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.
30
Risks related to our business and industry
We have a limited operating history and have incurred substantial operating losses since our inception. We expect to continue to incur losses in the
future and may never become profitable.
We have a limited operating history. You should consider our prospects in light of the
risks and difficulties frequently encountered by early stage companies. In addition, we have incurred substantial operating losses since our inception and expect to continue to incur operating losses for the foreseeable future and may never become
profitable. As of June 30, 2016, we had an accumulated deficit of $759.6 million. As we continue our research and development and initial commercial efforts, we will incur increasing losses. We may continue to incur substantial operating losses
even after we begin to generate meaningful revenues from our drug, Auryxia. Our ability to achieve profitability depends on a number of factors, including our ability to complete our development efforts, obtain additional regulatory approvals for
our drug, successfully complete any post approval regulatory obligations and successfully manufacture and commercialize our drug.
We are highly
dependent on the commercial success of Auryxia in the United States for the foreseeable future and as a result we may be unable to attain profitability and positive cash flow from operations.
In September 2014, the FDA approved Auryxia for the control of serum phosphorus levels in patients with CKD on dialysis. The commercial
success of Auryxia will depend on a number of factors, including:
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the effectiveness of Auryxia as a treatment for adult patients with CKD on dialysis;
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the adoption of Auryxia by physicians, which depends on whether physicians view it as a safe and effective treatment to lower serum phosphorus levels in patients with CKD on dialysis;
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the effectiveness of the sales, managed markets and marketing efforts by us and our competitors;
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our ability to quickly and successfully identify and resolve the production-related issue that we announced in August 2016 and, as a result of the supply interruption, our ability to quickly and successfully identify
and engage secondary suppliers of finished drug product and to timely receive FDA approval of any secondary suppliers of finished drug product;
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our ability to return our business to the level of sales that we had achieved prior to the supply interruption and to increase our sales further;
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the size of the treatable patient population;
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our ability to both secure and maintain adequate reimbursement for, and optimize patient access to, Auryxia by providing third party payers with a strong value proposition based on the existing burden of illness
associated with CKD patients on dialysis and the benefits of Auryxia;
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the occurrence of any side effects, adverse reactions or misuse, or any unfavorable publicity in these areas, associated with Auryxia;
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our ability to obtain and maintain strong intellectual property protection for Auryxia;
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the development or commercialization of competing products or therapies for the control of serum phosphorus levels in patients with CKD on dialysis; and
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our ability to identify reliable suppliers and successfully manufacture Auryxia.
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In addition
to these factors, the commercial success of Auryxia is also dependent on gaining approval from the FDA to market Auryxia in the United States for additional indications, including for the treatment of iron deficiency anemia in patients with Stage
3-5 NDD-CKD, which is the indication being studied in our recently completed Phase 3 clinical trial.
Our revenues from the
commercialization of Auryxia are subject to these and other factors, and therefore may be unpredictable from quarter-to-quarter. Ultimately, we may never generate sufficient revenues from Auryxia to reach or maintain profitability or sustain our
anticipated levels of operations.
We have limited experience as a company in sales and marketing, and with respect to pricing and obtaining
adequate third-party reimbursement and as a result we may be unable to effectively market our product and retain market access.
We currently have limited experience as a company in sales and marketing and with respect to pricing and obtaining adequate third-party
reimbursement for drugs. In order to market Auryxia, if it is approved in the United States for the treatment of iron deficiency anemia in patients with Stage 3-5 NDD-CKD, we intend to expand our marketing organization and hire additional sales
representatives, which will require substantial effort and significant management and financial resources. We will need to devote significant effort, in particular, to recruiting individuals with experience in the sales and marketing of
pharmaceutical products. Competition for personnel with these skills is intense and may be particularly difficult for us as no drug has previously been marketed for the treatment of iron deficiency anemia in patients with Stage 3-5 NDD-CKD.
Additionally, our investment in this infrastructure might be lost if Auryxia is not approved for the treatment of iron deficiency anemia in patients with Stage 3-5 NDD-CKD.
Approval of Fexeric (ferric citrate coordination complex) in the European Union does not ensure successful commercialization and reimbursement.
On September 23, 2015, the EC approved Fexeric (ferric citrate coordination complex) for the control of elevated serum
phosphorus levels, or hyperphosphatemia, in adult patients with CKD, including dialysis and NDD-CKD. The EC also considered ferric citrate coordination complex as a New Active Substance, or NAS, which provides 10 years of data and marketing
exclusivity in the European Union.
We are not currently marketing Fexeric in the European Union, however we are seeking potential
partners to commercialize Fexeric in the European Union. We cannot assure you that we will be able to find a commercialization partner in the European Union or that we will be able to agree to acceptable terms with any partner to launch and
commercialize Fexeric in the European Union.
The commercial success of Fexeric is subject to the same risks we face with commercializing
Auryxia in the United States. In addition, in European countries, pricing and payment of prescription pharmaceuticals is subject to more extensive governmental control than in the United States. Pricing negotiations with European governmental
authorities can take six to 12 months or longer after the receipt of regulatory approval and product launch. If reimbursement for Fexeric is unavailable in any country in which reimbursement is sought, limited in scope or amount, or if pricing
is set at or reduced to unsatisfactory levels, our ability or any potential partners ability to successfully commercialize Fexeric in such a country would be impacted negatively. Furthermore, if these measures prevent us or any potential
partner from selling Fexeric on a profitable basis in a particular country, they could prevent the commercial launch or continued sale of Fexeric in that country.
Our potential revenues from the commercialization of Fexeric in the European Union are subject to these and other factors, and therefore we
may never reach or maintain profitability in the European Union.
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Auryxia may cause undesirable side effects or have other properties that could limit its commercial
potential.
The most commonly reported adverse reactions in the clinical trials that supported the approval of Auryxia in the
United States were diarrhea (21%), nausea (11%), constipation (8%), vomiting (7%) and cough (6%). Gastrointestinal adverse reactions were the most common reason for discontinuing Auryxia (14%) in clinical trials. If we or others identify
previously unknown side effects, if known side effects are more frequent or severe than in the past, if we or others detect unexpected safety signals for Auryxia or any products perceived to be similar to Auryxia, or if any of the foregoing are
perceived to have occurred, then:
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sales of Auryxia may be impaired;
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regulatory approvals for Auryxia may be restricted or withdrawn;
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we may decide to, or be required to, send drug warnings or safety alerts to physicians, pharmacists and hospitals, or we may decide to conduct a product recall;
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reformulation of the product, additional nonclinical or clinical studies, changes in labeling or changes to or re-approvals of manufacturing facilities may be required;
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we may be precluded from pursuing additional development opportunities to enhance the clinical profile of Auryxia within its indicated populations, as well as be precluded from studying Auryxia in additional indications
and populations or in new formulations; and
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government investigations or lawsuits, including class action suits, may be brought against us.
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Any of the above occurrences would harm or prevent sales of Auryxia, likely increase our expenses and impair our ability to successfully
commercialize Auryxia.
Furthermore, as we explore development opportunities to enhance the clinical profile of Auryxia, any clinical
trials conducted, if successful, may expand the patient populations treated with Auryxia within or outside of its current indications or patient populations, which could result in the identification of previously unknown side effects, increased
frequency or severity of known side effects, or detection of unexpected safety signals. In addition, now that Auryxia is commercially available, it will be used in a wider population and in less rigorously controlled environments than in
clinical studies. As a result, regulatory authorities, healthcare practitioners, third party payers or patients may perceive or conclude that the use of Auryxia is associated with serious adverse effects, undermining our commercialization
efforts.
We rely on third parties to manufacture and analytically test our drug. If these third parties do not successfully manufacture and test
our drug, our business will be harmed.
We have limited experience in manufacturing products for clinical or commercial purposes.
We intend to continue, in whole or in part, to use third parties to manufacture and analytically test our drug for commercial distribution and use in clinical trials. We may not be able to enter into future contract agreements with these
third-parties on terms acceptable to us, if at all.
Our ability to conduct clinical trials, manufacture and commercialize our drug will
depend on the ability of such third parties to manufacture our drug on a large scale at a competitive cost and in accordance with current cGMPs and other regulatory requirements, including requirements from federal, state and local environmental and
safety regulatory agencies and foreign regulatory requirements, if applicable. Significant scale-up of manufacturing may result in unanticipated technical challenges and will require validation studies that are subject to FDA inspection. Scale-up
and technology transfer activities can be complex, and insufficient process knowledge can result in a poorly scaled up process with inadequate process control. A lack of process control can lead to increased deviations during the manufacturing
process, out of specification test results, batch rejection and the possible distribution of drug products that do not conform to predetermined specifications. In addition, a variety of factors can affect a contract manufacturers
qualifications to produce acceptable product, including deficiencies in the contractors quality unit, lack of training, a shortage of qualified personnel, capacity constraints and changes in the contractors commercial or quality related
priorities. Any of these difficulties, if they occur, and are not overcome to the satisfaction of the FDA or other regulatory agency, could lead to significant delays and possibly the termination
33
of the development program for our drug, particularly given that some of the third parties we intend to employ in the manufacturing process are single source providers. These risks become more
acute as we scale up for commercial quantities, where a reliable source of active pharmaceutical ingredient, or API, and a qualified contract manufacturer become critical to commercial success. For example, given the large quantity of materials
required for Auryxia production and the large quantities of Auryxia that will be required for commercial success, the commercial viability of Auryxia will also depend on adequate supply of starting materials that meet quality, quantity and cost
standards and the ability of our contract manufacturers to produce the API and finished drug product on a commercial scale. Failure to achieve this level of supply can jeopardize and prevent the successful commercialization of the product. Moreover,
issues that may arise in our scale-up and technology transfer of Auryxia may lead to significant delays in our development and commercial timelines. For example, we announced in August 2016 that a production-related issue would cause an interruption
in supply of Auryxia which will make us unable to supply finished drug product to patients and will negatively impact our revenues.
Our
third-party manufacturers may not perform as required under the terms of our supply agreement or quality agreement, or may not remain in the contract manufacturing business for the time required by us to successfully manufacture and distribute our
drug. In addition, our contract manufacturers will be subject to ongoing periodic and unannounced inspections by the FDA and corresponding foreign governmental agencies to ensure strict compliance with cGMPs, as well as other governmental
regulations and corresponding foreign standards. While we periodically audit our contractors for adherence to regulatory requirements, and are ultimately held responsible for their regulatory compliance, we cannot assure you that unforeseen changes
at these contractors will not occur that could change their regulatory standing. The same issues apply to contract analytical services which we use for quality, impurity and release testing of our drug. We are required by law to establish adequate
oversight and control over raw materials, components and finished products furnished by our third-party manufacturers, which we establish by contract, supplier qualification and periodic audits, but unforeseen circumstances could affect our
third-party manufacturers compliance with applicable regulations and standards. As we continue to scale up production, we continue to develop analytical tools for Auryxia drug substance and drug product testing. Failure to develop effective
analytical tools could result in regulatory or technical delay or could jeopardize our ability to obtain FDA approval. Moreover, even with effective analytical methods available, there is no assurance that we will be able to analyze all the raw
materials and qualify all impurities to the satisfaction of the FDA, possibly requiring additional analytical studies, analytical method development, or preclinical studies, which could significantly delay our ability to receive regulatory approvals
for our drug. Additionally, changes in the analytical specifications required by the FDA or other regulatory authority, such as United States Pharmacopeial Convention standards, from time to time, could delay our ability to receive regulatory
approvals for our drug or our commercial efforts. Switching or engaging multiple third-party contractors to produce our drug substance or drug product may be difficult and time consuming because the number of potential manufacturers may be limited
and the process by which multiple manufacturers make the drug substance or drug product must meet established specifications at each manufacturing facility. It may be difficult and time consuming for us to find and engage replacement or multiple
manufacturers quickly and on terms acceptable to us, if at all. For Auryxia, the loss of any of our drug substance or drug product manufacturers would result in significant additional costs and delays in our development program. Moreover, if we need
to add or change manufacturers after commercialization, the FDA and corresponding foreign regulatory agencies must approve any new manufacturers in advance, which will involve additional inspections to ensure compliance with FDA and foreign
regulations and standards.
If we do not establish or maintain manufacturing, drug development and marketing arrangements with third parties, we may
be unable to commercialize our products.
We do not possess all of the capabilities to fully commercialize our product on our own.
From time to time, we may need to contract with additional third parties, or renew or revise contracts with existing third parties, to:
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assist us in developing, testing and obtaining regulatory approval for and commercializing our compound and technologies; and
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market and distribute our drug.
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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 pursue other strategic alternatives if terms or proposed collaborations are not attractive. To the extent that we rely on third parties to research, develop or commercialize our product, we are unable to control whether such product
will be scientifically or commercially successful. Additionally, if these third parties fail to perform their obligations under our agreements with them or fail to perform their work in a satisfactory manner, in spite of our efforts to monitor and
ensure the quality of such work, we may face delays in achieving the business or regulatory milestones required for commercialization of our current drug and any future drug candidate.
We will incur significant liability if it is determined that we are promoting any off-label use of Auryxia.
Physicians are permitted to prescribe drug products for uses that are not described in the products labeling and that differ from those
approved by the FDA or other applicable regulatory agencies. Such off-label uses are common across medical specialties. Although the FDA and other regulatory agencies do not regulate a physicians choice of treatments, the FDA and
other regulatory agencies do restrict communications on the subject of off-label use. Companies are not permitted to promote drugs for off-label uses or promote drugs using marketing claims that are not otherwise consistent with the FDA-approved
labeling, including comparative or superiority claims that are not consistent with the FDA-approved labeling or supported by substantial evidence. Accordingly, we may not promote Auryxia in the United States for use in any indications other than for
the control of serum phosphorus levels in patients with CKD on dialysis and all promotional claims must be consistent with the FDA-approved labeling for Auryxia. The FDA and other regulatory and enforcement authorities actively enforce laws and
regulations prohibiting promotion of off-label uses and the promotion of products for which marketing approval has not been obtained as well as the false advertising or misleading promotion of drugs. A company that is found to have improperly
promoted off-label uses or to have otherwise engaged in false or misleading promotion of drugs will be subject to significant liability, including civil and administrative remedies as well as criminal sanctions.
Notwithstanding the regulatory restrictions on off-label promotion, the FDA and other regulatory authorities allow companies to engage in
truthful, non-misleading, and non-promotional scientific exchange concerning their products in certain circumstances. We intend to engage in medical education activities and communicate with healthcare providers in compliance with all applicable
laws, regulatory guidance and industry best practices. Although we believe we have put in place a robust compliance program designed to ensure that all such activities are performed in a legal and compliant manner, Auryxia is our first commercial
product, so our implementation of our compliance program in connection with commercialization activities is still relatively new.
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, as well as the timing of coverage and reimbursement decisions by third-party payors. Third-party payors, including Medicare and Medicaid, are challenging the prices charged for medical products and
services. Government and other third-party payors increasingly are attempting to contain health care costs by limiting both coverage and the level of reimbursement for new drugs and by refusing, in some cases, to provide coverage for uses
35
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. Likewise, current and future legislative or regulatory efforts to control or reduce healthcare costs or reform government healthcare programs, such as the Patient Protection Affordable Care Act and the Health Care and Education
Reconciliation Act of 2010, could result in lower prices or rejection of coverage and reimbursement for our drug. In addition, third-party insurance coverage may not be available to patients for our product. If government and other third-party
payors do not provide adequate coverage and reimbursement levels for our product, its market acceptance may be significantly reduced.
If we fail to
comply with healthcare regulations, we could face substantial penalties and our business, operations and financial condition could be adversely affected.
As a manufacturer of pharmaceuticals, even though we do not (and do not expect in the future to) control referrals of healthcare services or
bill directly to Medicare, Medicaid or other third-party payers, certain federal and state healthcare laws and regulations pertaining to fraud and abuse and patients rights are and will be applicable to our business. We are subject to
healthcare fraud and abuse and patient privacy regulation by both the federal government and the states in which we conduct our business. These regulations include:
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federal healthcare program anti-kickback laws, which prohibit, among other things, persons from soliciting, receiving or providing remuneration, directly or indirectly, to induce either the referral of an individual,
for an item or service or the purchasing or ordering of a good or service, for which payment may be made under federal healthcare programs such as Medicare and Medicaid;
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federal false claims laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payers that
are false or fraudulent, and which may apply to entities like us which provide coding and billing advice to customers;
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the federal Health Insurance Portability and Accountability Act of 1996, which prohibits executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters and which
also imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information;
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the Federal Food, Drug, and Cosmetic Act, which among other things, strictly regulates drug product marketing, prohibits manufacturers from marketing drug products for off-label use and regulates the distribution of
drug samples;
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state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payer, including commercial insurers, and state
laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by federal laws, thus complicating compliance efforts;
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the federal Foreign Corrupt Practices Act which prohibits corporations and individuals from paying, offering to pay, or authorizing the payment of anything of value to any foreign government official, government staff
member, political party, or political candidate in an attempt to obtain or retain business or to otherwise influence a person working in an official capacity; and
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the federal Physician Payments Sunshine Act, which was passed as part of the Patient Protection and Affordable Care Act of 2010, and similar state laws in certain states, that require pharmaceutical and medical device
companies to monitor and report certain payments and transfers of value made to physicians and teaching hospitals.
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If our operations are found to be in violation of any of the laws described above or any other
laws, rules or regulations that apply to us, we will be subject to penalties, including civil and criminal penalties, damages, fines and the curtailment or restructuring of our operations. Any penalties, damages, fines, curtailment or
restructuring of our operations could adversely affect our ability to operate our business and our financial results.
In preparation for
the commercial launch of Auryxia, we assembled an experienced compliance team who compiled a program based on industry best practices designed to ensure our commercialization of Auryxia complies with all applicable laws, regulations and industry
standards. We also hire, manage and incentivize our employees around a culture of compliance, trust, respect and ownership. Because our program is relatively new and the requirements in this area are constantly evolving, we cannot be certain that
our program will eliminate all areas of potential exposure. Although compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, the risks cannot be entirely eliminated. Any action against us for
violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our managements attention from the operation of our business, as well as damage our business or reputation.
Moreover, achieving and sustaining compliance with applicable federal and state privacy, security, fraud and reporting laws may prove costly.
If
our competitors develop and market products that are less expensive, have a reduced pill burden, 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.
Auryxia is competing in the United States with other FDA approved phosphate binders such as Renagel
®
(sevelamer hydrochloride) and Renvela
®
(sevelamer carbonate), both marketed by Genzyme Corporation (a wholly-owned subsidiary of Sanofi),
or Genzyme, PhosLo
®
(calcium acetate), marketed by Fresenius Medical Care, Fosrenol
®
(lanthanum carbonate), marketed by Shire
Pharmaceuticals Group plc, and Velphoro
®
(sucroferric oxyhydroxide), marketed by Fresenius Medical Care North America, as well as over-the-counter calcium carbonate products such as TUMS
®
and metal-based options such as aluminum and magnesium. Our strategy to compete against these existing treatments depends in part on physicians and patients accepting that Auryxia is
differentiated in the marketplace versus these FDA approved phosphate binders. In addition, we may have to compete against existing treatments on price, which becomes more challenging as generic versions of these existing treatments come to market.
There are several parties pursuing approval of pending Abbreviated New Drug Applications, or ANDAs, for generic Renvela
®
with the FDA. In addition, a generic formulation of PhosLo
®
manufactured by Roxane Laboratories, Inc. was launched in the United States in October 2008. In addition, upon the expiration of its core patents, generic formulations of Fosrenol
®
may be launched. These generic formulations could have a further material effect on the pricing of phosphate binders.
Furthermore, our commercial opportunities may be reduced or eliminated if our competitors develop and market products that are less expensive,
more effective or safer than our drug product. Other companies have drug candidates in various stages of pre-clinical or clinical development to treat diseases for which we are also seeking to acquire and develop drug products. Even if we are
successful in developing effective drugs, our product(s) may not compete successfully with products produced by our competitors.
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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 August 1, 2016, we had 189 full and part-time employees. To
successfully develop and commercialize our drug and any drug candidates we may in-license or acquire, we must be able to attract and retain highly skilled personnel. Our limited resources may hinder our efforts to attract and retain highly skilled
personnel. In addition, if we lose the services of our current personnel our ability to continue to execute on our business plan could be materially impaired.
In July 2015, we appointed Scott Holmes to serve as our Senior Vice President and Chief Financial Officer. James F. Oliviero left the Company
after serving in various finance capacities for twelve years, including as our Chief Financial Officer since 2009.
Greg Madison assumed
the Chief Executive Officer role following the resignation of Mr. Bentsur on April 30, 2015. Previously, Mr. Madison was appointed to our Board of Directors in March 2015. Mr. Madison joined Keryx in February 2014 as Executive
Vice President and Chief Operating Officer to transition Keryx from a development stage organization into a fully integrated commercial entity, and bring to Keryx a wealth of relevant expertise in both the phosphate binder and iron deficiency anemia
markets.
Brian Adams joined Keryx in April 2014 as General Counsel and was additionally appointed as our Corporate Secretary in March
2015.
In April 2015, we appointed John F. Neylan, M.D., as our Senior Vice President and Chief Medical Officer.
Although we have employment agreements with Greg Madison, Brian Adams, Scott Holmes and John Neylan, M.D., these agreements do not prevent
them from terminating their employment with us.
Risks associated with our product development efforts
If we are unable to successfully complete our clinical trial programs, or if such clinical trials take longer to complete than we project, our ability
to execute our current business strategy will be adversely affected.
Whether or not and how quickly we complete our clinical
trials is dependent in part upon the rate at which we are able to engage clinical trial sites and, thereafter, the rate of enrollment of patients, and the rate we collect, clean, lock and analyze the clinical trial database. Patient enrollment is a
function of many factors, including the size of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the study, the existence of competitive clinical trials, and whether existing or new drugs are approved
for the indication we are studying. We are aware that other companies are currently conducting or planning clinical trials that seek to enroll patients with the same disease that we are studying. If we experience delays in identifying and
contracting with sites and/or in patient enrollment in our clinical trial programs, we may incur additional costs and delays in our development programs, and may not be able to complete our clinical trials in a cost-effective or timely manner or at
all. In addition, conducting multi-national studies adds another level of complexity and risk. As a result, we may be subject to events affecting countries outside the United States.
Negative or inconclusive results from the clinical trials we conduct, such as the recently completed Phase 3 study of Auryxia for the
treatment of iron deficiency anemia in patients with NDD-CKD, or unanticipated adverse medical events could cause us to have to repeat or terminate the clinical trials. For example, in May 2012, we abandoned our development efforts and terminated
our license for KRX-0401 (perifosine) following negative results from the Phase 3 trial for KRX-0401. We may also opt to change the delivery method, formulation or dosage which could affect efficacy results for the drug. Accordingly, we may not be
able to complete our current or future clinical trials within an acceptable time frame, if at all.
Pre-clinical testing and clinical development
are long, expensive and uncertain processes. If our Phase 3 study of ferric citrate for the treatment of IDA in patients with Stage 3-5 NDD-CKD raises safety signals or fails to demonstrate efficacy despite positive top-line results, we may be
unable to submit or receive regulatory approval for an expanded indication for Auryxia.
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In March 2016, we announced positive top-line results from our pivotal Phase 3 study of ferric
citrate for the treatment of iron deficiency anemia, or IDA, in adults with non-dialysis dependent chronic kidney disease, or NDD-CKD. Despite our positive top-line results, the FDA may not concur with our interpretation of our Phase 3 study
results, supportive data, conduct of the studies, or any other part of our regulatory submission and could ultimately deny approval of ferric citrate for the treatment of IDA in adults with stage 3-5 NDD-CKD. Additionally, we may need to conduct
significant additional research and human testing before we may submit an application for regulatory approval. 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 may pose additional questions or request further toxicological, drug-drug interaction, pre-clinical or clinical data or substantiation. 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. While both the FDA and EC have previously reviewed the data from our Phase 3 clinical program for CKD patients on dialysis and Phase 2 study in NDD CKD patients, we can provide no assurance that the 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. The risk
also remains that a clinical program conducted by one of our partners may raise efficacy or safety concerns that may prevent approval of the drug. In addition, qualitative, quantitative and statistical interpretation of any of the prior pre-clinical
and clinical safety and efficacy data of our drug may be viewed as flawed by the FDA. 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.
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) trial results in April 2012, and we can provide no assurance that we will not experience such setbacks with ferric citrate or any other drug candidate we develop. If we experience
delays in the testing or approval process for our existing drug or if we need to perform more or larger clinical trials than originally planned, our financial results and the commercial prospects for our drug may be materially impaired. In addition,
we have limited experience in conducting and managing the clinical trials necessary to obtain regulatory approval. Accordingly, we may encounter unforeseen problems and delays in the approval process. Although we engage, from time to time, clinical
research organizations with experience in conducting regulatory trials, errors in the conduct, monitoring, data capture and analysis, and/or auditing could potentially invalidate the results.
Because all of our proprietary technologies are licensed or sublicensed to us by third parties, termination of these license rights would prevent us
from developing and further commercializing Auryxia.
We do not own our drug, Auryxia. We have licensed and sublicensed the
rights, patent or otherwise, to Auryxia from a third party, Panion & BF Biotech, Inc., or Panion, who in turn licenses certain rights to Auryxia from one of the inventors of Auryxia. The license agreement with Panion requires us to meet
development milestones and imposes development and commercialization due diligence requirements on us. In addition, under the agreement, we must pay royalties based on a mid-single digit percentage of net sales of product resulting from the licensed
technologies (including Auryxia) and pay the patent filing, prosecution and maintenance costs related to the license. If we do not meet our obligations in a timely manner or if we otherwise breach the terms of our license agreement (including upon
certain insolvency events), Panion could terminate the agreement, and we would lose the rights to Auryxia. In addition, if Panion breaches its agreement with the inventor from whom it licenses rights to Auryxia, Panion could lose its license, which
could impair or delay our ability to develop and commercialize Auryxia. From time to time, we may have disagreements with our licensors or collaborators, or they and/or we may have disagreements with the original inventors, regarding the terms of
our agreements or ownership of proprietary rights, which could lead to delays in the research, development and commercialization of our current drug and any
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future drug candidate, could require or result in litigation or arbitration, which would be time-consuming and expensive, or could lead to the termination of a license, or force us to negotiate a
revised or new license agreement on terms less favorable than the original. In addition, in the event that the owners and/or licensors of the rights we license were to enter into bankruptcy or similar proceedings, we could potentially lose our
rights to our drug or drug candidates or our rights could otherwise be adversely affected, which could prevent us from developing or commercializing our drugs. Finally, our rights to develop and commercialize Auryxia, whether ourselves or with third
parties, are subject to and limited by the terms and conditions of our licenses to Auryxia and the licenses and sublicenses we grant to others.
Our
reliance on third parties, such as clinical research organizations, or CROs, may result in delays in completing, or a failure to complete, clinical trials if such CROs fail to perform under our agreements with them.
In the course of product development, we engage CROs and other vendors to conduct and manage clinical studies and to assist us in guiding our
products through the FDA review and approval process. If the CROs or applicable vendors fail to perform their obligations under our agreements with them or fail to perform clinical trials in a satisfactory or timely manner, we may face significant
delays in completing our clinical trials, submitting our regulatory filings, or approval, as well as the commercialization of one or more drug candidates. Furthermore, any loss or delay in obtaining contracts with such entities may also delay the
completion of our clinical trials and the market approval of drug candidate(s).
Other risks related to our business
Any acquisitions we make may require a significant amount of our available cash and may not be scientifically or commercially successful.
As part of our business strategy, we may effect acquisitions to obtain additional businesses, products, technologies, capabilities and
personnel. If we make one or more significant acquisitions in which the consideration includes cash, we may be required to use a substantial portion of our available cash.
Acquisitions involve a number of operational risks, including:
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difficulty and expense of assimilating the operations, technology and personnel of the acquired business;
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our inability to retain the management, key personnel and other employees of the acquired business;
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our inability to maintain the acquired companys relationship with key third parties, such as alliance partners;
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exposure to legal claims for activities of the acquired business prior to the acquisition;
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the diversion of our managements attention from our core business; and
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the potential impairment of goodwill and write-off of in-process research and development costs, adversely affecting our reported results of operations.
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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 United States 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 United States or internationally, the reimportation of drugs into the United States 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.
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Furthermore, in the United States, health care reform legislation titled the Patient Protection
and Affordable Care Act, or PPACA, was signed into law in March 2010. The impact of this legislation on our business is inherently difficult to predict as many of the details regarding the implementation of this legislation have not been determined.
In a decision issued on June 29, 2012, the United States Supreme Court upheld the majority of PPACA. The Courts decision allows implementation of key provisions impacting drug and device manufacturers to go forward. This includes PPACA
changes to the Medicare Part D Program (including closing the donut hole), Medicaid Drug Rebate Program (including the definition of AMP), and expansion of the 340B Drug Discount Program. The decision also allows the FDA and CMS to
continue with implementation efforts, including related to the Biologics Price Competition and Innovation Act and the Physician Payments Sunshine Act, both of which were enacted as part of the PPACA. Regulations to implement PPACA could result in a
decrease in our stock price or limit our ability to raise capital or to obtain strategic partnerships or licenses. Government-financed comparative efficacy research could also result in new practice guidelines, labeling or reimbursement policies
that discourages use of our product.
For example, in July 2010, CMS released its final rule to implement a bundled prospective payment
system for end-stage renal disease facilities as required by the Medicare Improvements for Patients and Providers Act, or MIPPA. The final rule delayed the inclusion of oral medications without intravenous equivalents, such as phosphate binders, in
the bundle until January 1, 2014; however, on January 3, 2013, the United States Congress passed legislation known as the American Taxpayer Relief Act of 2012, which, among other things, delayed by two years the implementation of oral-only
end-stage renal disease related drugs, including phosphate binders, in the bundled ESRD prospective payment system, until January 1, 2016. In April 2014, the United States Congress passed legislation known as Protecting Access to Medicare Act
of 2014, which, among other things, delays by eight years the implementation of oral-only ESRD related drugs, including phosphate binders, in the bundled ESRD prospective payment system, until January 1, 2025. If phosphate binders are included
in the bundle beginning in 2025, or earlier, separate Medicare reimbursement will no longer be available for phosphate binders, as it is today under Medicare Part D. While it is too early to project the impact bundling may have on the phosphate
binder industry, the impact could potentially cause dramatic price reductions for phosphate binders, which could significantly reduce the commercial potential of Auryxia.
On September 27, 2007, the Food and Drug Administration Amendments Act of 2007 was enacted, giving the FDA enhanced post-market
authority, including the authority to require post-marketing studies and post-marketing clinical trials related to serious risks, labeling changes based on new safety information, and compliance with risk evaluation and mitigation strategies
approved by the FDA. The FDAs exercise of this authority may result in delays or increased costs during the period of product development, clinical trials and regulatory review and approval, which may also increase costs related to complying
with new post-approval regulatory requirements, and increase potential FDA restrictions on the sale or distribution of approved products. On July 9, 2012, the Food and Drug Administration Safety and Innovation Act was enacted to, among other
things, renew the drug user fee program, expand the FDAs inspection records access and require manufacturers to establish appropriate oversight and controls over their suppliers and the supply chain, including raw material suppliers and
contract manufacturers, as a part of cGMP compliance. On November 27, 2013, the Drug Quality and Security Act, which includes the Drug Supply Chain Security Act, was signed into law to, among other things, build an electronic, interoperable
system to identify and trace certain prescription drugs as they are distributed in the United States. Requirements for the tracing of products through the pharmaceutical distribution supply chain took effect on January 1, 2015 for manufacturers
and building internal systems to ensure compliance with this law will require dedication of resources. In addition, this law requires engaging in transactions only with authorized trading partners and could limit our pool of available trading
partners.
We face product liability risks and may not be able to obtain adequate insurance.
The use of our drug or future drug candidates in clinical trials, and the future sale of any approved drug and new technology, exposes us to
liability claims. Although we are not aware of any historical or anticipated product liability claims against us, if we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to
cease clinical trials of our drug product or limit commercialization of any approved product.
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We have expanded our insurance coverage to include the commercial sale of Auryxia; however,
insurance coverage is becoming increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost. We also may not be able to obtain additional insurance coverage that will be adequate to cover product liability risks
that may arise. Regardless of merit or eventual outcome, product liability claims may result in:
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decreased demand for a product;
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injury to our reputation;
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our inability to continue to develop a drug candidate;
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withdrawal of clinical trial volunteers; and
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Consequently, a product liability claim or product recall may result in
losses that could be material to our business.
Security breaches and other disruptions could compromise our information and expose us to liability,
which would cause our business and reputation to suffer.
In the ordinary course of our business, we collect and store sensitive
data, including intellectual property, our proprietary business information and that of our suppliers and business partners, as well as personally identifiable information of Auryxia patients, clinical trial participants and employees. We also have
outsourced elements of our information technology structure, and as a result, we are managing independent vendor relationships with third parties who may or could have access to our confidential information. Similarly, our business partners and
other third party providers possess certain of our sensitive data. The secure maintenance of this information is critical to our operations and business strategy. Despite our security measures, our information technology and infrastructure may be
vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. We, our partners, vendors and other third party providers could be susceptible to third party attacks on our, and their, information security
systems, which attacks are of ever increasing levels of sophistication and are made by groups and individuals with a wide range of motives and expertise, including criminal groups. Any such breach could compromise our, and their, networks and the
information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal
information, disrupt our operations, and damage our reputation, any of which could adversely affect our business.
Risks related to our financial
condition
Our existing capital resources may not be adequate to finance our operating cash requirements for the length of time that we have
estimated.
We currently expect that our existing capital resources and future anticipated cash flows will be sufficient to
execute our business plan. The actual amount of cash that we will need to operate is subject to many factors, including, but not limited to, the timing and expenditures associated with commercial activities related to Auryxia and the magnitude of
cash received from product sales, the timing and expenditures associated with resolving the recently announced supply interruption of Auryxia, the build-up of inventory and capacity expansion, and the timing, design and conduct of, and results from,
clinical trials for Auryxia. As a result of these factors, we may need to seek additional financings to provide the cash necessary to execute our current operations, including beyond commercializing Auryxia, and to develop any drug candidates we may
in-license or acquire.
Our forecast of the period of time through which our existing capital resources will be adequate to support our
current operations is a forward-looking statement that involves risks and uncertainties. The actual amount of funds we will need to operate is subject to many factors, some of which are beyond our control. These factors include, but are not limited
to, the following:
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the timing and expenditures associated with commercial activities related to Auryxia and the magnitude of cash received from product sales;
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the timing and expenditures associated with the build-up of inventory and capacity expansion, including our ability to quickly and successfully identify and resolve the production-related issue that we announced in
August 2016 and, as a result of the supply interruption, our ability to quickly and successfully identify and engage secondary suppliers of finished drug product and to timely receive FDA approval of any secondary suppliers of finished
drug product;
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our ability to return our business to the level of sales that we had achieved prior to the supply interruption and to increase our sales further;
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the timing, design and conduct of, and results from, clinical trials for Auryxia;
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the timing of expenses associated with manufacturing and product development of Auryxia and those proprietary drug candidates that may be in-licensed, partnered or acquired;
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the timing of the in-licensing, partnering and acquisition of new product opportunities;
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the timing and expenditures associated with commercial activities related to launching Fexeric in Europe, either by us or through a commercialization partner;
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the progress of the development efforts of parties with whom we have entered, or may enter, into research and development agreements;
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our ability to achieve our milestones under our licensing arrangement;
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the timing and expenses associated with capital expenditures to expand our manufacturing capabilities;
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the timing and expenses associated with building our own commercial infrastructure to manufacture, market and sell our drug and those that may be in-licensed, partnered or acquired; and
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the costs involved in prosecuting and enforcing patent claims and other intellectual property rights or defending against claims of infringement initiated by third parties in respect of their intellectual property
rights.
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If our cash is insufficient to meet our 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 United States that claim technology also claimed by us, we may have to participate in interference or derivation proceedings in front of the U.S. Patent
and Trademark Office to determine priority of invention, which could result in substantial cost, even if the eventual outcome is favorable to us. Because of the extensive time required for development, testing and regulatory review of a potential
product, it is possible that any related patent may expire prior to, or remain in existence for only a short period following, commercialization, thus reducing any advantage of the patent. The patents we use may be challenged or invalidated or may
fail to provide us with any competitive advantage. As many of the patents we use are licensed or sublicensed from third parties, we may not be able to enforce such licensed patents against third party infringers without the cooperation of the patent
owner and the licensor, which may not be forthcoming. In addition, we may not be successful or timely in obtaining any patents for which we submit applications.
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Additionally, the laws of foreign countries may not protect our intellectual property rights to
the same extent as do the laws of the United States. In addition, in jurisdictions outside the United States where we own or license patent rights, we may be unable to prevent unlicensed parties from selling or importing products or technologies
derived elsewhere using our proprietary technology.
We also rely on trade secrets and know-how to protect our intellectual property where
we believe patent protection is not appropriate or obtainable. Trade secrets are difficult to protect. While we require our employees, licensees, collaborators and consultants to enter into confidentiality agreements, this may not be sufficient to
adequately protect our trade secrets or other proprietary information. In addition, we share ownership and publication rights to data relating to our drug product and technologies with our research collaborators and scientific advisors. If we cannot
maintain the confidentiality of this information, our ability to receive patent protection or protect our trade secrets or other proprietary information will be at risk.
The intellectual property that we own or have licensed relating to our drug, Auryxia, is limited, which could adversely affect our ability to compete in
the market and adversely affect the value of Auryxia.
The patent rights that we own or have licensed relating to Auryxia are
limited in ways that may affect our ability to exclude third parties from competing against us. In particular:
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Composition of matter patents can provide protection for pharmaceutical products to the extent that the specifically covered compositions are key, non-interchangeable components of the pharmaceutical product. The first
composition of matter and method patent relating to Auryxia in the United States (U.S. Patent No. 5,753,706) expires in February 2017. We licensed additional composition of matter and method of use patents expiring in 2024 with independent
claims covering forms of ferric citrate (the active pharmaceutical ingredient, or API, of Auryxia), pharmaceutical compositions that include the API, pharmaceutical compositions having ferric citrate in an amount effective to reduce serum phosphate
levels, and methods of treating hyperphosphatemia and metabolic acidosis.
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Our method of use patents, including U.S. Patent Nos. 7,767,851, 8,299,298 and 8,338,642 and (which expire in 2024), and U.S. Patent No. 8,093,423 (which expires in 2026) only protect the product when used or sold
for the claimed methods. However, these types of patents do not limit a competitor from making and marketing a product that is identical to our product that is labeled for an indication that is outside of our patented methods.
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We have filed applications under the Patent Term Extension provisions of 35 U.S.C. § 156 on the above mentioned patents for delays caused by FDA regulatory review. If granted, we can utilize the patent term
extension on one of these patents, however, we cannot assure you that we can obtain any extension of the term of these patents. If obtained, the maximum term of extension available under 35 U.S.C. § 156 would extend the term of the chosen
patent by no more than five years. Upon expiration of these patents, competitors who obtain the requisite regulatory approval may potentially offer products with the same composition and/or method of use as our product, so long as the competitors do
not infringe any other patents that we may hold.
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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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Obtaining proof of direct infringement by a competitor for a method of use patent requires us to demonstrate that the competitors make and
market a product for the patented use(s). Alternatively, we can prove that our competitors induce or contribute to others in engaging in direct infringement. Proving that a competitor contributes to, or induces, infringement of a patented method by
another has additional proof requirements. For example, proving inducement of infringement requires proof of intent by the competitor. If we are required to defend ourselves against claims or to protect our own proprietary rights against others, it
could result in substantial costs to us and the distraction of our management. An adverse ruling in any litigation or administrative proceeding could prevent us from marketing and selling Auryxia, increase the risk that a generic version of Auryxia
could enter the market to compete with Auryxia, limit our development and commercialization of Auryxia, or otherwise harm our competitive position and result in additional significant costs. In addition, any successful claim of infringement asserted
against us could subject us to monetary damages or injunction, which could prevent us from making or selling Auryxia. We also may be required to obtain licenses to use the relevant technology. Such licenses may not be available on commercially
reasonable terms, if at all.
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Moreover, physicians may prescribe a competitive identical product for indications other than the
one for which the product has been approved, or off-label indications, that are covered by the applicable patents. Although such off-label prescriptions may directly infringe or contribute to or induce infringement of method of use patents, such
infringement is difficult to prevent.
In addition, any limitations of our patent protection described above may adversely affect the
value of our drug product and may inhibit our ability to obtain a corporate partner at terms acceptable to us, if at all.
In addition to
patent protection, we may utilize, if granted by the FDA, pediatric exclusivity or other provisions of the Food, Drug and Cosmetic Act of 1938, as amended, or FDCA, such as new chemical entity exclusivity, or NCE, or new formulation exclusivity, to
provide market exclusivity for a drug candidate.
In the United States, the FDA has the authority to grant additional data protection for
approved drugs where the sponsor conducts specified testing in pediatric or adolescent populations. If granted, this pediatric exclusivity may provide an additional six months which are added to the term of data protection as well as to the term of
a relevant patent, to the extent these protections have not already expired.
The FDCA provides a five-year period of non-patent marketing
exclusivity within the United States to the first applicant to gain approval of an NDA for a New Chemical Entity, or NCE. A drug is an NCE if the FDA has not previously approved any other new drug containing the same active moiety, which consists of
the molecule(s) or ion(s) responsible for the action of the drug substance. During the exclusivity period, the FDA may not accept for review an ANDA or a 505(b)(2) NDA submitted by another company for another version of such drug where the applicant
does not own or have a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement. The FDCA also provides three
years of marketing exclusivity for an NDA, 505(b)(2) NDA or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to
the approval of the application (for example, for new indications, dosages, or strengths of an existing drug). This three-year exclusivity covers only the conditions associated with the new clinical investigations and does not prohibit the FDA from
approving ANDAs for drugs containing the original active agent. Five-year and three-year exclusivity will not delay the submission or tentative approval of a full ANDA; however, an applicant submitting a full ANDA would be required to conduct
sufficient studies to demonstrate that their generic product is bioequivalent to Auryxia.
We cannot assure that Auryxia or any drug
candidates we may acquire or in-license, will obtain such pediatric exclusivity, NCE exclusivity or any other market exclusivity in the United States, EU or any other territory, or that we will be the first to receive the respective regulatory
approval for such drugs so as to be eligible for any market exclusivity protection. We also cannot assure that Auryxia or any drug candidates we may acquire or in-license will obtain patent term extension.
Litigation or third-party claims could require us to spend substantial time and money defending such claims and adversely affect our ability to develop
and commercialize our product.
We may be forced to initiate litigation to enforce our contractual and intellectual property
rights, or we may be sued by third parties asserting claims based on contract, tort or intellectual property infringement. In addition, third parties may have or may obtain patents in the future and claim that Auryxia or any other technologies
infringe their patents. If we are required to defend against suits brought by third parties, or if we sue third parties to protect our rights, we may be required to pay substantial litigation costs, and our managements attention may be
diverted from operating our business. In addition, any legal action against our licensor or us that seeks damages or an injunction of our commercial activities relating to Auryxia or other technologies could subject us to monetary liability, a
temporary or permanent injunction preventing the development, marketing and sale of Auryxia or such technologies, and/or require our licensor or us to obtain a license to continue to use Auryxia or other technologies. We cannot predict whether our
licensor or we would prevail in any of these types of actions or that any required license would be made available on commercially acceptable terms, if at all.
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Risks related to our common stock
Baupost, our largest stockholder may have significant influence over our company and may cause us to take actions that may not be, or refrain from
taking actions that may be, in our best interest or the best interest of our other stockholders.
As of June 30, 2016,
Baupost beneficially owns approximately 24% of our issued and outstanding common stock. If all of the Notes were converted into shares of our common stock, Baupost would beneficially own approximately 43% of our issued and outstanding common
stock. Baupost, through its equity interests, may have significant influence over matters submitted to our stockholders for approval and other corporate actions, such as:
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timing and manner of dividend distributions;
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approval of contracts between us and Baupost or its respective affiliates, which could involve conflicts of interest;
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open market purchase programs or other purchases of our common shares;
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delay, defer or prevent a change in who controls us;
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discourage bids for our shares at a premium over the market price; and
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adversely affect the market price of our common shares.
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Moreover, because large stockholders
have potential power to direct or influence our corporate actions, we may be required to engage in transactions that may not be agreeable to our other stockholders or that may not be in the best interest of our other stockholders. In conjunction
with the financing, we increased the number of directors on our Board to eight, as Baupost has the right to appoint a director to our Board. Baupost also has the right to appoint an observer to our board.
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 make it more difficult for us to raise funds through the sale of equity in the future.
In
October 2015, we raised $125 million through the private placement of Convertible Senior Notes, due 2020, with funds managed by The Baupost Group, L.L.C. The zero-coupon notes will mature in October 2020 unless converted into shares of our common
stock in accordance with their terms prior to such date. Keryx does not have the right to redeem the notes prior to maturity. The conversion price of the notes shall be equal to the closing price of Keryxs common stock on the day prior to
closing, October 14, 2015, or $3.74 per share, subject to certain adjustments under the terms of the notes.
On January 21,
2015, we announced the pricing of an underwritten public offering in which we sold 10,541,667 shares of our common stock at a price of $12.00 per share for gross proceeds of approximately $126.5 million. Net proceeds from this offering were
approximately $118.3 million, net of underwriting discounts and offering expenses of approximately $8.2 million. The shares were sold under registration statements (Nos. 333-201605 and 333-201639) on Form S-3 and Form S-3MEF, respectively, filed by
us with the Securities and Exchange Commission.
We may need to seek additional financings to provide cash necessary to execute our
current operations, including, but not limited to, beyond the continued commercialization of Auryxia, and to develop any drug candidates we may in-license or acquire. Future issuances of common stock could depress the market for our common stock.
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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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our ability to resolve the recently announced supply interruption of Auryxia;
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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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developments relating to the marketing, safety and efficacy of our drug product, and regulatory filings and approvals for us or our competitors;
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expectations regarding our financial condition;
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expiration or termination of licenses, research contracts or other collaboration agreements;
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expectations or investor speculation regarding the strength of our intellectual property position, or the availability of other forms of regulatory exclusivity;
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conditions or trends in the regulatory climate and the biotechnology and pharmaceutical industries;
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changes in the market valuations of similar companies;
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negative comments and sentiment in the media; and
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additions or departures of key personnel.
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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. For example, in August 2016, two purported class action lawsuits were filed against us and certain of our executive officers alleging false and/or misleading
statements concerning the company and its business operations and future prospects in light of the recent announcement of the supply interruption of Auryxia. Any litigation instituted against us could cause us to incur substantial costs to defend
such claims and divert managements attention and resources, which could seriously harm our business.
Certain anti-takeover provisions in our
charter documents and Delaware law could make a third-party acquisition of us difficult. This could limit the price investors might be willing to pay in the future for our common stock.
Provisions in our amended and restated certificate of incorporation and bylaws could have the effect of making it more difficult for a third
party to acquire, or of discouraging a third party from attempting to acquire, or control us. These factors could limit the price that certain investors might be willing to pay in the future for shares of our common stock. Our amended and restated
certificate of incorporation allows us to issue preferred stock without the approval of our stockholders. The issuance of preferred stock could decrease the amount of earnings and assets available for distribution to the holders of our common stock
or could adversely affect the rights and powers, including voting rights, of such holders. In certain circumstances, such issuance could have the effect of decreasing the market price of our common stock. Our amended and restated bylaws eliminate
the right of stockholders to call a special meeting of stockholders, which could make it more difficult for stockholders to effect certain corporate actions. Any of these provisions could also have the effect of delaying or preventing a change in
control.
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