Consolidated Amended Complaint asserts claims against (i) us for alleged violations of Section 10(b) of the
Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 promulgated thereunder and (ii) our chief executive officer for alleged violations of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5. The claims in the
Consolidated Amended Complaint are premised on general allegations that we and the individual defendant participated directly or indirectly in the preparation and/or issuance of purportedly false and misleading earnings reports, SEC filings, press
releases, and other public statements, which allegedly caused our stock to trade at artificially inflated prices. The lead plaintiff seeks an unspecified amount of damages. On August 26, 2013, we filed a motion to dismiss the Consolidated
Amended Complaint. On October 10, 2013, lead plaintiff filed an opposition to our motion to dismiss. Our reply in further support of our motion to dismiss was filed on November 12, 2013. On February 14, 2014, the
Court entered an Opinion and Order granting the motion to dismiss. The Court entered Judgment for the Defendants on February 24, 2014. We believe the claims made in this action are without merit, and intend to defend the consolidated
action vigorously. We cannot, however, predict the outcome or effect, if any, of the lawsuit on our business.
ITEM 4.
MINE SAFETY DISCLOSURES.
Not applicable
32
Notes to the Consolidated Financial Statements
Unless the context requires otherwise, references in this report to Keryx, Company, we, us and
our refer to Keryx Biopharmaceuticals, Inc. and our subsidiaries.
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
We are a biopharmaceutical company focused on the acquisition, development and commercialization of pharmaceutical products for the treatment
of renal disease. Currently, our only drug candidate is Zerenex
TM
(ferric citrate coordination complex), an oral, ferric iron-based compound. Our New Drug Application (NDA), for the
treatment of hyperphosphatemia (elevated phosphate levels) in patients with chronic kidney disease (CKD) on dialysis, is currently under review by the Food and Drug Administration (FDA) with an assigned Prescription Drug User
Fee Act (PDUFA) goal date of June 7, 2014. In addition, in March 2014, we submitted a Marketing Authorization Application (MAA) with the European Medicines Agency (EMA) seeking the approval of Zenerex as a
treatment for hyperphosphatemia in patients with CKD, including dialysis and non-dialysis dependent CKD.
We own a 100% interest in each
of ACCESS Oncology, Inc. (ACCESS Oncology), Neryx Biopharmaceuticals, Inc., and Accumin Diagnostics, Inc. (ADI), all inactive U.S. corporations incorporated in the State of Delaware. Most of our biopharmaceutical development
and substantially all of our administrative operations during 2013, 2012 and 2011 were conducted in the U.S.
LIQUIDITY AND CAPITAL RESOURCES
Except for 2009, we have incurred substantial operating losses since our inception, and expect to continue to incur operating losses for the
foreseeable future and may never become profitable. As of December 31, 2013, we have an accumulated deficit of $439.3 million.
Our
major sources of cash have been proceeds from various public and private offerings of our common stock, option and warrant exercises, interest income, and from the upfront and milestone payments from our Sublicense Agreement with Japan Tobacco Inc.
(JT) and Torii Pharmaceutical Co., Ltd. (Torii) and miscellaneous payments from our other prior licensing activities. We have not yet commercialized any drug candidate and cannot be sure if we will ever be able to do so. Even
if we commercialize a drug candidate, we may not become profitable. Our ability to achieve profitability depends on a number of factors, including our ability to complete our development efforts, obtain regulatory approval for our drug candidate,
successfully complete any post-approval regulatory obligations and successfully manufacture and commercialize our drug candidate alone or in partnership. We may continue to incur substantial operating losses even if we begin to generate revenues
from our drug candidate, if approved.
In January 2013, we raised approximately $74.8 million, net of underwriting discounts and offering
expenses of approximately $5.6 million, in an underwritten public offering. In January 2014, we raised approximately $107.6 million, net of underwriting discounts and offering expenses of approximately $7.5 million, in an underwritten public
offering. We have a shelf registration statement on Form S-3 filed and declared effective by the Securities and Exchange Commission in August 2013, which provides for the offering of up to $150 million of common stock and warrants in the aggregate.
Subsequent to the underwritten public offerings that were completed in January 2013 and January 2014, there remains approximately $34.9 million of our common stock and warrants available for sale on this shelf registration statement.
We currently expect that our existing capital resources combined with future anticipated cash flows will be sufficient to operate our business
plan. The actual amount of cash that we will need to operate is subject to many factors, including, but not limited to, the timing and expenditures associated with the build-up of prelaunch/launch inventory and capacity expansion, the timing and
expenditures associated with the respective regulatory review processes for our U.S. NDA and EU MAA filings, the timing and expenditures associated with pre-commercial/commercial activities related to Zerenex, and the timing, design and conduct of
clinical trials for Zerenex. We may depend upon significant additional financings to provide the cash necessary to execute our current operations, including the commercialization of Zerenex.
F-6
Our common stock is listed on the NASDAQ Capital Market and trades under the symbol
KERX.
CORPORATE
In
September 2013, the Board of Directors increased the total number of board members to seven and appointed Daniel P. Regan as a director to fill the newly-created position.
In February 2014, Greg Madison was appointed as Executive Vice President and Chief Operating Officer.
RECENTLY ISSUED ACCOUNTING STANDARDS
None.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include our financial statements and those of our wholly-owned subsidiaries. Intercompany transactions
and balances have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management
to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
applicable reporting period. Actual results could differ from those estimates. Such differences could be material to the financial statements.
CASH
AND CASH EQUIVALENTS
We treat liquid investments with original maturities of three months or less when purchased as cash and cash
equivalents.
INVESTMENT SECURITIES
We were not invested in investment securities at December 31, 2013 and 2012, respectively.
PROPERTY, PLANT AND EQUIPMENT
Property,
plant and equipment are stated at historical cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets:
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Estimated
useful life
(years)
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Office furniture and equipment
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3-7
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Computers, software and related equipment
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3
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Leasehold improvements are amortized over the shorter of their useful life or the remaining term of the lease
exclusive of renewal options.
PATENT COSTS
We expense patent maintenance costs as incurred. We have classified our patent expenses in other general and administrative.
F-7
REVENUE RECOGNITION
We recognize license revenue in accordance with the revenue recognition guidance of the FASB Accounting Standards Codification (the
Codification). We analyze each element of our licensing agreement to determine the appropriate revenue recognition. The terms of the license agreement may include payments to us of non-refundable up-front license fees, milestone payments
if specified objectives are achieved, and/or royalties on product sales. We recognize revenue from upfront payments over the period of significant involvement under the related agreements unless the fee is in exchange for products delivered or
services rendered that represent the culmination of a separate earnings process and no further performance obligation exists under the contract. We recognize milestone payments as revenue upon the achievement of specified milestones only if
(1) the milestone payment is non-refundable, (2) substantive effort is involved in achieving the milestone, (3) the amount of the milestone is reasonable in relation to the effort expended or the risk associated with achievement of
the milestone, and (4) the milestone is at risk for both parties. If any of these conditions are not met, we defer the milestone payment and recognize it as revenue over the estimated period of performance under the contract (see Note 9
License Agreements).
Other revenue consists of fees and payments arising from technology transfer, termination and settlement agreements
related to our prior license agreements. Other revenues are recognized at the time such fees and payments are earned.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred. Pre-approval inventory expenditures are recorded as research and development
expense as incurred. The capitalization of inventory for our product candidate will commence when it is probable that our product will be approved for commercial marketing. Nonrefundable advance payments for goods or services that will be used or
rendered for future research and development activities are deferred and amortized over the period that the goods are delivered or the related services are performed, subject to an assessment of recoverability. We make estimates of costs incurred in
relation to external clinical research organizations (CROs) and clinical site costs. We analyze the progress of clinical trials, including levels of patient enrollment, invoices received and contracted costs when evaluating the adequacy
of the amount expensed and the related prepaid asset and accrued liability. Significant judgments and estimates must be made and used in determining the accrued balance and expense in any accounting period. We review and accrue CRO expenses and
clinical trial study expenses based on work performed and rely upon estimates of those costs applicable to the stage of completion of a study. Accrued CRO costs are subject to revisions as such trials progress to completion. Revisions are charged to
expense in the period in which the facts that give rise to the revision become known. With respect to clinical site costs, the financial terms of these agreements are subject to negotiation and vary from contract to contract. Payments under these
contracts may be uneven, and depend on factors such as the achievement of certain events, the successful recruitment of patients, the completion of portions of the clinical trial or similar conditions. The objective of our policy is to match the
recording of expenses in our financial statements to the actual services received and efforts expended. As such, expense accruals related to clinical site costs are recognized based on our estimate of the degree of completion of the event or events
specified in the specific clinical study or trial contract.
INCOME TAXES
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, operating losses and tax credit carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in operations in the period that includes the enactment date. If the likelihood of realizing the deferred tax assets or liability is less than more likely than not, a valuation allowance is then created.
We, and our subsidiaries, file income tax returns in the U.S. federal jurisdiction and in various states. We have tax net operating loss
carryforwards that are subject to examination for a number of years beyond the year in which they were generated for tax purposes. Since a portion of these net operating loss carryforwards may be utilized in the future, many of these net operating
loss carryforwards will remain subject to examination.
F-8
We are continuing our practice of recognizing interest and penalties related to uncertain income
tax positions in income tax expense.
STOCK - BASED COMPENSATION
We recognize all share-based payments to employees and to non-employee directors for service on our board of directors as compensation expense
in the consolidated financial statements based on the grant date fair values of such payments. Stock-based compensation expense recognized each period is based on the value of the portion of share-based payment awards that is ultimately expected to
vest during the period. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
For share-based payments to consultants and other third-parties, compensation expense is determined at the measurement date. The
expense is recognized over the vesting period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. We record compensation expense based on the fair value of the award at the reporting date.
The awards to consultants and other third-parties are then revalued, or the total compensation is recalculated based on the then current fair value, at each subsequent reporting date.
BASIC AND DILUTED NET LOSS PER COMMON SHARE
Basic net loss per share is computed by dividing the losses allocable to common stockholders by the weighted average number of shares of common
stock outstanding for the period. Diluted net loss per share does not reflect the effect of shares of common stock to be issued upon the exercise of stock options and warrants, as their inclusion would be anti-dilutive. The options outstanding as of
December 31, 2013, 2012 and 2011, which are not included in the computation of net loss per share amounts, were 3,845,370, 3,401,671 and 3,517,000, respectively. No warrants were outstanding during each of these periods.
SEGMENT REPORTING
Following the
discontinuation of the Services segment in December 2011, we have determined that we operate in only one reportable segment: the Products segment.
ACQUISITIONS
We adopted ASC Topic 805,
Business Combinations, as of January 1, 2009. The adoption of ASC Topic 805 was effective on a prospective basis. Prior to the adoption of ASC Topic 805, we accounted for acquired businesses using the purchase method of accounting which
required that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values. Our consolidated financial statements and results of operations through 2008 reflected an acquired business after the
completion of the acquisition and were not retroactively restated. The cost to acquire a business, including transaction costs, was allocated to the underlying net assets of the acquired business in proportion to their respective fair values. Any
excess of the purchase price over the estimated fair values of the net assets acquired was recorded as goodwill. Any excess of the net assets acquired over the purchase price represented negative goodwill.
IMPAIRMENT
Long lived assets are
reviewed for an impairment loss when circumstances indicate that the carrying value of long-lived tangible and intangible assets with finite lives may not be recoverable. Managements policy in determining whether an impairment indicator
exists, a triggering event, comprises measurable operating performance criteria as well as qualitative measures. If an analysis is necessitated by the occurrence of a triggering event, we make certain assumptions in determining the impairment
amount. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future cash flows expected to be generated by the asset or used in its disposal. If the carrying amount of an asset exceeds its
estimated future cash flows, an impairment charge is recognized.
F-9
Goodwill is reviewed for impairment annually, or when events arise that could indicate that an
impairment exists. We test for goodwill impairment using a two-step process. The first step compares the fair value of the reporting unit with the units carrying value, including goodwill. When the carrying value of the reporting unit is
greater than fair value, the units goodwill may be impaired, and the second step must be completed to measure the amount of the goodwill impairment charge, if any. In the second step, the implied fair value of the reporting units
goodwill is compared with the carrying amount of the units goodwill. If the carrying amount is greater than the implied fair value, the carrying value of the goodwill must be written down to its implied fair value. As of December 31,
2011, 2012 and 2013, management conducted its annual assessments of goodwill and concluded that there were no impairments. We will continue to perform impairment tests annually, at December 31, and whenever events or changes in circumstances
suggest that the carrying value of an asset may not be recoverable.
CONCENTRATIONS OF CREDIT RISK
We do not have significant off-balance-sheet risk or credit risk concentrations. We maintain our cash and cash equivalents and held-to-maturity
investments, when applicable, with multiple financial institutions that invest in investment-grade securities with average maturities of less than twelve months. See Note 3 Investment Securities and Note 4 Fair Value Measurements.
NOTE 2 - CASH AND CASH EQUIVALENTS
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(in thousands)
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December 31, 2013
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December 31, 2012
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Money market funds
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$
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29,904
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$
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7,137
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Checking and bank deposits
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25,792
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7,540
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Total
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$
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55,696
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$
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14,677
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A significant portion of our cash is maintained in Federal Deposit Insurance Corporation (FDIC)
insured accounts at credit qualified financial institutions. At times, such amounts may exceed the FDIC insurance limits. At December 31, 2013, uninsured cash balances totaled approximately $55.4 million.
NOTE 3 - INVESTMENT SECURITIES
We were not invested in investment securities at December 31, 2013 and 2012, respectively.
NOTE 4 - FAIR VALUE MEASUREMENTS
We measure certain financial assets and liabilities at fair value on a recurring basis in the financial statements. The
hierarchy ranks the quality and reliability of inputs, or assumptions, used in the determination of fair value and requires financial assets and liabilities carried at fair value to be classified and disclosed in one of the following three
categories:
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Level 1 quoted prices in active markets for identical assets and liabilities;
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Level 2 inputs other than Level 1 quoted prices that are directly or indirectly observable; and
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Level 3 unobservable inputs that are not corroborated by market data.
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We review
investment securities for impairment and to determine the classification of the impairment as temporary or other-than-temporary. Losses are recognized in our consolidated statement of operations when a decline in fair value is determined to be
other-than-temporary. We review our investments on an ongoing basis for indications of possible impairment. Once identified, the determination of whether the impairment is temporary or other-than-temporary requires significant judgment.
F-10
The following table provides the fair value measurements of applicable financial assets as of
December 31, 2013 and 2012:
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Financial assets at fair value
as of December 31, 2013
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(in thousands)
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Level 1
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Level 2
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Level 3
|
|
|
|
|
|
Money market funds (1)
|
|
$
|
29,904
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
29,904
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets at fair value
as of December 31, 2012
|
|
(in thousands)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
Money market funds (1)
|
|
$
|
7,137
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,137
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Included in cash and cash equivalents on our consolidated balance sheet. The carrying amount of money market funds is a reasonable estimate of fair value.
|
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
December 31, 2013
|
|
|
December 31, 2012
|
|
|
|
|
Leasehold improvements
|
|
$
|
32
|
|
|
$
|
20
|
|
Office furniture and equipment
|
|
|
556
|
|
|
|
329
|
|
Computers, software and related equipment
|
|
|
638
|
|
|
|
530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,226
|
|
|
|
879
|
|
Accumulated depreciation and amortization
|
|
|
(877
|
)
|
|
|
(823
|
)
|
|
|
|
|
|
|
|
|
|
Net book value
|
|
$
|
349
|
|
|
$
|
56
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense for the years ended December 31, 2013, 2012 and 2011 was approximately $54,000,
$35,000 and $47,000, respectively. The following table summarizes depreciation expense for the years ended December 31, 2013, 2012 and 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31
|
|
(in thousands)
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
Depreciation expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
32
|
|
|
|
21
|
|
|
|
28
|
|
General and administrative
|
|
|
22
|
|
|
|
14
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
54
|
|
|
$
|
35
|
|
|
$
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 6 - GOODWILL
On April 6, 2006, ADI, our wholly-owned subsidiary, completed the acquisition of Accumin
TM
, a novel, patent protected, diagnostic for the direct measurement of total, intact urinary albumin, from AusAm Biotechnologies, Inc. The purchase price of Accumin was $3,996,000. We accounted
for the ADI transaction as a purchase. The excess of the purchase price over the net assets acquired in the ADI transaction represented goodwill of approximately $3,208,000, which was allocated to our Products segment based on the proposed synergies
with our then existing drug pipeline activities. In September 2008, we terminated our license agreement related to the ADI product.
F-11
NOTE 7 - OTHER ASSETS
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
December 31, 2013
|
|
|
December 31, 2012
|
|
|
|
|
Patents and other indefinite-lived intangible assets
|
|
$
|
352
|
|
|
$
|
352
|
|
Deposits
|
|
|
163
|
|
|
|
163
|
|
Deferred registration fees
|
|
|
118
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
633
|
|
|
|
550
|
|
|
|
|
Accumulated amortization
|
|
|
(352
|
)
|
|
|
(352
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
281
|
|
|
$
|
198
|
|
|
|
|
|
|
|
|
|
|
There were no amortization expenses for the years ended December 31, 2013, 2012 and 2011. We do not
expect to record amortization expenses going forward, as all intangible assets are fully amortized.
NOTE 8 - DISCONTINUED OPERATIONS
In December 2011, we ceased the operations of Online Collaborative Oncology Group, which was providing clinical trial
management and site recruitment services and ceased all operations related to the Services segment. The results of our Services segment and the related financial positions have been reflected as discontinued operations in the consolidated financial
statements. The consolidated financial statements have been reclassified to conform to a discontinued operations presentation for all historical periods presented.
For the year ended December 31, 2011, we recorded a reversal of previously recorded estimated liabilities associated with our
discontinued operations of $246,000. Summarized selected financial information for discontinued operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31
|
|
(in thousands)
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
Service revenue
|
|
$
|
|
|
|
$
|
|
|
|
$
|
156
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services
|
|
|
|
|
|
|
|
|
|
|
(90
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income
|
|
|
|
|
|
|
|
|
|
|
246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain from discontinued operations
|
|
$
|
|
|
|
$
|
|
|
|
$
|
246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 9 - LICENSE AGREEMENTS
In September 2007, we entered into a Sublicense Agreement with JT and Torii, JTs pharmaceutical business subsidiary,
under which JT and Torii obtained the exclusive sublicense rights for the development and commercialization of ferric citrate in Japan, which is being developed in the U.S. under the trade name Zerenex. JT and Torii are responsible for the future
development and commercialization costs in Japan. Effective as of June 8, 2009, we entered into an Amended and Restated Sublicense Agreement (the Revised Agreement) with JT and Torii, which, among other things, provided for the
elimination of all significant on-going obligations under the sublicense agreement.
In April 2011, JT and Torii commenced a Phase 3
clinical program of ferric citrate in Japan. Under the terms of the license agreement with JT and Torii, we received a non-refundable milestone payment of $5.0 million in April 2011 for the achievement of the Phase 3 commencement milestone. As a
result, we recorded license revenue of $5.0 million in accordance with our revenue recognition policy, which is included in the year ended December 31, 2011.
In January 2013, JT and Torii filed its NDA with the Japanese Ministry of Health, Labour and Welfare for marketing approval of ferric citrate
in Japan for the treatment of hyperphosphatemia in patients with CKD. Under the terms of the license agreement with JT and Torii, we received a non-refundable milestone payment of $7.0 million in January 2013 for the achievement of the NDA filing
milestone. As a result, we recorded license revenue of $7.0 million in accordance with our revenue recognition policy, which is included in the year ended December 31, 2013.
In January 2014, JT and Torii received manufacturing and marketing approval of ferric citrate from the Japanese Ministry of Health, Labour and
Welfare. Ferric citrate, to be marketed in Japan by JTs subsidiary, Torii
F-12
Pharmaceutical Co., Ltd., under the brand name Riona
®
, is indicated as an oral treatment for the improvement of hyperphosphatemia in
patients with CKD. Under the terms of the license agreement with JT and Torii, Keryx received a non-refundable payment of $10.0 million in February 2014 for the achievement of the marketing approval milestone. Keryx will also receive
double-digit tiered royalties on net sales of Riona
®
in Japan, as well as up to an additional $55.0 million upon the achievement of certain annual net sales milestones.
On April 2, 2012, we reported that the Phase 3 X-PECT (Xeloda
®
+
Perifosine Evaluation in Colorectal cancer Treatment) clinical trial evaluating perifosine (KRX-0401) + capecitabine (Xeloda) in patients with refractory advanced colorectal cancer did not meet the primary endpoint of improving overall survival
versus capecitabine + placebo. On May 4, 2012, we executed a License Termination and Technology Transfer Agreement with Aeterna Zentaris GmbH (Zentaris), whereby the license agreement for KRX-0401 (perifosine) was terminated, and in
exchange for the transfer of the U.S. Investigational New Drug Application, development data, intellectual property and contracts to Zentaris, we will receive a royalty on future net sales, if any, of perifosine in the U.S., Canada and Mexico.
Zentaris has assumed all costs related to the Perifosine program going forward.
NOTE 10 - CONTINGENT EQUITY RIGHTS
On February 5, 2004, we acquired ACCESS Oncology, a related party, for a purchase price of approximately $19,502,000.
The purchase price included our assumption of certain liabilities of ACCESS Oncology equal to approximately $8,723,000, the issuance of shares of our common stock valued at approximately $6,325,000, contingent equity rights valued at approximately
$4,004,000 and transaction costs of approximately $450,000.
At the effective date of the merger, each share of ACCESS Oncology common
stock, including shares issuable upon the exercise of options exercised before March 1, 2004, and upon the exercise of outstanding warrants, was converted into the right to share in the contingent equity rights pro rata with the other holders
of ACCESS Oncology common stock. Pursuant to the merger agreement, 623,145 shares of our common stock valued at approximately $6,325,000 have been issued to the former preferred stockholders of ACCESS Oncology. An additional 4,433 shares of our
common stock are issuable to those preferred stockholders of ACCESS Oncology who have yet to provide the necessary documentation to receive shares of our common stock.
On December 16, 2009, we announced the initiation of a Phase 3 registration trial of KRX-0401 (perifosine) for the treatment of patients
with relapsed / refractory multiple myeloma. The achievement of this event triggered contingent milestone stock consideration payable to the former stockholders of ACCESS Oncology in the amount of an aggregate of 500,000 shares of our common stock
valued at $1,365,000.
Due to the termination of the license for KRX-0401 in May 2012, we were no longer committed to pay to the former
stockholders of ACCESS Oncology, Inc. certain contingent equity rights (up to 2,872,422 shares of our common stock). For the year ended December 31, 2012, we recognized a non-cash extraordinary gain of $2.6 million relating to the write-off of
the contingent equity rights liability.
NOTE 11 - STOCKHOLDERS EQUITY
Preferred Stock
Our amended and restated certificate of incorporation authorizes the issuance of up to 5,000,000 shares of preferred stock, $0.001 par value,
with rights senior to those of our common stock.
Common Stock
On June 18, 2013, at the 2013 Annual Meeting of Stockholders, the Companys stockholders approved an amendment to the Companys
amended and restated certificate of incorporation increasing the shares of authorized common stock from 95,000,000 shares to 130,000,000 shares $0.001 par value common stock. The number of authorized shares of preferred stock remains unchanged at
5,000,000 shares.
F-13
On January 22, 2014, we announced the pricing of an underwritten public offering, whereby we
sold 7,935,000 shares of our common stock at a price of $14.50 per share for gross proceeds of approximately $115.1 million. Net proceeds from this offering were approximately $107.6 million, net of underwriting discounts and offering expenses of
approximately $7.5 million. The shares were sold under a Registration Statement (No. 333-190353) on Form S-3, filed by us with the Securities and Exchange Commission. This shelf registration statement on Form S-3, filed and declared effective by the
SEC in August 2013, provides for the offering of up to $150 million of common stock and warrants in the aggregate. Subsequent to this underwritten public offering, there remains approximately $34.9 million of our common stock and warrants available
for sale on this shelf registration statement. We may offer the securities under our shelf registration statement from time to time in response to market conditions or other circumstances if we believe such a plan of financing is in our best
interests and the best interests of our stockholders.
On January 30, 2013, we announced the pricing of an underwritten public
offering, whereby we sold 9,469,100 shares of our common stock at a price of $8.49 per share for gross proceeds of approximately $80.4 million. Net proceeds from this offering were approximately $74.8 million, net of underwriting discounts and
offering expenses of approximately $5.6 million. The shares were sold under Registration Statements (Nos. 333-171517 and 333-186332) on Form S-3 and Form S-3MEF, respectively, and filed by us with the Securities and Exchange Commission.
On May 4, 2011, we announced the pricing of an underwritten registered offering of 7,021,277 shares of our common stock at a price of
$4.70 per share for gross proceeds of approximately $33.0 million. Net proceeds from this offering were approximately $30.7 million, net of underwriting discounts and offering expenses of approximately $2.3 million. The shares were sold under a
shelf registration statement on Form S-3 (File No. 333-171517) that was previously filed and declared effective by the SEC on January 28, 2011.
Treasury Stock
As of
December 31, 2013 and 2012, we held a total of 79,948 shares of our common stock in treasury, at a total cost of $357,000.
Equity Incentive
Plans
We have in effect the following stock option and incentive plans.
a. The 1999 Stock Option Plan was adopted in November 1999. Under the 1999 Stock Option Plan, our board of directors could grant stock-based
awards to directors, consultants and employees. The plan authorizes grants to purchase up to 4,230,000 shares of authorized but unissued common stock. The plan limits the term of each option, to no more than 25 years from the date of the grant,
unless otherwise authorized by the board. The plan permits the board of directors or a committee appointed by the board to administer the plan. The administrator has the authority, in its discretion, to determine the terms and conditions of any
option granted to a service provider, including the vesting schedule. As of December 31, 2013, no additional shares of our common stock may be issued under the 1999 Stock Option Plan.
b. The 2004 Long-Term Incentive Plan was adopted in June 2004 by our stockholders. Under the 2004 Long-Term Incentive Plan, the compensation
committee of our board of directors is authorized to grant stock-based awards to directors, consultants and employees. The 2004 plan authorizes grants to purchase up to 4,000,000 shares of authorized but unissued common stock. The plan limits the
term of each option to no more than 10 years from the date of grant. As of December 31, 2013, up to an additional 244,165 shares may be issued under the 2004 Long-Term Incentive Plan.
c. The 2007 Incentive Plan was adopted in June 2007 by our stockholders. Under the 2007 Incentive Plan, the compensation committee of our
board of directors is authorized to grant stock-based awards to directors, consultants, employees and officers. The 2007 Incentive Plan authorizes grants to purchase up to 6,000,000 shares of authorized but unissued common stock. The plan limits the
term of each option to no more than 10 years from the date of grant. As of December 31, 2013, up to an additional 9,837 shares may be issued under the 2007 Incentive Plan.
F-14
d. The 2009 CEO Incentive Plan was adopted in May 2009. Under the 2009 CEO Incentive Plan, our
board of directors granted an option to Ron Bentsur, our Chief Executive Officer, to purchase up to 600,000 shares of authorized but unissued common stock. The option has a term of 10 years from the date of grant. As of December 31, 2013, the
option is fully vested and exercisable.
e. The 2013 Incentive Plan was adopted in June 2013 by our stockholders at our 2013 Annual
Meeting of Stockholders. Under the 2013 Incentive Plan, the compensation committee of the Companys board of directors is authorized to grant stock-based awards to directors, officers, employees and consultants. The 2013 Incentive Plan
authorizes grants to purchase up to 3,500,000 shares of authorized but unissued common stock. The plan limits the term of each option to no more than 10 years from the date of their grant. As of December 31, 2013, up to an additional 2,871,000
shares may be issued under the 2013 Incentive Plan.
Total shares available for the issuance of stock options or other stock-based awards
under our stock option and incentive plans were 3,125,002 shares at December 31, 2013.
Stock Options
The following table summarizes stock option activity for all plans for the years ended December 31, 2013, 2012 and 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of shares
|
|
|
Weighted-
average
exercise
price
|
|
|
Weighted-
average
Contractual
Term
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at January 1, 2011
|
|
|
7,638,403
|
|
|
$
|
7.05
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
692,350
|
|
|
|
4.53
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(2,382,027
|
)
|
|
|
1.30
|
|
|
|
|
|
|
$
|
6,604,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(98,600
|
)
|
|
|
4.32
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(2,333,126
|
)
|
|
|
13.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2011
|
|
|
3,517,000
|
|
|
|
6.40
|
|
|
|
|
|
|
$
|
2,139,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
521,500
|
|
|
|
2.36
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(266,621
|
)
|
|
|
7.77
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(370,208
|
)
|
|
|
11.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2012
|
|
|
3,401,671
|
|
|
|
5.17
|
|
|
|
|
|
|
$
|
2,373,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
932,366
|
|
|
|
6.29
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(443,813
|
)
|
|
|
2.10
|
|
|
|
|
|
|
$
|
4,614,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(44,854
|
)
|
|
|
8.70
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2013
|
|
|
3,845,370
|
|
|
$
|
5.75
|
|
|
|
6.2
|
|
|
$
|
28,361,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at December 31, 2013
|
|
|
3,804,543
|
|
|
$
|
5.76
|
|
|
|
6.2
|
|
|
$
|
28,045,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2013
|
|
|
2,519,162
|
|
|
$
|
5.74
|
|
|
|
5.0
|
|
|
$
|
18,719,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes information about stock options outstanding at December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding
|
|
|
Options exercisable
|
|
Range of exercise prices
|
|
Number
outstanding
|
|
|
Weighted-
average
remaining
contractual
life (years)
|
|
|
Weighted-
average
exercise
price
|
|
|
Number
exercisable
|
|
|
Weighted-
average
exercise
price
|
|
$ 0.10 - $ 3.00
|
|
|
1,698,612
|
|
|
|
7.0
|
|
|
$
|
1.64
|
|
|
|
1,078,621
|
|
|
$
|
1.11
|
|
3.70 - 8.56
|
|
|
1,106,208
|
|
|
|
7.5
|
|
|
|
5.74
|
|
|
|
656,991
|
|
|
|
4.94
|
|
9.34 - 14.64
|
|
|
1,040,550
|
|
|
|
3.5
|
|
|
|
12.48
|
|
|
|
783,550
|
|
|
|
12.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 0.10 - $ 14.64
|
|
|
3,845,370
|
|
|
|
6.2
|
|
|
$
|
5.75
|
|
|
|
2,519,162
|
|
|
$
|
5.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Upon the exercise of stock options, we issue new shares of our common stock. As of December 31, 2013,
77,500 options issued to employees and 50,000 options issued to consultants are unvested, milestone-based options.
F-15
Restricted Stock
Certain employees, directors and consultants have been awarded restricted stock under the 2004 Long-Term Incentive Plan and 2007 Incentive
Plan. The time-vesting restricted stock grants vest primarily over a period of three to four years. The following table summarizes restricted share activity for the years ended December 31, 2013, 2012 and 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Shares
|
|
|
Weighted
Average
Grant
Date Fair
Value
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at January 1, 2011
|
|
|
1,400,694
|
|
|
$
|
1.63
|
|
|
$
|
6,415,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
206,450
|
|
|
|
4.49
|
|
|
|
|
|
Vested
|
|
|
(957,225
|
)
|
|
|
1.20
|
|
|
$
|
4,650,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(28,338
|
)
|
|
|
3.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2011
|
|
|
621,581
|
|
|
|
3.16
|
|
|
$
|
1,572,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
997,300
|
|
|
|
1.94
|
|
|
|
|
|
Vested
|
|
|
(339,954
|
)
|
|
|
2.91
|
|
|
$
|
965,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(97,250
|
)
|
|
|
2.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2012
|
|
|
1,181,677
|
|
|
|
2.27
|
|
|
$
|
3,095,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
831,020
|
|
|
|
7.68
|
|
|
|
|
|
Vested
|
|
|
(568,030
|
)
|
|
|
2.43
|
|
|
$
|
4,612,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(23,737
|
)
|
|
|
8.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2013
|
|
|
1,420,930
|
|
|
$
|
5.27
|
|
|
$
|
18,401,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2013, 390,000 and 100,000 shares of restricted stock issued to employees and
consultants, respectively, are unvested, milestone-based shares.
On September 14, 2009, we entered in an employment agreement with
Ron Bentsur, our Chief Executive Officer, which was amended on January 13, 2012, and further amended on June 11, 2013. The agreement, as amended, terminates on May 20, 2015, subject to certain early termination events. As of
December 31, 2013, Mr. Bentsur has been granted a total of 750,000 shares of restricted stock based on the achievement of certain milestone awards described in his employment agreement. In addition, as of December 31, 2013,
Mr. Bentsur has the opportunity to earn certain milestone awards as follows:
(1) 500,000 shares of fully vested common
stock will be granted to Mr. Bentsur, upon the first to occur of (a) our first commercial sale of Zerenex in the U.S. off an approved NDA, (b) our receipt of the first royalty upon the commercial sale of Zerenex in the U.S. by a
partner to whom we have sold exclusive or non-exclusive commercial rights, or (c) our complete outlicensing of the entire product rights of Zerenex in the U.S.
(2) 100,000 shares of restricted stock will be granted to Mr. Bentsur upon each event of our outlicensing Zerenex in a foreign
market, other than Japan, resulting in a greater than $10 million non-refundable cash payment to us with a gross deal value to us of at least $50 million. Such restricted stock will vest in equal installments over each of the first three
anniversaries of the date of grant, provided that Mr. Bentsur remains an employee during such vesting period.
Stock-Based Compensation
The fair value of stock options granted is estimated at the date of grant using the Black-Scholes pricing model. The expected term
of options granted is derived from historical data and the expected vesting period. Expected volatility is based on the historical volatility of our common stock. The risk-free interest rate is based on the U.S. Treasury yield for a period
consistent with the expected term of the option in effect at the time of the grant. We have assumed no expected dividend yield, as dividends have never been paid to stock or option holders and will not be paid for the foreseeable future.
|
|
|
|
|
|
|
Black-Scholes Option Valuation Assumptions
|
|
2013
|
|
2012
|
|
2011
|
|
|
|
|
Risk-free interest rates
|
|
0.7%
|
|
0.6%
|
|
1.4%
|
Dividend yield
|
|
|
|
|
|
|
Volatility
|
|
102.0%
|
|
106.3%
|
|
115.0%
|
Weighted-average expected term
|
|
3.8 years
|
|
4.0 years
|
|
4.0 years
|
F-16
The weighted average grant date fair value of options granted was $4.28, $1.73 and $3.43 per
option for the years ended December 31, 2013, 2012 and 2011, respectively. We used historical information to estimate forfeitures within the valuation model. As of December 31, 2013, there was $3.3 million and $5.7 million of total
unrecognized compensation cost related to non-vested stock options and restricted stock, respectively, which is expected to be recognized over weighted-average periods of 2.2 years and 2.6 years, respectively. These amounts do not include, as of
December 31, 2013, 127,500 options outstanding and 490,000 shares of restricted stock outstanding which are milestone-based and vest upon certain corporate milestones, such as FDA approval of our drug candidate and change in control.
Stock-based compensation will be measured and recorded if and when it is probable that the milestone will occur.
The following table
summarizes stock-based compensation expense information about stock options and restricted stock for the years ended December 31, 2013, 2012 and 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
(in thousands)
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
Stock-based compensation expense associated with restricted stock
|
|
$
|
3,859
|
|
|
$
|
967
|
|
|
$
|
1,044
|
|
Stock-based compensation expense associated with option grants
|
|
|
2,094
|
|
|
|
1,200
|
|
|
|
1,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,953
|
|
|
$
|
2,167
|
|
|
$
|
2,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 12 - INCOME TAXES
We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are determined based
on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is established
when necessary to reduce deferred tax assets to the amount expected to be realized. In determining the need for a valuation allowance, management reviews both positive and negative evidence, including current and historical results of operations,
future income projections and the overall prospects of our business. Based upon managements assessment of all available evidence, we believe that it is more-likely-than-not that the deferred tax assets will not be realizable; and therefore, a
full valuation allowance is established. The valuation allowance for deferred tax assets was $162.8 million and $143.2 million as of December 31, 2013 and 2012, respectively.
As of December 31, 2013, we have U.S. net operating loss carryforwards (NOLs) of approximately $401.3 million, of which
approximately $58.3 million were derived from certain stock option exercises and any such benefit realized will be credited to additional paid in capital. For income tax purposes, these NOLs will expire in the years 2019 through 2032. Due to
our various equity transactions, the utilization of certain NOLs could be subject to annual limitations imposed by Internal Revenue Code Section 382 relating to the change of control provision and/or the separate return limitation year
losses limitation.
Income tax expense differed from amounts computed by applying the US federal income tax rate of 34% to pretax loss as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended
December 31,
|
|
(in thousands)
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
Loss from continuing operations before income taxes, as reported in the consolidated statements of operations
|
|
$
|
(46,732
|
)
|
|
$
|
(25,360
|
)
|
|
$
|
(28,369
|
)
|
|
|
|
|
Computed expected tax (benefit) expense
|
|
|
(15,889
|
)
|
|
|
(8,622
|
)
|
|
|
(9,645
|
)
|
|
|
|
|
Increase (decrease) in income taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected (benefit) expense from state & local taxes
|
|
|
(1,523
|
)
|
|
|
(827
|
)
|
|
|
(925
|
)
|
Stock compensation
|
|
|
(1,842
|
)
|
|
|
905
|
|
|
|
5,872
|
|
Deferred impact rate change
|
|
|
|
|
|
|
|
|
|
|
19,072
|
|
Permanent differences
|
|
|
66
|
|
|
|
(196
|
)
|
|
|
(147
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
Prior year true-up
|
|
|
(409
|
)
|
|
|
(6,450
|
)
|
|
|
(829
|
)
|
|
|
|
|
Change in the balance of the valuation allowance for deferred tax assets allocated to income tax expense
|
|
|
19,597
|
|
|
|
15,190
|
|
|
|
(13,396
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-17
The significant components of deferred income tax expense (benefit) attributable to loss from
operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended
December 31,
|
|
(in thousands)
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
Deferred tax (benefit) expense
|
|
$
|
(19,597
|
)
|
|
$
|
(15,190
|
)
|
|
$
|
13,396
|
|
Federal deferred tax benefit relating to the exercise of stock options
|
|
|
(
|
)
|
|
|
(
|
)
|
|
|
(
|
)
|
Increase (decrease) in the valuation allowance for deferred tax asset
|
|
|
19,597
|
|
|
|
15,190
|
|
|
|
(13,396
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and
deferred tax liabilities at December 31, 2013 and 2012 are presented below.
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
December 31, 2013
|
|
|
December 31, 2012
|
|
|
|
|
Deferred tax assets (liabilities):
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
149,510
|
|
|
$
|
133,677
|
|
Non-cash compensation
|
|
|
7,022
|
|
|
|
6,478
|
|
Unrealized / realized loss on securities
|
|
|
1,164
|
|
|
|
1,164
|
|
Capitalized Inventory
|
|
|
3,061
|
|
|
|
|
|
Research and development
|
|
|
2,088
|
|
|
|
1,684
|
|
Intangible assets due to different amortization methods
|
|
|
(135
|
)
|
|
|
63
|
|
Accrued expenses
|
|
|
53
|
|
|
|
100
|
|
Other temporary differences
|
|
|
11
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
Deferred tax asset, excluding valuation allowance
|
|
|
162,774
|
|
|
|
143,176
|
|
|
|
|
Less valuation allowance
|
|
|
(162,774
|
)
|
|
|
(143,176
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
We file income tax returns in the U.S federal and various state and local jurisdictions. For federal and state
income tax purposes, the 2010, 2011 and 2012 tax years remain open for examination under the normal three year statute of limitations. The statute of limitations for income tax audits in the U.S. will commence upon utilization of net operating
losses and will expire three years from the filing of the tax return.
There was no accrual for uncertain tax positions or for interest
and penalties related to uncertain tax positions for 2013, 2012 and 2011. We do not believe that there will be a material change in our unrecognized tax positions over the next twelve months. All of the unrecognized tax benefits, if
recognized, would be offset by the valuation allowance.
F-18
NOTE 13 - INTEREST AND OTHER INCOME, NET
The components of interest and other income, net are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
(in thousands)
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
Interest income
|
|
$
|
190
|
|
|
$
|
52
|
|
|
$
|
159
|
|
Other income
|
|
|
161
|
|
|
|
166
|
|
|
|
221
|
|
Compensatory damage award, net
|
|
|
|
|
|
|
1,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
351
|
|
|
$
|
1,719
|
|
|
$
|
380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2012, we recorded other income due to the award of $1.5 million in compensatory damages, net of fees and
legal expenses, relating to the statement of claim we filed with the Financial Institution Regulatory Authority against an SEC registered broker-dealer for damages arising from that broker-dealers recommendations and purchases of auction rate
securities for our cash management account.
NOTE 14 - COMMITMENTS AND CONTINGENCIES
Research and Development Agreements
We have entered into various research and development agreements (relating to our development of Zerenex) under which we are obligated to make
payments of approximately $19,921,000 through 2016. The following table shows future research and development payment obligations by period as of December 31, 2013.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
Research and development agreements
|
|
$
|
19,629
|
|
|
$
|
254
|
|
|
$
|
38
|
|
|
|
|
|
|
|
|
|
The above table includes a $14,817,000 commitment for inventory build in 2014. The capitalization of inventory
for our product candidate will commence when it is probable that our product will be approved for commercial marketing.
Most of the
commitments in the table above are contingent upon our continuing development of Zerenex.
Leases
In March and September 2013, we extended our lease on our corporate and executive office located in New York City, adding approximately 6,800
square feet of additional leased space and extending its term through September 30, 2016. We also executed an amendment to our office sharing agreement with a third party for a portion of our leased space through September 29, 2014.
Total rental expense was approximately $667,000, $537,000 and $538,000 for the years ended December 31, 2013, 2012, and 2011,
respectively. We recognized sublet income of $161,000, $166,000 and $221,000 for the years ended December 31, 2013, 2012, and 2011, respectively, related to the office sharing agreement.
Future minimum lease commitments as of December 31, 2013, in the aggregate total approximately $2,848,000 through September 2016. The
following table shows future minimum lease commitments by period as of December 31, 2013.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
Operating leases
|
|
$
|
949
|
|
|
$
|
1,045
|
|
|
$
|
854
|
|
|
|
|
|
|
|
|
|
The remaining sublet income of $120,600 is not included as an offset to our operating lease obligations in the
table above.
Royalty and Contingent Milestone Payments
We have licensed the patent rights to Zerenex from a third party. The license agreement requires us to make contingent milestone payments to
the licensor of up to $7.0 million over the life of the license, which will be due upon the regulatory approvals of Zerenex in the U.S., EU and Japan. The uncertainty relating to the timing of regulatory approvals prevents us from including the
entire commitment in the Research and Development table above. Subsequent to December 31, 2013, we paid a $2.0 million milestone payment to the licensor of Zerenex relating to the marketing approval of ferric citrate in Japan in January 2014,
which is not included in the above table. In addition, under the license agreement, we must pay royalties on net sales of Zerenex.
F-19
NOTE 15 - LITIGATION
In October 2009, we filed a statement of claim with the Financial Institution Regulatory Authority, or FINRA, to commence an
arbitration proceeding against an SEC registered broker-dealer. In this arbitration proceeding, we sought damages arising from that broker-dealers recommendations and purchases of auction rate securities for our cash management
account. On May 7, 2012, we received the arbitrators award, which required the broker-dealer to pay us compensatory damages in the amount of approximately $1.8 million. In June 2012, we received the award, which amounted to,
after fees and legal expenses, approximately $1.5 million.
On February 1, 2013, a lawsuit was filed against us and our chief
executive officer on behalf of a putative class of all of our shareholders (other than the defendants) who acquired our shares between June 1, 2009 and April 1, 2012. Smith v. Keryx Biopharmaceuticals, Inc., et al., Case
No. 1:13-CV-0755-TPG (S.D.N.Y.). On February 26, 2013, a substantially similar lawsuit was filed against us and our chief executive officer as well as our chief financial officer. Park v. Keryx Biopharmaceuticals, Inc., et al., Case
No. 1:13-CV-1307-TPG (S.D.N.Y.). On June 10, 2013, the Court entered an Order consolidating the two lawsuits and appointing a lead plaintiff. The case is now styled In re Keryx Biopharmaceuticals, Inc. Securities Litigation, Case
No. 1:13-CV-0755-KBF (S.D.N.Y.). On July 10, 2013, the lead plaintiff filed a Consolidated Amended Complaint that, in substance, repeated the claims alleged in the consolidated lawsuits. The Consolidated Amended Complaint asserts
claims against (i) us for alleged violations of Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 promulgated thereunder and (ii) our chief executive officer for alleged violations of
Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5. The claims in the Consolidated Amended Complaint are premised on general allegations that we and the individual defendant participated directly or indirectly in the preparation and/or
issuance of purportedly false and misleading earnings reports, SEC filings, press releases, and other public statements, which allegedly caused our stock to trade at artificially inflated prices. The lead plaintiff seeks an unspecified amount of
damages. On August 26, 2013, we filed a motion to dismiss the Consolidated Amended Complaint. On October 10, 2013, lead plaintiff filed an opposition to our motion to dismiss. Our reply in further support of our motion to dismiss
was filed on November 12, 2013. On February 14, 2014, the Court entered an Opinion and Order granting the motion to dismiss. The Court entered Judgment for the Defendants on February 24, 2014. We believe the claims made
in this action are without merit, and intend to defend the consolidated action vigorously. We cannot, however, predict the outcome or effect, if any, of the lawsuit on our business.
NOTE 16 - QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
|
Mar. 31
|
|
|
June 30
|
|
|
Sept. 30
|
|
|
Dec. 31
|
|
|
|
(in thousands, except per share data)
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License revenue
|
|
$
|
7,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
7,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash compensation
|
|
|
191
|
|
|
|
243
|
|
|
|
319
|
|
|
|
1,594
|
|
Other research and development
|
|
|
6,239
|
|
|
|
6,934
|
|
|
|
10,351
|
|
|
|
8,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total research and development
|
|
|
6,430
|
|
|
|
7,177
|
|
|
|
10,670
|
|
|
|
10,457
|
|
|
|
|
|
|
General and administrative:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash compensation
|
|
|
390
|
|
|
|
395
|
|
|
|
422
|
|
|
|
2,399
|
|
Other general and administrative
|
|
|
2,338
|
|
|
|
3,882
|
|
|
|
4,640
|
|
|
|
4,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total general and administrative
|
|
|
2,728
|
|
|
|
4,277
|
|
|
|
5,062
|
|
|
|
7,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
9,158
|
|
|
|
11,454
|
|
|
|
15,732
|
|
|
|
17,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(2,158
|
)
|
|
|
(11,454
|
)
|
|
|
(15,732
|
)
|
|
|
(17,739
|
)
|
|
|
|
|
|
Other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income, net
|
|
|
103
|
|
|
|
96
|
|
|
|
81
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(2,055
|
)
|
|
|
(11,358
|
)
|
|
|
(15,651
|
)
|
|
|
(17,668
|
)
|
|
|
|
|
|
Income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,055
|
)
|
|
$
|
(11,358
|
)
|
|
$
|
(15,651
|
)
|
|
$
|
(17,668
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per common share
|
|
$
|
(0.03
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.19
|
)
|
|
$
|
(0.21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
|
Mar. 31
|
|
|
June 30
|
|
|
Sept. 30
|
|
|
Dec. 31
|
|
|
|
(in thousands, except per share data)
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash compensation
|
|
$
|
278
|
|
|
$
|
73
|
|
|
$
|
161
|
|
|
$
|
150
|
|
Other research and development
|
|
|
7,122
|
|
|
|
3,726
|
|
|
|
3,768
|
|
|
|
4,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total research and development
|
|
|
7,400
|
|
|
|
3,799
|
|
|
|
3,929
|
|
|
|
4,903
|
|
|
|
|
|
|
General and administrative:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash compensation
|
|
|
368
|
|
|
|
365
|
|
|
|
384
|
|
|
|
388
|
|
Other general and administrative
|
|
|
1,408
|
|
|
|
1,535
|
|
|
|
1,213
|
|
|
|
1,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total general and administrative
|
|
|
1,776
|
|
|
|
1,900
|
|
|
|
1,597
|
|
|
|
1,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
9,176
|
|
|
|
5,699
|
|
|
|
5,526
|
|
|
|
6,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(9,176
|
)
|
|
|
(5,699
|
)
|
|
|
(5,526
|
)
|
|
|
(6,678
|
)
|
|
|
|
|
|
Other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income, net
|
|
|
62
|
|
|
|
1,556
|
|
|
|
51
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and extraordinary gain
|
|
|
(9,114
|
)
|
|
|
(4,143
|
)
|
|
|
(5,475
|
)
|
|
|
(6,628
|
)
|
|
|
|
|
|
Income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before extraordinary gain
|
|
|
(9,114
|
)
|
|
|
(4,143
|
)
|
|
|
(5,475
|
)
|
|
|
(6,628
|
)
|
|
|
|
|
|
Extraordinary gain
|
|
|
|
|
|
|
2,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(9,114
|
)
|
|
$
|
(1,504
|
)
|
|
$
|
(5,475
|
)
|
|
$
|
(6,628
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before extraordinary gain
|
|
|
(0.13
|
)
|
|
|
(0.06
|
)
|
|
|
(0.08
|
)
|
|
|
(0.09
|
)
|
Extraordinary gain
|
|
|
|
|
|
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per common share
|
|
$
|
(0.13
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 17 - SUBSEQUENT EVENTS
On January 22, 2014, we announced the pricing of an underwritten public offering, whereby we sold 7,935,000 shares of
our common stock at a price of $14.50 per share for gross proceeds of approximately $115.1 million. Net proceeds from this offering were approximately $107.6 million, net of underwriting discounts and offering expenses of approximately $7.5 million.
The shares were sold under a Registration Statement (No. 333-190353) on Form S-3, filed by us with the Securities and Exchange Commission.
In January 2014, our Japanese partner, JT and Torii, received manufacturing and marketing approval of ferric citrate from the Japanese
Ministry of Health, Labour and Welfare. Ferric citrate, to be marketed in Japan by JTs subsidiary, Torii, under the brand name Riona
®
, is indicated as an oral treatment for the
improvement of hyperphosphatemia in patients with CKD. Under the license agreement with JT and Torii, Keryx received a non-refundable payment of $10.0 million in February 2014 for the achievement of the marketing approval milestone. Keryx
will also receive double-digit tiered royalties on net sales of Riona
®
in Japan, as well as up to an additional $55.0 million upon the achievement of certain annual net sales milestones.
F-21