You should consider carefully the following information about
the risks described below, together with the other information contained in this Quarterly Report and in our other public filings in evaluating our business. The risk factors set forth below that are marked with an asterisk (*) contain changes
to the similarly titled risk factor included in Item 1A to our Annual Report. If any of the following risks actually occurs, our business, financial condition, results of operations, and future growth prospects would likely be materially and
adversely affected. In these circumstances, the market price of our common stock would likely decline.
Risks Related to Our Business
Our prospects are highly dependent on the success of pimavanserin, our most advanced product candidate. To the extent regulatory approval of pimavanserin
is delayed or not granted or pimavanserin is not commercially successful, our business, financial condition and results of operations may be materially adversely affected and the price of our common stock may decline.
*
We currently have no product candidates approved for sale, and we may never be able to develop marketable products. The research,
testing, manufacturing, labeling, approval, sale, marketing, and distribution of pharmaceutical product candidates are subject to extensive regulation by the U.S. Food and Drug Administration, or FDA, and other regulatory authorities in the United
States and other countries, whose regulations differ from country to country. We are focusing a significant portion of our activities and resources on pimavanserin, and we believe our prospects are highly dependent on, and a significant portion of
the value of our company relates to, our ability to obtain regulatory approval for and successfully commercialize pimavanserin in the United States and potentially in additional territories. The regulatory approval and successful commercialization
of pimavanserin is subject to many risks, including the risks discussed in other risk factors, and pimavanserin may not receive marketing approval from any regulatory agency. If the results or timing of regulatory filings, the regulatory process,
regulatory developments, commercialization, clinical trials or preclinical studies, or other activities, actions or decisions related to pimavanserin do not meet our or others expectations, the market price of our common stock could decline
significantly.
In April 2013, we announced that the FDA had agreed that the data from our -020 study, together with supportive data from
our other studies with pimavanserin, are sufficient to support the filing of a New Drug Application, or NDA, for the treatment of Parkinsons disease psychosis, or PDP. We are currently focused on completing the remaining elements of our
pimavanserin Parkinsons disease psychosis development program that are needed for submission of an NDA. These include customary supportive studies, such as drug-drug interaction studies, and Chemistry, Manufacturing and Controls, or CMC,
development, such as stability testing of registration batches. While the FDA has agreed to accept and review an NDA for pimavanserin on the basis of our positive pivotal -020 study data, along with supportive efficacy and safety data from other
pimavanserin studies, the NDA will be subject to a standard FDA review to determine whether the entire filing package is adequate to support approval of pimavanserin for PDP. Notwithstanding the guidance that we received in April 2013, the FDA
retains complete discretion in deciding whether to file an NDA for pimavanserin and there are many components to an NDA submission beyond the efficacy and safety data reviewed by the FDA in 2013. Even if our NDA submission for pimavanserin is
accepted for filing, the FDA retains complete discretion in deciding whether or not to approve an NDA and there is no guarantee that pimavanserin will be approved for the treatment of PDP. Thus, significant uncertainty remains regarding the clinical
development and regulatory approval process for pimavanserin.
Even if the FDA grants us approval of pimavanserin for PDP, the terms of the approval
may limit its commercial potential.
The FDA has complete discretion over the approval of pimavanserin for PDP. If it grants
approval, the scope of the approval may limit our ability to commercialize pimavanserin, and in turn, limit our ability to generate substantial sales revenues. For example, the FDA may not approve the labeling claims for pimavanserin that we believe
are necessary or desirable for successful commercialization as a treatment for PDP, or may grant approval contingent on the performance of costly post-approval clinical trials or subject to warnings or contraindications. Additionally, even after
granting approval, the FDA may decide to withdraw approval, add warnings or narrow the approved indications in the product label, or establish risk management programs that could restrict distribution. These actions could result from, among other
things, safety concerns, including unexpected side effects or drug-drug interaction problems, or concerns over misuse or abuse of the product. If any of these actions were to occur following approval, we may have to discontinue the commercialization
of pimavanserin, limit our sales and marketing efforts, and/or conduct post-approval studies, which in turn could result in significant expense and delay or limit our ability to generate sales revenues.
If we do not obtain regulatory approval from foreign jurisdictions, we will not be able to market our products in those jurisdictions which will limit
our commercial revenues.
In order to market our products in foreign jurisdictions, we must obtain foreign regulatory approval in
each of those jurisdictions. Approval by the FDA does not ensure that foreign jurisdictions will also approve our products for commercial distribution. The regulations in foreign jurisdictions vary, we will be required to comply with different
regulations and policies of the
16
jurisdictions where we seek approval for our product candidates, and we have not yet identified all of the requirements that will be required by us to submit pimavanserin for approval in foreign
jurisdictions. This will require additional time, expertise and expense, including the potential need to conduct additional studies or development work beyond that required to obtain regulatory approval in the United States. Furthermore, we may not
be able to obtain approval for foreign sales. This will restrict our ability to market our products and would limit their commercial potential and value.
We expect our net losses to continue for at least the next few years and are unable to predict the extent of future losses or when we will become
profitable, if ever.*
We have experienced significant net losses since our inception. As of June 30, 2014, we had an
accumulated deficit of approximately $445.0 million. We expect to incur net losses over the next few years as we advance our programs and incur significant development and commercialization costs.
We have not received any revenues from the commercialization of our product candidates. We plan to submit our NDA for pimavanserin in PDP near
the end of 2014. The regulatory approval process is time consuming and uncertain and there is no guarantee that our planned NDA submission for pimavanserin will be accepted for filing or, if accepted, approved for marketing. Even if our NDA for
pimavanserin is approved, we would still expect to incur significant expenses and net losses for at least the next few years as we begin our first ever commercialization efforts and pursue the development and commercialization of pimavanserin and
other product candidates. Substantially all of our revenues for the six months ended June 30, 2014 were from our agreements with various parties, including our research and development grants. The research term of our 2003 collaboration with
Allergan concluded in March 2013 and we no longer recognize revenues from this collaboration. Thus, any significant payments from Allergan pursuant to our continuing collaborations are dependent upon the advancement of an applicable product
candidate. Until such time as we may gain regulatory approval for, and generate revenues from, product sales, we anticipate that collaborations, which provide us with research funding and potential milestone payments and royalties, and grant funding
will continue to be our primary sources of revenues.
We cannot be certain that the milestones required to trigger payments under our
existing collaborations will be reached or that we will secure additional collaboration agreements. To obtain revenues from our product candidates, we must succeed, either alone or with others, in developing, obtaining regulatory approval for,
manufacturing and marketing drugs with significant market potential. We may never succeed in these activities and may never generate revenues that are significant enough to achieve profitability.
The pivotal Phase III study with pimavanserin for PDP, the results of which were announced in November 2012, was our first successful pivotal Phase III
trial and there is no guarantee that future studies with pimavanserin will be successful.*
The historical rate of failures for
product candidates in clinical development is extremely high. In November 2012, we announced results from our successful pivotal -020 Phase III trial with pimavanserin for the treatment of PDP. Following our April 2013 meeting with the FDA, we have
been conducting customary supportive studies, such as drug-drug interaction studies and CMC development, which are needed prior to filing an NDA. Even though we successfully completed the -020 study, those results are not predictive of results of
the supportive studies and CMC development needed before an NDA may be submitted to the FDA. We believe that pimavanserin also may have utility in indications other than PDP, such as Alzheimers disease psychosis, or ADP, and schizophrenia.
However, prior to the first efficacy study that we commenced in late 2013, we had never tested pimavanserin in clinical studies for ADP and we have only conducted a Phase II trial for pimavanserin as a co-therapy treatment in schizophrenia. There is
no guarantee that we will have the same level of success with pimavanserin in other indications that we had with the -020 study or that we will be successful at all in future studies for additional indications.
If we do not successfully complete development of pimavanserin, we will be unable to market and sell products derived from it and to generate
related product revenues. Of the large number of drugs in development, only a small percentage result in the submission of an NDA to the FDA and even fewer are approved for marketing.
We depend on collaborations with third parties to develop and commercialize selected product candidates and to provide substantially all of our
revenues.*
One aspect of our strategy is to selectively enter into collaboration agreements with third parties. We currently rely,
and will continue to rely, on our collaborators for financial resources and for development, regulatory, and commercialization expertise for selected product candidates. Our 2003 research agreement with Allergan ended in March 2013, and additional
payments from our two ongoing agreements with Allergan, other than payments for a portion of patent costs for these collaborations, are dependent upon successful advancement of our applicable product candidates. Unless these milestones are met, we
will not receive significant future revenues from our current collaborations with Allergan.
17
Our collaborators may fail to develop or effectively commercialize products using our product
candidates or technologies because they:
|
|
|
do not have sufficient resources or decide not to devote the necessary resources due to internal constraints such as limited cash or human resources or a change in strategic focus;
|
|
|
|
decide to pursue a competitive product developed outside of the collaboration; or
|
|
|
|
cannot obtain the necessary regulatory approvals.
|
For example, Allergan has announced that it
is seeking a partner for further development and commercialization of drug candidates in our chronic pain program. If Allergan is unable to successfully partner this program, it may elect to not pursue further development. In addition, any partner
that Allergan does identify may devote substantially less resources than Allergan has devoted to our chronic pain program to date. In April 2014, Valeant Pharmaceuticals International, Inc. and Pershing Square Capital Management L.P. announced a
proposed acquisition of Allergan. In July 2014, Allergan announced that it would be reducing its worldwide headcount by approximately 13% and that it would be restructuring its operations. Following this restructuring, or if Allergan is acquired or
it elects to pursue a different transaction, then substantially less resources could be devoted to the programs covered by our collaborations with Allergan or such programs could be discontinued entirely.
In addition, Allergan can terminate our existing collaborations upon prior notice to us. We may not be able to renew our other existing
collaborations on acceptable terms, if at all. We also face competition in our search for new collaborators, if we seek a new partner for our pimavanserin program or other programs. Given the current economic environment, it is possible that
competition for new collaborators may increase. If we are unable to renew any existing collaboration or find new collaborations, we may not be able to continue advancing our programs alone.
If we fail to obtain the capital necessary to fund our operations, we will be unable to successfully develop products.*
We have consumed substantial amounts of capital since our inception. Our cash, cash equivalents and investment securities totaled $354.5
million at June 30, 2014. While we believe that our existing cash resources will be sufficient to fund our cash requirements at least into 2017, we may require significant additional financing in the future to continue to fund our operations.
Our future capital requirements will depend on, and could increase significantly as a result of, many factors including:
|
|
|
the progress in, and the costs of, our development and pre-commercialization activities for pimavanserin and other research and development programs;
|
|
|
|
the costs of preparing applications for regulatory approvals for our product candidates and the timing of any approvals;
|
|
|
|
the costs of establishing, or contracting for, sales and marketing capabilities;
|
|
|
|
our ability to obtain regulatory approval for, and generate product sales from, our products;
|
|
|
|
the scope, prioritization and number of our research and development programs;
|
|
|
|
the ability of our collaborators and us to reach the milestones and other events or developments triggering payments under our collaboration or license agreements, or our collaborators ability to make payments under
these agreements;
|
|
|
|
our ability to enter into new, and to maintain existing, collaboration and license agreements;
|
|
|
|
the extent to which we are obligated to reimburse collaborators or collaborators are obligated to reimburse us for costs under collaboration agreements;
|
|
|
|
the costs involved in filing, prosecuting, enforcing and defending patent claims and other intellectual property rights;
|
|
|
|
the costs of securing manufacturing arrangements for clinical or commercial production of product candidates; and
|
|
|
|
the costs associated with litigation.
|
Until we can generate significant continuing revenues,
we expect to satisfy our future cash needs through our existing cash, cash equivalents and investment securities, strategic collaborations, public or private sales of our securities, debt financings, grant funding, or by licensing all or a portion
of our product candidates or technology. In the past, periods of turmoil and volatility in the financial markets have adversely affected the market capitalizations of many biotechnology companies, and generally made equity and debt financing more
difficult to obtain. These events, coupled with other factors, may limit our access to additional financing in the future. This could have a material adverse effect on our ability to access sufficient funding. We cannot be certain that additional
funding will be available to us on acceptable terms, if at all. If funds are not available, we will be required to delay, reduce the scope of, or eliminate one or more of our research or development programs or our commercialization efforts. We also
may be required to relinquish greater or all rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise choose. Additional funding, if obtained, may significantly dilute existing
stockholders and could negatively impact the price of our stock.
18
We do not have a partner for the development of our lead product candidate, pimavanserin, and are solely
responsible for the advancement of this program and, if approved for marketing, commercialization of the product.
We have full
responsibility for the pimavanserin program throughout the world. We expect our research and development costs for continued development of pimavanserin to be substantial. While we currently are undertaking the ongoing development work for
pimavanserin, including supportive studies and CMC work for an NDA filing, in the future we would need to add resources and raise additional funds in order to take this product candidate to market and to conduct the necessary sales and marketing
activities, if we do not secure a partner. Following any potential approval by the FDA, our current strategy is to commercialize pimavanserin for Parkinsons disease psychosis in the United States by establishing a specialty sales force focused
primarily on neurologists. In addition, if we commercialize pimavanserin in select markets outside of the United States, we will more than likely need to establish one or more strategic alliances in the future for that purpose. Without future
collaboration partners in the United States and abroad, we might not be able to realize the full value of pimavanserin.
Even if pimavanserin is
approved by the FDA for PDP, we may not be successful in its commercial launch.
We currently have a small commercialization group
but have never, as an organization, launched or commercialized a product. Following any potential approval by the FDA, in addition to building a sales force, we will need to successfully coordinate the commercialization of the product. Prior to
commercialization, pimavanserin could also be subject to review and potential scheduling by the Drug Enforcement Administration of the US Department of Justice, or DEA, which could adversely impact its marketing and commercialization. There are
numerous examples of unsuccessful product launches and, since we have never launched a product, there is no guarantee that we will be able to do so if granted marketing approval for pimavanserin for PDP. If any product launch of pimavanserin is
unsuccessful or perceived as disappointing, our stock price could decline significantly and the long-term success of the product could be harmed.
Our most advanced product candidates are in development, which is a long, expensive and unpredictable process, and there is a high risk of failure.
Preclinical testing and clinical trials are long, expensive and unpredictable processes that can be subject to delays. It may take
several years to complete the preclinical testing and clinical development necessary to commercialize a drug, and delays or failure can occur at any stage. Interim results of clinical trials do not necessarily predict final results, and success in
preclinical testing and early clinical trials does not ensure that later clinical trials will be successful. A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in advanced clinical trials even
after promising results in earlier trials.
Our drug development programs are at various stages of development and the historical rate of
failures for product candidates is extremely high. In fact, we ended Phase I testing of AM-831 in 2012 and had previously had an unsuccessful Phase III trial with our most advanced product candidate, pimavanserin. Following the reporting of
successful results from the Phase III -020 study with pimavanserin in November 2012 and our meeting with the FDA in April 2013, we are conducting customary supportive studies, such as drug-drug interaction studies, and CMC development, such as
stability testing of registration batches, prior to our planned submission of an NDA for pimavanserin in PDP near the end of 2014. An unfavorable outcome in any of the foregoing development efforts for pimavanserin would be a major set-back for the
program and for us, generally. In particular, an unfavorable outcome in our pimavanserin program may require us to delay, reduce the scope of, or eliminate this program and could have a material adverse effect on us and the value of our common
stock. In addition to our PDP program with pimavanserin, we commenced a Phase II study with pimavanserin for patients with ADP in November 2013 and we are planning additional studies in other indications, including schizophrenia. We also have
clinical programs in collaboration with Allergan for the treatment of chronic pain and glaucoma, which have reached Phase II and Phase I development, respectively.
In connection with clinical trials, we face risks that:
|
|
|
a product candidate may not prove to be efficacious;
|
|
|
|
patients may die or suffer other adverse effects for reasons that may or may not be related to the product candidate being tested;
|
|
|
|
the results may not be consistent with positive results of earlier trials; and
|
|
|
|
the results may not meet the level of statistical significance required by the FDA or other regulatory agencies.
|
19
If we do not successfully complete preclinical and clinical development, we will be unable to
market and sell products derived from our product candidates and to generate product revenues. Even if we do successfully complete clinical trials, those results are not necessarily predictive of results of additional trials that may be needed
before an NDA may be submitted to the FDA. Of the large number of drugs in development, only a small percentage result in the submission of an NDA to the FDA and even fewer are approved for commercialization.
Delays, suspensions and terminations in our clinical trials could result in increased costs to us and delay our ability to generate product revenues.
The commencement of clinical trials can be delayed for a variety of reasons, including delays in:
|
|
|
demonstrating sufficient safety and efficacy to obtain regulatory approval to commence a clinical trial;
|
|
|
|
reaching agreement on acceptable terms with prospective contract research organizations and clinical trial sites;
|
|
|
|
manufacturing sufficient quantities of a product candidate;
|
|
|
|
obtaining clearance from the FDA to commence clinical trials pursuant to an Investigational New Drug application;
|
|
|
|
obtaining institutional review board approval to conduct a clinical trial at a prospective clinical trial site; and
|
|
|
|
patient enrollment, which is a function of many factors, including the size of the patient population, the nature of the protocol, the proximity of patients to clinical trial sites, the availability of effective
treatments for the relevant disease and the eligibility criteria for the clinical trial.
|
Once a clinical trial has begun,
it may be delayed, suspended or terminated due to a number of factors, including:
|
|
|
ongoing discussions with regulatory authorities regarding the scope or design of our clinical trials or requests by them for supplemental information with respect to our clinical trial results;
|
|
|
|
failure to conduct clinical trials in accordance with regulatory requirements;
|
|
|
|
lower than anticipated screening or retention rates of patients in clinical trials;
|
|
|
|
serious adverse events or side effects experienced by participants; and
|
|
|
|
insufficient supply or deficient quality of product candidates or other materials necessary for the conduct of our clinical trials.
|
Many of these factors may also ultimately lead to denial of regulatory approval of a current or potential product candidate. If we experience
delays, suspensions or terminations in a clinical trial, the commercial prospects for the related product candidate will be harmed, and our ability to generate product revenues will be delayed.
If conflicts arise with our collaborators, they may act in their self-interests, which may be adverse to our interests.
Conflicts may arise in our collaborations due to one or more of the following:
|
|
|
disputes or breaches with respect to payments that we believe are due under the applicable agreements, particularly in the current economic environment when companies, including large established ones, may be seeking to
reduce external payments;
|
|
|
|
disputes on strategy as to what development or commercialization activities should be pursued under the applicable agreements;
|
|
|
|
disputes as to the responsibility for conducting development and commercialization activities pursuant to the applicable collaboration, including the payment of costs related thereto;
|
|
|
|
disagreements with respect to ownership of intellectual property rights;
|
|
|
|
unwillingness on the part of a collaborator to keep us informed regarding the progress of its development and commercialization activities, or to permit public disclosure of these activities;
|
|
|
|
delay of a collaborators development or commercialization efforts with respect to our product candidates; or
|
|
|
|
termination or non-renewal of the collaboration.
|
Conflicts arising with our collaborators
could impair the progress of our product candidates, harm our reputation, result in a loss of revenues, reduce our cash position, and cause a decline in our stock price.
20
In addition, in our collaborations, we generally have agreed not to conduct independently, or
with any third party, any research that is directly competitive with the research conducted under the applicable program. Our collaborations may have the effect of limiting the areas of research that we may pursue, either alone or with others. Our
collaborators, however, may develop, either alone or with others, products in related fields that are competitive with the products or potential products that are the subject of these collaborations. Competing products, either developed by our
collaborators or to which our collaborators have rights, may result in the allocation of resources by our collaborators to competing products and their withdrawal of support for our product candidates or may otherwise result in lower demand for our
potential products.
We have collaborations with Allergan for the development of product candidates related to chronic pain and ophthalmic
diseases, including glaucoma. Allergan currently markets therapeutic products to treat glaucoma and is engaged in other research programs related to glaucoma and other ophthalmic products that are independent from our development program in this
therapeutic area. Allergan is also pursuing other research programs related to pain management that are independent from our collaboration in this therapeutic area.
We rely on third parties to conduct our clinical trials and perform data collection and analysis, which may result in costs and delays that prevent us
from successfully commercializing product candidates.
Although we design and manage our current preclinical studies and clinical
trials, we currently do not have the ability to conduct clinical trials for our product candidates on our own. In addition to our collaborators, we rely on contract research organizations, medical institutions, clinical investigators, and contract
laboratories to perform data collection and analysis and other aspects of our clinical trials. In addition, we also rely on third parties to assist with our preclinical studies, including studies regarding biological activity, safety, absorption,
metabolism, and excretion of product candidates.
Our preclinical activities or clinical trials may be delayed, suspended, or terminated
if:
|
|
|
these third parties do not successfully carry out their contractual duties or fail to meet regulatory obligations or expected deadlines;
|
|
|
|
these third parties need to be replaced; or
|
|
|
|
the quality or accuracy of the data obtained by these third parties is compromised due to their failure to adhere to our clinical protocols or regulatory requirements or for other reasons.
|
Failure to perform by these third parties may increase our development costs, delay our ability to obtain regulatory approval, and delay or
prevent the commercialization of our product candidates. We currently use several contract research organizations to perform services for our preclinical studies and clinical trials. While we believe that there are numerous alternative sources to
provide these services, in the event that we seek such alternative sources, we may not be able to enter into replacement arrangements without delays or additional expenditures.
Even if we or our collaborators successfully complete the clinical trials of product candidates, the product candidates may fail for other reasons.
Even if we or our collaborators successfully complete the clinical trials of product candidates, the product candidates, such as
pimavanserin, may fail for other reasons, including the possibility that the product candidates will:
|
|
|
fail to receive the regulatory clearances required to market them as drugs;
|
|
|
|
be subject to proprietary rights held by others requiring the negotiation of a license agreement prior to marketing;
|
|
|
|
be difficult or expensive to manufacture on a commercial scale;
|
|
|
|
have adverse side effects that make their use less desirable; or
|
|
|
|
fail to compete with product candidates or other treatments commercialized by competitors.
|
Relying on
third-party manufacturers may result in delays in our clinical trials, regulatory approvals and product introductions.
We have no
manufacturing facilities and only limited experience in the manufacturing of drugs or in designing drug-manufacturing processes. We have contracted with third-party manufacturers to produce, in collaboration with us, our product candidates,
including pimavanserin, for clinical trials. If any of our product candidates are approved by the FDA or other regulatory agencies for commercial sale, we will need to contract with a third party to manufacture them in larger quantities. While we
believe that there will be alternative sources available to manufacture our product candidates, including pimavanserin, in the event that we seek such alternative sources, we may not be able to enter into replacement arrangements without delays or
additional expenditures. We cannot estimate these delays or costs with certainty but, if they were to occur, they could cause a delay in our development and
21
commercialization efforts. We have not yet entered into long-term agreements with our current third-party manufacturers or with any alternate suppliers. Although we intend to do so prior to any
commercial launch of a product that is approved by the FDA in order to ensure that we maintain adequate supplies of commercial drug product, we may be unable to enter into such agreements or do so on commercially reasonable terms, which could delay
a product launch or subject our commercialization efforts to significant supply risk.
The manufacturers of our product candidates are
obliged to operate in accordance with FDA-mandated current good manufacturing practices, or cGMPs. In addition, the facilities used by our contract manufacturers or other third party manufacturers to manufacture our product candidates must be
approved by the FDA pursuant to inspections that will be conducted after we request regulatory approval from the FDA. A failure by any of our contract manufacturers to establish and follow cGMPs or to document their adherence to such practices may
lead to significant delays in clinical trials or in obtaining regulatory approval of product candidates or the ultimate launch of products based on our product candidates into the market. Failure by our third-party manufacturers or us to comply with
applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, failure of the government to grant pre-market approval of drugs, delays, suspension or withdrawal of approvals, seizures or recalls
of products, operating restrictions, and criminal prosecutions.
Our product candidates, including pimavanserin, may not gain acceptance among
physicians, patients, and the medical community, thereby limiting our potential to generate revenues.
Even if our product
candidates are approved for commercial sale by the FDA or other regulatory authorities, the degree of market acceptance of any approved product candidate by physicians, healthcare professionals and third-party payors, and our profitability and
growth will depend on a number of factors, including:
|
|
|
the ability to provide acceptable evidence of safety and efficacy;
|
|
|
|
relative convenience and ease of administration;
|
|
|
|
the prevalence and severity of any adverse side effects;
|
|
|
|
availability of alternative treatments;
|
|
|
|
pricing and cost effectiveness, which may be subject to regulatory control;
|
|
|
|
effectiveness of our or our collaborators sales and marketing strategy; and
|
|
|
|
our ability to obtain sufficient third-party insurance coverage or adequate reimbursement levels.
|
If any product candidate that we discover and/or develop does not provide a treatment regimen that is as beneficial as the current standard of
care or otherwise does not provide patient benefit, that product will not achieve market acceptance and we will not generate sufficient revenues to achieve or maintain profitability.
If we are unable to attract, retain, and motivate key management, research and development, and sales and marketing staff, our drug development
programs, our research and discovery efforts, and our commercialization plans may be delayed and we may be unable to successfully develop or commercialize our product candidates, including pimavanserin.*
Our success depends on our ability to attract, retain, and motivate highly qualified management, scientific, and commercial personnel. In
particular, our development programs depend on our ability to attract and retain highly skilled development personnel, especially in the fields of central nervous system disorders, including neuropsychiatric and related disorders. In the future, we
expect to need to hire additional personnel as we expand our research and development efforts and commercial activities for pimavanserin from our current levels. We face competition for experienced scientists, clinical operations personnel,
commercial and other personnel from numerous companies and academic and other research institutions. Competition for qualified personnel is particularly intense in the San Diego, California area. If we are unable to attract and retain the necessary
personnel, it will significantly impede the achievement of our research and development objectives, our commercialization efforts for pimavanserin, and our ability to meet the demands of our collaborators in a timely fashion.
All of our employees are at will employees, which means that any employee may quit at any time and we may terminate any employee
at any time. We do not carry key person insurance covering members of senior management.
We do not know whether our drug discovery
platform will lead to the discovery or development of commercially viable product candidates.
Our drug discovery platform uses
unproven methods to identify and develop product candidates, including pimavanserin. We have never successfully completed clinical development of any of our product candidates, and there are no drugs on the market that have been discovered using our
drug discovery platform.
22
Our research and development focuses on small molecule drugs for the treatment of central nervous
system disorders. Due to our limited resources, we may have to forego potential opportunities with respect to discovering product candidates to treat diseases or conditions in other therapeutic areas. If we are not able to use our technologies to
discover and develop product candidates that can be commercialized, we may not achieve profitability. In the future, we will likely find it necessary to license the technology of others or acquire additional product candidates to augment the results
of our internal discovery activities. If we are unable to identify new product candidates using our drug discovery platform, we may be unable to establish or maintain a clinical development pipeline or generate product revenues.
We may not be able to continue or fully exploit our collaborations with outside scientific and clinical advisors, which could impair the progress of our
clinical trials and our research and development efforts.
We work with scientific and clinical advisors at academic and other
institutions who are experts in the field of central nervous system disorders. They assist us in our research and development efforts and advise us with respect to our clinical trials. These advisors are not our employees and may have other
commitments that would limit their future availability to us. Although our scientific and clinical advisors generally agree not to engage in competing work, if a conflict of interest arises between their work for us and their work for another
entity, we may lose their services, which may impair our reputation in the industry and delay the development or commercialization of our product candidates.
We will need to continue to manage our organization and we may encounter difficulties with our staffing and any future growth, which could adversely
affect our results of operations.
We will need to effectively manage our operations and facilities in order to advance our drug
development programs, including those covered by our collaborations with Allergan, achieve milestones under our collaboration agreements, facilitate additional collaborations, and pursue other development and commercialization activities. As we
advance the pimavanserin program towards submitting an NDA, we already have added several capabilities. However, we will need to add qualified personnel and resources if the NDA is approved for marketing and we establish a commercial sales force.
Our current infrastructure will be inadequate to support these future efforts and expected growth. In particular, we will have to develop internal sales, marketing, and distribution capabilities if we decide to market any drug that we may
successfully develop, including pimavanserin. We may not successfully manage our operations and, accordingly, may not achieve our research, development, and commercialization goals.
We expect that our results of operations will fluctuate, which may make it difficult to predict our future performance from period to period.
Our operating results have fluctuated in the past and are likely to do so in future periods. Some of the factors that could cause
our operating results to fluctuate from period to period include:
|
|
|
the status of development and commercialization of pimavanserin and our other product candidates, including compounds being developed under our collaborations;
|
|
|
|
whether we generate revenues or reimbursements by achieving specified research, development or commercialization milestones under any agreements or otherwise receive potential payments under these agreements;
|
|
|
|
whether we are required to make payments due to achieving specified milestones under any licensing or similar agreements or otherwise make potential payments under these agreements;
|
|
|
|
the incurrence of preclinical or clinical expenses that could fluctuate significantly from period to period, including reimbursement obligations pursuant to our collaboration agreements;
|
|
|
|
the initiation, termination, or reduction in the scope of our collaborations or any disputes regarding these collaborations;
|
|
|
|
the timing of our satisfaction of applicable regulatory requirements;
|
|
|
|
the rate of expansion of our clinical development, other internal research and development efforts, and pre-commercial and commercial efforts;
|
|
|
|
the effect of competing technologies and products and market developments;
|
|
|
|
the costs associated with litigation; and
|
|
|
|
general and industry-specific economic conditions.
|
We believe that comparisons from period to
period of our financial results are not necessarily meaningful and should not be relied upon as indications of our future performance.
23
Our management has broad discretion over the use of our cash and we may not use our cash effectively, which
could adversely affect our results of operations.
Our management has significant flexibility in applying our cash resources and
could use these resources for corporate purposes that do not increase our market value, or in ways with which our stockholders may not agree. We may use our cash resources for corporate purposes that do not yield a significant return or any return
at all for our stockholders, which may cause our stock price to decline.
We have incurred, and expect to continue to incur, significant costs as a
result of laws and regulations relating to corporate governance and other matters.
Laws and regulations affecting public
companies, including provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act that was enacted in July 2010, the provisions of the Sarbanes-Oxley Act of 2002, or SOX, and rules adopted or proposed by the SEC and by The NASDAQ
Global Market, have resulted in, and will continue to result in, significant costs to us as we evaluate the implications of these rules and respond to their requirements. We issued an evaluation of our internal control over financial reporting under
Section 404 of SOX with our Annual Report. In the future, if we are not able to issue an evaluation of our internal control over financial reporting as required or we or our independent registered public accounting firm determine that our
internal control over financial reporting is not effective, this shortcoming could have an adverse effect on our business and financial results and the price of our common stock could be negatively affected. New rules could make it more difficult or
more costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the coverage that is the
same or similar to our current coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors and board committees, and as our executive officers. We cannot
predict or estimate the total amount of the costs we may incur or the timing of such costs to comply with these rules and regulations.
Our ability
to generate product revenues will be diminished if our products do not receive coverage from payors or sell for inadequate prices, or if patients are unable to obtain adequate levels of reimbursement.
Patients who are prescribed medicine for the treatment of their conditions generally rely on third-party payors to reimburse all or part of the
costs associated with their prescription drugs. Adequate coverage and reimbursement from governmental healthcare programs, such as Medicare and Medicaid, and commercial payors is critical to new product acceptance. Coverage decisions may depend upon
clinical and economic standards that disfavor new drug products when more established or lower cost therapeutic alternatives are already available or subsequently become available. Even if we obtain coverage for any approved products, the resulting
reimbursement payment rates might not be adequate or may require co-payments that patients find unacceptably high. Patients are unlikely to use any products we may market unless coverage is provided and reimbursement is adequate to cover a
significant portion of the cost of those products.
In addition, the market for any products for which we may receive regulatory approval
will depend significantly on access to third-party payors drug formularies, or lists of medications for which third-party payors provide coverage and reimbursement. The industry competition to be included in such formularies often leads to
downward pricing pressures on pharmaceutical companies. Also, third-party payors may refuse to include a particular branded drug in their formularies or otherwise restrict patient access to a branded drug when a less costly generic equivalent or
other alternative is available.
Third-party payors, whether foreign or domestic, or governmental or commercial, are developing
increasingly sophisticated methods of controlling healthcare costs. In addition, in the United States, no uniform policy of coverage and reimbursement for drug products exists among third-party payors. Therefore, coverage and reimbursement for drug
products can differ significantly from payor to payor. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of any approved products
to each payor separately, with no assurance that coverage will be obtained. If we are unable to obtain coverage of, and adequate payment levels for, our products from third-party payors, physicians may limit how much or under what circumstances they
will prescribe or administer them and patients may decline to purchase them. This in turn could affect our ability to successfully commercialize any approved products and thereby adversely impact our profitability, results of operations, financial
condition, and future success.
We are subject to federal, state and foreign healthcare laws and regulations and implementation or changes to such
healthcare laws and regulations could adversely affect our business and results of operations.
*
In both the
United States and certain foreign jurisdictions, there have been a number of legislative and regulatory proposals in recent years to change the healthcare system in ways that could impact our ability to sell our potential products profitably,
described in greater detail in the Government Regulation section of our Annual Report. If we are found to be in violation of any of these laws or any other federal or state regulations, we may be subject to civil and/or criminal penalties, damages,
fines, exclusion from federal
24
health care programs and the restructuring of our operations. Any of these could have a material adverse effect on our business and financial results. Since many of these laws have not been fully
interpreted by the courts, there is an increased risk that we may be found in violation of one or more of their provisions. Any action against us for violation of these laws, even if we ultimately are successful in our defense, will cause us to
incur significant legal expenses and divert our managements attention away from the operation of our business.
In addition, in many
foreign countries, particularly the countries of the European Union, the pricing of prescription drugs is subject to government control. In some non-U.S. jurisdictions, the proposed pricing for a drug must be approved before it may be lawfully
marketed. The requirements governing drug pricing vary widely from country to country. For example, the European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance
systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability
of the company placing the medicinal product on the market. We may face competition from lower-priced products in foreign countries that have placed price controls on pharmaceutical products. In addition, there may be importation of foreign products
that compete with any products we may market, which could negatively impact our profitability.
We expect that the Patient Protection and
Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively the ACA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage
criteria and in additional downward pressure on the price that we may receive for any approved product. An expansion in the governments role in the U.S. healthcare industry may cause general downward pressure on the prices of prescription
drug products, lower reimbursements for providers using our products, reduce product utilization and adversely affect our business and results of operations. It is unclear whether and to what extent, if at all, other anticipated developments
resulting from the federal healthcare reform legislation, such as an increase in the number of people with health insurance and an increased focus on preventive medicine, may provide us additional revenue to offset the annual excise tax on certain
drug product sales enacted under the ACA, subject to limited exceptions. It is possible that the tax burden, if we are not excepted, would adversely affect our financial performance, which in turn could cause the price of our stock to decline. Any
reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to
generate revenue, attain profitability, or commercialize any products for which we receive regulatory approval.
If we receive marketing approval
from the FDA, we could face liability if a regulatory authority determines that we are promoting off-label use of our products.
A company may not promote off-label uses for its drug products. An off-label use is the use of a product for an indication that is
not described in the products FDA-approved label or for uses that differ from those approved by other applicable regulatory agencies. Physicians, on the other hand, may prescribe products for off-label uses. Although the FDA and other
regulatory agencies do not regulate a physicians choice of drug treatment, they do restrict promotional communications from pharmaceutical companies or their sales force with respect to off-label uses of products for which marketing clearance
has not been issued. A company that is found to have promoted off-label use of its product may be subject to significant liability, including civil and criminal sanctions. If we begin marketing any product, we intend to comply with the FDA and other
regulatory agencies with respect to our promotion of our products, but we cannot be sure that the FDA or other regulatory agencies will agree that we have not violated their restrictions. As a result, we may be subject to criminal and civil
liability. In addition, our managements attention could be diverted to handle any such alleged violations.
If we are unable to establish
sales and marketing capabilities or enter into agreements with third parties to sell and market any products we may develop, we may not be able to generate product revenues.
While we have begun to establish a small commercial team, we do not currently have a complete organization for the sales, marketing and
distribution of pharmaceutical products. In order to market any products that may be approved by the FDA, we must build our sales, marketing, managerial, and related capabilities or make arrangements with third parties to perform these services. If
we are unable to establish adequate sales, marketing, and distribution capabilities, whether independently or with third parties, we may not be able to generate product revenues and may not become profitable.
We will need to obtain FDA approval of our proposed product name for pimavanserin, and the failure or any delay in receiving this approval may adversely
impact the timing and success of our sales and marketing efforts.
The FDA will need to approve any product name we intend to use
for pimavanserin regardless of whether we have obtained a formal trademark registration from the United States Patent and Trademark Office. Typically, the FDA conducts an extensive review of proposed product names, including an evaluation for
possible confusion with other existing product names. If the FDA objects to our proposed name, we will need to adopt an alternative name. As a result, we would lose the benefit of any existing trademark
25
applications and may need to spend significant resources in an effort to select another product name that will meet FDA approval, qualify under existing trademark laws and not infringe on the
existing rights of third parties. In addition, we will need to develop brand loyalty for any product name in order to commercialize pimavanserin effectively. If we fail to do this, it could negatively impact our future revenues from sales of
pimavanserin.
If we engage in any acquisition, we will incur a variety of costs and may never realize the anticipated benefits of the acquisition.
We may attempt to acquire, or license in, businesses, technologies, product candidates or products that we believe are a strategic
fit with our business. We have limited experience in identifying acquisition targets, successfully completing proposed acquisitions and integrating any acquired businesses, technologies, services or products into our current infrastructure. The
process of integrating any acquired business, technology, service, or product may result in unforeseen operating difficulties and expenditures and may divert significant management attention from our ongoing business operations. As a result, we will
incur a variety of costs in connection with an acquisition and may never realize its anticipated benefits.
Earthquake or fire damage to our
facilities could delay our research and development efforts and adversely affect our business.
Our headquarters and research and
development facilities in San Diego are located in a seismic zone, and there is the possibility of an earthquake, which could be disruptive to our operations and result in delays in our research and development efforts. In addition, while our
facilities have not been adversely impacted by local wildfires, there is the possibility of future fires in the area. In the event of an earthquake or fire, if our facilities or the equipment in our facilities is significantly damaged or
destroyed for any reason, we may not be able to rebuild or relocate our facilities or replace any damaged equipment in a timely manner and our business, financial condition, and results of operations could be materially and adversely affected. We do
not have insurance for damages resulting from earthquakes. While we do have fire insurance for our property and equipment located in San Diego, any damage sustained in a fire could cause a delay in our research and development efforts and our
results of operations could be materially and adversely affected.
Risks Related to Our Intellectual Property
Our ability to compete may decline if we do not adequately protect our proprietary rights.
Our commercial success depends on obtaining and maintaining proprietary rights to our product candidates and technologies and their uses, as
well as successfully defending these rights against third-party challenges. We will only be able to protect our product candidates, proprietary technologies, and their uses from unauthorized use by third parties to the extent that valid and
enforceable patents, or effectively protected trade secrets, cover them. Although we have filed numerous patent applications worldwide with respect to pimavanserin, we have not been issued patents with respect to each of our filings.
Our ability to obtain patent protection for our product candidates and technologies is uncertain due to a number of factors, including:
|
|
|
we may not have been the first to make the inventions covered by our pending patent applications or issued patents;
|
|
|
|
we may not have been the first to file patent applications for our product candidates or the technologies we rely upon;
|
|
|
|
others may independently develop similar or alternative technologies or duplicate any of our technologies;
|
|
|
|
our disclosures in patent applications may not be sufficient to meet the statutory requirements for patentability;
|
|
|
|
any or all of our pending patent applications may not result in issued patents;
|
|
|
|
we may not seek or obtain patent protection in all countries that will eventually provide a significant business opportunity;
|
|
|
|
any patents issued to us or our collaborators may not provide a basis for commercially viable products, may not provide us with any competitive advantages or may be challenged by third parties;
|
|
|
|
our proprietary technologies may not be patentable;
|
|
|
|
others may design around our patent claims to produce competitive products which fall outside of the scope of our patents;
|
|
|
|
others may identify prior art which could invalidate our patents; or
|
|
|
|
changes to patent laws that limit the exclusivity rights of patent holders.
|
Even if we have
or obtain patents covering our product candidates or technologies, we may still be barred from making, using and selling our product candidates or technologies because of the patent rights of others. Others have or may have filed, and in the future
are likely to file, patent applications covering compounds, assays, genes, gene products or therapeutic products that are similar
26
or identical to ours. There are many issued U.S. and foreign patents relating to genes, nucleic acids, polypeptides, chemical compounds or therapeutic products, and some of these may encompass
reagents utilized in the identification of candidate drug compounds or compounds that we desire to commercialize. Numerous U.S. and foreign issued patents and pending patent applications owned by others exist in the area of central nervous system
disorders and the other fields in which we are developing products. These could materially affect our ability to develop our product candidates or sell our products. Because patent applications can take many years to issue, there may be currently
pending applications, unknown to us, that may later result in issued patents that our product candidates or technologies may infringe. These patent applications may have priority over patent applications filed by us.
We regularly conduct searches to identify patents or patent applications that may prevent us from obtaining patent protection for our
proprietary compounds or that could limit the rights we have claimed in our patents and patent applications. Disputes may arise regarding the ownership or inventorship of our inventions. It is difficult to determine how such disputes would be
resolved. Others may challenge the validity of our patents. If our patents are found to be invalid, we will lose the ability to exclude others from making, using or selling the inventions claimed therein.
Some of our academic institutional licensors, research collaborators and scientific advisors have rights to publish data and information to
which we have rights. If we cannot maintain the confidentiality of our technology and other confidential information in connection with our collaborations, then our ability to receive patent protection or protect our proprietary information will be
impaired. Additionally, former employees of ours may seek future employment with our competitors. Although each of our employees is required to sign a confidentiality agreement with us at the time of hire, we cannot guarantee that the confidential
nature of our proprietary information will be maintained in the course of such future employment. In addition, technology that we may license in may become important to some aspects of our business. We generally will not control the patent
prosecution, maintenance or enforcement of in-licensed technology.
Confidentiality agreements with employees and others may not adequately prevent
disclosure of our trade secrets and other proprietary information and may not adequately protect our intellectual property, which could limit our ability to compete.
Because we operate in the highly technical field of drug discovery and development of small molecule drugs, we rely in part on trade secret
protection in order to protect our proprietary technology and processes. However, trade secrets are difficult to protect. We enter into confidentiality and intellectual property assignment agreements with our corporate partners, employees,
consultants, outside scientific collaborators, sponsored researchers, and other advisors. These agreements generally require that the other party keep confidential and not disclose to third parties all confidential information developed by the party
or made known to the party by us during the course of the partys relationship with us. These agreements also generally provide that inventions conceived by the party in the course of rendering services to us will be our exclusive property.
However, these agreements may not be honored and may not effectively assign intellectual property rights to us. Enforcing a claim that a party illegally obtained and is using our trade secrets is difficult, expensive and time consuming and the
outcome is unpredictable. In addition, courts outside the United States may be less willing to protect trade secrets. The failure to obtain or maintain trade secret protection could adversely affect our competitive position. In addition, we have not
entered into any noncompete agreements with any of our employees.
A dispute concerning the infringement or misappropriation of our proprietary
rights or the proprietary rights of others could be time consuming and costly, and an unfavorable outcome could harm our business.
There is significant litigation in our industry regarding patent and other intellectual property rights. While we are not currently subject to
any pending intellectual property litigation, and are not aware of any such threatened litigation, we may be exposed to future litigation by third parties based on claims that our product candidates, technologies or activities infringe the
intellectual property rights of others. In particular, there are many patents relating to specific genes, nucleic acids, polypeptides or the uses thereof to identify product candidates. Some of these may encompass genes or polypeptides that we
utilize in our drug development activities. If our drug development activities are found to infringe any such patents, we may have to pay significant damages or seek licenses to such patents. A patentee could prevent us from using the patented genes
or polypeptides for the identification or development of drug compounds. There are also many patents relating to chemical compounds and the uses thereof. If our compounds are found to infringe any such patents, we may have to pay significant damages
or seek licenses to such patents. A patentee could prevent us from making, using or selling the patented compounds. We may need to resort to litigation to enforce a patent issued to us, protect our trade secrets or determine the scope and validity
of third-party proprietary rights. From time to time, we may hire scientific personnel formerly employed by other companies involved in one or more areas similar to the activities conducted by us. Either we or these individuals may be subject to
allegations of trade secret misappropriation or other similar claims as a result of their prior affiliations. If we become involved in litigation, it could consume a substantial portion of our managerial and financial resources, regardless of
whether we win or lose. We may not be able to afford the costs of litigation. Any legal action against us or our collaborators could lead to:
|
|
|
payment of damages, potentially treble damages, if we are found to have willfully infringed a partys patent rights;
|
27
|
|
|
injunctive or other equitable relief that may effectively block our ability to further develop, commercialize, and sell products; or
|
|
|
|
we or our collaborators having to enter into license arrangements that may not be available on commercially acceptable terms, if at all.
|
As a result, we could be prevented from commercializing current or future products.
The patent applications of pharmaceutical and biotechnology companies involve highly complex legal and factual questions, which, if determined adversely
to us, could negatively impact our patent position.
The patent positions of pharmaceutical and biotechnology companies can be
highly uncertain and involve complex legal and factual questions. For example, some of our patent applications will cover gene sequences and products and the uses of those gene sequences and products. Public disclosures and patent applications
related to the Human Genome Project and other genomics efforts may limit the scope of our claims or make unpatentable subsequent patent applications. No consistent policy regarding the breadth of claims allowed in biotechnology patents has emerged
to date. The U.S. Patent and Trademark Offices standards are uncertain and could change in the future. Consequently, the issuance and scope of patents cannot be predicted with certainty. Patents, if issued, may be challenged, invalidated or
circumvented. U.S. patents and patent applications may also be subject to interference proceedings, and U.S. patents may be subject to reexamination proceedings in the U.S. Patent and Trademark Office (and foreign patents may be subject to
opposition or comparable proceedings in the corresponding foreign patent office), which proceedings could result in either loss of the patent or denial of the patent application or loss or reduction in the scope of one or more of the claims of the
patent or patent application. Similarly, opposition or invalidity proceedings could result in loss of rights or reduction in the scope of one or more claims of a patent in foreign jurisdictions. In addition, such interference, reexamination and
opposition proceedings may be costly. Accordingly, rights under any issued patents may not provide us with sufficient protection against competitive products or processes.
In addition, changes in or different interpretations of patent laws in the United States and foreign countries may permit others to use our
discoveries or to develop and commercialize our technology and products without providing any compensation to us or may limit the number of patents or claims we can obtain. In particular, there have been proposals to shorten the exclusivity periods
available under U.S. patent law that, if adopted, could substantially harm our business. The product candidates that we are developing are protected by intellectual property rights, including patents and patent applications. If any of our product
candidates becomes a marketable product, we will rely on our exclusivity under patents to sell the compound and recoup our investments in the research and development of the compound. If the exclusivity period for patents is shortened, then our
ability to generate revenues without competition will be reduced and our business could be materially adversely impacted. The laws of some countries do not protect intellectual property rights to the same extent as U.S. laws and those countries may
lack adequate rules and procedures for defending our intellectual property rights. For example, some countries, including many in Europe, do not grant patent claims directed to methods of treating humans and, in these countries, patent protection
may not be available at all to protect our product candidates. In addition, U.S. patent laws may change which could prevent or limit us from filing patent applications or patent claims to protect our products and/or technologies or limit the
exclusivity periods that are available to patent holders. For example, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was recently signed into law and includes a number of significant changes to U.S. patent law. These include changes
to transition from a first-to-invent system to a first-to-file system and to the way issued patents are challenged. These changes may favor larger and more established companies that have more resources to devote to patent
application filing and prosecution. The U.S. Patent and Trademark Office has been in the process of implementing regulations and procedures to administer the Leahy-Smith Act, and many of the substantive changes to patent law associated with the
Leahy-Smith Act may affect our ability to obtain, enforce or defend our patents. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will ultimately have on the cost of prosecuting our patent applications, our ability to obtain
patents based on our discoveries and our ability to enforce or defend our issued patents.
If we fail to obtain and maintain patent
protection and trade secret protection of our product candidates, proprietary technologies and their uses, we could lose our competitive advantage and competition we face would increase, reducing our potential revenues and adversely affecting our
ability to attain or maintain profitability.
Risks Related to Our Industry
We will be subject to stringent regulation in connection with the marketing of any products derived from our product candidates, which could delay the
development and commercialization of our products.
The pharmaceutical industry is subject to stringent regulation by the FDA and
other regulatory agencies in the United States and by comparable authorities in other countries. Neither we nor our collaborators can market a pharmaceutical product in the United States until it has completed rigorous preclinical testing and
clinical trials and an extensive regulatory clearance process implemented
28
by the FDA. Satisfaction of regulatory requirements typically takes many years, depends upon the type, complexity and novelty of the product, and requires substantial resources. Even if
regulatory approval is obtained, it may impose significant restrictions on the indicated uses, conditions for use, labeling, advertising, promotion, and/or marketing of such products, and requirements for post-approval studies, including additional
research and development and clinical trials. These limitations may limit the size of the market for the product or result in the incurrence of additional costs. Any delay or failure in obtaining required approvals could have a material adverse
effect on our ability to generate revenues from the particular product candidate.
Outside the United States, the ability to market a
product is contingent upon receiving approval from the appropriate regulatory authorities. The requirements governing the conduct of clinical trials, marketing authorization, pricing, and reimbursement vary widely from country to country. Only after
the appropriate regulatory authority is satisfied that adequate evidence of safety, quality, and efficacy has been presented will it grant a marketing authorization. Approval by the FDA does not automatically lead to the approval by regulatory
authorities outside the United States and, similarly, approval by regulatory authorities outside the United States will not automatically lead to FDA approval.
In addition, U.S. and foreign government regulations control access to and use of some human or other tissue samples in our research and
development efforts. U.S. and foreign government agencies may also impose restrictions on the use of data derived from human or other tissue samples. Accordingly, if we fail to comply with these regulations and restrictions, the commercialization of
our product candidates may be delayed or suspended, which may delay or impede our ability to generate product revenues.
If our competitors develop
and market products that are more effective than our product candidates, they may reduce or eliminate our commercial opportunity.
Competition in the pharmaceutical and biotechnology industries is intense and expected to increase. We face competition from pharmaceutical and
biotechnology companies, as well as numerous academic and research institutions and governmental agencies, both in the United States and abroad. Some of these competitors have products or are pursuing the development of drugs that target the same
diseases and conditions that are the focus of our drug development programs.
For example, the use of pimavanserin for PDP would compete
with off-label use of antipsychotic drugs, including Seroquel, marketed by Astra-Zeneca, and with the generic drug clozapine. Our potential products for the treatment of schizophrenia would compete with Zyprexa, marketed by Eli Lilly, Risperdal,
marketed by Johnson & Johnson, Abilify, marketed jointly by Bristol-Myers Squibb and Otsuka Pharmaceutical, Seroquel, and clozapine. Our potential product for ADP would compete with Risperdal and with off-label use of antipsychotic drugs.
In the area of chronic pain, potential products would compete with Lyrica, marketed by Pfizer, and Cymbalta, marketed by Eli Lilly, as well as a variety of generic or proprietary opioids. Our potential products for the treatment of glaucoma would
compete with Xalatan, marketed by Pfizer, and Lumigan and Alphagan, marketed by Allergan.
Many of our competitors and their collaborators
have significantly greater experience than we do in the following:
|
|
|
identifying and validating targets;
|
|
|
|
screening compounds against targets;
|
|
|
|
preclinical studies and clinical trials of potential pharmaceutical products; and
|
|
|
|
obtaining FDA and other regulatory approvals.
|
In addition, many of our competitors and their
collaborators have substantially greater capital and research and development resources, manufacturing, sales and marketing capabilities, and production facilities. Smaller companies also may prove to be significant competitors, particularly through
proprietary research discoveries and collaboration arrangements with large pharmaceutical and established biotechnology companies. Many of our competitors have products that have been approved or are in advanced development and may develop superior
technologies or methods to identify and validate drug targets and to discover novel small molecule drugs. Our competitors, either alone or with their collaborators, may succeed in developing drugs that are more effective, safer, more affordable, or
more easily administered than ours and may achieve patent protection or commercialize drugs sooner than us. Our competitors may also develop alternative therapies that could further limit the market for any drugs that we may develop. Our failure to
compete effectively could have a material adverse effect on our business.
Any claims relating to improper handling, storage, or disposal of
biological, hazardous, and radioactive materials used in our business could be costly and delay our research and development efforts.
Our research and development activities involve the controlled use of potentially harmful hazardous materials, including volatile solvents,
biological materials such as blood from patients that has the potential to transmit disease, chemicals that cause cancer, and various radioactive compounds. Our operations also produce hazardous waste products. We face the risk of contamination or
injury from the use, storage, handling or disposal of these materials. We are subject to federal, state and local laws and regulations governing the use, storage, handling, and disposal of these materials and specified waste products. The cost of
compliance with these laws and
29
regulations could be significant, and current or future environmental regulations may impair our research, development, or production efforts. If one of our employees were accidentally injured
from the use, storage, handling, or disposal of these materials, the medical costs related to his or her treatment would be covered by our workers compensation insurance policy. However, we do not carry specific biological or hazardous waste
insurance coverage and our general liability insurance policy specifically excludes coverage for damages and fines arising from biological or hazardous waste exposure or contamination. Accordingly, in the event of contamination or injury, we could
be subject to criminal sanctions or fines or be held liable for damages, our operating licenses could be revoked, or we could be required to suspend or modify our operations and our research and development efforts.
Consumers may sue us for product liability, which could result in substantial liabilities that exceed our available resources and damage our reputation.
Researching, developing, and commercializing drug products entails significant product liability risks. Liability claims may arise
from our and our collaborators use of products in clinical trials and the commercial sale of those products. Consumers may make these claims directly and our collaborators or others selling these products may seek contribution from us if they
receive claims from consumers. Although we currently have product liability insurance that covers our clinical trials, we will need to increase and expand this coverage if we commence larger scale trials and if our product candidates are approved
for commercial sale. This insurance may be prohibitively expensive or may not fully cover our potential liabilities. Inability to obtain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential product liability
claims could prevent or inhibit the commercialization of products that we or our collaborators develop. Product liability claims could have a material adverse effect on our business and results of operations. Our liability could exceed our total
assets if we do not prevail in a lawsuit from any injury caused by our drug products.
Risks Related to Our Common Stock
Our stock price may be particularly volatile because we are a drug discovery and development company.
The market prices for securities of biotechnology companies in general, and drug discovery and development companies in particular, have been
highly volatile and may continue to be highly volatile in the future. The following factors, in addition to other risk factors described in this section, may have a significant impact on the market price of our common stock:
|
|
|
the development status of our product candidates, including results of development and commercialization efforts in our pimavanserin development program or our chronic pain or glaucoma collaborations;
|
|
|
|
the timing, or developments regarding the timing, of submission and review of filings for our product candidates for approval by regulatory authorities in the United States and abroad and the results of any applications
for marketing approval of product candidates;
|
|
|
|
any other communications or guidance from the FDA or other regulatory authorities that pertain to our product candidates, including pimavanserin;
|
|
|
|
the initiation, termination, or reduction in the scope of our collaborations or any disputes or developments regarding our collaborations;
|
|
|
|
market conditions or trends related to biotechnology and pharmaceutical industries, or the market in general;
|
|
|
|
announcements of technological innovations, new commercial products, or other material events by our competitors or us;
|
|
|
|
disputes or other developments concerning our proprietary and intellectual property rights;
|
|
|
|
changes in, or failure to meet, securities analysts or investors expectations of our financial performance;
|
|
|
|
our failure to meet applicable NASDAQ listing standards and the possible delisting of our common stock from the NASDAQ Global Market;
|
|
|
|
additions or departures of key personnel;
|
|
|
|
discussions of our business, products, financial performance, prospects, or stock price by the financial and scientific press and online investor communities such as blogs and chat rooms;
|
|
|
|
public concern as to, and legislative action with respect to, genetic testing or other research areas of biopharmaceutical companies, the pricing and availability of prescription drugs, or the safety of drugs and drug
delivery techniques;
|
|
|
|
regulatory developments in the United States and in foreign countries;
|
|
|
|
the announcement of, or developments in, any litigation matters; and
|
30
|
|
|
economic and political factors, including but not limited to economic and financial crises, wars, terrorism, and political unrest.
|
In particular, our development program with pimavanserin encompasses a number of studies, open-label safety extension trials and a range of
supporting studies, such as drug-drug interaction studies and CMC development, including stability testing of registration batches. Any unfavorable outcome in one or more of the studies in the development of pimavanserin, or the CMC development
related thereto, could be a major set-back for our company, generally. Such an unfavorable outcome could have a material adverse effect on our company and the value of our common stock.
In the past, following periods of volatility in the market price of a particular companys securities, securities class action litigation
has often been brought against that company. We may become subject to this type of litigation, which is often extremely expensive and diverts managements attention
.
If we or our stockholders sell substantial amounts of our common stock, the market price of our common stock may decline.*
A significant number of shares of our common stock are held by a small number of stockholders. Sales of a significant number of shares of
our common stock, or the expectation that such sales may occur, could significantly reduce the market price of our common stock. We filed registration statements in connection with private financings that we concluded in January 2011 and December
2012, which registrations cover approximately 17.0 million shares and 19.5 million shares of our common stock, respectively. In addition, in connection with our March 2014 public offering of common stock, we agreed to provide resale
registration rights for the shares of our common stock held by entities affiliated with one of our principal stockholders and one of our directors, Dr. Stephen R. Biggar. We also have an effective registration statement to sell shares of
our common stock on our own behalf, and may elect to sell shares pursuant to such registration statement, or an indeterminate number of shares pursuant to a new registration statement or in a private placement, from time to time. Our stock price may
decline as a result of the sale of the shares of our common stock included in any of these registration statements or future financings.
If our
officers, directors, and largest stockholders choose to act together, they may be able to significantly influence our management and operations, acting in their best interests and not necessarily those of our other stockholders.
Our directors, executive officers and holders of five percent or more of our outstanding common stock and their affiliates beneficially own a
substantial portion of our outstanding common stock. As a result, these stockholders, acting together, have the ability to significantly influence all matters requiring approval by our stockholders, including the election of all of our board
members, amendments to our certificate of incorporation, going-private transactions, and the approval of mergers or other business combination transactions. The interests of this group of stockholders may not always coincide with the companys
interests or the interests of other stockholders and they may act in a manner that advances their best interests and not necessarily those of our other stockholders.
Anti-takeover provisions in our charter documents and under Delaware law may make an acquisition of us more complicated and may make the removal and
replacement of our directors and management more difficult.
Our amended and restated certificate of incorporation and amended and
restated bylaws contain provisions that may delay or prevent a change in control, discourage bids at a premium over the market price of our common stock and adversely affect the market price of our common stock and the voting and other rights of the
holders of our common stock. These provisions may also make it difficult for stockholders to remove and replace our board of directors and management. These provisions:
|
|
|
establish that members of the board of directors may be removed only for cause upon the affirmative vote of stockholders owning at least a majority of our capital stock;
|
|
|
|
authorize the issuance of blank check preferred stock that could be issued by our board of directors to increase the number of outstanding shares and prevent or delay a takeover attempt;
|
|
|
|
limit who may call a special meeting of stockholders;
|
|
|
|
establish advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon at stockholder meetings;
|
|
|
|
prohibit our stockholders from making certain changes to our amended and restated certificate of incorporation or amended and restated bylaws except with 66
2
/
3
percent stockholder approval; and
|
|
|
|
provide for a board of directors with staggered terms.
|
We are also subject to provisions of
the Delaware corporation law that, in general, prohibit any business combination with a beneficial owner of 15 percent or more of our common stock for three years unless the holders acquisition of our stock was approved in advance by our board
of directors. Although we believe these provisions collectively provide for an opportunity to receive higher bids by requiring potential acquirors to negotiate with our board of directors, they would apply even if the offer may be considered
beneficial by some stockholders.
31
Adverse securities and credit market conditions may significantly affect our ability to raise capital.
Historically, turmoil and volatility in the financial markets have adversely affected the market capitalizations of many
biotechnology companies, and generally made equity and debt financing more difficult to obtain. These events, coupled with other factors, may limit our access to financing in the future. This could have a material adverse effect on our ability to
access funding on acceptable terms, or at all, and our stock price may suffer further as a result.
We do not intend to pay dividends on our common
stock in the foreseeable future; as such, you must rely on stock appreciation for any return on your investment.
To date, we have
not paid any cash dividends on our common stock, and we do not intend to pay any dividends in the foreseeable future. Instead, we intend to retain any future earnings to fund the development and growth of our business. For this reason, the success
of an investment in our common stock, if any, will depend on the appreciation of our common stock, which may not occur. There is no guarantee that our common stock will appreciate, and therefore, a holder of our common stock may not realize a return
on his or her investment.