Item 1A. Risk Factors.
Investing in our common stock involves a high degree of risk. You should consider carefully the risks described below, together with the
other information included or incorporated by reference in this quarterly report on Form 10-Q. If any of the following risks occur, our business, financial condition, results of operations and future growth prospects could be materially and
adversely affected. In these circumstances, the market price of our common stock could decline.
Risks Related to Our Financial Position and Need
for Additional Capital
We have incurred significant losses since our inception. We expect to continue to incur losses and may never achieve or
maintain profitability.
Since inception, we have incurred significant operating losses. Our net loss was $45.1 million for the
year ended December 31, 2015, $23.3 million for the year ended December 31, 2014 and $15.7 million for the year ended December 31, 2013. As of September 30, 2016, we had an accumulated deficit of $165.7 million. To date, we have
financed our operations primarily through our initial public offering of our common stock, and prior to our initial public offering, through private placements of our redeemable convertible preferred stock and convertible promissory notes. We have
devoted substantially all of our efforts to research and development, including clinical trials. We have not completed development of any product candidate and it may be several years, if ever, before we have a product candidate ready for
commercialization.
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We have devoted a significant portion of our financial resources to the development of
galeterone. However, in July 2016, we announced our plan to discontinue the ARMOR3-SV clinical trial, our pivotal Phase 3 study comparing galeterone to Xtandi
®
(enzalutamide) in
treatment-naïve metastatic castration-resistant prostate cancer, or mCRPC, patients whose prostate tumors express the AR-V7 splice variant, following the recommendation of the trials independent Data Monitoring Committee, or DMC, and
ceased enrollment in this trial. In addition, in August 2016, we determined to discontinue enrollment in our ongoing Phase 2 ARMOR2 expansion clinical trial of galeterone in mCRPC patients with acquired resistance to Xtandi
®
(enzalutamide) and not to proceed with our planned study of galeterone in mCRPC patients who rapidly progress on either enzalutamide or
Zytiga
®
(abiraterone acetate). We are analyzing the unblinded data from the ARMOR3-SV clinical trial to evaluate potential paths forward for galeterone and our ARDA program. As a result of
this evaluation, we may determine to proceed with the clinical development of galeterone and our ARDA program, terminate the galeterone clinical development program and focus on our ARDA program or proceed in other strategic directions. Our
determination as to our next steps will necessarily impact the amount of expenses we incur and the size of our operating losses for the foreseeable future.
In September 2016, we announced that our board of directors had initiated a review of strategic alternatives that could result in changes to
our business strategy and future operations. As part of this process, which is being conducted in parallel with our review of development options for galeterone and our drug discovery program, known as ARDA (Androgen Receptor Degradation Agents),
our board of directors is reviewing alternatives with the goal of maximizing stockholder value. Potential strategic alternatives that we may explore and evaluate during the ongoing review process include, among others, a sale of the company, a
reverse merger, a business combination or a sale, license or other disposition of corporate assets of the company.
If we determine to
further develop galeterone, proceed with our ARDA program, or both, we anticipate that we will continue to incur significant expenses if and as we:
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conduct clinical trials with galeterone or any other product candidates in the future;
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identify and develop compounds that are designed to disrupt androgen receptor signaling through enhanced androgen receptor degradation under our ARDA program;
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enter into agreements with third parties to manufacture galeterone or other product candidates;
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establish a sales, marketing and distribution infrastructure to support the commercialization of our product candidates;
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maintain, expand and protect our intellectual property portfolio;
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continue our other research and development efforts;
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acquire or in-license additional compounds or technologies; and
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operate as a public company.
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We have never generated any revenue from product sales and may
never be profitable. To become and remain profitable, we must develop and eventually commercialize a product or products with significant market potential and market acceptance. This development and commercialization will require us to be successful
in a range of challenging activities, including successfully completing preclinical testing and clinical trials of galeterone and any of our future product candidates, obtaining marketing and regulatory approval for these product candidates,
partnering with third parties to manufacture our product candidates in commercial quantities, marketing and selling those products for which we may obtain regulatory approval, and obtaining reimbursement from third-party payors. We may never succeed
in these activities and may never generate revenues that are significant or large enough to achieve profitability.
Even if we do achieve
profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. The net losses we incur may fluctuate significantly from quarter-to-quarter and year-to-year, such that a period-to-period comparison of our
results of operations may not be a good indication of our future performance. In any particular quarter or quarters, our operating results could be below the expectations of securities analysts or investors, which could cause our share price to
decline. Our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise capital, expand our business, maintain our research and development efforts or continue our operations. A decline in
the value of our company could also cause our stockholders to lose all or part of their investment.
27
We will need substantial additional funding to continue our development of, and to commercialize,
galeterone or any future product candidate, which funding may not be available on acceptable terms, or at all. If we are unable to raise capital when needed, we may be forced to delay, reduce, terminate or eliminate product development programs.
As of September 30, 2016, we had cash and investments of $34.7 million. We have devoted a significant portion of our cash
resources to the development of galeterone and our ARMOR3-SV trial. However, in July 2016, we announced our plan to discontinue the ARMOR3-SV clinical trial. We are currently evaluating potential paths forward for galeterone and our ARDA program and
are reviewing strategic alternatives that could result in changes to our business strategy and future operations. As part of this process, our board of directors is reviewing alternatives with the goal of maximizing stockholder value. If we
determine to pursue an alternate strategy or engage in a strategic transaction, our future business, prospects, financial positon and operating results could be significantly different than those in historical periods or projected by our management.
If we determine to further develop galeterone, proceed with our ARDA program, or both, we will need to obtain substantial additional funding. Because of the significant uncertainty regarding our future plans, we are not able to accurately predict
our future funding requirements.
Our future capital requirements will depend on many factors, including:
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the outcome of our board of directors review of our strategic alternatives;
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our determination regarding potential paths forward for galeterone and our ARDA program;
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our analysis of the available unblinded data from ARMOR3-SV clinical trial;
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the scope, progress and results of any additional clinical trials of galeterone that we decide to conduct;
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the timing and outcome of regulatory review of galeterone and of any other future product candidates;
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the cost of commercialization activities, including product sales, marketing, manufacturing and distribution, for galeterone and our future product candidates for which we receive regulatory approval;
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the development of future product candidates, including our plans to seek to acquire or in-license additional compounds or technologies;
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revenue, if any, received from commercial sales of galeterone and any future product candidates, should any of our product candidates be approved by the FDA or a similar regulatory authority outside the United States;
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our ability to establish collaborations on favorable terms, if at all, particularly arrangements to develop, market and distribute galeterone and any future product candidates outside the United States; and
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the cost of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims.
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Conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we
may never generate the necessary data or results required to obtain regulatory approval and achieve product sales. In addition, galeterone and any future product candidates, if approved, may not achieve commercial success. Our commercial revenues,
if any, will be derived from sales of products that we do not expect to be commercially available for several years, if at all. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Additional
financing may not be available to us on acceptable terms, or at all.
Raising additional capital may cause dilution to our existing stockholders,
restrict our operations, require us to relinquish rights to our technologies or product candidates or divert our managements attention from our operating activities.
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity
offerings, debt financings, and collaborations, strategic alliances and licensing arrangements with third parties. To the extent that we raise additional capital through the sale of equity or convertible debt securities, our stockholders
ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing, if available, may involve agreements that require liens
to be placed on our property and include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through
collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or current or future product candidates or to grant licenses
on terms that may not be favorable to us. Additional fundraising efforts may also divert our management from their day-to-day activities, which may compromise our ability to develop and commercialize our product candidates.
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We are conducting a review of strategic alternatives for the company, including evaluating potential paths
forward for galeterone and our ARDA program that could significantly impact our future operations and financial position.
In July
2016, we announced our plan to discontinue the ARMOR3-SV clinical trial. We are analyzing the unblinded data from the ARMOR3-SV clinical trial to evaluate potential paths forward for galeterone and our ARDA program. In September 2016, we announced
that our board of directors had initiated a review of strategic alternatives that could result in changes to our business strategy and future operations. As part of this process, which is being conducted in parallel with our review of development
options for galeterone and our ARDA program, our board of directors is reviewing alternatives with the goal of maximizing stockholder value. Potential strategic alternatives that we may explore and evaluate during the ongoing review process include,
among others, a sale of the company, a reverse merger, a business combination or a sale, license or other disposition of corporate assets of the company. If we determine to pursue an alternate strategy or engage in a strategic transaction, our
future business, prospects, financial positon and operating results could be significantly different than those in historical periods or projected by our management. Pending any decision to change strategic direction, we have limited our research
and development activities to manage our cash position. We cannot provide any commitment as to the timing of our determination or the strategy we may adopt. If we determine to change our business strategy or to seek to engage in a strategic
transaction, our future business, prospects, financial position and operating results could be significantly different than those in historical periods or projected by our management. If we determine to further develop galeterone, proceed with our
ARDA program, or both, we will need to obtain substantial additional funding. Because of the significant uncertainty regarding our future plans, we are not able to accurately predict the impact of a potential change in our business strategy and
future funding requirements.
Risks Related to the Development and Regulatory Approval of Galeterone and Our Future Product Candidates
We have depended heavily on the success of our lead product candidate, galeterone, which was in clinical development for the treatment of AR-V7 positive
mCRPC patients. Any failure to successfully develop galeterone or any future product candidates, or significant delays in doing so, would compromise our ability to generate revenue and become profitable.
We currently have no products approved for sale and have only one product candidate, galeterone, in clinical development. We have invested
substantially all of our efforts and financial resources in the development of galeterone. In July 2016, we announced our plan to discontinue the ARMOR3-SV clinical trial following the recommendation made by the DMC. Based on a review of all safety
and efficacy data, the DMC determined that the ARMOR3-SV trial will likely not succeed in meeting its primary endpoint of demonstrating an improvement in radiographic progression-free survival, or rPFS, for galeterone versus Xtandi in AR-V7 positive
mCRPC. We are analyzing the totality of the unblinded study data in detail to evaluate potential paths forward for galeterone and our ARDA program. Based on preliminary data reviewed to date, however, there is a substantial likelihood that we will
determine not to pursue the development of galeterone in AR-V7 positive mCRPC in the future. As part of this analysis, we also closed enrollment of our ARMOR2 expansion trial in mCRPC patients with acquired resistance to Xtandi, and announced our
intention not to proceed with our planned study in patients who rapidly progress on either Xtandi or Zytiga.
If we determine to proceed
with the development of galeterone, our ability to generate product revenues, which we do not expect will occur for at least the next several years, if ever, will depend heavily on the successful development and commercialization of galeterone for
mCRPC patients or for other indications or patient populations. In light of our plan to discontinue ARMOR3-SV, there is a significant risk that we will be unable to successfully develop galeterone.
The success of galeterone or other future product candidates, under our ARDA program or otherwise, will depend on several factors, including
the following:
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successfully completing clinical trials, including obtaining clinical results that are statistically significant as well as clinically meaningful in the context of the indications for which we are developing galeterone
and our future product candidates;
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receiving marketing approvals for our products from the FDA and similar regulatory authorities outside the United States;
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making arrangements with third-party manufacturers for, or establishing, commercial manufacturing capabilities;
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obtaining and maintaining patent and trade secret protection and regulatory exclusivity for galeterone or other product candidates under our ARDA program, both in the United States and internationally;
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establishing successful sales and marketing arrangements and launching commercial sales of our products, if and when approved, whether alone or in collaboration with others;
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obtaining commercial acceptance of our products, if and when approved, by patients, the medical community and third-party payors;
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obtaining and maintaining adequate reimbursement;
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effectively competing with other therapies;
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protecting our rights in our intellectual property portfolio; and
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maintaining a continued acceptable safety profile of our products following regulatory approval.
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If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to
successfully commercialize galeterone and our future product candidates, which would materially harm our business.
If clinical trials of galeterone
and our future product candidates, under our ARDA program or otherwise, fail to demonstrate safety and efficacy to the satisfaction of the FDA or similar regulatory authorities outside the United States or are not otherwise successful, we may incur
additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of galeterone and our future product candidates.
Before obtaining regulatory approval for the sale of galeterone and our future product candidates, we must conduct extensive clinical trials to
demonstrate the safety and efficacy of our product candidates in humans. Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. A failure of one or more of our clinical
trials can occur at any stage of testing. The outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results.
Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have
nonetheless failed to obtain marketing approval for their product candidates. For instance, in July 2016, we announced that we plan to discontinue our ARMOR3-SV clinical trial, following the recommendation made by the DMC. Based on a review of all
safety and efficacy data, the DMC determined that our ARMOR3-SV trial would likely not succeed in meeting its primary endpoint of demonstrating an improvement in rPFS for galeterone versus Xtandi in AR-V7 positive mCRPC.
We have also closed enrollment in our ARMOR2 expansion trial in mCRPC patients with acquired resistance to enzalutamide and announced our
intention not to proceed with our planned study in patients who rapidly progress on either Xtandi or Zytiga. We are currently evaluating potential paths forward for galeterone and our ARDA program. Based on preliminary data reviewed to date,
however, there is a substantial likelihood that we will not pursue the development of galeterone in AR-V7 positive mCRPC in the future. If we are unable to successfully complete clinical trials or other testing of galeterone or our future product
candidates, if the results of these trials or tests are not positive or are only modestly positive or if there are safety or efficacy concerns, we may:
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be delayed in obtaining marketing approval for galeterone or our future product candidates;
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not obtain marketing approval at all;
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obtain approval for indications or patient populations that are not as broad as intended or desired;
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obtain approval with labeling that includes significant use restrictions or safety warnings, including boxed warnings;
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be subject to additional post-marketing testing requirements;
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be subject to restrictions on how the product is distributed or used; or
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have the product removed from the market after obtaining marketing approval.
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If we experience any of a number of possible unforeseen events in connection with our preclinical studies
or clinical trials, our ability to conduct further clinical trials of, obtain regulatory approval of or commercialize galeterone or our future product candidates, under our ARDA program or otherwise, could be delayed or prevented.
We may experience numerous unforeseen events during, or as a result of, preclinical studies or clinical trials that could delay or prevent our
ability to conduct further clinical trials, obtain regulatory approval or commercialization of galeterone or our future product candidates, under our ARDA program or otherwise. For instance, in July 2016, we announced our plan to discontinue our
ARMOR3-SV clinical trial following the recommendation of the DMC. Unforeseen events that could delay or prevent our ability to conduct clinical trials, obtain regulatory approval or commercialize galeterone and our future product candidates include
the following:
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regulators or institutional review boards may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;
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we may have delays in reaching or fail to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites;
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preclinical studies and clinical trials of galeterone or our future product candidates may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional preclinical or
clinical trials or abandon product development programs;
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the number of patients required for clinical trials of galeterone or our future product candidates may be larger than we anticipate, patient enrollment in these clinical trials may be slower than we anticipate or
participants may drop out of these clinical trials at a higher rate than we anticipate;
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our failure to conduct our clinical trials in accordance with the FDAs good clinical practices or applicable regulatory requirements in other countries;
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we may decide, or regulators or institutional review boards may require us or our investigators to, suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements,
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a finding that the participants are being exposed to unacceptable health risks or the occurrence of serious adverse events associated with galeterone or our future product candidates;
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the cost of clinical trials of galeterone and our future product candidates may be greater than we anticipate; and
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the supply or quality of galeterone or our future product candidates or other materials necessary to conduct clinical trials of such product candidates may be insufficient or inadequate.
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In addition, the patients recruited for clinical trials of our product candidates may have characteristics that are different than we expect
and different than the clinical trials were designed for, which could adversely impact the results of the clinical trials. For example, our patients could develop genetic mutations that are not responsive or are otherwise resistant to galeterone.
Our product development costs will also increase if we experience delays in testing or obtaining marketing approvals. We do not know
whether any of our planned clinical trials will begin as planned, or whether our ongoing or planned clinical trials will need to be restructured or will be completed on schedule, or completed at all. In addition to additional costs, significant
clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do and impair our ability to commercialize our
product candidates.
Galeterone could ultimately prove to be ineffective or unsafe.
Galeterone has been administered to several hundred prostate cancer patients and healthy volunteers in clinical trials. Despite this
experience, we have yet to fully explore the safety and efficacy of galeterone. In our clinical trials prior to ARMOR3-SV, galeterone had been well tolerated and had showed clinically meaningful reductions in levels of prostate specific antigen, or
PSA, a biochemical marker used to evaluate prostate cancer patients for signs of response to therapy. In July 2016, we announced our plan to discontinue our ARMOR3-SV trial, following the recommendation by the DMC. Based on a review of all available
safety and efficacy data, the DMC determined that our ARMOR3-SV trial would likely not succeed in meeting its primary endpoint of demonstrating an
31
improvement in rPFS for galeterone versus Xtandi in AR-V7 positive mCRPC. We are analyzing the totality of the available unblinded data from our ARMOR3-SV trial in detail as we evaluate potential
paths forward for galeterone and our ARDA program. Based on preliminary data reviewed to date, however, there is a substantial likelihood that we will not pursue the development of galeterone in AR-V7 positive mCRPC in the future.
No assessment of the efficacy, safety or side effects of a product candidate can be considered complete until all clinical trials needed to
support a submission for marketing approval are complete, and success in early-stage clinical trials does not mean that subsequent trials will confirm the earlier findings, or that experience with use of a product in large-scale commercial
distribution will not identify additional safety or efficacy issues. If we find from our analysis of the available data from ARMOR3-SV or otherwise that galeterone is not safe, or if its efficacy cannot be consistently demonstrated, we may not be
able to commercialize, or may be required to cease distribution of, the product. Galeterone may also prove to be substantially identical or inferior to drugs already available, in which case the market for galeterone would be reduced or eliminated.
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If we experience delays or difficulties in the enrollment of patients in our clinical trials, or patients
discontinue their participation in our clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.
We may not be able to complete any clinical trials we may conduct in the future if we are unable to locate and enroll a sufficient number of
eligible patients to participate in these trials as required by the FDA or similar regulatory authorities outside the United States. In particular, if we determine to proceed with the development of galeterone after analyzing the available unblinded
data from ARMOR3-SV, our recent set back with ARMOR3-SV will likely negatively impact our ability to enroll patients in ongoing and future trials of galeterone.
Our competitors may have ongoing clinical trials for product candidates that could be competitive with galeterone and our future product
candidates, and patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors product candidates.
We may not be able to identify, recruit and enroll a sufficient number of patients, or those with required or desired characteristics to
achieve diversity in a trial, to complete our clinical trials in a timely manner. Patient enrollment is affected by other factors including:
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severity of the disease under investigation;
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design of the trial protocol;
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eligibility criteria for the study in question;
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perceived risks and benefits of the product candidate under study;
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trials of other products for similar indications;
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efforts to facilitate timely patient enrollment in clinical trials;
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patient referral practices of physicians;
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alternative products for similar indications;
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the ability to monitor patients adequately during and after treatment; and
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proximity and availability of clinical trial sites for prospective patients.
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If serious adverse or
unforeseen side effects are identified during the development of galeterone or our future product candidates, we may need to abandon or limit our development of some or all of our product candidates.
If galeterone or our future product candidates are associated with undesirable side effects or have characteristics that are unexpected, we may
need to abandon their development or limit development to certain indications or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective.
Adverse or unexpected side effects or characteristics of galeterone, whether discovered by us or independently publicized by third parties during clinical trials, could cause an institutional review board or regulatory authorities to interrupt,
delay or halt clinical trials of galeterone or our future product candidates, require us to conduct additional clinical trials or other tests or studies, and could result in a more restrictive label, or the delay or denial of marketing approval by
the FDA or comparable foreign regulatory authorities.
As of September 30, 2016, nine of the 126 patients enrolled in ARMOR2
experienced a serious adverse event that was assessed by the investigator as related or possibly related to the administration of galeterone. No single treatment-related serious adverse event occurred in more than one patient. To date, no adverse
events have resulted in interruptions or delays of our clinical trials. In addition, in making its recommendation with respect to ARMOR3-SV, the DMC did not cite any safety concerns with galeterone in the trial.
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If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals, we will
not be able to commercialize galeterone, and our ability to generate revenue will be materially impaired.
Failure to obtain
regulatory approval for galeterone for mCRPC patients or for other indications and patient populations, will prevent us from commercializing galeterone for those indications. Although our management team has experience filing and supporting
applications necessary to gain regulatory approvals, we have yet to file for or obtain regulatory approval to market galeterone or any other product candidate in any jurisdiction. Securing FDA approval requires the submission of extensive
preclinical and clinical data and supporting information to the FDA for each therapeutic indication to establish the product candidates safety and efficacy. Securing FDA approval also requires the submission of information about the product
manufacturing process to, and inspection of manufacturing facilities by, the FDA. Our product candidates may not be effective, may be only moderately effective or may prove to have undesirable or unintended side effects, toxicities or other
characteristics that may preclude our obtaining regulatory approval or prevent or limit commercial use.
The process of obtaining
regulatory approvals, both in the United States and abroad, is expensive, may take many years if additional clinical trials are required, if approval is obtained at all, and can vary substantially based upon a variety of factors, including the type,
complexity and novelty of the product candidate involved. Changes in regulatory approval policies during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for each submitted
product application, may cause delays in the approval or rejection of an application. The FDA has substantial discretion in the approval process and may refuse to accept any application or may decide that our data is insufficient for approval and
require additional preclinical, clinical or other studies. In addition, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit or prevent regulatory approval of galeterone. Any regulatory approval we
ultimately obtain may be limited or subject to restrictions or post-approval commitments that render galeterone commercially unviable.
If
we experience delays in obtaining approval or if we fail to obtain approval of galeterone, the commercial prospects for galeterone may be harmed and our ability to generate revenues will be materially impaired.
Even if we complete the necessary clinical trials, we cannot predict when or if we will obtain regulatory approval to commercialize galeterone or our
future product candidates or the approval may be for a more narrow indication than we expect.
Even if galeterone or any of our
future product candidates demonstrate safety and efficacy in clinical trials, regulatory agencies may not complete their review processes in a timely manner or grant regulatory approval at all. Additional delays may result if a regulatory authority
recommends non-approval or restrictions on approval. In addition, we may experience delays or rejections based upon additional government regulation from future legislation or administrative action, or changes in regulatory agency policy during the
period of product development, clinical trials and the review process. Regulatory agencies also may approve a product candidate for fewer or more limited indications than requested or may grant approval subject to the performance of post-marketing
studies. In addition, regulatory agencies may not approve the labeling claims that are necessary or desirable for the successful commercialization of galeterone or our future product candidates.
We have obtained fast track designation from the FDA for galeterone for the treatment of mCRPC. However, fast track designation may not actually lead to
a faster development, regulatory review or approval process.
If a product is intended for the treatment of a serious or
life-threatening condition and the product candidate demonstrates the potential to address unmet needs for this condition, the treatment sponsor may apply for FDA fast track designation. If the fast track designation is obtained, the FDA may
initiate review of sections of an NDA, before the application is complete. This rolling review is available if the applicant provides, and the FDA approves, a schedule for submission of the individual sections of the application. In June
2012, the FDA notified us that we had obtained fast track designation for galeterone for the treatment of mCRPC. Fast track designation does not ensure that we will experience a faster development, regulatory review or approval process compared to
conventional FDA procedures or that we will ultimately obtain regulatory approval of galeterone. Additionally, the FDA may withdraw fast track designation if it believes that the designation is no longer supported by data from our clinical
development program.
In the event we receive FDA approval for galeterone or any future product candidates, we will not be able to expand the
indications for which such product is approved unless we receive FDA approval for each additional indication. Failure to expand these indications will limit the size of the commercial market for the product.
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We focused our development of galeterone on the treatment of AR-V7 positive mCRPC patients and
planned to seek marketing and regulatory approvals for galeterone for this patient population. Based on our review of preliminary data from the ARMOR3-SV trial, we believe there is a substantial likelihood that we will not pursue the development of
galeterone in AR-V7 positive mCRPC in the future. We are also evaluating our plan to develop galeterone for the treatment of other indications and patient populations in prostate cancer in light of the discontinuation of the ARMOR3-SV study. In
order to market and sell galeterone in the United States for any additional indications or any future products or additional indications, we will need to conduct additional clinical trials and obtain FDA approval for each proposed indication. There
can be no assurance that we will be successful in obtaining FDA approval for additional indications for the use of galeterone. If we are unsuccessful in expanding the approved indications for the use of galeterone or any future products, the size of
the commercial market for the product will be limited.
Failure to obtain regulatory approval in international jurisdictions would prevent
galeterone or our future product candidates from being marketed abroad.
In order to market and sell our products in jurisdictions
outside the United States, we or third parties must obtain separate regulatory approvals and comply with numerous and varying regulatory requirements. The approval process varies among countries and can involve additional testing. The time required
to obtain foreign approval may differ substantially from that required to obtain FDA approval. The regulatory approval process outside the United States generally includes all of the risks associated with obtaining FDA approval. In addition, in many
countries outside the United States, it is required that the product be separately approved for reimbursement before the product can be approved for sale in that country. We intend to enter into arrangements with third parties under which they would
market our products outside the United States. We or these third parties may not obtain approvals from regulatory authorities outside the United States on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory
authorities in other countries or jurisdictions, and approval by one regulatory authority outside the United States does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA. We may not be able to file for
regulatory approvals and may not receive necessary approvals to commercialize our products in any market.
Risks Related to the Commercialization of
Our Product Candidates
We have no history of commercializing pharmaceutical products, which may make it difficult to evaluate the prospects for
our future viability.
We have never commercialized a product candidate. Our operations to date have been limited to financing and
staffing our company, developing our product candidates and conducting our preclinical studies and clinical trials. We have not completed a pivotal clinical trial, obtained marketing approvals or conducted sales and marketing activities necessary
for successful product commercialization. Consequently, predictions about our future success or viability may not be as accurate as they could be if we had a history of successfully developing and commercializing pharmaceutical products.
We may also encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. In the future, we will
need to transition from a company with a preclinical and clinical development focus to a company capable of supporting commercial activities. We may not be successful in such a transition.
Even if galeterone or any future product candidate receives regulatory approval, it may fail to achieve the degree of market acceptance by physicians,
patients, healthcare payors and others in the medical community necessary for commercial success.
Even if galeterone or any future
product candidate receives marketing approval, it may nonetheless fail to gain sufficient market acceptance by physicians, patients, healthcare payors and others in the medical community. If such product does not achieve an adequate level of
acceptance, we may not generate significant product revenues and we may not become profitable. The degree of market acceptance of galeterone or any of our future product candidates, if approved for commercial sale, will depend on a number of
factors, including:
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efficacy and potential advantages compared to alternative treatments;
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the ability to offer galeterone and our future product candidates for sale at competitive prices;
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convenience and ease of administration compared to alternative treatments;
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our understanding of the market and development of an effective commercial strategy;
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the strength of sales, marketing, medical affairs and distribution support;
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the approval of other products for the same indications;
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combinations of existing or newly approved products that alter the standard of care;
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availability and amount of reimbursement from government payors, managed care plans and other third-party payors;
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adverse publicity about the product or favorable publicity about competitive products;
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clinical indications for which the product is approved; and
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the prevalence and severity of any side effects.
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Even if a potential product candidate
displays a favorable efficacy and safety profile in preclinical studies and clinical trials, market acceptance of the product will not be known until after it is launched. Our efforts to educate the medical community, patients and third-party payors
on the benefits of galeterone or our other future product candidates may require significant resources and may never be successful.
If galeterone
or any of our future product candidates receives marketing approval and we, or others, later discover that the product is less effective than previously believed or causes undesirable side effects that were not previously identified, our ability to
market the product could be compromised.
Clinical trials are conducted in carefully defined subsets of patients who have agreed to
enter into clinical trials. Consequently, it is possible that our clinical trials may indicate an apparent positive effect of a product candidate that is greater than the actual positive effect in a broader patient population or alternatively fail
to identify undesirable side effects. If, following approval of a product candidate, we, or others, discover that the product is less effective than previously believed or causes undesirable side effects that were not previously identified, any of
the following adverse events could occur:
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regulatory authorities may withdraw their approval of the product or seize the product;
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we may be required to recall the product or change the way the product is administered;
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additional restrictions may be imposed on the marketing of, or the manufacturing processes for, the particular product;
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regulatory authorities may require the addition of labeling statements, such as a black box warning or a contraindication;
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we may be required to create a Medication Guide outlining the risks of the previously unidentified side effects for distribution to patients;
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additional restrictions may be imposed on the distribution or use of the product via a Risk Evaluation and Mitigation Strategy;
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we could be sued and held liable for harm caused to patients;
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the product may become less competitive; and
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our reputation may suffer.
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Any of these events could have a material and adverse effect on
our operations and business and could adversely impact our stock price.
36
If we are unable to establish sales and marketing capabilities or enter into agreements with third parties
to sell and market our product candidates, we may not be successful in commercializing galeterone or any of our future product candidates if they are approved.
We do not have a sales or marketing infrastructure and have limited experience in the sale, marketing or distribution of pharmaceutical
products. To achieve commercial success for any approved product, we must either outsource these functions to third parties or develop an internal sales and marketing organization. Reliance on third parties to market our products, if approved, is
risky as these parties may not perform satisfactorily or at all.
There are risks involved with both entering into arrangements with third
parties to perform these services and establishing our own sales and marketing capabilities, neither of which we have pursued previously. For example, recruiting and training a sales force is expensive and time-consuming and could delay any product
launch. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization
expenses. This may be costly, and our investment would be lost if we cannot retrain or reposition our sales and marketing personnel.
Factors that may inhibit our efforts to commercialize our products on our own include:
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our inability to recruit and retain an adequate number of effective sales and marketing personnel;
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the inability of sales personnel to obtain access to or persuade adequate numbers of physicians to prescribe any future products;
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the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and
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unforeseen costs and expenses associated with creating an independent sales and marketing organization.
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If we enter into arrangements with third parties to perform sales, marketing and distribution services, our product revenues or the
profitability of these products are likely to be lower than if we were to market and sell any products that we develop ourselves. In addition, we may not be successful in entering into arrangements with third parties to sell and market galeterone or
our future product candidates or doing so on terms that are favorable to us. We likely will have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our products
effectively. If we do not establish sales and marketing capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing galeterone or our future product candidates.
We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.
The development and commercialization of new drug products is highly competitive. Research and discoveries by others may result in
breakthroughs which may render our products obsolete even before they generate any revenue. We face competition with respect to our lead product candidate, and will face competition with respect to any products that we may seek to develop or
commercialize in the future, from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. There are a number of large pharmaceutical and biotechnology companies that currently market and sell
products or are pursuing the development of products for the treatment of the disease indications for which we are developing galeterone. Potential competitors also include academic institutions, government agencies and other public and private
research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization.
Some of these competitive products and therapies are based on scientific approaches that are the same as or similar to our approach, and
others are based on entirely different approaches. Many marketed therapies for the indications that we are currently pursuing, or indications that we may in the future seek to address, are widely accepted by physicians, patients and payors, which
may make it difficult for us to replace them with any products that we successfully develop and are permitted to market.
If galeterone is
approved for the treatment of mCRPC, it may compete with other commonly-used oral hormonal treatments being marketed, such as Zytiga and Xtandi, chemotherapeutic agents, or with drug candidates currently in development. Galeterone could compete in
the future with products, marketed by several of the worlds largest and most experienced pharmaceutical companies. These companies have substantially more financial resources than we do and greater flexibility to engage in aggressive price
competition to gain revenues and market share. Approved second-generation hormonal treatments in the United States for mCRPC include Zytiga, marketed by Janssen Biotech, Inc. and Xtandi, marketed by Astellas Pharma US, Inc. and Medivation, Inc.
Approved non-hormonal agents for mCRPC include Taxotere
®
(docetaxel) and Jevtana
®
(cabazitaxel), marketed by sanofi-aventis U.S. LLC;
Provenge
®
(sipuleucel-T), marketed by Valeant Pharmaceuticals International Inc.; and Xofigo
®
(radium-223), marketed by Bayer
HealthCare Pharmaceuticals, Inc. It is uncertain whether we could compete with such products, and our failure to compete or decision to reduce the price of galeterone or other future products we may develop in order to compete could severely impact
our business.
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In addition, there are numerous prostate cancer products in clinical development by many public
and private biotechnology and pharmaceutical companies targeting numerous different cancer types. These include hormonal treatments such as Johnson & Johnsons ARN-509, Orion Corporations ODM-201, Innocrin Pharmaceuticals
Inc.s VT-464 and Essa Pharmas Inc.s EPI-506. Other compounds that are not hormonal treatments in clinical development include Bavarian Nordic A/Ss Prostvac and AstraZeneca plcs olaparib.
Our competitors may develop products that are more effective, safer, more convenient or less costly than any that we are developing or that
would render galeterone or any future product candidates obsolete or non-competitive. Our competitors may also obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours.
Many of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical
testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Smaller and other early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements
with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific, medical and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as
in acquiring technologies complementary to, or necessary for, our programs.
Even if we are able to commercialize galeterone or any other future
product candidates, the products may become subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives.
The regulations that govern marketing approvals, pricing and reimbursement for new drug products vary widely from country to country. In the
United States, recently passed legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays in obtaining approvals. Some countries require approval of the sale price of a drug before it
can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after
initial approval is granted. As a result, we might obtain regulatory approval for a product in a particular country, but then be subject to price regulations that delay our commercial launch of the product, possibly for lengthy time periods, and
negatively impact the revenues we are able to generate from the sale of the product in that country. Adverse pricing limitations may hinder our ability to recoup our investment in galeterone or our future product candidates, even if our product
candidates obtain regulatory approval.
Our ability to commercialize any products successfully will also depend in part on the extent to
which reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers and other organizations. Government authorities and third-party payors, such as private health
insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and third-party
payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and
are challenging the prices charged for medical products. We cannot be sure that reimbursement will be available for any product that we commercialize and, if reimbursement is available, the level of reimbursement. Reimbursement may impact the demand
for, or the price of, any product candidate for which we receive marketing approval. If reimbursement is not available or is available only to limited levels, we may not be able to successfully commercialize any product candidate for which we
receive marketing approval.
There may be significant delays in obtaining reimbursement for newly approved drugs, and coverage may be more
limited than the purposes for which the drug is approved by the FDA or similar regulatory authorities outside the United States. Moreover, eligibility for reimbursement does not imply that any drug will be paid for in all cases or at a rate that
covers our costs, including research, development, manufacture, sale and distribution. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement rates may
vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs, and may be incorporated into existing payments for other services. Net prices for drugs may be
reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the
United States. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. Our inability to promptly obtain coverage and profitable payment rates from both government-funded and
private payors for any approved products that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.
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Product liability lawsuits against us could cause us to incur substantial liabilities and to limit
commercialization of any products that we may develop.
We face an inherent risk of product liability exposure related to the
testing of galeterone and our future product candidates in human clinical trials and will face an even greater risk if we commercially sell any products that we may develop. Galeterone has not been widely used over an extended period of time, and
therefore our safety data are limited.
If we cannot successfully defend ourselves against claims that galeterone or future product
candidates or products we may develop caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:
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decreased demand for any product candidates or products that we may develop;
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injury to our reputation and significant negative media attention;
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withdrawal of clinical trial participants;
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significant costs to defend the related litigation;
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substantial monetary awards to trial participants or patients;
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the inability to commercialize any products that we may develop.
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We currently hold $10
million in product liability insurance coverage, which may not be adequate to cover all liabilities that we may incur. We will need to increase our insurance coverage when we begin commercializing galeterone and our future product candidates, if
ever. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.
Risks Related to Our Dependence on Third Parties
We rely on third parties to conduct our clinical trials, and those third parties may not perform satisfactorily, including failing to meet deadlines for
the completion of such trials.
We do not independently conduct clinical trials of our product candidates. We rely on third
parties, such as contract research organizations, clinical data management organizations, medical institutions and clinical investigators, to perform this function. Our reliance on these third parties for clinical development activities reduces our
control over these activities but does not relieve us of our responsibilities. We remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial.
Moreover, the FDA requires us to comply with standards, commonly referred to as good clinical practices, for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and
that the rights, integrity and confidentiality of trial participants are protected. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with regulatory
requirements or our stated protocols, we will not be able to obtain, or may be delayed in obtaining, regulatory approvals for galeterone or other product candidates we may develop in the future and will not be able to, or may be delayed in our
efforts to, successfully commercialize our product candidates.
We may enter into collaborations with third parties for the development and
commercialization of galeterone and future product candidates we may develop. If those collaborations are not successful, we may not be able to capitalize on the market potential of these product candidates.
We may enter into collaborations with third parties for the development and commercialization of galeterone and future product candidates we
may develop. Collaboration agreements may not lead to development or commercialization of product candidates in the most efficient manner, or at all. We will likely have limited control under any additional arrangements we may enter into with third
parties over the amount and timing of resources that our collaborators dedicate to the development or commercialization of our product candidates. Our ability to generate revenues from these arrangements will depend on our collaborators
abilities to successfully perform the functions assigned to them in these arrangements.
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Collaborations involving our product candidates would pose the following risks to us:
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collaborators may have significant discretion in determining the efforts and resources that they will apply to these collaborations;
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collaborators may not pursue development and commercialization of our product candidates or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the
collaborators strategic focus or available funding, or external factors such as an acquisition that diverts resources or creates competing priorities;
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collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new
formulation of a product candidate for clinical testing;
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collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our products or product candidates if the collaborators believe that competitive products;
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are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours;
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collaborators with marketing and distribution rights to one or more products may not commit sufficient resources to the marketing and distribution of such product or products;
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collaborators may have the right to conduct clinical trials of our product candidates without our consent and could conduct trials with flawed designs that result in data that adversely affect our clinical trials, our
ability to obtain marketing approval for our product candidates or market acceptance of our product candidates;
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collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our proprietary
information or expose us to potential litigation;
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disputes may arise between the collaborators and us that result in the delay or termination of the research, development or commercialization of our products or product candidates or that result in costly litigation or
arbitration that diverts management attention and resources; and
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collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable product candidates.
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In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a
reduced number of potential future collaborators. If a present or future collaborator of ours were to be involved in a business combination, the continued pursuit and emphasis on our product development or commercialization program could be delayed,
diminished or terminated.
If we are not able to establish collaborations, we may have to alter our development and commercialization plans.
We will face significant competition in seeking appropriate collaborators if we determine to do so. Whether we reach a definitive
agreement for a collaboration will depend upon, among other things, our assessment of the collaborators resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborators evaluation of a number
of factors. Such factors may include the design or results of clinical trials, the likelihood of approval by the FDA or similar regulatory authorities outside the United States, the potential market for the subject product candidate, the costs and
complexities of manufacturing and delivering such product candidate to patients, the potential of competing products, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership
without regard to the merits of the challenge, and industry and market conditions generally. The collaborator may also consider alternative product candidates or technologies for similar indications that may be available for collaboration and
whether such a collaboration could be more attractive than the one with us for galeterone. We may also be restricted under existing license agreements from entering into agreements on certain terms with potential collaborators. Collaborations are
complex and time-consuming to negotiate and document. We may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all.
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If we are not able to enter into collaborations for galeterone, we may have to curtail the
development of galeterone, reduce or delay our development program or one or more of our other development programs, delay our potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and
undertake development or commercialization activities at our own expense. If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital, which may not be available
to us on acceptable terms, or at all. If we do not have sufficient funds, we may not be able to further develop galeterone or other future candidates or bring these product candidates to market and generate product revenue.
Risks Related to the Manufacturing of Galeterone and Our Future Product Candidates
We contract with third parties for the manufacture of galeterone for clinical trials and expect to continue to do so in connection with the
commercialization of galeterone and for clinical trials and commercialization of any other product candidates that we develop. This reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates or
such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.
We do
not currently have nor do we plan to build the internal infrastructure or capability to manufacture galeterone. We currently rely on and expect to continue to rely on third-party contract manufacturers to manufacture clinical supplies of galeterone
and any other product candidates we may develop. We expect to continue to rely upon third-party contract manufacturers to manufacture commercial quantities of galeterone and any other product candidates that we commercialize following approval for
marketing by applicable regulatory authorities. Reliance on third-party manufacturers entails risks, including:
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manufacturing delays if our third-party manufacturers give greater priority to the supply of other products over our product candidates or otherwise do not satisfactorily perform according to the terms of the agreement
between us;
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the possible termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us;
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the possible breach of the manufacturing agreement by the third party;
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the failure of the third-party manufacturer to comply with applicable regulatory requirements; and
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the possible misappropriation of our proprietary information, including our trade secrets and know-how.
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We currently rely on a small number of third-party contract manufacturers for all of our required raw materials, drug substance and finished
product for our clinical trials. We do not have long-term agreements with any of these third parties. If any of our existing manufacturers should become unavailable to us for any reason, we may incur some delay in our clinical trials as we identify
or qualify replacements.
We currently rely on a single third-party contract manufacturer, with which we do not have a long-term
agreement, to supply us with the spray dried dispersion formulation of galeterone. If this third-party manufacturer fails to fulfill orders or should become unavailable to us for any reason, we likely would incur some delay in our clinical trials
for galeterone and added costs and delays in identifying or qualifying such replacements. In addition, we may be unable to establish any agreements with such replacement manufacturers or to do so on acceptable terms or at all. Even if we could
transfer manufacturing to a different third party, the shift would likely be expensive and time-consuming.
If galeterone or any other
product candidate that we may develop in the future is approved by any regulatory agency, we intend to enter into agreements with third-party contract manufacturers for the commercial production of those products. This process is difficult and
time-consuming and we may face competition for access to manufacturing facilities as there are a limited number of contract manufacturers operating under current good manufacturing processes, or cGMPs that are capable of manufacturing our product
candidates. As a result, we may be unable to reach agreement with third-party manufacturers on satisfactory terms or at all, which could delay our commercialization.
Our current and anticipated future dependence upon others for the manufacture of galeterone and any other product candidate that we develop
may adversely affect our future profit margins and our ability to commercialize any products that receive marketing approval on a timely and competitive basis.
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If our third-party manufacturers facilities are damaged or destroyed, or production at one of these
facilities is otherwise interrupted, our business and prospects would be negatively affected.
If any manufacturing facilities
owned by third parties who manufacture galeterone or any of our future product candidates are damaged or destroyed, we likely would not be able to quickly or inexpensively replace our manufacturing capacity and possibly would not be able to replace
it at all. Any new facility needed to replace these facilities would need to comply with the necessary regulatory requirements and need to be tailored to our specialized manufacturing requirements. We would need FDA approval before selling any
products manufactured at a new facility. Such an event could delay our clinical trials or, if any of our product candidates are approved by the FDA, reduce or eliminate our product sales.
While we maintain insurance coverage to cover damage to our property and equipment and to cover business interruption and research and
development restoration expenses, if we have underestimated our insurance needs with respect to an interruption in our clinical manufacturing of our product candidates, we may not be able to adequately cover our losses.
We rely on our third-party manufacturers for compliance with applicable regulatory requirements. This may increase the risk of sanctions being imposed
on us or on a manufacturer of our products or product candidates, which could result in our inability to obtain sufficient quantities of these products or product candidates.
Our manufacturers may not be able to comply with cGMPs, regulations or other regulatory requirements or similar regulatory requirements outside
the United States. Our failure, or the failure of our third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including:
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failure of regulatory authorities to grant marketing approval of our product candidates;
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delays, suspension or withdrawal of approvals;
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suspension of manufacturing operations;
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seizures or recalls of products or product candidates;
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operating restrictions; and
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Any of these sanctions could significantly and adversely affect
supplies of our products and product candidates.
Risks Related to Our Intellectual Property
If we fail to comply with our obligations under our intellectual property licenses with third parties, we could lose license rights that are important to
our business.
We are a party to a master license agreement with the University of Maryland, Baltimore, or UMB, under which we
license certain patents and patent applications to make, have made, use, sell, offer to sell and import certain anti-androgen compounds, including galeterone, and an exclusive, worldwide license with Johns Hopkins under which we license patents,
patent applications and know-how covering certain assays to identify androgen receptor variants for use as a companion diagnostic with galeterone. We may enter into additional license agreements in the future. Our license agreements with UMB and
Johns Hopkins impose, and we expect that future license agreements will impose, various diligence, milestone payment, royalty, insurance and other obligations on us. If we fail to comply with our obligations under these licenses, our licensors may
have the right to terminate these license agreements, in which event we might not be able to market any product that is covered by these agreements, or our licensors may convert the license
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to a non-exclusive license, which could materially adversely affect the value of the product candidate being developed under the license agreement. Termination of these license agreements or
reduction or elimination of our licensed rights may result in our having to negotiate new or reinstated licenses with less favorable terms.
Restrictions on our patent rights relating to our drug candidates may limit our ability to prevent third parties from competing against us.
Our success will depend, in part, on our ability to obtain and maintain patent protection for galeterone and other product candidates, preserve
our trade secrets, prevent third parties from infringing upon our proprietary rights and operate without infringing upon the proprietary rights of others. As of October 31, 2016, we owned and/or licensed 18 issued U.S. patents, 10
non-provisional patent applications, five pending International patent applications (PCTs), 88 granted foreign patents and 69 pending foreign applications in our galeterone patent portfolio. Our owned and/or licensed patents and patent applications,
if issued, are expected to expire on various dates from 2017 through 2036, without taking into account any possible patent term extensions. Upon the expiration of these patents, we, UMB and Johns Hopkins, as applicable, will lose the right to
exclude others from practicing the inventions claimed by such patents. As a result, the expiration of these patents could have a material adverse effect on our business, results of operations, financial condition and prospects. Patent applications
in the United States and most other countries are confidential for a period of time until they are published, and publication of discoveries in scientific or patent literature typically lags actual discoveries by several months or more. As a result,
we cannot be certain that we and the inventors of the intellectual property for which we have submitted patent applications or in-license issued patents and applications, were the first to conceive of the inventions covered by such patents and
pending patent applications or that we and those inventors were the first to file patent applications covering such inventions. Also, the patent protection of our numerous issued and pending patent applications may lapse before we manage to obtain
commercial value from them, which might result in increased competition and materially affect our position in the market.
We have no
patent protection specifically covering the chemical structure of galeterone. As a result, a third party that obtains regulatory approval of a product with the same active ingredient as galeterone may be able to market such product so long as the
third party does not infringe any other patents owned or licensed by us with respect to galeterone. A U.S. patent we have exclusively licensed from UMB covering galeterone-related compounds and their use expires in 2017. For this reason, we have
filed for or licensed additional patents and patent applications relating to galeterone covering methods of use, pharmaceutical compositions, combination treatments, prodrugs, metabolites and analogs of galeterone and their use.
We also have an exclusive license from Johns Hopkins for patents and patent applications in the United States, Europe, and Canada covering
methods of determining whether a subject may respond to androgen therapy, and methods of determining a subjects risk of recurrence of hormone-refractory or hormone-naïve prostate cancer that are expected to expire in 2029. These patents
applications may provide protection for an AR-V7 specific assay or a companion diagnostic test using this assay that we and Qiagen may develop and commercialize. However, these patent applications do not provide any protection for galeterone or for
galeterones pharmaceutical formulations or uses.
If we are unable to obtain and maintain patent protection for our technology and products,
or if our licensors are unable to obtain and maintain patent protection for the technology or products that we license from them, or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and
commercialize technology and products similar or identical to ours, and our ability to successfully commercialize our technology and products may be adversely affected.
Our success depends in large part on our and our licensors ability to obtain and maintain patent protection in the United States and
other countries with respect to our proprietary technology and products. We and our licensors have sought to protect our proprietary position by filing patent applications in the United States and abroad related to our novel technologies and
products that are important to our business. This process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible
that we will fail to identify patentable aspects of our research and development efforts before it is too late to obtain patent protection. Moreover, prior to April 10, 2012, we did not have the right to control the preparation, filing and
prosecution of patent applications, or to maintain the patents, covering technology or products that we license from UMB, and we were and still are reliant on UMB. Therefore, we cannot be certain that these patents and applications were prosecuted
in a manner consistent with the best interests of our business. If we or our licensors fail to maintain such patents, or lose rights to those patents, the rights we have licensed may be reduced or eliminated.
The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions
and has in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our and our licensors patent rights are highly uncertain. Our and our licensors pending and
future patent applications may not result in patents being issued that protect our technology or products or which effectively prevent others from commercializing competitive technologies and products. Changes in either the patent laws or
interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection.
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Third parties could practice our inventions in territories where we do not have patent
protection. Furthermore, the laws of foreign countries may not protect our rights to the same extent as the laws of the United States. A U.S. patent may be infringed by anyone who, without authorization, practices a patented process in the United
States or imports a product made by a process covered by the U.S. patent. In foreign countries, however, importation of a product made by a process patented in that country may not constitute an infringing activity, which would limit our ability to
enforce process patents against importers in that country. Furthermore, the legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection. This could
make it difficult for us to stop the infringement or misappropriation of our intellectual property rights. If competitors are able to use our technologies, our ability to compete effectively could be harmed.
Assuming the other requirements for patentability are met, in the United States, the first to invent the claimed invention is entitled to the
patent, while outside the United States, the first to file a patent application is generally entitled to the patent. Under the America Invents Act, or AIA, enacted in September 2011, the United States moved to a first inventor to file system in
March 2013. The U.S. Patent and Trademark Office recently finalized the rules relating to these changes and courts have yet to address the new provisions. These changes could increase the costs and uncertainties surrounding the prosecution of patent
applications and the enforcement or defense of patent rights. Furthermore, we may become involved in interference proceedings, opposition proceedings, or other post-grant proceedings, such as reexamination or
inter partes
review proceedings,
challenging our patent rights or the patent rights of others. An adverse determination in any such proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology or products
and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third-party patent rights.
Even if our owned and licensed patent applications issue as patents, they may not issue in a form that will provide us with any meaningful
protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our owned or licensed patents by developing similar or alternative technologies or products in a
non-infringing manner. The issuance of a patent is not conclusive as to its scope, validity or enforceability, and our owned and licensed patents may be challenged in the courts or patent offices in the United States and abroad. Such challenges,
including through opposition or other post-grant proceedings, may result in patent claims being narrowed, invalidated or held unenforceable, which could limit our ability to or stop or prevent us from stopping others from using or commercializing
similar or identical technology and products, or limit the duration of the patent protection of our technology and products. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents
protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products
similar or identical to ours.
The degree of future protection for our proprietary rights is uncertain because legal means afford only
limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage. For example:
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others may be able to make or use compounds that are similar to galeterone but that are not covered by the claims of our patents;
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the galeterone compound may become generic, and no patent protection will be available without regard to formulation or method of use;
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we or our licensors, as the case may be, may not be able to detect infringement against our owned or in-licensed patents, which may be especially difficult for manufacturing processes or formulations;
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we or our licensors, as the case may be, might not have been the first to make the inventions covered by our owned or in-licensed issued patents or pending patent applications;
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we or our licensors, as the case may be, might not have been the first to file patent applications for these inventions or the first to conceive or reduce to practice these inventions;
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others may independently develop similar or alternative technologies or duplicate any of our technologies;
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this may be especially likely for manufacturing processes or formulations;
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it is possible that our pending patent applications will not result in issued patents;
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it is possible that our owned or in-licensed issued patents or pending patent applications are not Orange Book eligible;
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it is possible that there are dominating patents to galeterone of which we are not aware;
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it is possible that there are prior public disclosures that could invalidate our or our licensors inventions, as the case may be, or parts of our or their inventions of which we or they are not aware;
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it is possible that others may circumvent our owned or in-licensed patents;
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it is possible that there are unpublished applications or patent applications maintained in secrecy that may later issue with claims covering our products or technology similar to ours;
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it is possible that the U.S. government may exercise any of its statutory rights to our owned or in-licensed patents or patent applications that was developed with government funding;
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the laws of foreign countries may not protect our or our licensors, as the case may be, proprietary rights to the same extent as the laws of the United States;
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the claims of our owned or in-licensed issued patents or patent applications, if and when issued, may not cover our product candidates;
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our owned or in-licensed issued patents may not provide us with any competitive advantages, or may be narrowed in scope, be held invalid or unenforceable as a result of legal challenges by third parties; or
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we may not develop additional proprietary technologies for which we can obtain patent protection.
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may become involved in lawsuits to protect or enforce our patents, which could be expensive, time-consuming and unsuccessful.
Competitors may infringe our patents. To counter such infringement or unauthorized use, we may be required to file infringement claims against
third parties, which can be expensive and time-consuming. In addition, during an infringement proceeding, a court may decide that the patent rights we are asserting are invalid or unenforceable, or may refuse to stop the other party from using the
technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated or interpreted narrowly. Furthermore,
because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition,
our licensors may have rights to file and prosecute such claims, and we are reliant on them.
Claims that galeterone or any future product candidate
or the manufacture, use or sale of galeterone or any future product candidate infringe the patent rights of third parties could result in costly litigation or could require substantial time and money to resolve, even if litigation is avoided.
We cannot guarantee that the manufacture, use or sale of galeterone or any future product candidate, does not and will not
infringe third-party patents. Third parties might allege that we are infringing their patent rights or that we have misappropriated their trade secrets. Such third parties might resort to litigation against us. The basis of such litigation could be
existing patents or patents that issue in the future.
It is also possible that we failed to identify relevant third-party patents or
applications. For example, certain U.S. patent applications that will not be filed outside the United States may remain confidential until patents issue. Furthermore, patent applications in the United States and elsewhere are published approximately
18 months after the earliest filing, which is referred to as the priority date. Therefore, patent applications covering galeterone, its manufacture, use or sale, could have been filed by others without our knowledge. Additionally, pending patent
applications that have been published can, subject to certain limitations, be later amended in a manner that could cover galeterone or its use.
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We are aware of two issued U.S. patents having broad claims relating to a composition of matter
or its use in regulating cellular differentiation or proliferation. We are also aware of certain third-party pending U.S. patent applications that have broad generic disclosures and disclosure of certain compounds possessing structural similarities
to galeterone. Although we believe that it is unlikely that such applications will lead to issued claims that would cover galeterone and its use and still be valid, patent prosecution is inherently unpredictable and an application could be allowed.
Based on our analyses, we do not believe our proposed products or activities would be found to infringe any valid claims of these patents if any of the above third-party patents or patent applications, if issued, were asserted against us. If we were
to challenge the validity of an issued U.S. patent in court, however, we would need to overcome a statutory presumption of validity that attaches to every U.S. patent. This means that, in order to prevail, we would have to present clear and
convincing evidence as to the invalidity of the patents claims. There is no assurance that a court would find in our favor on questions of infringement or validity.
In order to avoid or settle potential claims with respect to any patent rights of third parties, we may choose or be required to seek a
license from a third party and be required to pay license fees or royalties or both. These licenses may not be available on acceptable terms, or at all. Even if we were able to obtain a license, the rights may be non-exclusive, which could result in
our competitors gaining access to the same intellectual property. Ultimately, we could be prevented from commercializing galeterone, or be forced to cease some aspect of our business operations, if, as a result of actual or threatened patent
infringement claims, we are unable to enter into licenses on acceptable terms. This could harm our business significantly.
Defending
against claims of patent infringement or misappropriation of trade secrets could be costly and time-consuming, regardless of the outcome. Most of our competitors are larger than we are and have substantially greater resources. They are, therefore,
likely to be able to sustain the costs of complex patent or trade secret litigation longer than we could. Thus, even if we were to ultimately prevail, or to settle at an early stage, such litigation could burden us with substantial unanticipated
costs. In addition, litigation or threatened litigation could result in significant demands on the time and attention of our management team, distracting them from the pursuit of other company business. In addition, the uncertainties associated with
litigation could have a material adverse effect on our ability to raise the funds necessary to continue our clinical trials, continue our internal research programs, in-license needed technology, or enter into strategic partnerships that would help
us bring our product candidates to market.
We may be subject to claims that our employees or directors have wrongfully used or disclosed alleged
trade secrets of their former employers.
Many of our employees and certain of our directors were previously employed at
universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees and directors do not use the proprietary information or know-how of others in their
work for us, we may be subject to claims that we or these employees or directors have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employees or directors former employer.
Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending
against such claims, litigation could result in substantial costs and be a distraction to management.
Intellectual property litigation could cause
us to spend substantial resources and distract our personnel from their normal responsibilities.
Even if resolved in our favor,
litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses, and could distract our technical and management personnel from their normal responsibilities. In addition, there could be
public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our
common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities. We may not have sufficient financial or other resources to adequately conduct such
litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources. Uncertainties resulting from the initiation and
continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.
Our
reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed.
Because we rely on third parties in the discovery, development and manufacture of our product candidates, and because we collaborate with
various organizations and academic institutions on the advancement of our technology, we must, at times, share trade secrets with them. We seek to protect our proprietary technology in part by entering into confidentiality agreements and, if
applicable,
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material transfer agreements, collaborative research agreements, consulting agreements or other similar agreements with our collaborators, advisors, employees and consultants prior to beginning
research or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information, such as trade secrets. Despite these contractual provisions, the need to share trade
secrets and other confidential information increases the risk that such trade secrets become known by potential competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements.
Given that our proprietary position is based, in part, on our know-how and trade secrets, discovery by a third party of our trade secrets or other unauthorized use or disclosure would impair our intellectual property rights and protections in our
product candidates.
Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and
time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. Moreover, our competitors may independently develop equivalent knowledge, methods
and know-how. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them from using that technology or information to compete with us. If any of our trade secrets were
to be disclosed to or independently developed by a competitor, our competitive position would be harmed.
In addition, our third-party
agreements typically restrict the ability of our collaborators, advisors, employees and consultants to publish data potentially relating to our trade secrets. Our academic collaborators typically have rights to publish data, provided that we are
notified in advance and may delay publication for a specified time in order to secure our intellectual property rights arising from the collaboration. In other cases, publication rights are controlled exclusively by us, although in some cases we may
share these rights with other parties. Despite our efforts to protect our trade secrets, our competitors may discover our trade secrets, either through breach of these agreements, independent development or publication of information including our
trade secrets in cases where we do not have proprietary or otherwise protected rights at the time of publication.
Risks Related to Compliance Matters
Any product candidate for which we receive marketing approval could be subject to restrictions or withdrawal from the market and we may be
subject to penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with our products, if any of them are approved.
Any product candidate for which we receive marketing approval, along with the manufacturing processes, post-approval clinical data, labeling,
advertising and promotional activities for such product, will be subject to continual requirements of and review by the FDA and other regulatory authorities. These requirements include submissions of safety and other post-marketing information and
reports, registration and listing requirements, cGMP requirements relating to quality control, quality assurance and corresponding maintenance of records and documents. Even if regulatory approval of a product candidate is granted, the approval may
be subject to limitations on the indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the product. The
FDA closely regulates the post-approval marketing and promotion of drugs to ensure drugs are marketed only for the approved indications and in accordance with the provisions of the approved label. The FDA imposes stringent restrictions on
manufacturers communications regarding off-label use and if we do not market our products for their approved indications, we may be subject to enforcement action for off-label marketing.
In addition, later discovery of previously unknown problems with our products, manufacturers or manufacturing processes, or failure to comply
with regulatory requirements, may have adverse consequences, including:
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restrictions on such products, manufacturers or manufacturing processes;
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restrictions on the marketing of a product;
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restrictions on product distribution;
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requirements to conduct post-marketing clinical trials;
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warning or untitled letters;
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withdrawal of the products from the market;
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refusal to approve pending applications or supplements to approved applications that we submit;
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fines, restitution or disgorgement of profits or revenue;
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suspension or withdrawal of regulatory approvals;
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refusal to permit the import or export of our products;
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injunctions or the imposition of civil or criminal penalties.
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Our relationships with customers and
third-party payors will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, program exclusion, contractual damages, reputational harm and
diminished profits and future earnings.
Healthcare providers, physicians and third-party payors play a primary role in the
recommendation and prescription of any product candidates for which we receive marketing approval. Our future arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and
regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute our products for which we receive marketing approval. Restrictions under applicable federal and state healthcare
laws and regulations, include the following:
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the federal healthcare anti-kickback statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to
induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under federal and state healthcare programs such as Medicare and Medicaid;
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the federal False Claims Act imposes civil penalties, including civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government,
claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;
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the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, imposes criminal and civil liability for executing
a scheme to defraud any healthcare benefit program and also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;
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the federal false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for
healthcare benefits, items or services;
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the federal transparency requirements under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, require manufacturers of covered drugs, devices,
biologics and medical supplies to report to the Department of Health and Human Services information related to physician payments and other transfers of value and physician ownership and investment interests; and
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analogous state laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental
third-party payors, including private insurers, and some state laws require pharmaceutical companies to comply with the pharmaceutical industrys voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal
government in addition to requiring drug manufacturers to report information related to payments to physicians and other health care providers or marketing expenditures.
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Some state laws require pharmaceutical companies to comply with the pharmaceutical industrys voluntary compliance guidelines and the
relevant compliance guidance promulgated by the federal government and may require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures.
State and foreign laws also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
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Efforts to ensure that our business arrangements with third parties will comply with applicable
healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud
and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative
penalties, damages, fines, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians or other providers or entities with whom we expect to do
business are found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.
Recently enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize galeterone or
other future products candidates and affect the prices we may obtain.
In the United States and some foreign jurisdictions, there
have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of galeterone or other future products candidates, restrict or regulate post-approval
activities and affect our ability to profitably sell any product candidates for which we receive marketing approval.
In the United
States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or Medicare Modernization Act, changed the way Medicare covers and pays for pharmaceutical products. The legislation expanded Medicare coverage for drug purchases by
the elderly and introduced a new reimbursement methodology based on average sales prices for physician administered drugs. In addition, this legislation provided authority for limiting the number of drugs that will be covered in any therapeutic
class in certain cases. Cost reduction initiatives and other provisions of this and other more recent legislation could decrease the coverage and reimbursement that is provided for any approved products. While the Medicare Modernization Act applies
only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from the Medicare
Modernization Act or other more recent legislation may result in a similar reduction in payments from private payors.
In March 2010,
President Obama signed into law the Health Care Reform Law, a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency
requirements for health care and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. Effective October 1, 2010, the Health Care Reform Law revises the definition of
average manufacturer price for reporting purposes, which could increase the amount of Medicaid drug rebates to states. Further, the new law imposes a significant annual fee on companies that manufacture or import branded prescription
drug products. Substantial new provisions affecting compliance have also been enacted, which may affect our business practices with health care practitioners. We will not know the full effects of the Health Care Reform Law until applicable federal
and state agencies issue regulations or guidance under the new law. Although it is too early to determine the effect of the Health Care Reform Law, the new law appears likely to continue the pressure on pharmaceutical pricing, especially under the
Medicare program, and may also increase our regulatory burdens and operating costs.
Legislative and regulatory proposals have been made
to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations
will be changed, or what the impact of such changes on the marketing approvals of galeterone or our other future products candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDAs approval process may
significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.
If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could
have a material adverse effect on the success of our business.
We are subject to numerous environmental, health and safety laws
and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and
radioactive and biological materials. Our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these
materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with
civil or criminal fines and penalties.
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Although we maintain workers compensation insurance to cover us for costs and expenses we
may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims
that may be asserted against us in connection with our storage or disposal of biological, hazardous or radioactive materials.
In
addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts.
Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.
Risks Related to Employee
Matters and Managing Growth
Our future success depends on our ability to retain our chief executive officer and other key executives and to
attract, retain and motivate qualified personnel.
We are highly dependent on Jodie Morrison, our President and Chief Executive
Officer, as well as the other members of our executive and scientific teams. Although we have formal employment agreements with each of our executive officers, these agreements do not prevent our executives from terminating their employment with us
at any time. We do not maintain key person insurance for any of our executives or other employees. The loss of the services of any of these persons could impede the achievement of our research, development and commercialization
objectives.
In July 2016, we implemented a reduction in force, which impacted virtually all of our functions. As part of the reduction in
force, Lee Kalowski, our former Chief Financial Officer, and Gerald Quirk, our former Executive Vice President, Business Operations and General Counsel, ceased their employment with us at the end of August 2016. In addition, Karen Ferrante, our
former Chief Medical Officer, retired at the end of August 2016. With any change in leadership and reduction in force, there is a risk to retention of employees, as well as the potential for disruption to business operations, initiatives, plans and
strategies.
Recruiting and retaining qualified personnel will be critical to our success. We may not be able to attract and retain these
personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research
institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may be employed by
employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us.
We have recently reduced the size of our organization, and we may encounter difficulties in managing our business as a result of this reduction, or the
attrition that may occur following this reduction, which could disrupt our operations. In addition, we may not achieve anticipated benefits and savings from the reduction.
In July 2016, we implemented a reduction in force that reduced the number of our employees by approximately 60 percent to a total of 10
full-time equivalent employees. The reduction in force, and the attrition thereafter, resulted in the loss of longer-term employees, the loss of institutional knowledge and expertise and the reallocation and combination of certain of roles and
responsibilities across the organization, all of which could adversely affect our operations. Given the complexity and nature of our business, we must continue to implement and improve our managerial, operational and financial systems, manage
our facilities and continue to recruit and retain qualified personnel. This will be made more challenging given the reduction in force described above and additional measures we may take to reduce costs. As a result, our management may need to
divert a disproportionate amount of its attention away from our day-to-day strategic and operational activities, and devote a substantial amount of time to managing these organizational changes. Further, the restructuring and possible
additional cost containment measures may yield unintended consequences, such as attrition beyond our intended reduction in force and reduced employee morale. In addition, the reduction in force may result in employees who were not affected by
the reduction in force seeking alternate employment which would result in us seeking contract support at unplanned additional expense. In addition, we may not achieve anticipated benefits from the reduction in force. Due to our limited
resources, we may not be able to effectively manage our operations or recruit and retain qualified personnel, which may result in weaknesses in our infrastructure and operations, risks that we may not be able to comply with legal and regulatory
requirements, loss of business opportunities, loss of employees and reduced productivity among remaining employees. If our management is unable to effectively manage this transition and reduction in force and additional cost containment
measures, our expenses may be more than expected, and we may not be able to implement our business strategy.
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Risks Related to Our Common Stock
Our executive officers, directors and principal stockholders maintain the ability to control all matters submitted to stockholders for approval.
Our executive officers, directors and stockholders who own more than 5% of our outstanding common stock, together with their
affiliates and related persons, in the aggregate, beneficially own shares representing approximately 65% of our common stock, based on the number of shares of our common stock outstanding as of September 30, 2016. As a result, if these
stockholders were to choose to act together, they would be able to control all matters submitted to our stockholders for approval, as well as our management and affairs. For example, these persons, if they choose to act together, would control the
election of directors and approval of any merger, consolidation or sale of all or substantially all of our assets. This concentration of voting power could delay or prevent an acquisition of our company on terms that other stockholders may desire.
We believe our two largest stockholders, Apple Tree Partners and Novartis BioVentures, Ltd., in the aggregate, beneficially own shares
representing approximately 55% of our common stock in the aggregate, based on the number of shares of our common stock outstanding as of September 30, 2016. As a result, each of these stockholders acting individually, as well as together, may
exercise significant control over our management and affairs.
Provisions in our corporate charter documents and under Delaware law could make an
acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.
Provisions in our corporate charter and our bylaws may discourage, delay or prevent a merger, acquisition or other change in control of us that
stockholders may consider favorable, including transactions in which our stockholders might otherwise receive a premium for their shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of
our common stock, thereby depressing the market price of our common stock. In addition, because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our
stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. Among other things, these provisions:
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establish a classified board of directors such that not all members of the board are elected at one time;
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allow the authorized number of our directors to be changed only by resolution of our board of directors;
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limit the manner in which stockholders can remove directors from the board;
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establish advance notice requirements for stockholder proposals that can be acted on at stockholder meetings and nominations to our board of directors;
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require that stockholder actions must be effected at a duly called stockholder meeting and prohibit actions by our stockholders by written consent;
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limit who may call stockholder meetings;
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authorize our board of directors to issue preferred stock without stockholder approval, which could be used to institute a poison pill that would work to dilute the stock ownership of a potential hostile
acquirer, effectively preventing acquisitions that have not been approved by our board of directors; and
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require the approval of the holders of at least 75% of the votes that all our stockholders would be entitled to cast to amend or repeal certain provisions of our charter or bylaws.
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Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation
Law, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding
voting stock, unless the merger or combination is approved in a prescribed manner.
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An active trading market for our common stock may not be sustained, and investors may not be able to resell
their shares at or above the price they paid.
Although we have listed our common stock on The NASDAQ Global Market, an active
trading market for our shares may not be sustained. In the absence of an active trading market for our common stock, investors may not be able to sell their common stock at or above the prices at which they acquired their shares or at the time that
they would like to sell. An inactive trading market may also impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to acquire other companies or technologies by using our shares as
consideration
.
Our stock price has been and may in the future be volatile, which could cause purchasers of our common stock to incur
substantial losses.
Our stock price has been and in the future may be subject to substantial volatility. The stock market in
general and the market for biotechnology companies in particular has experienced extreme volatility that has often been unrelated to the operating performance of particular companies. For example, our stock traded within a range of a high price of
$30.00 per share and a low price of $0.98 per share for the period beginning September 17, 2014, our first day of trading on The NASDAQ Global Market, through October 31, 2016. Our stock price experienced significant volatility in July
2016 after we announced our plan to discontinue our ARMOR3-SV clinical trial. As a result of this volatility, our stockholders could incur substantial losses. The market price for our common stock may be influenced by many factors, including:
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our analysis of available unblinded data from our ARMOR3-SV trial and our determination as to the potential paths forward in the development of galeterone and our ARDA program;
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results of clinical trials of galeterone and our future product candidates or those of our competitors;
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the success of competitive products or technologies;
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potential approvals of galeterone or other future product candidates for marketing by the FDA or equivalent foreign regulatory authorities or our failure to obtain such approvals;
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regulatory or legal developments in the United States and other countries;
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the results of our efforts to commercialize galeterone or other future product candidates;
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developments or disputes concerning patents or other proprietary rights;
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the recruitment or departure of key personnel;
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the level of expenses related to galeterone or any of our future product candidates or clinical development programs;
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the results of our efforts to discover, develop, acquire or in-license additional product candidates or products;
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actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;
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variations in our financial results or those of companies that are perceived to be similar to us;
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changes in the structure of healthcare payment systems;
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market conditions in the pharmaceutical and biotechnology sectors and issuance of new or changed securities analysts reports or recommendations;
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general economic, industry and market conditions; and
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the other factors described in this Risk Factors section.
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52
In addition, pharmaceutical companies have experienced significant share price volatility in
recent years, and securities class action litigation often follows a decline in the market price of a companys securities. If we face such litigation, it could result in substantial costs and a diversion of managements attention and
resources.
On August 1, 2016, a purported stockholder filed a putative class action lawsuit in the U.S. District Court for the
Southern District of New York against us, Jodie P. Morrison, and Lee H. Kalowski, entitled
Doshi v. Tokai Pharmaceuticals, Inc., et al.
, No. 1:16-cv-06106 (
Doshi
Action). The plaintiff seeks to represent a class
of purchasers of our securities between June 24, 2015, and July 25, 2016, and alleges that, in violation of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 promulgated thereunder, defendants made false and
misleading statements and omissions about our clinical trials for our drug candidate, galeterone. The lawsuit seeks, among other things, unspecified compensatory damages, interest, costs, and attorneys fees. On October 3, 2016, the
case was transferred to the U.S. District Court for the District of Massachusetts.
On August 19, 2016, a purported stockholder filed
a putative class action lawsuit in the Superior Court of the State of California, County of San Francisco, against us, Jodie P. Morrison, Lee H. Kalowski, Seth L. Harrison, Timothy J. Barberich, David A. Kessler, Joseph A. Yanchik, III, and the
underwriters of our initial public offering (IPO), entitled
Jackie888, Inc. v. Tokai Pharmaceuticals, Inc., et al.
, No. CGC-16-553796. The lawsuit alleges that, in violation of the Securities Act of 1933 (Securities
Act), our registration statement for our IPO made false and misleading statements and omissions about our clinical trials for galeterone. The plaintiff seeks to represent a class of purchasers of our common stock in and/or traceable to
our IPO. The lawsuit seeks, among other things, unspecified compensatory damages, interest, costs, and attorneys fees. On October 19, 2016, the defendants moved to dismiss or stay the action on grounds of
forum non conveniens
,
and certain individual defendants moved to quash the plaintiffs summons for lack of personal jurisdiction.
On September 29,
2016, two purported stockholders filed a putative class action lawsuit in the U.S. District Court for the District of Massachusetts against us, Jodie Pope Morrison, Lee H. Kalowski, Seth L. Harrison, Timothy J. Barberich, David A. Kessler, Joseph A.
Yanchik, III, and the underwriters of our IPO, entitled
Garbowski, et al. v. Tokai Pharmaceuticals, Inc., et al.
, No. 1:16-cv-11963 (
Garbowski
Action). The lawsuit alleges that the defendants and our registration
statement for our IPO made false and misleading statements and omissions about our clinical trials for galeterone, in violation of the Securities Act, the Exchange Act, and Rule 10b-5. The plaintiffs seek to represent a class of purchasers of
our common stock in or traceable to our IPO as well as a class of purchasers of our common stock between September 17, 2014, and July 25, 2016. The lawsuit seeks, among other things, unspecified compensatory damages, interest, costs,
and attorneys fees. The plaintiff in the
Doshi
Action has filed a motion to consolidate the
Doshi
and
Garbowski
Actions for all purposes.
An unfavorable resolution of any of these matters may have a material adverse effect on our results of operations and cash flows.
We must maintain effective internal control over financial reporting, and if we are unable to do so, the accuracy and timeliness of our financial
reporting may be adversely affected, which could have a material adverse effect on our business and stock price.
We must maintain
effective internal control over financial reporting in order to accurately and timely report our results of operations and financial condition. In addition, as a public company, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, requires,
among other things, that we assess the effectiveness of our disclosure controls and procedures quarterly and the effectiveness of our internal control over financial reporting at the end of each fiscal year.
The rules governing the standards that must be met for our management to assess our internal control over financial reporting pursuant to
Section 404 of the Sarbanes-Oxley Act are complex and require significant documentation, testing and possible remediation. These standards require that our audit committee be advised and regularly updated on managements review of internal
control over financial reporting. Our management may not be able to effectively and timely implement controls and procedures that adequately respond to the increased regulatory compliance and reporting requirements that are applicable to us as a
public company. If we fail to staff our accounting and finance function adequately or maintain internal control over financial reporting adequate to meet the demands that are placed upon us as a public company, including the requirements of the
Sarbanes-Oxley Act, our business and reputation may be harmed and our stock price may decline. Furthermore, investor perceptions of us may be adversely affected, which could cause a decline in the market price of our common stock.
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We are an emerging growth company, and the reduced disclosure requirements applicable to
emerging growth companies may make our common stock less attractive to investors.
We are an emerging growth company,
as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and may remain an emerging growth company for up to five years from the date of our initial public offering, although circumstances could cause us to lose that status
earlier. For so long as we remain an emerging growth company, we are permitted and plan to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions
include not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board
regarding mandatory audit firm rotation or a supplement to the auditors report providing additional information about the audit and the financial statements, reduced disclosure obligations regarding executive compensation and exemptions from
the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict whether investors will find our common stock less attractive if we
rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new
or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of
this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation, if any, will be the sole
source of gain for our stockholders.
We have never declared or paid cash dividends on our capital stock. We currently intend to
retain all of our future earnings, if any, to finance the growth and development of our business. In addition, the terms of existing or any future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of
our common stock will be the sole source of gain for our stockholders for the foreseeable future.
If equity research analysts do not publish
research reports about our business or if they issue unfavorable commentary or downgrade our common stock, the price of our common stock could decline.
The trading market for our common stock will rely in part on the research and reports that equity research analysts publish about us and our business. We do
not have any control over these analysts. The price of our common stock could decline if we do not obtain research analyst coverage, or one or more securities analysts downgrade our common stock or if those analysts issue other unfavorable
commentary or cease publishing reports about us or our business.