3,000 Class B Units consisting
of Series A Convertible Preferred Stock and Warrants
(1)
(3,529,412
shares of Common Stock underlying the Series A Convertible Preferred Stock)
(17,142,858 shares of Common Stock underlying
the Warrants included in the Class A and Class B Units)
We are offering 17,142,858
Class A Units (consisting of one share of our common stock and a warrant to purchase one share of our common stock at an exercise
price per full share of common stock equal to $0.80 (each, a “Warrant”)). Each Warrant will be immediately
exercisable and will expire five years from the date on which such Warrants become exercisable. The shares of common stock and
Warrants that form part of a Class A Unit are immediately separable and will be issued separately in this offering.
We are also offering to those purchasers, if
any, whose purchase of Class A Units in this offering would otherwise result in the purchaser, together with its affiliates and
certain related parties, beneficially owning more than 4.99% of our outstanding common stock immediately following the consummation
of this offering, the opportunity, in lieu of purchasing Class A Units, to purchase 3,000 Class B Units. Each Class B Unit will
consist of one share of our Series A convertible preferred stock, with a stated value of $1,000 per share and convertible into
shares of our common stock at the public offering price of the Class A Units, together with the equivalent number of Warrants
as would have been issued to such purchaser if they had purchased Class A Units based on the public offering price. The shares
of Series A convertible preferred stock do not generally have any voting rights but are convertible into shares of common stock.
The placement agent has informed us that it has not received any indications of interest for Class B Units, thus we do not
expect to confirm any sales of such Class B Units. The shares of Series A convertible preferred stock and Warrants are immediately
separable and will be issued separately in this offering. We are also offering the shares of common stock that are issuable from
time to time upon conversion of the Series A convertible preferred stock and upon the exercise of the Warrants being offered by
this prospectus.
For a more detailed description of the Series
A convertible preferred stock, see the section entitled “Description of Securities We Are Offering — Series A Convertible
Preferred Stock.” For a more detailed description of the Warrants, see the section entitled “Description of Securities
We Are Offering — Warrants to Purchase Common Stock.” For a more detailed description of our common stock, see the
section entitled “Description of Capital Stock — Common Stock.”
Investors purchasing $100,000 or more of the securities offered hereby will execute a securities purchase agreement with us,
providing such investors with certain representations, warranties and covenants from us, which representations, warranties
and covenants will not be available to investors of lesser amounts of our securities. Therefore,
investors purchasing $100,000 or less of the securities shall rely solely on this prospectus in connection with the purchase
of securities in this offering.
We refer to the Series A convertible preferred
stock issued hereunder, the Warrants and the shares of common stock issued hereunder and issuable upon conversion of the Series
A convertible preferred stock and upon exercise of the Warrants, collectively, as the securities.
Our common stock is listed on the NASDAQ Global
Market under the symbol “BLPH.” On November 22, 2016, the last reported sale price of our common stock on the
NASDAQ Global Market was $0.75 per share. We do not intend to list the Series A convertible preferred stock or the Warrants
to be sold in this offering on the NASDAQ Global Market or any other national securities exchange or any other nationally recognized
trading system.
We are an “emerging
growth company” as that term is used in the Jumpstart Our Business Startups Act of 2012 and, as such, we have elected to
comply with certain reduced public company reporting requirements for this prospectus and future filings.
Entities affiliated with New Mountain Capital,
LLC and Linde North America, existing stockholders, have agreed to purchase an aggregate of 7,634,286 Class A Units. The placement
agent will receive a fee of 4.0% from any units purchased by these parties.
BUSINESS
Overview
We are a clinical-stage therapeutics company
focused on developing innovative products at the intersection of drugs and devices that address significant unmet medical needs
in the treatment of cardiopulmonary diseases. Our focus is the continued development of our nitric oxide therapy for patients with
pulmonary hypertension, or PH, using our proprietary delivery system, INOpulse, with pulmonary arterial hypertension, or PAH, representing
the lead indication. Our INOpulse platform is based on our proprietary pulsatile nitric oxide delivery device.
In February 2016, we announced positive data
from the final analysis of our Phase 2 long-term extension clinical trial of INOpulse for PAH, which is Part 2 of our Phase 2 clinical
trial of INOpulse for PAH. The data indicates a sustainability of benefit to PAH patients who received INOpulse therapy at the
75 mcg/kg of ideal body weight/hour dose for an average of greater than 12 hours per day and were on long-term oxygen therapy,
or LTOT. After reaching agreement with the U.S. Food and Drug Administration, or FDA, and the European Medicines Agency, or EMA,
on our Phase 3 protocol, we are moving forward with Phase 3 development. In September 2015, the FDA issued a Special Protocol Assessment,
or SPA, for our Phase 3 PAH program for INOpulse, which will include two confirmatory clinical trials, undertaken either sequentially
or in parallel. The first of the two Phase 3 trials has been initiated with the first patient enrolled in June 2016. We plan to
have our Data Monitoring Committee conduct an unblinded interim analysis on the first trial after approximately half of
the subjects have completed a total of 18 weeks to assess for efficacy, futility and potential sample size reassessment.
We completed a randomized, placebo-controlled,
double-blind, dose-confirmation Phase 2 clinical trial of INOpulse for PH-COPD in July 2014. We received results from this trial,
and we have initiated further Phase 2 testing to demonstrate the potential benefit on exercise capacity. In September 2015, an
oral presentation of late-breaking data from a clinical trial sponsored by us was presented at the European Respiratory Society
International Congress 2015 in Amsterdam. The data showed that INOpulse improved vasodilation in patients with PH-COPD. In July
2016, the results were published in the International Journal of COPD in an article titled "Pulmonary vascular effects of
pulsed inhaled nitric oxide in COPD patients with pulmonary hypertension". Building upon this and other work we have done
over recent quarters, we have initiated Phase 2 testing for the use of the INOpulse device for PH-COPD patients to evaluate the
potential benefit of chronic use on exercise capacity, with the first patient enrolled in October 2016.
We have begun clinical testing of the INOpulse
therapy to treat PH associated with idiopathic pulmonary fibrosis, or PH-IPF, based on feedback from the medical community and
the large unmet medical need for this condition. Our first patient was enrolled in our Phase 2 study in the second quarter of 2016.
In addition, other opportunities for the application of our INOpulse platform include the following indications: chronic thromboembolic
PH, or CTEPH, PH associated with sarcoidosis and PH associated with pulmonary edema from high altitude sickness.
We have devoted all of our resources to our
therapeutic discovery and development efforts, including conducting clinical trials for our product candidates, protecting our
intellectual property and the general and administrative support of these operations. We have devoted significant time and resources
to developing and optimizing our drug delivery system, INOpulse, which operates through the administration of nitric oxide as brief,
controlled pulses that are timed to occur at the beginning of a breath.
To date, we have generated no revenue from product
sales. We expect that it will be several years before we commercialize a product candidate, if ever.
Our Development Program
The following table summarizes key information
about our primary development product, INOpulse, and indications for which we have worldwide commercialization rights.
From the inception of our business through December
31, 2015, $228.0 million was invested in our development programs. Prior to our February 2015 initial public offering, or IPO,
our sole source of funding was investments in us by our former parent company, Ikaria, Inc. (a subsidiary of Mallinckrodt plc),
or Ikaria. As used herein, unless the context otherwise requires, references to “Ikaria” refer to Ikaria, Inc. and
its subsidiaries and any successor entity.
INOpulse
Our INOpulse program is an extension of the
technology used in hospitals to deliver continuous-flow inhaled nitric oxide. Use of inhaled nitric oxide is approved by the U.S.
Food and Drug Administration, or the FDA, and certain other regulatory authorities to treat persistent PH of the newborn. Ikaria
has marketed continuous-flow inhaled nitric oxide as INOmax for hospital use in this indication since FDA approval in 1999. In
October 2013, Ikaria transferred to us exclusive worldwide, royalty-free rights to develop and commercialize pulsed nitric oxide
in PAH, PH associated with chronic obstructive pulmonary disease, or PH-COPD, and PH associated with idiopathic pulmonary fibrosis,
or PH-IPF. In July 2015, we expanded the scope of our license to allow us to develop our INOpulse program for the treatment of
chronic thromboembolic PH, or CTEPH, PH associated with sarcoidosis and PH associated with pulmonary edema from high altitude sickness
with a royalty equal to 5% of net sales of any commercial products for these three additional indications. In November 2015, we
entered into an amendment to our exclusive cross-license, technology transfer and regulatory matters agreement with Ikaria that
included a royalty equal to 3% of net sales of any commercial products for PAH. Our INOpulse program is built on scientific and
technical expertise developed for the therapeutic delivery of inhaled nitric oxide. In 2010 and 2012, respectively, Ikaria submitted
investigational new drug applications, or INDs, for INOpulse for the treatment of patients with PAH and PH-COPD. PAH is a form
of PH that is closely related to persistent PH of the newborn. These INDs were included in the assets that were transferred to
us by Ikaria.
Nitric oxide is naturally produced and released
by the lining of the blood vessels and results in vascular smooth muscle relaxation, an important factor in regulating blood pressure.
Relaxation of the muscles of the blood vessels allows the heart to increase blood flow to tissues and organs of the body, including
the lung. When administered through inhalation, nitric oxide acts to selectively reduce pulmonary arterial pressure in the lung
with minimal effects on blood pressure outside of the lungs, an important safety consideration.
Inhaled nitric oxide is widely used in the hospital
setting for the treatment of a variety of conditions and, as reported by Ikaria, over 600,000 patients have been treated with inhaled
nitric oxide worldwide since its first such use. However, chronic outpatient use of this therapy has previously been limited by
a lack of a safe and compact delivery system for outpatient use. We have designed our INOpulse device, which is the means by which
inhaled nitric oxide is delivered to the patient, to be portable, which enables use by ambulatory patients on a daily basis inside
or outside their homes. Our INOpulse device has a proprietary mechanism that delivers brief, targeted pulses of nitric oxide timed
to occur at the beginning of a breath for delivery to the well-ventilated alveoli of the lungs, which minimizes the amount of drug
required for treatment. We estimate this, and the higher concentration of nitric oxide we use, reduces the volume of drug delivered
to approximately 5% of the volume required for equivalent alveolar absorption using standard continuous flow delivery systems,
and also reduces the amount of nitric oxide, as well as its by-product nitrogen dioxide, that is exhaled and released into the
patient’s environment. INOpulse is designed to automatically adjust nitric oxide delivery based on a patient’s breathing
pattern to deliver a constant and
appropriate dose of the inhaled nitric oxide over time, independent
of the patient’s activity level, thus ensuring more consistent dosing of the nitric oxide to the alveoli of the lungs.
In our recently completed INOpulse clinical
trials, we used the first generation INOpulse device, which we refer to as the INOpulse DS device. Beginning with our Phase 3 trial
of INOpulse for PAH in 2016, we have begun using our second generation device, which we refer to as the INOpulse device. The INOpulse
device has approximately the same dimensions as a paperback book and weighs approximately 2.5 pounds. The INOpulse device has a
simple and intuitive user interface and a battery life of approximately 16 hours when recharged, which takes approximately four
hours and can be done while the patient sleeps. Based on the doses we have evaluated in our clinical trials, we expect that most
patients will use two cartridges a day. The INOpulse device incorporates our proprietary triple-lumen nasal cannula, safety systems
and proprietary software algorithms. The triple-lumen nasal cannula enables more accurate dosing of nitric oxide and minimizes
infiltration of oxygen, which can react with nitric oxide to form nitrogen dioxide. Our triple-lumen nasal cannula consists of
a thin, plastic tube that is divided into three channels from end-to-end, including at the prongs that are placed in the patient’s
nostrils, with one channel delivering inhaled nitric oxide, a second for breath detection and a third available for oxygen delivery.
INOpulse is configured to be highly portable and compatible with long-term oxygen therapy, or LTOT, systems via nasal cannula delivery.
The INOpulse device has been well received by
patients in the usability research we have conducted. In addition to the baseline testing on the original INOpulse DS device, we
have conducted two rounds of testing with COPD and PAH patients to evaluate the user interface, loading mechanism, size, carrying
bag and other features. In the usability research we have conducted, all eight patients with experience with the INOpulse DS device
responded positively to the INOpulse device, and several of these patients indicated that the ability to take the INOpulse device
outside the home would likely reduce concerns with maintaining compliance.
Our technology is based on patents we have exclusively
licensed from Ikaria for the treatment of PAH, PH-COPD, PH-IPF, CTEPH, PH associated with sarcoidosis and PH associated with pulmonary
edema from altitude sickness which, collectively, we refer to as the Bellerophon indications. These include patents with respect
to the pulsed delivery of nitric oxide to ensure a consistent dose over time, which expire as late as 2027 in the United States
and as late as 2026 in certain other countries, as well as with respect to the special triple-lumen cannula that allows for safer
and more accurate dosing of pulsed nitric oxide, which expires in 2033 in the United States and abroad. We have also licensed several
other patent applications from Ikaria for certain of the innovations included in the INOpulse device and certain of the resulting
patents, if issued, would expire as late as 2030 in the United States.
During January 2016, the European Patent Office
issued a Notice of Intention to Grant a European Patent that provides protection for our INOpulse program. The patent, entitled
“System of Administering a Pharmaceutical Gas to a Patient,” covers the ability to provide a known amount of pharmaceutical
gas to a patient regardless of the patient inspiration rate or volume and distinguishes the INOpulse® delivery system from
others on the market. Upon grant by the European Patent Office, the patent can be officially validated in up to 38 European countries.
Also during January 2016, we received EC Certification for our proprietary new, INOpulse® drug-device delivery system. This
European Conformity, or EC Certification grants CE marking on the INOpulse product, which confirms INOpulse compliance with the
essential requirements of the relevant European health, safety and environment protection legislation of the European Union. This
certification covers the design, development and manufacture of inhaled pulsatile nitric oxide drug delivery systems including
our triple-lumen cannula and application software.
INOpulse for PAH
We are developing INOpulse for the treatment
of PAH to address a significant and unmet medical need in an orphan disease, which is a disease that affects fewer than 200,000
individuals in the United States. This program represents a potential first-in-class therapy for this indication. In 2011, the
FDA granted orphan drug designation to our nitric oxide program for the treatment of PAH. If a product with an orphan drug designation
is the first to receive FDA approval, the FDA will not approve another product for the same indication that uses the same active
ingredient for seven years, except in a limited number of specific situations such as another product being shown to be clinically
superior.
PAH is characterized by abnormal constriction
of the arteries in the lung that increases the blood pressure in the lungs which, in turn, results in abnormal strain on the heart’s
right ventricle, eventually leading to heart failure. While prevalence data varies widely, we estimate that there are a total of
at least 35,000 patients currently diagnosed with and being treated for PAH in the United States and European Union. Moreover,
because PAH is rare and causes varied symptoms, we believe there is significant under-diagnosis of the condition at its early stages.
There are several approved therapies for PAH, and we estimate, based on public product sales data, that 2014 combined global sales
for these therapies were over $4.6 billion with a compounded annual growth rate of approximately 7%. Most PAH patients are
treated with multiple medications and many are on supportive therapy. We believe that 40 to 60% of PAH patients are on LTOT. Despite
the availability of multiple therapies for this condition, PAH continues to be a life-threatening, progressive disorder. A French
registry initiated in 2002 and a U.S. registry initiated in 2006 estimate that the median survival of patients with PAH is three
and five years from initial diagnosis, respectively.
We completed a randomized,
placebo-controlled, double-blind Phase 2 clinical trial of INOpulse for PAH in October 2014, which was Part 1 of the trial. In
February 2016, we announced positive data from the final analysis of Part 2 of our Phase 2 clinical trial of INOpulse for PAH.
The data reinforces the results from October 2014 and indicates a sustainability of benefit to PAH patients who received INOpulse
therapy at the 75 mcg dose for an average of greater than 12 hours per day and were also treated with LTOT. After reaching agreement
with the FDA, and the European Medicines Agency, or EMA, on our Phase 3 protocol, we are moving forward with Phase 3 development.
In September 2015, the FDA issued a Special Protocol Assessment, or SPA, for our Phase 3 PAH program for INOpulse, which will include
two confirmatory clinical trials, undertaken either sequentially or in parallel. The first of the two Phase 3 trials has been initiated
with the first patient enrolled in June 2016. We plan to have our Data Monitoring Committee conduct an un-blinded interim analysis
on the first trial after approximately half of the subjects have completed a total of 18 weeks to assess for efficacy, futility
and potential sample size reassessment.
INOpulse for PH-COPD
We are also developing INOpulse for the treatment
of PH-COPD. COPD is a disease characterized by progressive and persistent airflow limitations. Patients with more severe COPD frequently
have hypoxemia, or an abnormally low level of oxygen in the blood, and may be treated with LTOT. Despite treatment with oxygen,
hypoxemia can progress and contribute to PH. In 2010, Datamonitor estimated that over 1.4 million COPD patients in the United States
were being treated with LTOT. Based on academic studies, we estimate that 50% of COPD patients on LTOT have PH. PH-COPD patients
have a lower median life expectancy and a higher rate of hospitalization than COPD patients with similar respiratory disease but
without PH. Currently, there are no approved therapies for treating PH-COPD, and the only generally accepted treatments are LTOT,
pulmonary rehabilitation and lung transplant. The overall COPD market in the United States was estimated to be approximately
$32 billion in 2010 with a compounded annual growth rate of approximately 4%.
The data from an initial three-month, open-label
chronic-use Phase 2 trial conducted by a third party, which we in-licensed, showed that pulsed inhaled nitric oxide significantly
reduced pulmonary arterial pressures in PH-COPD patients on LTOT and did so without causing hypoxemia, which is a significant
concern for these patients. The FDA asked us to confirm the dose range and the safety related to hypoxemia in PH-COPD patients
using the INOpulse device, prior to proceeding to large scale trials. Following this guidance, we conducted a Phase 2 acute dose
ranging randomized placebo-controlled trial in 159 patients with the INOpulse DS device, with doses ranging from 3 mcg to 75 mcg.
This trial, which we completed in July 2014, identified a dose range that showed similar reduction in pulmonary arterial pressure
versus baseline when compared to the initial acute effects of pulsed inhaled nitric oxide in the original chronic-use trial. In
addition, in our confirmatory trial, none of the INOpulse doses tested had an adverse effect on hypoxemia relative to placebo.
While the reduction in pulmonary arterial pressure did not reach statistical significance versus placebo in this acute setting,
which was the primary endpoint of the trial, we believe that the results have confirmed a dose range for this therapy that delivers
a significant reduction in pulmonary arterial pressure versus baseline and does not cause hypoxemia in patients with PH-COPD.
In September 2015, an oral presentation of late-breaking data from a clinical trial sponsored by us was presented at the European
Respiratory Society International Congress 2015 in Amsterdam. The data showed that INOpulse improved vasodilation in patients
with PH-COPD. Building upon this and other work we have done over recent quarters, we have initiated additional Phase 2 testing
for the use of the INOpulse device for PH-COPD patients to evaluate the potential benefit of chronic use on exercise capacity,
with the first patient enrolled in October 2016.
Our Strategy
Our goal is to become a leader in developing
and commercializing innovative products at the intersection of drugs and devices that address significant unmet medical needs in
the treatment of cardiopulmonary diseases. The key elements of our strategy to achieve this goal include:
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Advance the clinical development of INOpulse.
One of our lead indications for our product candidate is INOpulse for
PAH. Our Phase 3 PAH program for INOpulse will include two confirmatory clinical trials, undertaken either sequentially or in parallel,
with the first patient enrolled in June 2016. We also initiated our second Phase 2 study for INOpulse in PH-COPD looking at the
effect of chronic use on exercise capacity, for which the first patient was enrolled in October 2016. We also initiated our Phase
2 studies in PH-IPF consisting of an exploratory acute hemodynamic study, for which the first patient was enrolled in second quarter
of 2016, to be followed by exercise capacity.
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Leverage our historical core competencies to expand our pipeline.
Our employees have years of institutional experience
in the use of inhaled nitric oxide in treating PH and in the development of drug-device combination product candidates. If we successfully
advance INOpulse, we expect to develop INOpulse for treatment of CTEPH, PH associated with sarcoidosis and PH associated with pulmonary
edema from altitude sickness and, subject to obtaining additional license rights from Ikaria, potentially other outpatient PH indications.
Our longer-term vision is to identify and opportunistically in-license innovative therapies that are at the intersection of drugs
and devices and to develop and commercialize these product candidates.
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Build commercial infrastructure in select markets.
As we near completion of the development of our product candidates,
we may build a commercial infrastructure to enable us to market and sell certain of our product candidates with a specialized sales
force and to retain co-promotion or similar rights, when feasible, in indications requiring a larger commercial infrastructure.
While we may partner with third parties to commercialize our product candidates in certain countries, we may also choose to establish
commercialization capabilities in select countries outside the United States.
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INOpulse
INOpulse Scientific Background
Nitric oxide is a naturally occurring molecule
produced by many cells of the body. Researchers found that nitric oxide is produced and released by the lining of the blood vessels
and plays a role in controlling muscle tone in blood vessels. In particular, nitric oxide results in vascular smooth muscle relaxation
in blood vessels and thus is an important factor in regulating blood pressure. As the muscles of the blood vessels relax, blood
flow increases, helping the heart to deliver more blood to the body. PH patients can have a deficiency in endogenous nitric oxide
production in their lungs. When administered by inhalation to patients with PH, we expect inhaled nitric oxide to act in a similar
manner to naturally produced nitric oxide.
The scientific journal
Science
named
nitric oxide Molecule of the Year in 1992. Additionally, the three researchers who discovered the role of nitric oxide as a signaling
molecule in the cardiovascular system earned the Nobel Prize for Physiology or Medicine in 1998.
In 1991, Dr. Warren Zapol and his associates
at the Massachusetts General Hospital discovered that inhaling nitric oxide in gas form could reduce high blood pressure in the
lungs, a condition known as PH. Nitric oxide is a rapid and potent vasodilator, which means it dilates, or widens, blood vessels.
When inhaled, it quickly dilates blood vessels in the lungs, which reduces blood pressure in the lungs, strain on the right ventricle
and shunting of de-oxygenated blood away from the lungs. Because more blood can flow through the lungs, oxygen levels within blood
improve. In addition, inhaled nitric oxide improves the efficiency of oxygen delivery, and because it is a gas, it goes only to
the portions of the lung that are ventilated, or receiving air flow, and increases blood flow only in these areas. Thus, inhaled
nitric oxide improves ventilation-perfusion matching, an important
element of lung function involving the air that reaches the lungs,
or ventilation, and the blood that reaches the lungs, or perfusion. Inhaled nitric oxide is quickly inactivated after contact with
blood, and is selective for the lungs, meaning that it has minimal effects on blood pressure outside of the lungs, which is an
important safety consideration.
In 1999, the FDA approved the use of inhaled
nitric oxide for the short-term treatment of persistent PH of the newborn. Based on this approval, and similar approvals from foreign
regulatory authorities, continuous-flow inhaled nitric oxide, which is administered to ventilated patients by a dedicated in-hospital
device, is marketed by Ikaria and its commercialization partners worldwide as INOmax (INOflo in Japan). Inhaled nitric oxide is
widely used in the hospital setting for a variety of conditions and, as reported by Ikaria, over 600,000 patients have been treated
with inhaled nitric oxide worldwide since its commercial launch. However, chronic outpatient use of this therapy has previously
been limited by the lack of a safe and compact delivery system for outpatient use.
Introduction to Pulmonary Hypertension
PH is a disease characterized by constriction
of the blood vessels in the lung, which causes blood pressure in the lung to rise and, in turn, increases the work required for
the right ventricle of the heart to pump blood. The World Health Organization, or WHO, has endorsed a consensus classification
for PH that was updated most recently in 2013. The WHO classification has five broad PH groups based on similarities in pathological
and hemodynamic characteristics and therapeutic approaches. We are initially focusing development of INOpulse in indications included
in WHO Groups 1 and 3 due to our view of the likelihood of success and the size and commercial viability of these markets. Group
1 PH is comprised of patients with PAH. This Group combines conditions with a range of causes, all of which have a characteristic
pattern of vascular remodeling. The constriction of the blood vessels and the resulting pressure on the heart is often the major
reason for poor prognosis of PAH patients since they can be otherwise healthy. Most PAH-specific medications are vasodilators and
work through one of the three key mechanistic pathways for vasoconstriction and vasodilation. We expect that, because inhaled nitric
oxide is a vasodilator and PH patients can have a deficiency in endogenous nitric oxide production in their lungs, patients in
Group 1 will benefit from INOpulse. Group 3 PH consists of PH associated with lung disease or hypoxemia, which is an abnormally
low level of oxygen in the blood. This Group includes patients with PH-COPD and PH-IPF, among others.
INOpulse for Pulmonary Arterial Hypertension
We are developing INOpulse for PAH to address
a significant and unmet medical need in an orphan disease. This product candidate represents the development of a potential first-in-class
therapy for this indication. Although current therapy for PAH provides some therapeutic benefit, there remains no cure, and approved
therapies can have significant systemic side effects, such as hypotension and liver injury. INOpulse for PAH is designed to be
a selective, short-acting pulmonary vasodilator and is being tested as an add-on therapy to existing PAH medications to evaluate
its efficacy and side effect profile, in particular its ability to provide clinical benefit without adding to the systemic effects
of other therapies such as hypotension.
Disease Background and Market Opportunity
PAH is a life-threatening, progressive disorder
characterized by abnormally high blood pressure, or hypertension, in the pulmonary artery, the blood vessel that carries blood
from the heart to the lungs. PAH occurs when most of the very small arteries, or arterioles, throughout the lungs narrow in diameter,
which increases the resistance to blood flow through the lungs. To overcome the increased resistance, pressure increases in the
pulmonary artery and the right ventricle, which is the heart chamber that pumps blood into the pulmonary artery. In addition, PAH
may cause changes to the blood vessel lining that hinder the natural production of nitric oxide. Signs and symptoms of PAH occur
when this increased pressure in the right
ventricle cannot fully overcome the elevated resistance.
There are a number
of drugs approved for the treatment of PAH that work primarily by reducing pulmonary vascular resistance, which is the primary
problem for these patients. The currently approved PAH medications slow down disease progression, but do not prevent the underlying
disease. Despite the availability of multiple therapies for this condition, the mortality rate for PAH remains high, with estimates
of median survival ranging from three to five years. Currently, the only definitive treatment for PAH is a lung transplant,
which is only available to a minority of patients due to the strict requirements and availability of viable lungs for transplant.
Patients with PAH also report severe impairment of health-related quality of life, including poor
general and emotional health and impaired physical functioning.
The most common symptoms of PAH are shortness of breath during exertion and syncope, or fainting spells. People with PAH may experience
additional symptoms, particularly as the condition worsens, including dizziness, swelling of the ankles or legs, chest pain and
a racing pulse. These impairments to health-related quality of life are comparable and sometimes more severe than those reported
in patients with severely debilitating conditions such as spinal cord injury.
Since PAH is an orphan condition with poor diagnosis
rates, published prevalence estimates for PAH vary widely. Based on epidemiological studies and current treatment rates, we estimate
that there are a total of at least 35,000 patients currently diagnosed and treated for PAH in the United States and European Union.
The average age of PAH patients at diagnosis is approximately 50 years, and approximately 80% of PAH patients are female. PAH is
often diagnosed late in the disease progression with approximately 73% of these patients already having progressed to WHO functional
Class III or IV at the time of diagnosis.
PAH is characterized by abnormal constriction
of the arteries in the lung. PAH patients are generally treated with one or more of the four major classes of approved medications,
which are prostacyclin and prostacyclin analogs, phosphodiesterase type-5 inhibitors, endothelin receptor antagonists and a soluble
guanylate cyclase stimulator, all of which potentially result in vasodilatory systemic effects and, therefore, hypotension. Current
guidelines recommend treatment with multiple medications in Class III and IV patients with progressive disease but suggest treatment
be carefully managed by experienced physicians. Approximately 45% of PAH patients are treated with more than one class of medication
at a given time. In addition, since hypoxemia can be a problem in these patients, it is often treated with LTOT in accordance with
broadly supported treatment guidelines in the United States and European Union.
We
are testing INOpulse for PAH as an add-on therapy for use in patients whose disease is progressing and who use
additional medications. If it is approved, we expect INOpulse will provide the greatest benefit to patients who require
pulmonary arterial pressure reductions beyond the reductions achieved with the medication they are already using. Because of
its localized effect and short-half life, we do not expect INOpulse will add to systemic blood pressure reductions of other
PAH drugs. We believe that INOpulse is also likely to be preferentially prescribed for patients already on LTOT. Data from
the REVEAL registry, a registry study of PAH based in the United States, indicate that approximately 40% of patients are
treated with oxygen for hypoxemia. A more recent assessment of the use of oxygen in the REVEAL registry found that
57% of PAH patients were on LTOT.
Approximately 60% of the patients from Part 1 of our Phase 2 clinical trial
completed in October 2014 were on LTOT. We believe that, as compared to patients who are not using a nasal cannula, patients
who are accustomed to using a nasal cannula for delivery of oxygen are more likely to be prescribed and are more likely to
be compliant with the use of INOpulse.
A 2013 report by CVS Caremark Specialty Analytics
provided examples of PAH medications with annual prices ranging from approximately $100,000 to $150,000 per patient per year in
the United States. We expect that, if approved, the price of INOpulse will be in the range of other established PAH medications.
Scientific Rationale for Use of INOpulse for PAH
Since the discovery of the significant role
of nitric oxide in vasodilation, there has been an expectation in the scientific community that inhaled nitric oxide could be
an effective therapy for PAH. According to the Cleveland Clinic Center for Continuing Education section on Pulmonary Hypertension,
exogenous administration of nitric oxide by inhalation is probably the most effective and specific therapy for PAH, but cost and
technical complexity of delivering inhaled nitric oxide have limited its use to the hospital. Although not approved for the treatment
of PAH, data from an in-hospital survey conducted by Ikaria showed an estimated 1,000 to 2,000 INOmax uses in PAH patients in
the United States each year, indicating that physicians already use nitric oxide in some PAH patients. The difficulty in delivering
inhaled nitric oxide outside of the hospital results from the size of the device and cylinder and the need for a specialized delivery
system with built-in safety systems.
We are developing nitric oxide for treatment
of PAH because nitric oxide is a proven vasodilator, and PAH is primarily a disease of high pulmonary vascular resistance. PAH
is associated with impaired release of nitric oxide and thus we believe chronic administration of inhaled nitric oxide may be viewed
as an adjunctive or replacement therapy in patients with PAH. The use of inhaled nitric oxide in PAH has been proposed since the
role of nitric
oxide in this disease was identified. This drug has been tested
in limited investigational studies conducted at academic institutions.
One clinical trial conducted by a third party
at an academic center in Spain in 11 patients, seven of whom had severe PAH and four of whom had severe chronic thromboembolic
PH, or CTEPH, evaluated the use of pulsed inhaled nitric oxide in an ambulatory setting. In this open-label, single-arm trial with
no placebo control, patients were given ambulatory pulsed inhaled nitric oxide therapy via a nasal cannula for up to one year,
after being withdrawn from PAH-specific therapy. The nitric oxide pulse was delivered to the patient at the beginning of each inspiration
at a flow rate that was individualized for such patient. The goal of this trial was to evaluate the efficacy and safety of long-term
treatment with inhaled nitric oxide outside the hospital setting.
At the start of this trial, patients were evaluated
for various measures including the distance they were able to walk in six minutes and their WHO functional class status. At baseline,
most of these patients had significant impairment of six-minute walk distance, or 6MWD, with the ability to walk an average of
125 meters, and poor WHO functional class status, with nine patients in Class IV and two patients in Class III. After one month
of therapy, overall, patients improved based on WHO functional class, with six patients in Class III and five in Class II, and
had improvements in 6MWD of 128 meters on average. After six months of treatment, patients did not worsen clinically, however,
between months six and 12, seven patients were given a phosphodiesterase type-5 inhibitor due to clinical worsening. One patient
who initially did well with the added phosphodiesterase type-5 inhibitor therapy developed severe right heart failure at month
eight and died, and another patient received a lung transplant at month nine. The remaining nine patients all had clinical status
at month 12 similar to their one month evaluation, and improvements in functional class and 6MWD for the group persisted over time.
We do not expect INOpulse to have systemic effects
beyond the pulmonary vasculature because of the short half-life of nitric oxide combined with its targeted delivery to the alveoli.
When nitric oxide is delivered as a pulse at the beginning of inhalation, it travels to the alveoli where it diffuses rapidly across
the alveolar capillary membrane into the adjacent vascular smooth muscle of pulmonary vessels. This transport is similar to the
natural transport of endogenous nitric oxide from the endothelial cells, where it is produced, to the vascular smooth muscle cells
where it relaxes the muscle and causes vasodilation of the pulmonary arteries. We believe this makes INOpulse unlikely to have
intolerable side effects, such as systemic hypotension or drug-drug interactions. Given the need for PAH patients to be treated
with multiple therapies and the potential for increased hypotension from each of the currently approved PAH therapies, we are developing
INOpulse as an add-on or adjunctive therapy for PAH, where we believe it has the highest commercial potential.
Clinical Development Program
INOpulse for PAH is designated as a drug-device
combination by the FDA and is subject to review by the Division of Cardiovascular and Renal Products within the Center for Drug
Evaluation and Research with consultation from the Center for Devices and Radiological Health. Based upon our IND for PAH, the
FDA has agreed that no further preclinical studies are required for clinical development of INOpulse for PAH.
Phase 2 Clinical Trial
In October 2014, we completed Part 1 of our
ongoing Phase 2 clinical trial of INOpulse for PAH in the United States and Canada. Our key inclusion criteria for patients in
this trial were that they be diagnosed with PH WHO Group 1, be on at least one other PAH medication for at least 12 weeks prior
to treatment with INOpulse; and demonstrate being able to walk between 100 and 450 meters within six minutes. In addition, this
trial excluded patients with evidence of significant left ventricular dysfunction.
The trial was a randomized, placebo-controlled,
double-blind clinical trial with patients randomized 1:1:1 to placebo or to one of two active doses, either 25 or 75 mcg/kg ideal
body weight/hour, (iNO 25 or iNO 75), for 16 weeks. The primary endpoint in this trial was a change in pulmonary vascular resistance
from baseline to 16 weeks, which was the end of Part 1. The target change in pulmonary vascular resistance was 190 dynes sec. cm-5,
and the trial was powered for statistical significance at 130 dynes sec. cm-5. The main secondary endpoint was change in 6MWD over
the same period. A clinically meaningful change in 6MWD is typically considered to be an increase of at least 30 to 35 meters.
We randomized 80 patients for Part 1 of the
Phase 2 clinical trial. The majority of the patients were female (79%), white (89%) and had idiopathic PAH (74%). The results from
Part 1 of this trial, showed a trend toward lower pulmonary vascular resistance in both the active arms compared to placebo and
a trend toward increased 6MWD in the higher dose group. However, neither result was statistically significant.
However, among LTOT users, there was a clinically
meaningful and statistically significant improvement versus placebo in both pulmonary vascular resistance and 6MWD in patients
on the iNO75 dose.
The Part 1 data analysis showed the following:
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Patients on LTOT in the iNO 75 dose treatment arm who remained on INOpulse therapy for at least 12 hours a day had a mean improvement
of 52.4 meters as compared to baseline (n=13).
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Patients on LTOT in the iNO 75 dose treatment arm who remained on INOpulse therapy for less than 12 hours a day showed a mean
decrease of 10.7 meters as compared to baseline (n=5).
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Patients on LTOT in the iNO 25 dose treatment arm had a mean increase of 9.1 meters from baseline (n=15).
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Patients on LTOT in the Placebo arm had a mean decrease of 10.7 meters from baseline (n=10).
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The patients on LTOT in the iNO 75 dose treatment
arm who remained on the INOpulse therapy for at least 12 hours a day had a placebo corrected increase of 69.6 meters (increase
of 52.4 meters for iNO 75 against a decrease of 17.2 meters for the corresponding placebo arm).
INOpulse was relatively well-tolerated in Part
1 of this trial. Our Independent Data Safety Monitoring Board evaluated the safety analysis from Part 1 of the trial in November
2014 and recommended proceeding with Part 2 of the trial. Possibly drug-related serious adverse events, or SAEs, occurred in no
patients in the placebo group and one subject in each of the iNO25 and iNO75 groups.
One patient in the placebo arm died during Part
1 of the trial due to worsening PAH. SAEs were reported for four patients in the placebo arm, including one each of: pneumonia/worsening
PAH, catheter-related infection, ascites and left hip sciatica. Each of these was assessed by the investigator for the trial as
unrelated. Four patients in the iNO25 low-dose active treatment arm experienced SAEs, including bacteremia, myelodysplastic syndrome,
increased shortness of breath and dyspnea, one of which was assessed as possibly related to trial therapy. The iNO75 high-dose
active treatment arm had nine patients with SAEs. The most common SAEs reported in the iNO75 group were syncope and bronchitis/tracheobronchitis,
one of which was assessed as possibly related to trial therapy. Discontinuation of trial therapy due to adverse events, or AEs,
occurred for two patients in the iNO75 arm and one subject in each of the iNO25 and placebo arms.
In February 2016, we announced positive data
from the final analysis of our Phase 2 long-term extension clinical trial of INOpulse for PAH, which is Part 2 of our Phase 2 clinical
trial of INOpulse for PAH. The data reinforces the results from October 2014 and indicates a sustainability of benefit to PAH patients
who received INOpulse 75mcg dose therapy for an average of greater than 12 hours per day and were also treated with LTOT.
Following 16 weeks of blinded therapy in Part
1 of the trial, in Part 2 of the trial, 65 patients were randomized to receive INOpulse doses of either iNO25 or iNO75. The long-term
extension analysis was performed after patients had completed between 16 and 32 months of INOpulse treatment, and data from the
long-term extension analysis was compared to baseline measurements taken at the beginning of Part 1 of the trial. All patients
in the trial were on at least one approved PAH therapy, and most were on two or three PAH therapies.
The long-term extension analysis showed the
following:
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Patients on LTOT in the iNO 75 dose treatment arm who remained on INOpulse therapy for at least 12 hours a day had a mean improvement
of 55.2 meters as compared to baseline (n=7).
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Patients on LTOT in the iNO 75 dose treatment arm who remained on INOpulse therapy for less than 12 hours a day showed a mean
decrease of 18.0 meters as compared to baseline (n=6).
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Patients on LTOT in the iNO 25 dose treatment arm had a mean decrease of 43.7 meters from baseline (n=12).
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For patients in the long-term extension study,
no significant safety issues have been found with no reports of methemoglobin elevation and no adjudicated cases of pulmonary rebound.
Only two SAEs have been reported as possibly related, with these subjects continuing on iNO therapy.
Pivotal Phase 3 Clinical Trials
After reaching agreement with the FDA and EMA
on our Phase 3 protocol, we are moving forward with our Phase 3 development program. In September 2015, the FDA issued a SPA for
our Phase 3 PAH program for INOpulse, which will include two confirmatory clinical trials, undertaken either sequentially or in
parallel. The first of the two Phase 3 studies has been initiated with the first patient enrolled in June 2016.
The key elements of the planned U.S. and European
Union Phase 3 development program are:
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The Phase 3 program will consist of two clinical trials totaling approximately 450 patients; one trial with two treatment arms
(iNO 75 and placebo) and one with three treatment arms (iNO 75, iNO 50 and placebo). Each treatment arm will consist of approximately
90 patients. Trial was designed to detect a 40 meter difference in 6MWD assuming a 75 meter standard deviation.
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All patients in the trials will be on LTOT.
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The primary endpoint is improvement in 6MWD compared to placebo after 16 weeks.
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The secondary endpoint is Time to Clinical Worsening (TTCW), with analysis pooled across both trials. Patients will stay on
therapy until the last patient visit measuring 6MWD.
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Each trial will have a run-in period of two weeks to ensure compliance. Patients who do not stay on the therapy for at least
16 hours a day during this period will be replaced.
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We plan to have our Data Monitoring Committee
conduct an un-blinded interim analysis on the first trial after approximately half of the subjects have completed a total of 18
weeks to assess for efficacy, futility and potential sample size reassessment.
INOpulse for PH-COPD
We are developing INOpulse for PH-COPD to address
a significant unmet medical need that we believe is often overlooked in everyday clinical practice because of the lack of available
therapy. PH is more prevalent among those COPD patients who have advanced loss of respiratory function and low peripheral blood
oxygen levels requiring treatment with LTOT. The co-morbidity of PH in these patients leads to cardiovascular complications from
the added strain on the right ventricle of the heart. Current drug therapies for COPD are targeted to relieve the symptoms and
complications of the respiratory component of the disease. Unlike these therapies, INOpulse is directed at treating the cardiovascular
complications of PH-COPD. We believe PH-COPD patients on LTOT who are at risk for cardiovascular complications could benefit from
use of INOpulse in addition to any respiratory benefits that result from their existing treatments.
Disease Background and Market Opportunity
COPD is a progressive disease caused by chronic
inflammation and destruction of the airways and lung tissue. While COPD is primarily a respiratory disease, over time, as the
disease progresses, the chronic pulmonary restrictions and resulting deprivation of adequate oxygen, or hypoxia, can contribute
to vasoconstriction in the pulmonary arterial bed. In addition, COPD patients can have deficiency in endogenous nitric oxide production
in their lungs, which can worsen vasoconstriction. This pulmonary vasoconstriction puts pressure on the right side of the heart,
making it less able to cope with stressors and potentially leading to progressive cardiac dilation, heart
failure and death. This cardiovascular component of COPD is, we
believe, often overlooked despite pulmonologists’ general awareness of the problem, in part because there are no specific
therapies for the condition in these patients. While it is widely believed that the cardiovascular complications of COPD occur
only in the advanced stage of the disease as a consequence of chronic hypoxemia, recent findings demonstrate an earlier involvement
of the cardiovascular system in this disease.
In 2010, Datamonitor estimated that approximately
12 million patients in the United States were being treated for COPD and that over 1.4 million of these patients were being treated
with LTOT. Based on academic studies, we estimate that 50% of COPD patients on LTOT in the United States have PH. Even though the
degree of PH in these patients is milder than in PAH patients, data published in literature suggests that even small elevations
in mean pulmonary artery pressure in patients with advanced COPD can impact hospitalization, patient-assessed functional outcomes
and mortality. PH is a well-known predictor of increased morbidity and mortality in COPD patients and is associated with poor quality
of life, worse clinical outcomes and shorter survival time. Based on a long-term study completed in 1992 and published in 1995,
PH-COPD patients had a four-year survival rate of approximately 50%. By contrast, in this same long-term study, COPD patients with
similar pulmonary functions, but without PH, had a four-year survival rate of 80%.
The overall COPD market in the United States
was estimated to be approximately $32 billion in 2010 with a compounded annual growth rate of approximately 4%. We expect INOpulse
for PH-COPD, if approved, would be a treated as a specialty drug. Specialty drugs are typically high-cost medications, often ranging
in price in the United States from approximately $15,000 to $50,000 per patient per year, used to treat rare or complex conditions,
requiring close clinical management, special handling and distribution through specialty pharmacies.
Scientific Rationale for Use of INOpulse for PH-COPD
The mechanism of action of inhaled nitric oxide
in vasodilation at the alveolar smooth muscle in PH-COPD is similar to its action in PAH. Like endogenous pulmonary nitric oxide,
inhaled nitric oxide works by selectively relaxing lung vascular smooth muscles, causing dilation of pulmonary blood vessels and
consequently increased pulmonary blood flow. This reduces the elevated pulmonary artery pressure in patients with PH-COPD.
PH-COPD patients generally have hypoxemia as
a result of deteriorating lung function, which can be treated with supplemental oxygen therapy. However, these patients are not
treated with currently approved PAH-specific drugs because these drugs can worsen hypoxemia. This worsening can occur when these
drugs, which are systemically bioavailable, cause indiscriminate pulmonary vasodilation, even in poorly ventilated alveoli, resulting
in lower average blood oxygenation levels. We believe that pulsed nitric oxide, as a locally active selective pulmonary vasodilator,
can avoid the indiscriminate vasodilation associated with drugs that are systemically bioavailable. The INOpulse technology, by
targeting the delivery of the pulse to the well ventilated alveoli, has the potential to drop pulmonary arterial pressure while
avoiding the lowering of blood oxygen levels.
The targeted delivery of inhaled nitric oxide
to specific alveoli is important because early trials with continuous-flow inhaled nitric oxide reduced pulmonary arterial pressure
in PH-COPD patients but also resulted in lowering of blood oxygen levels. It was postulated that this unwanted effect might be
avoided by administering nitric oxide as a brief pulse at the beginning of each breath because well-ventilated alveoli open faster,
and a brief early pulse would only reach these alveoli. As early as 1997, this concept was demonstrated by testing inhaled nitric
oxide in PH-COPD patients during exercise, which allowed the dose to mimic pulse dosing. Recently, data from a computational fluid-flow
modeling study we conducted, using high resolution computed tomography scans and computer simulations, supported this hypothesis
that early pulsed delivery of nitric oxide could be directed specifically to the well-ventilated alveoli.
Clinical Development Program
INOpulse for PH-COPD is designated as a drug-device
combination by the FDA and is being reviewed by the Division of Cardiovascular and Renal Products in the Center for Drug Evaluation
and Research with consultation from the Division of Pulmonary, Allergy, and Rheumatology Products and the Center for Devices and
Radiological Health. In our IND for PH-COPD, we referenced all of the information in our IND for PAH. The data referenced in our
IND, as well as the years of use of the marketed product, demonstrate that nitric oxide is well tolerated. The FDA has agreed that
the IND package is adequate for supporting Phase 2 clinical development of
INOpulse for PH-COPD. The FDA also agreed that no additional pre-clinical
studies are needed to support product approval.
We completed a randomized, placebo-controlled,
double-blind, dose-confirmation Phase 2 clinical trial of INOpulse for PH-COPD in July 2014. We have received results from this
trial, and have initiated further Phase 2 testing to demonstrate the potential benefit on exercise capacity. In September 2015,
an oral presentation of late-breaking data from a clinical trial sponsored by us was presented at the European Respiratory Society
International Congress 2015 in Amsterdam. The data showed that INOpulse improved vasodilation in patients with PH-COPD. Building
upon this and other work we have done over recent quarters, we have initiated additional Phase 2 testing for the use of the INOpulse
device for PH-COPD patients to evaluate the potential benefit of chronic use on exercise capacity, with the first patient enrolled
in October 2016.
The initiated Phase 2 study in PH-COPD is
an open-label study looking at both vasodilation and exercise capacity on 10 COPD patients with pulmonary hypertension who are
also on long-term oxygen therapy. The key elements of the study are:
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iNO 30 mcg/kg IBW/hr dose for 4 weeks with a follow-up visit 2 weeks after discontinuation
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All patients in the trials will be on LTOT.
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The primary endpoint is vasodilation in pulmonary arteries measured by high resolution CT scanning (HRCT)
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Key secondary endpoint is 6MWD
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HRCT will be done at baseline and end of 4 weeks with 6MWT performed at baseline, 2 weeks, 4 weeks and 6 weeks (2 weeks after discontinuation of therapy)
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INOpulse for PH-IPF
We are also developing INOpulse for the treatment
of PH-IPF. IPF is a progressive disease of unknown etiology associated with growth of fibrotic tissue in the lungs causing hypoxemia,
dyspnea, fatigue and cough. The median survival is only 2-3 years. Based on academic studies, we estimate the prevalence of IPF
in the United States at approximately 90,000 patients, with 20-40% suffering from pulmonary hypertension. PH with IPF increases
mortality. The presence of PH correlates most closely with the need for oxygen therapy. The two therapies that are currently approved
for IPF, nintedanib and perfinidone cost approximately $100,000 per year.
iNO may improve outcomes in PH-IPF by both
improving V/Q matching with increases in arterial oxygenation and by lowering pulmonary artery pressures. It has been shown (Yoshida
et al) that inhalation of NO significantly reduced the mean pulmonary arterial pressure and the pulmonary vascular resistance
as compared with room air alone. However the arterial oxygen tension (PaO2) did not improve. The combined inhalation of NO and
oxygen produced a significant decrease of pulmonary arterial pressure (p<0.01) as well as an improvement (p<0.05) in PaO2
as compared to oxygen alone. These findings support the potential for the combined use of nitric oxide and oxygen for treating
idiopathic pulmonary fibrosis patients with pulmonary hypertension.
Clinical Development Program
A Phase 2 study in PH-IPF has been initiated
looking at both vasodilation and exercise capacity on 4 IPF patients with pulmonary hypertension who are also on long-term oxygen
therapy. The study is made up of a double blind, randomized, placebo controlled, acute phase to visualize vasodilation with high
resolution computed
tomography (HRCT). This is followed by an
open label chronic phase (4 weeks on iNO 75 then 2 week withdrawal period) to assess 6MWD.
INOpulse for Other Pulmonary Hypertension Conditions
PH disease is often classified according to
the WHO classification system which groups patients with PH according to the underlying etiologies, or causes, of the PH. In this
system, PAH is defined as Group 1 and PH-COPD is classified under Group 3, PH due to lung disease and/or hypoxemia. We believe
the mechanism of action of inhaled nitric oxide as a pulmonary vasodilator, and thus INOpulse, can be effective in treating PH
related to other conditions, including PH associated with IPF, CTEPH, PH associated with sarcoidosis and PH associated with pulmonary
edema from high altitude sickness.
While there are two recently approved treatments
for IPF, there are currently no approved therapies for PH-IPF. In 2013, riociguat (Adempas) was the first drug therapy approved
for treating CTEPH, although other PAH medications are sometimes used to treat this condition. Patients with sarcoidosis are often
treated with steroids or other anti-inflammatory medications, however, there are no therapies approved to treat the PH associated
with this disease. Pulmonary edema from high altitude sickness is typically treated with oxygen therapy, however, there are no
current treatments for PH associated with this disease.
Our current license from Ikaria covers the development
of the Bellerophon indications as noted above.
Relationship with Ikaria after the Spin-Out
The development of our programs was initiated
under the leadership of our scientific and development team while at Ikaria. Ikaria’s lead product, INOmax, is an inhaled
nitric oxide product used for treatment of persistent PH of the newborn. Our understanding of the medical applications of nitric
oxide and associated delivery devices, as well as our innovative approach to the pulsed delivery of nitric oxide, originated at
Ikaria.
In October 2013, Ikaria completed an internal
reorganization of certain assets and subsidiaries, in which it transferred to us exclusive worldwide royalty-free rights to develop
and commercialize pulsed nitric oxide in PAH, PH-COPD and PH-IPF. In November 2015, we entered into an amendment to our exclusive
cross-license, technology transfer and regulatory matters agreement with Ikaria that included a royalty equal to 3% of net sales
of any commercial products for PAH. Following the internal reorganization, in February 2014, Ikaria distributed all of our then
outstanding units to its stockholders through the payment of a special dividend on a pro rata basis based on each stockholder’s
ownership of Ikaria capital stock. We refer to Ikaria’s distribution of our then outstanding units to its stockholders as
the Spin-Out.
Shortly after the Spin-Out, Ikaria was acquired
by entities affiliated with Madison Dearborn Partners. On April 16, 2015, Mallinckrodt plc, or Mallinckrodt, announced that it
had completed its acquisition of Ikaria.
In connection with the Spin-Out, we entered
into several agreements with Ikaria providing for, among other things, the provision of transition services, the cross license
of certain intellectual property, commitments not to compete, the manufacture and supply of the INOpulse drug and device and certain
employee matters.
Transition Services Agreement and 2015 Services Agreement
In February 2014 and July 2015, we entered into
a transition services agreement and an amendment to the transition services agreement, respectively, with Ikaria, which we refer
to as the TSA. Pursuant to the terms and conditions of the TSA, Ikaria had agreed to use commercially reasonable efforts to provide
certain services to us until February 2016. In exchange for the services provided by Ikaria pursuant to the TSA, we paid to Ikaria
a service fee in the amount of $772,000 per month and reimbursed Ikaria for any out of pocket expenses, any taxes imposed on Ikaria
in connection with the provision of services under the TSA. The termination of these services was accelerated to September 30,
2015 as part of the amendment to the agreement entered in July 2015.
Under our additional services agreement with
Ikaria, or the 2015 Services Agreement, which became effective on January 1, 2015, Ikaria provided to us certain information technology
and device servicing services. In exchange for the services provided by Ikaria pursuant to the 2015 Services Agreement, we paid
to Ikaria fees that totaled, in the aggregate, approximately $0.2 million. We also received payments of $1.7 million from Ikaria
in connection with the 2015 Services Agreement for using commercially reasonable efforts to provide certain services to Ikaria,
including services related to regulatory matters, drug and device safety, clinical operations, biometrics and scientific affairs.
In July 2015, we entered into an amendment to the 2015 Services Agreement advancing the termination date from February 8, 2016
to September 30, 2015.
Exclusive Cross-License, Technology Transfer and Regulatory
Matters Agreement
In February 2014, we entered into an exclusive
cross-license, technology transfer and regulatory matters agreement with Ikaria. Pursuant to the terms of the license agreement,
Ikaria granted to us a fully paid-up, non-royalty bearing, exclusive license under specified intellectual property rights controlled
by Ikaria to engage in the development, manufacture and commercialization of nitric oxide, devices to deliver nitric oxide and
related services for or in connection with out-patient, chronic treatment of patients with PAH, PH-COPD or PH-IPF. On July 27,
2015, we entered into an amendment to the license agreement to expand the scope of our license to allow us to develop our INOpulse
program for the treatment of three additional indications: CTEPH, PH associated with sarcoidosis and PH associated with pulmonary
edema from high altitude sickness. Subject to the terms set forth therein, the amendment to the license agreement also provides
that the Company will pay Ikaria a royalty equal to 5% of net sales of any commercialized products for the three additional indications.
In November 2015, we entered into an amendment to our exclusive cross-license, technology transfer and regulatory matters agreement
with Ikaria that included a royalty equal to 3% of net sales of any commercial products for PAH.
We have granted to Ikaria a fully paid-up, non-royalty-bearing,
exclusive license under specified intellectual property rights that we control to engage in the development, manufacture and commercialization
of products and services for or used in connection with the diagnosis, prevention or treatment, whether in- or out-patient, of
certain conditions and diseases other than the Bellerophon indications and for the use of nitric oxide to treat or prevent conditions
that are primarily managed in the hospital, which we refer to collectively as the Ikaria nitric oxide business.
We have agreed that, during the term of the
license agreement, we will not, without the prior written consent of Ikaria, grant a sublicense under any of the intellectual property
licensed to us under the license agreement to any of our affiliates or any third party, in either case that directly or indirectly
competes with the Ikaria nitric oxide business. We have also agreed that we will include certain restrictions in our agreements
with customers of our products to ensure that such products will only be used for the Bellerophon indications.
The license agreement will expire on a product-by-product
basis for products for a specific Bellerophon indication at such time as we are no longer developing or commercializing any product
for such indication. The license agreement may be terminated by either party in the event an act or order of a court or governmental
authority prohibits either party from substantially performing under the license agreement. Either party may also terminate the
license agreement in the event of an uncured material breach by the other party or in the event the other party is insolvent or
in bankruptcy proceedings. Ikaria may also terminate the license agreement if we or any of our affiliates breach the agreements
not to compete described below, or if we or any successor to our rights under the license agreement markets a generic nitric oxide
product that is competitive with INOmax. Under certain circumstances, if the license agreement is terminated, the licenses granted
to Ikaria by us will survive such termination.
Ikaria retains the right to develop and commercialize
inhaled nitric oxide products, including pulsed products, in all indications other than the Bellerophon indications.
Agreements Not to Compete
In September 2013, October 2013 and February
2014, we and each of our subsidiaries entered into an agreement not to compete with Ikaria, each of which was amended in July 2015.
We refer to these agreements collectively as the agreements not to compete. Pursuant to the agreements not to compete, as amended,
we and each of our subsidiaries agreed not to engage, anywhere in the world, in any manner, directly or indirectly, until the earlier
of five years after the effective date of such agreement not to compete, as amended, or the date on which Ikaria and all of its
subsidiaries are no longer engaged in such business, in:
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the development, manufacture, commercialization, promotion, sale, import, export, servicing, repair, training, storage, distribution,
transportation, licensing or other handling or disposition of any product or service (including, without limitation, any product
or service that utilizes, contains or includes nitric oxide for inhalation, a device intended to deliver nitric oxide or a service
that delivers or supports the delivery of nitric oxide), bundled or unbundled, for or used in connection with (a) the diagnosis,
prevention or treatment, in both adult and/or pediatric populations, and whether in- or out-patient, of: (i) hypoxic respiratory
failure associated with pulmonary hypertension, (ii) pulmonary hypertensive episodes and right heart failure associated with cardiovascular
surgery, (iii) bronchopulmonary dysplasia, (iv) the management of ventilation-perfusion mismatch in acute lung injury, (v) the
management of ventilation-perfusion mismatch in acute respiratory distress syndrome, (vi) the management of pulmonary hypertension
episodes and right heart failure in congestive heart failure, (vii) the management of pulmonary hypertension episodes and right
heart failure in pulmonary or cardiac surgery, (viii) the management of pulmonary hypertension episodes and right heart failure
in organ transplant, (ix) sickle cell vaso-occlusive crisis, (x) hypoxia associated with pneumonia or (xi) ischemia-reperfusion
injury or (b) the use of nitric oxide to treat or prevent conditions that are primarily managed in the hospital; or
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any and all development, manufacture, commercialization, promotion, sale, import, export, storage, distribution, transportation,
licensing, or other handling or disposition of any terlipressin or any other product within the pressin family, (a) intended to
treat (i) hepatorenal syndrome in any form, (ii) bleeding esophageal varices or (iii) septic shock or (b) for or in connection
with the management of low blood pressure.
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The agreements not to compete expressly exclude
the Bellerophon indications.
In February 2014, we also entered into drug
and device clinical supply agreements and an employee matters agreement with Ikaria. In November 2015, we entered into an amendment
to the drug supply agreement. See “Manufacturing” below for a description of the drug and device clinical supply agreements
and “Certain Relationships and Related Person Transactions-Relationship with Ikaria” for a description of the employee
matters agreement.
Manufacturing
INOpulse Drug Product
In February 2014, we and a subsidiary of Ikaria
entered into a drug supply agreement which was subsequently amended in November 2015. Under this agreement, Ikaria has agreed
to use commercially reasonable efforts to supply inhaled nitric oxide for us in our clinical trials, and we have agreed to purchase
our clinical supply of inhaled nitric oxide from Ikaria. We have also granted Ikaria a right of first negotiation in the event
that we desire to enter into a commercial supply agreement with a third party for supply of nitric oxide for inhalation. The drug
supply agreement will expire on a product-by-product basis on the date we discontinue clinical development of such product. In
addition, either party may terminate the drug supply agreement in the event of an uncured material breach by the other party.
Ikaria manufactures pharmaceutical-grade nitric
oxide at its facility in Port Allen, Louisiana. This facility, which we believe is operated in compliance with current Good Manufacturing
Practices, or cGMP, is the only FDA-approved site for manufacturing medical nitric oxide in the world.
To support business outside of the United States,
the Port Allen manufacturing facility has also successfully passed inspections by the EMA, Health Canada; the Pharmaceutical and
Medical Devices Agency, or PMDA, of Japan, and the Korean FDA, or KFDA. The EMA, the Health Protection Branch of Health Canada,
PMDA and KFDA operate in a similar fashion to the FDA in that each requires submission of a dossier containing substantial evidence
of safety and effectiveness prior to approval. These agencies’ monitoring of safety in a post-marketing setting also is similar
to that of the FDA.
The filling process has been developed by Ikaria
as a high-throughput batch fill process that leverages several technologies that Ikaria has developed, and we have licensed, to
fill the cartridge (containers) at a higher pressure and purity.
This manufacturing system is designed to be
modular and can be expanded as needed. The current installed capacity within the Port Allen plant is sufficient to support our
INOpulse clinical program as currently planned. In addition, the plant has the capacity to expand to meet additional demand. We
have a license from Ikaria to use this fill process technology to work with additional companies, as needed, to produce the final
cartridge. Commercial supply manufacturing can be supported with additional units installed at the Port Allen site or other regional
locations, by Ikaria or other manufacturers, as determined by distribution requirements. For our clinical trials, Ikaria can supply
and ship product from the Port Allen site and the current cartridges have a shelf life of at least two years. We are testing the
finished product to potentially establish a shelf life of up to three years.
INOpulse Drug Delivery Systems
In February 2015, we entered into an agreement
with Flextronics Medical Sales and Marketing Ltd., a subsidiary of Flextronics International Ltd., or Flextronics, to manufacture
and service the INOpulse device that we will use in future clinical trials of INOpulse for PAH and INOpulse for PH-COPD and PH-IPF.
PAH patients have the potential for rebound
PH, which is a sudden and serious increase in pulmonary arterial pressure that results from therapy withdrawal. However, in the
Phase 2 trial, all patients were tested for rebound PH and we found no adjudicated cases of rebound PH with this testing. Subjects
in our PAH trials are all on at least one background specific PAH therapy, the majority being on two or more PAH therapies. These
background therapies likely protect against rebound. Though the likelihood of rebound PH is very low, all patients with PAH are
provided with a backup system.
Competition
The biotechnology and pharmaceutical industries
are highly competitive. There are many pharmaceutical companies, biotechnology companies, public and private universities and research
organizations actively engaged in the research and development of products that may be similar to our products. In addition, other
companies are increasingly looking at cardiopulmonary indications as a potential opportunity. It is possible that the number of
companies seeking to develop products and therapies for the treatment of unmet needs in our target markets will increase.
Our competitors, either alone or with their
strategic partners, may have substantially greater financial, technical and human resources than we do and significantly greater
experience in the discovery and development of product candidates, obtaining FDA and other regulatory approvals of products and
the commercialization of those products. Accordingly, our competitors may be more successful than we may be in obtaining approval
for therapies and achieving widespread market acceptance. We anticipate that we will face intense and increasing competition as
new drugs and advanced technologies become available.
Currently, there are 14 drugs approved for the
treatment of PAH, within the following categories: prostacyclin and prostacyclin analogs (including Flolan (epoprostenol), which
is marketed by GlaxoSmithKline, Tyvaso (treprostinil), Orenitram (treprostinil) and Remodulin (treprostinil), which are marketed
by United Therapeutics Corporation, Ventavis (iloprost) and Veletri (epoprostenol), which are marketed by Actelion
Pharmaceuticals US, Inc., or Actelion, and Beraprost (which is a
generic available in Asian markets), phosphodiesterase type-5 inhibitors (including Adcirca (tadalafil), which is marketed by United
Therapeutics Corporation, and Revatio (sildenafil), which is marketed by Pfizer Inc.), endothelin receptor antagonists (including
Letairis (ambrisentan), which is marketed by Gilead Sciences, Inc., and Opsumit (macitentan) and Tracleer (bosentan), which are
marketed by Actelion) and a soluble guanylate cyclase stimulator (Adempas (riociguat), which is marketed by Bayer HealthCare Pharmaceuticals
Inc.). The most recent addition to the list is Uptravi (selexipag), a selective prostacyclin receptor agonist, which is marketed
by Actelion and was approved by the FDA in December 2015.
There are also other treatments for PAH in various
phases of development, including other nitric oxide generation and delivery systems such as GeNOsyl™ (being developed by
GeNO LLC) and a nebulized formulation of nitrite (being developed by Mast Therapeutics) both in Phase 2 development. Further, Insmed,
Inc. is developing an investigational, sustained-release, inhaled treprostinil prodrug and SteadyMed Therapeutics, Inc., or Steady
Med, is developing Trevyent™ which delivers treprostinil using SteadyMed's PatchPump technology.
Currently, there are no approved therapies for
treating PH-COPD, and the only generally accepted treatments are LTOT, pulmonary rehabilitation and lung transplant, and we are
not aware of any therapies for PH-COPD in advanced clinical development.
Patents and Proprietary Rights
We strive to protect the proprietary technologies
that we believe are important to our business, including seeking and maintaining patent protection intended to protect, for example,
our product candidates, related technologies and/or other aspects of the inventions that are important to our business. Our owned
and licensed patents and patent applications cover patentable subject matter from composition of matter, methods of use, devices
and device components, critical safety features and design components with respect to INOpulse. However, patent protection is not
available for the composition of matter of the active pharmaceutical ingredients in INOpulse since nitric oxide is a naturally
occurring molecule.
Actual protection afforded by a patent, which
can vary from country to country, depends on the type of patent, the scope of its coverage and the availability of legal remedies
in the country. We also rely on trade secrets and careful monitoring of our proprietary information to protect aspects of our business
that are not amenable to, or that we do not consider appropriate for, patent protection.
We plan to continue to expand our intellectual
property estate by filing patent applications directed to inventions which provide additional patent protection for our product
offering, for instance, device enhancements, safety features and manufacturing processes. Our success will depend significantly
on our ability to obtain and maintain patent and other proprietary protection for commercially important technology, inventions
and know-how related to our business; defend and enforce our patents; maintain our licenses to use intellectual property owned
by third parties; preserve the confidentiality of our trade secrets; and operate without infringing the valid and enforceable patents
and other proprietary rights of third parties. We also consider know-how, continuing technological innovation and in-licensing
opportunities to develop, strengthen and maintain our proprietary positions.
A third party may hold intellectual property,
including patent rights that are important or necessary to the development of our programs. It may be necessary for us to use the
patented or proprietary technology of third parties to commercialize our product candidates, in which case we would be required
to obtain a license from these third parties on commercially reasonable terms, or our business could be harmed, possibly materially.
For example, if we want to expand the indications for which we could develop and commercialize pulsed nitric oxide beyond the Bellerophon
indications, we will need to obtain a license from Ikaria.
The patent positions of therapeutics companies
like us are generally uncertain and involve complex legal, scientific and factual questions. In addition, the coverage claimed
in a patent application can be significantly reduced before the patent is issued, and patent scope can be reinterpreted by the
courts after issuance. Moreover, many jurisdictions permit third parties to challenge issued patents in administrative proceedings
which may result in further narrowing or even cancellation of patent claims. Consequently, we do not know whether any of our product
candidates will be protectable or remain protected by enforceable
patents. We cannot predict whether the patent applications we are currently pursuing will issue as patents in any particular jurisdiction
or whether the claims of any issued patents will provide sufficient protection from competitors. Any patents that we own or license
may be challenged, narrowed, circumvented or invalidated by third parties.
Because patent applications in the United States
and certain other jurisdictions are maintained in secrecy for 18 months or potentially even longer, and since publication of discoveries
in the scientific or patent literature often lags behind actual discoveries, we cannot be certain of the priority of inventions
covered by pending patent applications. Moreover, we may have to participate in interference proceedings declared by the U.S. Patent
and Trademark Office, or USPTO, to determine priority of inventions for any patent applications filed with the USPTO on or before
March 15, 2013. Likewise, derivation proceedings may also be declared for any patent filings filed after March 15, 2013.
The patents and patent applications that relate
to our programs are described below.
INOpulse
As of March 10, 2016, we hold exclusive licenses
from Ikaria to at least 80 patents and pending patent applications in both the United States and foreign countries including Australia,
Brazil, Canada, China, Europe, Hong Kong, India, Indonesia, Israel, Japan, Korea, Mexico, the Philippines, Russia and Singapore.
Certain of these issued patents and patent applications, if issued, will expire as late as 2033. These patent rights have been
exclusively licensed for the treatment of patients with Bellerophon indications and cover methods of delivery and the drug delivery
device, as well as important safety features and the ornamental design of the drug delivery device.
A primary basis for patent exclusivity is based
on pending and issued in-licensed patents directed to proprietary methods of administering pulsed inhaled nitric oxide, as well
as a device for delivering the same. At least one patent has been issued in the United States as well as Australia, China, Hong
Kong, Japan, and Mexico. One patent has been allowed in Europe where the PTO has issued a Notice of Intention to Grant. Patent
applications are pending in Australia, Brazil, Canada, China, Europe, Hong Kong, Mexico and the United States. This patent family
expires as late as 2027 in the United States and as late as 2026 in the other countries.
Another important basis for patent exclusivity
is based on an in-licensed portfolio of patents, directed to novel nasal cannula features that we believe are necessary for the
accurate, safe and efficacious administration of pulsed nitric oxide. The patent family consists of two issued U.S. patents and
pending applications in the United States as well as Australia, Brazil, Canada, China, Russia, Europe, Israel, India, Japan, Korea
and Mexico. Each of these patents and patent applications, if issued, will expire in 2033 in the United States and abroad.
Another in-licensed patent family relates to
features of the drug delivery canister necessary for providing drug product for use with our proprietary pulsing drug delivery
device. This patent family includes one issued U.S. patent, one issued Japanese patent, one issued Mexican patent, one issued Singaporean
patent, one issued Israeli patent, one issued Chinese patent, one issued Indonesian patent, one issued Korean patent, one issued
Russian patent, and three issued Australian patents, as well as 14 pending patent applications in the United States, Brazil, Canada,
China, Europe, Hong Kong, India, Israel, Japan, Korea, Mexico, the Philippines, Russia and Singapore. These pending applications,
if issued, as well as the non-U.S. issued patents will expire in 2029. The issued U.S. patent will expire in 2030.
Several other patent families directed to device
and safety features are issued and pending. Furthermore, a design patent covering the ornamental design of the intended commercial
device and clinical device has been granted.
In addition, the FDA has granted orphan drug
designation to our nitric oxide program for the treatment of PAH, which could result in marketing exclusivity of seven years in
the United States should this be the first NDA approved for inhaled nitric oxide in this indication. The active ingredient, nitric
oxide, was previously approved by the FDA as a drug in a separate clinical application. Accordingly, any related patent rights
will not be eligible for a patent term extension under relevant provisions of the Drug Price Competition and Patent Term Restoration
Act of 1984, referred to as the Hatch-Waxman Act.
Patent Term
The base term of a U.S. patent is 20 years from
the filing date of the earliest-filed non-provisional patent application from which the patent claims priority. The term of a U.S.
patent can be lengthened by patent term adjustment, which compensates the owner of the patent for administrative delays at the
USPTO. In some cases, the term of a U.S. patent is shortened by a terminal disclaimer that reduces its term to that of an earlier-expiring
patent.
The term of a U.S. patent may be eligible for
patent term extension under the Hatch-Waxman Act to account for at least some of the time the drug or device is under development
and regulatory review after the patent is granted. With regard to a drug or device for which FDA approval is the first permitted
marketing of the active ingredient, the Hatch-Waxman Act allows for extension of the term of one U.S. patent. Thus, patent term
extension is not available for INOpulse since the active moiety is nitric oxide, which is already subject to an approved NDA. The
extended patent term cannot exceed the shorter of five years beyond the non-extended expiration of the patent or 14 years from
the date of the FDA approval of the drug or device. Some foreign jurisdictions have analogous patent term extension provisions
that allow for extension of the term of a patent that covers a device approved by the applicable foreign regulatory agency.
Trade Secrets
In addition to patents, we rely on trade secrets
and know-how to develop and maintain our competitive position. We typically rely on trade secrets to protect aspects of our business
that are not amenable to, or that we do not consider appropriate for, patent protection. For example, elements of the manufacture
of our products are based on trade secrets and know-how that are not publicly disclosed. We protect trade secrets and know-how
by establishing confidentiality agreements and invention assignment agreements with our employees, consultants, scientific advisors,
contractors and commercial partners. These agreements provide that all confidential information developed or made known during
the course of an individual or entity’s relationship with us must be kept confidential during and after the relationship.
These agreements also provide that all inventions resulting from work performed for us or relating to our business and conceived
or completed during the period of employment or assignment, as applicable, shall be our exclusive property. In addition, we take
other appropriate precautions, such as physical and technological security measures, to guard against misappropriation of our proprietary
technology by third parties.
Trademarks
We also seek trademark protection where available
and when appropriate. The symbol ™ indicates a common law trademark. Other service marks, trademarks and trade names appearing
in this prospectus are the property of their respective owners.
Government Regulation
Government authorities in the United States,
at the federal, state and local level, and in other countries and jurisdictions, including the European Union, extensively regulate,
among other things, the research, development, testing, manufacture, quality control, clearance, approval, packaging, storage,
recordkeeping, labeling, advertising, promotion, distribution, marketing, post-approval monitoring and reporting, and import and
export of pharmaceutical products and medical devices. The processes for obtaining marketing approvals in the United States and
in foreign countries and jurisdictions, along with subsequent compliance with applicable statutes and regulations and other regulatory
authorities, require the expenditure of substantial time and financial resources.
Review and Approval of Drugs in the United States
In the United States, the FDA regulates drugs
under the Food, Drug, and Cosmetic Act, or FDCA, and implementing regulations. The process of obtaining regulatory approvals and
the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations requires the expenditure
of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product
development process, approval process or after approval may subject an applicant and/or sponsor to a variety of
administrative or judicial sanctions, including refusal by the FDA
to approve pending applications, withdrawal of an approval, imposition of a clinical hold, issuance of warning letters and other
types of letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines,
refusals of government contracts, restitution, disgorgement of profits, or civil or criminal investigations and penalties brought
by the FDA and the Department of Justice or other governmental entities.
Our product candidates must be approved by the
FDA before they may be legally marketed in the United States. An applicant seeking approval to market and distribute a new drug
product in the United States must typically undertake the following:
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completion of pre-clinical laboratory tests, animal studies and formulation studies in compliance with applicable FDA’s
good laboratory practice, or GLP, regulations;
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submission to the FDA of an investigational new drug application, or IND, which must take effect before human clinical trials
may begin;
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approval by an independent institutional review board, or IRB, at each clinical site before a clinical trial may be initiated
at that site;
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performance of adequate and well-controlled human clinical trials in accordance with good clinical practices, or GCP, to establish
the safety and efficacy of the proposed drug product for each indication;
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preparation and submission to the FDA of a new drug application, or NDA;
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review of the product by an FDA advisory committee, where appropriate or if applicable;
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satisfactory completion of one or more FDA inspections of the manufacturing facility or facilities at which the product, or
components thereof, are produced to assess compliance with cGMP requirements and to assure that the facilities, methods and controls
are adequate to preserve the product’s identity, strength, quality and purity;
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payment of user fees and securing FDA approval of the NDA; and
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compliance with any post-approval requirements, including Risk Evaluation and Mitigation Strategies, or REMS, and post-approval
studies required by the FDA.
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Pre-Clinical Studies
Pre-clinical studies include laboratory evaluation
of the purity and stability of the manufactured drug substance or active pharmaceutical ingredient and the formulated drug or drug
product, as well as
in vitro
and animal studies to assess the toxicity, safety and activity of the drug for initial testing
in humans and to establish a rationale for therapeutic use. The conduct of pre-clinical and other non-clinical studies is subject
to federal regulations and requirements, including GLP regulations. The results of the pre-clinical tests, together with manufacturing
information, analytical data, any available clinical data or literature and plans for clinical trials, among other things, are
submitted to the FDA as part of an IND.
Companies usually must complete some long-term
pre-clinical testing, such as animal tests of reproductive adverse events and carcinogenicity, and must also develop additional
information about the chemistry and physical characteristics of the drug and finalize a process for manufacturing the drug in
commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing
quality batches of the drug candidate and, among other things, the manufacturer must develop methods for testing the identity,
strength, quality and purity of the final drug product. Additionally, appropriate packaging must be selected and tested and stability
studies must be conducted to demonstrate that the drug candidate does not undergo unacceptable deterioration over its shelf life.
Human Clinical Studies in Support of an NDA
Clinical trials involve the administration of
the investigational product to human subjects under the supervision of qualified investigators in accordance with GCP requirements,
which include, among other things, the requirement that all research subjects provide their informed consent in writing before
their participation in any clinical trial. Clinical trials are conducted under written protocols detailing, among other things,
the objectives of the clinical trial, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated.
A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. An IND
automatically becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions
related to a proposed clinical trial and places the trial on clinical hold. In such a case, the IND sponsor and the FDA must resolve
any outstanding concerns before the clinical trial can begin. Accordingly, submission of an IND may or may not result in the FDA
allowing clinical trials to commence.
In addition, an IRB representing each institution
participating in the clinical trial must review and approve the plan for any clinical trial before it commences at that institution,
and the IRB must conduct continuing review at least annually. The IRB must review and approve, among other things, the study protocol
and informed consent information to be provided to study subjects. An IRB must operate in compliance with FDA regulations.
A sponsor who wishes to conduct a clinical trial
outside the United States may, but need not, obtain FDA authorization to conduct the clinical trial under an IND. If a foreign
clinical trial is not conducted under an IND, the sponsor may submit data from the clinical trial to the FDA in support of an NDA
or IND so long as the clinical trial is conducted in compliance with GCP, and the FDA is able to validate the data from the trial
through an onsite inspection if the agency deems it necessary.
Human clinical trials are typically conducted
in three sequential phases, which may overlap or be combined:
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Phase 1: The drug is initially introduced into a small number of healthy human subjects or patients with the target disease
(e.g., cancer) or condition and tested for safety, dosage tolerance, absorption, metabolism, distribution, excretion and, if possible,
to gain an early indication of its effectiveness and to determine optimal dosage.
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Phase 2: The drug is administered to a limited patient population to identify possible adverse effects and safety risks, to
preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal
dosage.
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Phase 3: Phase 3 clinical trials are commonly referred to as “pivotal” studies, which typically denotes a clinical
trial which is intended to present the data that the FDA or other relevant regulatory agency will use to determine whether or not
to approve a drug. In Phase 3 clinical trials, the drug is administered to an expanded patient population, generally at geographically
dispersed clinical trial sites, in well-controlled clinical trials to generate enough data to statistically evaluate the efficacy
and safety of the product for approval, to establish the overall risk-benefit profile of the product, and to provide adequate information
for the labeling of the product.
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Progress reports detailing the results of the
clinical trials must be submitted at least annually to the FDA and more frequently if SAEs occur. Phase 1, Phase 2 and Phase 3
clinical trials may not be completed successfully within any specified period, or at all. Furthermore, the FDA or the sponsor
may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects are being
exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution
if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated
with unexpected serious harm to patients. The FDA will typically inspect one or more clinical sites to assure compliance with
GCP and the integrity of the clinical data submitted. In addition, the sponsor of a clinical trial must register with the National
Institutes of Health, or NIH, and list information about the trial on NIH's clinicaltrials.gov website.
Section 505(b)(2) NDAs
NDAs for most new drug products are based on
two full clinical trials that must contain substantial evidence of the safety and efficacy of the proposed new product. These applications
are submitted under Section 505(b)(1) of the FDCA. The FDA is, however, authorized to approve an alternative type of NDA under
Section 505(b)(2) of the FDCA. This type of application allows the applicant to rely, in part, on the FDA’s previous findings
of safety and efficacy for a similar product, or published literature. Specifically, Section 505(b)(2) applies to NDAs for a drug
for which the investigations made to show whether or not the drug is safe for use and effective in use and relied upon by the applicant
for approval of the application “were not conducted by or for the applicant and for which the applicant has not obtained
a right of reference or use from the person by or for whom the investigations were conducted.”
Thus, Section 505(b)(2) authorizes the FDA to
approve an NDA based on safety and effectiveness data that were not developed by the applicant. NDAs filed under Section 505(b)(2)
may provide an alternate and potentially more expeditious pathway to FDA approval for new or improved formulations or new uses
of previously approved products. If the 505(b)(2) applicant can establish that reliance on the FDA’s previous approval is
scientifically appropriate, the applicant may eliminate the need to conduct certain pre-clinical or clinical studies of the new
product. The FDA may also require companies to perform additional studies or measurements to support the change from the approved
product. The FDA may then approve the new drug candidate for all or some of the label indications for which the referenced product
has been approved, as well as for any new indication sought by the Section 505(b)(2) applicant.
Submission of an NDA to the FDA
Assuming successful completion of required clinical
trials and other requirements, the results of the non-clinical studies and clinical trials, together with detailed information
relating to the product’s chemistry, manufacture, controls and proposed labeling, among other things, are submitted to the
FDA as part of an NDA requesting approval to market the drug product for one or more indications. Under federal law, the submission
of most NDAs is additionally subject to an application user fee, currently exceeding $2.1 million, and the sponsor of an approved
NDA is also subject to annual product and establishment fees, currently exceeding $104,000 per product and $554,000 per establishment.
These fees are typically increased annually.
The FDA conducts a preliminary review of an
NDA within 60 days of its receipt and informs the sponsor by the 74th day after the FDA’s receipt of the submission whether
the application is sufficiently complete to permit substantive review. The FDA may request additional information rather than accept
an NDA for filing. In this event, the application must be resubmitted with the additional information. The resubmitted application
is also subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth
substantive review. The FDA has agreed to specified performance goals in the review process of NDAs. Most such applications are
meant to be reviewed within ten months from the date of filing, and most applications for “priority review” products
are meant to be reviewed within six months of filing. The review process may be extended by the FDA for various reasons, including
for three additional months to consider new information or clarification provided by the applicant to address an outstanding deficiency
identified by the FDA following the original submission.
Before approving an NDA, the FDA typically will
inspect the facility or facilities where the product is or will be manufactured. These pre-approval inspections may cover all facilities
associated with an NDA submission, including drug component manufacturing (such as Active Pharmaceutical Ingredients), finished
drug product manufacturing, and control testing laboratories. The FDA will not approve an application unless it determines that
the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production
of the product within required specifications. Additionally, before approving an NDA, the FDA will often inspect one or more clinical
sites to assure compliance with GCP.
The FDA may refer an application for a novel
drug to an advisory committee or explain why such referral was not made. Typically, an advisory committee is a panel of independent
experts, including clinicians and other scientific experts, that reviews, evaluates and provides a recommendation as to whether
the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee,
but it considers such recommendations carefully when making decisions.
Special Protocol Assessment
A sponsor of an IND may request that the FDA
evaluate within 45 days certain protocols and issues relating to the protocols to assess whether they are adequate to meet scientific
and regulatory requirements identified by the sponsor. Such special protocol assessments, or SPAs, may be requested for clinical
protocols for Phase 3 trials whose data will form the primary basis for an efficacy claim if the trials had been the subject of
discussion at an end-of-Phase 2/pre-Phase 3 meeting with the FDA. If the sponsor and the FDA reach a written agreement regarding
the protocol, the SPAs will be considered binding on the FDA and will not be changed unless the sponsor fails to follow the agreed-upon
protocol, data supporting the request are found to be false or incomplete, or the FDA determines that a substantial scientific
issue essential to determining the safety or effectiveness of the drug was identified after the testing began. Even if a SPA is
agreed to, approval of the NDA is not guaranteed since a final determination that an agreed-upon protocol satisfies a specific
objective, such as the demonstration of efficacy, or supports an approval decision, will be based on a complete review of all the
data in the NDA.
Accelerated Approval Pathway
The FDA may grant accelerated approval to a
drug for a serious or life-threatening condition that provides meaningful therapeutic advantage to patients over existing treatments
based upon a determination that the drug has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit.
The FDA may also grant accelerated approval for such a condition when the product has an effect on an intermediate clinical endpoint
that can be measured earlier than an effect on irreversible morbidity or mortality, or IMM, and that is reasonably likely to predict
an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence
of the condition and the availability or lack of alternative treatments. Drugs granted accelerated approval must meet the same
statutory standards for safety and effectiveness as those granted traditional approval.
For the purposes of accelerated approval, a
surrogate endpoint is a marker, such as a laboratory measurement, radiographic image, physical sign, or other measure that is thought
to predict clinical benefit, but is not itself a measure of clinical benefit. Surrogate endpoints can often be measured more easily
or more rapidly than clinical endpoints. An intermediate clinical endpoint is a measurement of a therapeutic effect that is considered
reasonably likely to predict the clinical benefit of a drug, such as an effect on IMM. The FDA has limited experience with accelerated
approvals based on intermediate clinical endpoints, but has indicated that such endpoints generally may support accelerated approval
where the therapeutic effect measured by the endpoint is not itself a clinical benefit and basis for traditional approval, if there
is a basis for concluding that the therapeutic effect is reasonably likely to predict the ultimate clinical benefit of a drug.
The accelerated approval pathway is most often
used in settings in which the course of a disease is long and an extended period of time is required to measure the intended clinical
benefit of a drug, even if the effect on the surrogate or intermediate clinical endpoint occurs rapidly. The accelerated approval
pathway is usually contingent on a sponsor’s agreement to conduct, in a diligent manner, additional post-approval confirmatory
studies to verify and describe the drug’s clinical benefit. As a result, a product candidate approved on this basis is subject
to rigorous post-marketing compliance requirements, including the completion of Phase 4 or post-approval clinical trials to confirm
the effect on the clinical endpoint. Failure to conduct required post-approval studies, or confirm a clinical benefit during post-marketing
studies, would allow the FDA to withdraw the drug from the market on an expedited basis. All promotional materials for product
candidates approved under accelerated regulations are subject to prior review by the FDA.
The FDA’s Decision on an NDA
On the basis of the FDA’s evaluation
of the NDA and accompanying information, including the results of the inspection of the manufacturing facilities, the FDA may
issue an approval letter or a complete response letter. An approval letter authorizes commercial marketing of the product with
specific prescribing information for specific indications. A complete response letter generally outlines the deficiencies in the
submission and may require substantial additional testing or information in order for the FDA to reconsider the application. If
and when those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the NDA, the FDA will issue
an approval letter. The FDA has committed to reviewing such resubmissions in two or six months depending on the
type of information included. Even with submission of this additional
information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.
If the FDA approves a product, it may limit
the approved indications for use for the product, require that contraindications, warnings or precautions be included in the product
labeling, require that post-approval studies, including Phase 4 clinical trials, be conducted to further assess the drug’s
safety after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other
conditions which can materially affect the potential market and profitability of the product. In addition, as a condition of approval,
the FDA may require an applicant to develop a REMS. REMS use risk minimization strategies beyond the professional labeling to ensure
that the benefits of the product outweigh the potential risks. To determine whether a REMS is needed, the FDA will consider the
size of the population likely to use the product, seriousness of the disease, expected benefit of the product, expected duration
of treatment, seriousness of known or potential adverse events, and whether the product is a new molecular entity. REMS can include
medication guides, physician communication plans for healthcare professionals, and elements to assure safe use, or ETASU. ETASU
may include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain
circumstances, special monitoring, and the use of patient registries. The FDA may require a REMS before approval or post-approval
if it becomes aware of a serious risk associated with use of the product. The requirement for a REMS can materially affect the
potential market and profitability of a product.
The FDA may prevent or limit further marketing
of a product based on the results of post-market studies or surveillance programs. After approval, many types of changes to the
approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further
testing requirements and FDA review and approval.
Post-Approval Requirements
Drugs manufactured or distributed pursuant to
FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating
to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting of adverse experiences
with the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims,
are subject to prior FDA review and approval. There also are continuing, annual user fee requirements for any marketed products
and the establishments at which such products are manufactured, as well as new application fees for supplemental applications with
clinical data.
In addition, drug manufacturers and other entities
involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and state
agencies, and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with cGMP and
other requirements. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being
implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation
requirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers
must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance.
Once an approval is granted, the FDA may withdraw
the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product
reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity
or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the
approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks;
or imposition of distribution or other restrictions under a REMS program. Other potential consequences include, among other things:
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restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product
recalls;
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fines, warning letters or holds on post-approval clinical trials;
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refusal of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or revocation of product license
approvals;
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product seizure or detention, or refusal to permit the import or export of products; or
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injunctions or the imposition of civil or criminal penalties.
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The FDA strictly regulates marketing, labeling,
advertising and promotion of products that are placed on the market. Drugs may be promoted only for the approved indications and
in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting
the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant
liability.
In addition, the distribution of prescription
pharmaceutical products is subject to the Prescription Drug Marketing Act, or PDMA, which regulates the distribution of drugs and
drug samples at the federal level, and sets minimum standards for the registration and regulation of drug distributors by the states.
Both the PDMA and state laws limit the distribution of prescription pharmaceutical product samples and impose requirements to ensure
accountability in distribution.
Abbreviated New Drug Applications for Generic Drugs
In 1984, with passage of the Hatch-Waxman Amendments
to the FDCA, Congress authorized the FDA to approve generic drugs that are the same as drugs previously approved by the FDA under
the NDA provisions of the statute. To obtain approval of a generic drug, an applicant must submit an abbreviated new drug application,
or ANDA, to the agency. In support of such applications, a generic manufacturer may rely on the pre-clinical and clinical testing
previously conducted for a drug product previously approved under an NDA, known as the reference listed drug, or RLD.
Specifically, in order for an ANDA to be approved,
the FDA must find that the generic version is identical to the RLD with respect to the active ingredients, the route of administration,
the dosage form, and the strength of the drug. At the same time, the FDA must also determine that the generic drug is “bioequivalent”
to the innovator drug. Under the statute, a generic drug is bioequivalent to a RLD if the rate and extent of absorption of the
drug do not show a significant difference from the rate and extent of absorption of the listed drug.
Upon approval of an ANDA, the FDA indicates
whether the generic product is “therapeutically equivalent” to the RLD in its publication “Approved Drug Products
with Therapeutic Equivalence Evaluations,” also referred to as the “Orange Book.” Physicians and pharmacists
consider a therapeutic equivalent generic drug to be fully substitutable for the RLD. In addition, by operation of certain state
laws and numerous health insurance programs, the FDA’s designation of therapeutic equivalence often results in substitution
of the generic drug without the knowledge or consent of either the prescribing physician or patient.
Under the Hatch-Waxman Amendments, the FDA
may not approve an ANDA until any applicable period of non-patent exclusivity for the RLD has expired. The FDCA provides a period
of five years of non-patent data exclusivity for a new drug containing a new chemical entity. In cases where such exclusivity
has been granted, an ANDA may not be submitted to the FDA until the expiration of five years unless the submission is accompanied
by a Paragraph IV certification, in which case the applicant may submit its application four years following the original product
approval. The FDCA also provides for a period of three years of exclusivity if the NDA includes reports of one or more new clinical
investigations, other than bioavailability or bioequivalence studies, that were conducted by or for the applicant and are essential
to the approval of the application. This three-year exclusivity period often protects changes to a previously approved drug product,
such as a new dosage form, route of administration, combination or indication.
Hatch-Waxman Patent Certification and the 30-Month Stay
Upon approval of an NDA or a supplement thereto,
NDA sponsors are required to list with the FDA each patent with claims that cover the applicant’s product or an approved
method of using the product. Each of the patents listed by the NDA sponsor is published in the Orange Book. When an ANDA applicant
submits its application to the FDA, the applicant is required to certify to the FDA concerning any patents listed for the reference
product in the Orange Book, except for patents covering methods of use for which the ANDA applicant is not seeking approval. To
the extent that the Section 505(b)(2) applicant is relying on studies conducted for an already approved product, the applicant
is required to certify to the FDA concerning any patents listed for the approved product in the Orange Book to the same extent
that an ANDA applicant would.
Specifically, the applicant must certify with
respect to each patent that:
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the required patent information has not been filed;
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the listed patent has expired;
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the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or
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the listed patent is invalid, unenforceable or will not be infringed by the new product.
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A certification that the new product will not
infringe the already approved product’s listed patents or that such patents are invalid or unenforceable is called a Paragraph
IV certification. If the applicant does not challenge the listed patents or indicate that it is not seeking approval of a patented
method of use, the ANDA application will not be approved until all the listed patents claiming the referenced product have expired.
If the ANDA applicant or 505(b)(2) applicant
has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to
the NDA and patent holders once the ANDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate
a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement
lawsuit within 45 days after the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA
until the earlier of 30 months after the receipt of the Paragraph IV notice, expiration of the patent, or a decision in the infringement
case that is favorable to the ANDA applicant.
Orphan Designation and Exclusivity
Under the Orphan Drug Act, FDA may designate
a drug product as an “orphan drug” if it is intended to treat a rare disease or condition (generally meaning that it
affects fewer than 200,000 individuals in the United States, or more in cases in which there is no reasonable expectation that
the cost of developing and making a drug product available in the United States for treatment of the disease or condition will
be recovered from sales of the product). A company must request orphan product designation before submitting a NDA. If the request
is granted, FDA will disclose the identity of the therapeutic agent and its potential use. Orphan product designation does not
convey any advantage in or shorten the duration of the regulatory review and approval process.
If a product with orphan status receives the
first FDA approval for the disease or condition for which it has such designation, the product will be entitled to orphan product
exclusivity. Orphan product exclusivity means that FDA may not approve any other applications for the same product for the same
indication for seven years, except in certain limited circumstances. Competitors may receive approval of different products for
the indication for which the orphan product has exclusivity and may obtain approval for the same product but for a different indication.
If a drug or drug product designated as an orphan product ultimately receives marketing approval for an indication broader than
what was designated in its orphan product application, it may not be entitled to exclusivity.
Pediatric Studies and Exclusivity
Under the Pediatric Research Equity Act of 2003,
a NDA or supplement thereto must contain data that are adequate to assess the safety and effectiveness of the drug product for
the claimed indications in all relevant
pediatric subpopulations, and to support dosing and administration
for each pediatric subpopulation for which the product is safe and effective. With enactment of the Food and Drug Administration
Safety and Innovation Act, or FDASIA, in 2012, sponsors must also submit pediatric study plans prior to the assessment data. Those
plans must contain an outline of the proposed pediatric study or studies the applicant plans to conduct, including study objectives
and design, any deferral or waiver requests, and other information required by regulation. The applicant, the FDA, and the FDA’s
internal review committee must then review the information submitted, consult with each other, and agree upon a final plan. The
FDA or the applicant may request an amendment to the plan at any time.
The FDA may, on its own initiative or at the
request of the applicant, grant deferrals for submission of some or all pediatric data until after approval of the product for
use in adults, or full or partial waivers from the pediatric data requirements. Additional requirements and procedures relating
to deferral requests and requests for extension of deferrals are contained in FDASIA.
Pediatric exclusivity is another type of non-patent
marketing exclusivity in the United States and, if granted, provides for the attachment of an additional six months of marketing
protection to the term of any existing regulatory exclusivity, including the non-patent exclusivity. This six-month exclusivity
may be granted if an NDA sponsor submits pediatric data that fairly respond to a written request from the FDA for such data. The
data do not need to show the product to be effective in the pediatric population studied; rather, if the clinical trial is deemed
to fairly respond to the FDA’s request, the additional protection is granted. If reports of requested pediatric studies are
submitted to and accepted by the FDA within the statutory time limits, whatever statutory or regulatory periods of exclusivity
or patent protection cover the product are extended by six months. This is not a patent term extension, but it effectively extends
the regulatory period during which the FDA cannot approve another application.
Patent Term Restoration and Extension
A patent claiming a new drug product or medical
device may be eligible for a limited patent term extension under the Hatch-Waxman Act, which permits a patent restoration of up
to five years for patent term lost during product development and the FDA regulatory review. The restoration period granted on
a patent covering a new drug product is typically one-half the time between the date a clinical investigation on human beings is
begun and the submission date of an application for premarket approval of the product, plus the time between the submission date
of an application for approval of the product and the ultimate approval date. Patent term restoration cannot be used to extend
the remaining term of a patent past a total of 14 years from the product’s approval date. Only one patent applicable to an
approved drug product is eligible for the extension, and the application for the extension must be submitted prior to the expiration
of the patent in question. A patent that covers multiple drugs for which approval is sought can only be extended in connection
with one of the approvals. The USPTO reviews and approves the application for any patent term extension or restoration in consultation
with the FDA.
Review and Approval of Medical Devices in the United States
Medical devices in the United States are strictly
regulated by the FDA. Under the FDCA a medical device is defined as an instrument, apparatus, implement, machine, contrivance,
implant,
in vitro
reagent, or other similar or related article, including a component, part or accessory which is, among
other things: intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention
of disease, in man or other animals; or intended to affect the structure or any function of the body of man or other animals,
and which does not achieve its primary intended purposes through chemical action within or on the body of man or other animals
and which is not dependent upon being metabolized for the achievement of any of its primary intended purposes. This definition
provides a clear distinction between a medical device and other FDA regulated products such as drugs. If the primary intended
use of the product is achieved through chemical action or by being metabolized by the body, the product is usually a drug. If
not, it is generally a medical device.
Unless an exemption applies, a new medical device
may not be marketed in the United States unless and until it has been cleared through the 510(k) premarket notification process,
or 510(k), or approved by the FDA pursuant to a premarket approval application, or PMA. The information that must be submitted
to the FDA in order to obtain clearance or approval to market a new medical device varies depending on how the medical device is
classified by the FDA. Medical devices are classified into one of three classes on the basis of the controls deemed by the FDA
to be necessary to reasonably ensure their safety and effectiveness.
Class I devices are those low risk devices for
which reasonable assurance of safety and effectiveness can be provided by adherence to the FDA’s general controls for medical
devices, which include applicable portions of the FDA’s Quality System Regulation, or QSR, facility registration and product
listing, reporting of adverse medical events and malfunctions and appropriate, truthful and non-misleading labeling, advertising
and promotional materials. Many Class I devices are exempt from premarket regulation; however, some Class I devices require premarket
clearance by the FDA through the 510(k) premarket notification process.
Class II devices are moderate risk devices and
are subject to the FDA’s general controls, and any other special controls, such as performance standards, post-market surveillance,
and FDA guidelines, deemed necessary by the FDA to provide reasonable assurance of the devices’ safety and effectiveness.
Premarket review and clearance by the FDA for Class II devices are accomplished through the 510(k) premarket notification procedure,
although some Class II devices are exempt from the 510(k) requirements. Premarket notifications are subject to user fees, unless
a specific exemption applies.
Class III devices are deemed by the FDA to pose
the greatest risk, such as those for which reasonable assurance of the device’s safety and effectiveness cannot be assured
solely by the general controls and special controls described above and that are life-sustaining or life-supporting. A PMA application
must provide valid scientific evidence, typically extensive pre-clinical and clinical trial data and information about the device
and its components regarding, among other things, device design, manufacturing and labeling. PMA applications (and supplemental
PMA applications) are subject to significantly higher user fees than are 510(k) premarket notifications.
Post-Marketing Restrictions and Enforcement
After a device is placed on the market, numerous
regulatory requirements apply. These include, but are not limited to:
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submitting and updating establishment registration and device listings with the FDA;
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compliance with the QSR, which requires manufacturers to follow stringent design, testing, control, documentation, record maintenance,
including maintenance of complaint and related investigation files, and other quality assurance controls during the manufacturing
process;
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unannounced routine or for-cause device inspections by the FDA, which may include our suppliers’ facilities; and
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labeling regulations, which prohibit the promotion of products for uncleared or unapproved or “off-label” uses
and impose other restrictions on labeling; post-approval restrictions or conditions, including requirements to conduct post-market
surveillance studies to establish continued safety data or tracking products through the chain of distribution to the patient level.
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Under the FDA medical device reporting, or MDR,
regulations, medical device manufacturers are required to report to the FDA information that a device has or may have caused or
contributed to a death or serious injury or has malfunctioned in a way that would likely cause or contribute to death or serious
injury if the malfunction of the device or a similar device of such manufacturer were to recur. The decision to file an MDR involves
a judgment by the manufacturer. If the FDA disagrees with the manufacturer’s determination, the FDA can take enforcement
action.
Additionally, the FDA has the authority to
require the recall of commercialized products in the event of material deficiencies or defects in design or manufacture. The authority
to require a recall must be based on an FDA finding that there is reasonable probability that the device would cause serious adverse
health consequences or death. Manufacturers may, under their own initiative, recall a product if any material deficiency in a
device is found. The FDA requires that certain classifications of recalls be reported to the FDA within ten working days after
the recall is initiated.
The failure to comply with applicable regulatory
requirements can result in enforcement action by the FDA, which may include any of the following sanctions:
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warning letters, fines, injunctions or civil penalties;
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recalls, detentions or seizures of products;
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operating restrictions;
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delays in the introduction of products into the market;
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total or partial suspension of production;
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delay or refusal of the FDA or other regulators to grant 510(k) clearance or PMA approvals of new products;
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withdrawals of 510(k) clearance or PMA approvals; or
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in the most serious cases, criminal prosecution.
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To ensure compliance with regulatory requirements,
medical device manufacturers are subject to market surveillance and periodic, pre-scheduled and unannounced inspections by the
FDA, and these inspections may include the manufacturing facilities of subcontractors.
Review and Approval of Combination Products in the United States
Certain products may be comprised of components
that would normally be regulated under different types of regulatory authorities, and frequently by different Centers at the FDA.
These products are known as combination products. Specifically, under regulations issued by the FDA, a combination product may
be:
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a product comprised of two or more regulated components that are physically, chemically, or otherwise combined or mixed and
produced as a single entity;
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two or more separate products packaged together in a single package or as a unit and comprised of drug and device products;
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a drug or device packaged separately that according to its investigational plan or proposed labeling is intended for use only
with an approved individually specified drug or device where both are required to achieve the intended use, indication, or effect
and where upon approval of the proposed product the labeling of the approved product would need to be changed, e.g., to reflect
a change in intended use, dosage form, strength, route of administration, or significant change in dose; or
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any investigational drug or device packaged separately that according to its proposed labeling is for use only with another
individually specified investigational drug, device, or biological product where both are required to achieve the intended use,
indication, or effect.
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Under the FDCA, the FDA assigns primary jurisdiction
to a lead center at the FDA for review of a combination product. That determination is based on the “primary mode of action”
of the combination product. Thus, if the primary mode of action of a device-drug combination product is attributable to the drug
product, the Center for Drug Evaluation and Research would have primary jurisdiction for the combination product. The FDA's Office
of Combination Products addresses issues related to combination products and is intended to provide more certainty to the regulatory
review process. That office serves as a focal point for combination product issues for agency reviewers and industry. It is also
responsible for developing guidance and regulations to clarify the
regulation of combination products, and for assignment of the FDA
center that has primary jurisdiction for review of combination products where the jurisdiction is unclear or in dispute.
Review and Approval of Drug Products in the European Union
In order to market any product outside of the
United States, a company must also comply with numerous and varying regulatory requirements of other countries and jurisdictions
regarding quality, safety and efficacy and governing, among other things, clinical trials, marketing authorization, commercial
sales and distribution of drug products. Whether or not it obtains FDA approval for a product, the company will have to obtain
the necessary approvals by the comparable foreign regulatory authorities before it can commence clinical trials or marketing of
the product in those countries or jurisdictions. The approval process ultimately varies between countries and jurisdictions and
can involve additional product testing and additional administrative review periods. The time required to obtain approval in other
countries and jurisdictions might differ from and be longer than that required to obtain FDA approval. Regulatory approval in one
country or jurisdiction does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval
in one country or jurisdiction may negatively impact the regulatory process in others.
Pursuant to the European Clinical Trials Directive,
a system for the approval of clinical trials in the European Union has been implemented through national legislation of the member
states. Under this system, an applicant must submit a clinical trial authorization, or CTA, and obtain approval from the competent
national authority of a European Union member state in which the clinical trial is to be conducted. Furthermore, the applicant
may only start a clinical trial after a competent ethics committee has issued a favorable opinion. A CTA must be accompanied by
an investigational medicinal product dossier with supporting information prescribed by the European Clinical Trials Directive and
corresponding national laws of the member states and further detailed in applicable guidance documents.
To obtain marketing approval of a drug under
European Union regulatory systems, an applicant must submit a marketing authorization application, or MAA, either under a centralized
or decentralized procedure.
The centralized procedure provides for the grant
of a single marketing authorization by the European Commission that is valid for all European Union member states. The centralized
procedure is compulsory for specific products, including for medicines produced by certain biotechnological processes, products
designated as orphan medicinal products, advanced therapy products and products with a new active substance indicated for the treatment
of certain diseases. For products with a new active substance indicated for the treatment of other diseases and products that are
highly innovative or for which a centralized process is in the interest of patients, the centralized procedure may be optional.
Under the centralized procedure, the Committee
for Medicinal Products for Human Use, or the CHMP, established at the EMA, is responsible for conducting the initial assessment
of a drug. The CHMP is also responsible for several post-authorization and maintenance activities, such as the assessment of modifications
or extensions to an existing marketing authorization. Under the centralized procedure in the European Union, the maximum timeframe
for the evaluation of an MAA is 210 days, excluding clock stops, when additional information or written or oral explanation is
to be provided by the applicant in response to questions of the CHMP. Accelerated evaluation might be granted by the CHMP in exceptional
cases, when a medicinal product is of major interest from the point of view of public health and in particular from the viewpoint
of therapeutic innovation. In this circumstance, the EMA ensures that the opinion of the CHMP is given within 150 days.
The decentralized procedure is available to
applicants who wish to market a product in various European Union member states where such product has not received marketing
approval in any European Union member states before. The decentralized procedure provides for approval by one or more other, or
concerned, member states of an assessment of an application performed by one member state designated by the applicant, known as
the reference member state. Under this procedure, an applicant submits an application based on identical dossiers and related
materials, including a draft summary of product characteristics, and draft labeling and package leaflet, to the reference member
state and concerned member states. The reference member state prepares a draft assessment report and drafts of the related materials
within 210 days after receipt of a valid application. Within 90 days of
receiving the reference member state’s assessment report and
related materials, each concerned member state must decide whether to approve the assessment report and related materials.
If a member state cannot approve the assessment
report and related materials on the grounds of potential serious risk to public health, the disputed points are subject to a dispute
resolution mechanism and may eventually be referred to the European Commission, whose decision is binding on all member states.
Review and Approval of Medical Devices in the European Union
The European Union has adopted numerous directives
and standards regulating, among other things, the design, manufacture, clinical trials, labeling, approval and adverse event reporting
for medical devices. In the European Union, medical devices must comply with the Essential Requirements in Annex I to the EU Medical
Devices Directive (Council Directive 93/42/EEC), or the Essential Requirements. Compliance with these requirements is a prerequisite
to be able to affix the CE mark of conformity to medical devices, without which they cannot be marketed or sold in the European
Economic Area, or EEA, comprised of the European Union member states plus Norway, Iceland, and Liechtenstein. Actual implementation
of these directives, however, may vary on a country-by-country basis.
To demonstrate compliance with the Essential
Requirements a manufacturer must undergo a conformity assessment procedure, which varies according to the type of medical device
and its classification. Except for low risk medical devices, where the manufacturer can issue a CE Declaration of Conformity based
on a self-assessment of the conformity of its products with the Essential Requirements, a conformity assessment procedure requires
the intervention of a third-party organization designated by competent authorities of a European Union country to conduct conformity
assessments, or a Notified Body. Notified Bodies are independent testing houses, laboratories, or product certifiers typically
based within the European Union and authorized by the European member states to perform the required conformity assessment tasks,
such as quality system audits and device compliance testing. The Notified Body would typically audit and examine the product’s
Technical File and the quality system for the manufacture, design and final inspection of the product before issuing a CE Certificate
of Conformity demonstrating compliance with the relevant Essential Requirements.
Medical device manufacturers must carry out
a clinical evaluation of their medical devices to demonstrate conformity with the relevant Essential Requirements. This clinical
evaluation is part of the product’s Technical File. A clinical evaluation includes an assessment of whether a medical device’s
performance is in accordance with its intended use, and that the known and foreseeable risks linked to the use of the device under
normal conditions are minimized and acceptable when weighed against the benefits of its intended purpose. The clinical evaluation
conducted by the manufacturer must also address any clinical claims, the adequacy of the device labeling and information (particularly
claims, contraindications, precautions and warnings) and the suitability of related Instructions for Use. This assessment must
be based on clinical data, which can be obtained from clinical studies conducted on the devices being assessed, scientific literature
from similar devices whose equivalence with the assessed device can be demonstrated or both clinical studies and scientific literature.
With respect to implantable devices or devices
classified as Class III in the European Union, the manufacturer must conduct clinical studies to obtain the required clinical data,
unless relying on existing clinical data from similar devices can be justified. As part of the conformity assessment process, depending
on the type of devices, the Notified Body will review the manufacturer’s clinical evaluation process, assess the clinical
evaluation data of a representative sample of the device’s subcategory or generic group, or assess all the clinical evaluation
data, verify the manufacturer’s assessment of that data and assess the validity of the clinical evaluation report and the
conclusions drawn by the manufacturer.
Even after a manufacturer receives a CE Certificate
of Conformity enabling the CE mark on it products and the right to sell the products in the EEA countries, a Notified Body or
a competent authority may require post-marketing studies of the products. Failure to comply with such requirements in a timely
manner could result in the withdrawal of the CE Certificate of Conformity and the recall or withdrawal of the subject product
from the European market.
A manufacturer must inform the Notified Body
that carried out the conformity assessment of the medical devices of any planned substantial changes to the devices which could
affect compliance with the Essential Requirements or the devices’ intended purpose. The Notified Body will then assess the
changes and verify whether they affect the product’s conformity with the Essential Requirements or the conditions for the
use of the devices. If the assessment is favorable, the Notified Body will issue a new CE Certificate of Conformity or an addendum
to the existing CE Certificate of Conformity attesting compliance with the Essential Requirements. If it is not, the manufacturer
may not be able to continue to market and sell the product in the EEA.
In the European Union, medical devices may be
promoted only for the intended purpose for which the devices have been CE marked. Failure to comply with this requirement could
lead to the imposition of penalties by the competent authorities of the European Union Member States. The penalties could include
warnings, orders to discontinue the promotion of the medical device, seizure of the promotional materials and fines. Promotional
materials must also comply with various laws and codes of conduct developed by medical device industry bodies in the European Union
governing promotional claims, comparative advertising, advertising of medical devices reimbursed by the national health insurance
systems and advertising to the general public.
Additionally, all manufacturers placing medical
devices in the market in the European Union are legally bound to report any serious or potentially serious incidents involving
devices they produce or sell to the competent authority in whose jurisdiction the incident occurred. In the European Union, manufacturers
must comply with the EU Medical Device Vigilance System. Under this system, incidents must be reported to the relevant authorities
of the European Union countries, and manufacturers are required to take Field Safety Corrective Actions, or FSCAs, to reduce a
risk of death or serious deterioration in the state of health associated with the use of a medical device that is already placed
on the market. An incident is defined as any malfunction or deterioration in the characteristics and/or performance of a device,
as well as any inadequacy in the labeling or the instructions for use which, directly or indirectly, might lead to or might have
led to the death of a patient or user or of other persons or to a serious deterioration in their state of health. An FSCA may include
the recall, modification, exchange, destruction or retrofitting of the device. FSCAs must be communicated by the manufacturer or
its European Authorized Representative to its customers and to the end users of the device through Field Safety Notices. In September
2012, the European Commission adopted a proposal for a regulation which, if adopted, will change the way that most medical devices
are regulated in the European Union, and may subject products to additional requirements.
Pharmaceutical Coverage, Pricing and Reimbursement
Significant uncertainty exists as to the coverage
and reimbursement status of products approved by the FDA and other government authorities. Sales of products will depend, in part,
on the extent to which products are covered by third-party payors, including government health programs in the United States such
as Medicare and Medicaid, commercial health insurers and managed care organizations and the amount that will be paid. The process
for determining whether a payor will provide coverage for a product may be separate from the process for setting the price or reimbursement
rate that the payor will pay for the product once coverage is approved. Third-party payors may limit coverage to specific products
on an approved list, or formulary, which might not include all of the approved products for a particular indication. Additionally,
the containment of healthcare costs has become a priority of federal and state governments, and the prices of drugs have been a
focus in this effort. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing
cost-containment programs, including price controls, restrictions on reimbursement and requirements for substitution of generic
products. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions
with existing controls and measures, could further limit our net revenue and results.
In order to secure coverage and reimbursement
for any product that might be approved for sale, a company may need to conduct expensive pharmacoeconomic studies in order to
demonstrate the medical necessity and cost-effectiveness of the product, in addition to the costs required to obtain FDA or other
comparable regulatory approvals. A payor’s decision to provide coverage for a product does not imply that an adequate reimbursement
rate will be approved. Third-party reimbursement may not be sufficient to maintain price levels high enough to realize an appropriate
return on investment in product development.
In the European Union, pricing and reimbursement
schemes vary widely from country to country. Some countries provide that drug products may be marketed only after a reimbursement
price has been agreed to. Some
countries may require the completion of additional studies that
compare the cost-effectiveness of a particular product candidate to currently available therapies. For example, the European Union
provides options for its member states to restrict the range of drug products for which their national health insurance systems
provide reimbursement and to control the prices of medicinal products for human use. European Union member states may approve a
specific price for a drug product or it may instead adopt a system of direct or indirect controls on the profitability of the company
placing the drug product on the market. Other member states allow companies to fix their own prices for drug products, but monitor
and control company profits. The downward pressure on health care costs in general, particularly prescription drugs, has become
intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, in some countries,
cross-border imports from low-priced markets exert competitive pressure that may reduce pricing within a country. Any country that
has price controls or reimbursement limitations for drug products may not allow favorable reimbursement and pricing arrangements.
Healthcare Law and Regulation
Healthcare providers, physicians and third-party
payors play a primary role in the recommendation and prescription of drug products that are granted marketing approval. Arrangements
with third-party payors and customers are subject to broadly applicable fraud and abuse and other healthcare laws and regulations.
Such restrictions under applicable federal and state healthcare laws and regulations, include the following:
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the federal 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, in whole or in
part, under a federal healthcare program such as Medicare and Medicaid;
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the federal False Claims Act imposes civil penalties, and provides for 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, imposes criminal and civil liability for
executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;
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HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations,
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, or collectively the PPACA will require applicable manufacturers of covered drugs, devices,
drugs and medical supplies to report to the Department of Health and Human Services information related to payments and other transfers
of value to physicians and teaching hospitals and physician ownership and investment interests; and
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analogous state and foreign 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.
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Some state laws require pharmaceutical companies
to comply with the pharmaceutical industry’s 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. 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.
Sales and Marketing
We do not have a sales, marketing or distribution
infrastructure and have limited experience in the sale, marketing and distribution of pharmaceutical products. To achieve commercial
success for any approved product, we must either develop a sales and marketing organization or outsource these functions to third
parties. We expect to build a commercial infrastructure to allow us to market and sell certain of our product candidates when approved,
if any, using a specialty sales force in the United States, and we may choose to establish commercialization capabilities in select
countries outside the United States.
Employees
As of November 21, 2016, we had 21 full-time
employees, of which 16 employees were engaged in research and development and 5 employees provided general and administrative
support. Of our employees, 10 have earned advanced degrees. Our employees are not represented by a labor union or covered by a
collective bargaining agreement.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The following is a description of transactions
since January 1, 2015 to which we have been a party, and in which any of our directors, executive officers and holders of more
than 5% of our voting securities and affiliates of our directors, executive officers and holders of more than 5% of our voting
securities, had or will have a direct or indirect material interest. We believe that all of the transactions described below were
made on terms no less favorable to us than could have been obtained from unaffiliated third parties.
Corporate Conversion
On February 12, 2015, we completed transactions
pursuant to which we converted from a Delaware limited liability company into a Delaware corporation and changed our name to Bellerophon
Therapeutics, Inc. As required by the limited liability company agreement of Bellerophon Therapeutics LLC, the conversion was approved
by the board of directors of Bellerophon Therapeutics LLC. In connection with the Corporate Conversion, holders of our outstanding
voting units received one share of voting common stock for each voting unit held immediately prior to the Corporate Conversion,
holders of our outstanding non-voting units received one share of non-voting common stock for each non-voting unit held immediately
prior to the Corporate Conversion and options to purchase non-voting units became options to purchase one non-voting share of common
stock for each unit underlying such options immediately prior to the Corporate Conversion, at the same aggregate exercise price
in effect prior to the Corporate Conversion.
Following the Corporate Conversion and prior
to our registration statement being declared effective, certain entities affiliated with certain of our principal stockholders
were merged with and into us. We refer to these mergers as the Mergers. In connection with the conversion and the Mergers, these
certain entities affiliated with certain of our principal stockholders received, in exchange for their equity interests in the
entities being merged into us, the number of shares of our common stock that they would have held had they held our equity interests
directly.
In connection with the Corporate Conversion,
we entered into the following agreements:
Merger Agreement
We entered into a merger agreement with certain
of our principal stockholders to effect the Mergers. Concurrently with the consummation of the conversion to a corporation, our
limited liability company agreement, or the LLC agreement, was terminated (other than the provisions thereof relating to certain
pre-closing tax matters and liabilities for breaches of the LLC agreement).
In the merger agreement, the companies that
merged into us represented and warrantied that they did not have any liabilities, operations or businesses other than activities
related to holding our common stock and other than liabilities for (i) deferred income taxes that reflect only timing differences
between the treatment of items for accounting and income tax purposes and (ii) income taxes with respect to pre-closing periods
which are not yet due and payable and for which we are fully indemnified. The Mergers were structured so that we did not acquire
any assets (other than certain income tax receivables and an amount of cash that has been estimated in good faith to be sufficient
to pay all pre-closing income taxes of the entities to be merged into us) or become responsible for any liabilities other than
(i) deferred income taxes that reflect only timing differences between the treatment of items for accounting and income tax purposes
and (ii) income taxes with respect to pre-closing periods which are not yet due and payable and for which we are fully indemnified.
Each of our principal stockholders party to the merger agreement will indemnify us with respect to any liabilities (including
tax liabilities related to pre-closing periods, other than with respect to deferred income tax liabilities that reflect only timing
differences between the treatment of items for accounting and income tax purposes) of the entity related to such principal stockholder
that we acquire in the merger. Any assets (other than our equity interests, certain income tax receivables and an amount of cash
that has been estimated in good faith to be sufficient to pay all liabilities, including pre-closing income taxes, of the entities
to be merged into us) in the entities to be merged into us were distributed to the equity holders of those entities prior to the
Mergers.
Registration Rights Agreement
We have entered into a registration rights agreement
with certain holders of our common stock, including our 5% stockholders and their affiliates and entities affiliated with our directors.
The registration rights agreement provides these holders the right to demand that we file a registration statement or request that
their shares be covered by a registration statement that we are otherwise filing.
Stockholders Agreements
New Mountain Stockholders Agreement
In February 2015, in connection with our IPO,
we entered into a stockholders agreement with the New Mountain Entities, which provides that the New Mountain Entities are entitled
to designate one director for nomination to our board of directors, to designate one director to the board of directors (or equivalent
governing body) of each of our subsidiaries and to appoint the lead director of our board of directors, in each case, for so long
as the New Mountain Entities or certain of their respective assignees beneficially own (i) 50% or more of the sum of (a) the number
of shares of our common stock that they owned immediately prior to the closing of our IPO and (b) the number of shares of common
stock, if any, acquired following the closing of our IPO (subject to in each case adjustment in the event of any stock split, reverse
stock split, stock dividend, recapitalization, combination of shares, reclassification or other similar change in our capitalization)
and (ii) 15% or more of our common stock outstanding (as set forth on the cover of our then most recently filed annual report on
Form 10-K or quarterly report on Form 10-Q). Subject to the same ownership thresholds, the director nominated by the New Mountain
Entities is entitled to serve on each committee of our board of directors and of the board of directors (or equivalent governing
body) of each of our subsidiaries and the consent of the New Mountain Entities is required to establish any new committee of our
board of directors or the board of directors (or equivalent governing body) of any of our subsidiaries, in each case except to
the extent prohibited by applicable law or applicable listing exchange rules.
The New Mountain Entities may assign their rights
to designate one director for nomination to our board of directors, to designate a director to the board of directors (or equivalent
governing body) of each of our subsidiaries and to appoint the lead director of our board of directors to a person who acquires,
in a transaction other than a registered public offering or a sale pursuant to Rule 144 under the Securities Act, at least 50%
of the aggregate number of shares of our common stock owned, directly or indirectly, by the New Mountain Entities as of immediately
prior to such transaction.
In addition, the stockholders agreement provides
that, we are required to obtain the prior written approval of the New Mountain Entities to take certain actions, including, among
other things, actions to:
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consolidate or merge into or with any other person, sell, lease or transfer all or a significant portion of our assets or capital
stock to another person or enter into any other similar business combination transaction, or effect a liquidation;
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authorize, issue, sell, offer for sale or solicit offers to buy any shares of our common stock or any convertible securities
or any other equity or debt securities or rights to acquire any of our or our subsidiaries’ equity or debt securities, subject
to certain exceptions, including among other things, the issuance under our stock incentive plan of grants that have been approved
by our board of directors (or a board committee) and at least one director appointed by the New Mountain Entities;
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incur indebtedness or refinance any indebtedness, in each case in an amount in excess of a specified threshold;
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hire or replace our chief executive officer; or
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agree or otherwise commit to do any of the foregoing (unless the commitment is conditioned on obtaining the approval of the
New Mountain Entities).
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These approval rights of the New Mountain Entities
will terminate when the New Mountain Entities or certain of their respective assignees beneficially own either (i) less than 50%
of the sum of (a) the aggregate number
of shares of our common stock that they collectively owned immediately
prior to the closing of our IPO and (b) the number of shares of our common stock, if any, acquired following the closing of our
IPO (subject to in each case adjustment in the event of any stock split, reverse stock split, stock dividend, recapitalization,
combination of shares, reclassification or similar changes in our capitalization) or (ii) less than 15% of our common stock outstanding
(as set forth on the cover of our then most recently filed annual report on Form 10-K or quarterly report on Form 10-Q). As of
November 8, 2016, the New Mountain Entities held approximately 33.5% of our outstanding common stock.
Linde Stockholders Agreement
In February 2015, in connection with our IPO,
we also entered into a stockholders agreement with Linde, which provides that Linde is entitled to designate one director for nomination
to our board of directors and to designate one director to the board of directors (or equivalent governing body) of each of our
subsidiaries, in each case, for so long as Linde or certain of its assignees beneficially own (i) 50% or more of the sum of (a)
the number of shares of our common stock that they owned immediately prior to the closing of our IPO and (b) the number of shares
of common stock, if any, acquired following the closing of our IPO (subject to in each case adjustment in the event of any stock
split, reverse stock split, stock dividend, recapitalization, combination of shares, reclassification or other similar change in
our capitalization) and (ii) 10% or more of our common stock outstanding (as set forth on the cover of our then most recently filed
annual report on Form 10-K or quarterly report on Form 10-Q). Subject to the same ownership thresholds, the director designated
by Linde is entitled to serve on each committee of our board of directors and of the board of directors (or equivalent governing
body) of each of our subsidiaries and the consent of Linde is required to establish any new committee of our board of directors
or the board of directors (or equivalent governing body) of any of our subsidiaries, in each case except to the extent prohibited
by applicable law or applicable listing exchange rules.
Linde may assign its rights to designate one
director for nomination to our board of directors and to designate a director for nomination to the board of directors (or equivalent
governing body) of each of our subsidiaries to a person who acquires, in a transaction other than a registered public offering
or a sale pursuant to Rule 144 under the Securities Act, at least 50% of the aggregate number of shares of our common stock owned,
directly or indirectly, by Linde as of immediately prior to such transaction. As of November 8, 2016, Linde held approximately
11.2% of our outstanding common stock.
Management Rights Letters
We have entered into management rights letters
with entities affiliated with certain of our principal stockholders, pursuant to which such entities are entitled to routinely
consult with and advise management regarding our operations and have the right to inspect our books and records. We will also be
required to deliver financial statements to such entities within 45 days after the end of each of the first three quarters of each
fiscal year and 120 days after the end of each fiscal year and any other periodic reports as soon as they become available. Our
management rights letter with the New Mountain Entities also provides that at any time during which the New Mountain Entities do
not have the direct contractual right to designate a representative to serve on our board of directors, the New Mountain Entities
will have the right to designate one observer to our board of directors. Such observer shall be entitled to attend all meetings
of our board of directors and to receive copies of all materials provided to the directors, subject to customary exceptions specified
in the management rights letter. Each management rights letter will terminate on the date the entity party thereto (or principal
stockholder with which such entity is affiliated) no longer holds any of our securities.
Indemnification Agreements
Our certificate of incorporation provides that
we will indemnify our directors and officers to the fullest extent permitted by Delaware law. In addition, we have entered into
indemnification agreements with each of our directors and officers.
Relationship with Ikaria
Prior to the Spin-Out on February 12, 2014,
we were a wholly-owned subsidiary of Ikaria. See “Business-Relationship with Ikaria after the Spin-Out.” Following
the Spin-Out, Ikaria ceased to hold any of our equity
interests and we became a stand-alone company. On April 16, 2015,
Mallinckrodt announced that it had completed its acquisition of Ikaria.
Separation and Distribution Agreement
In connection with the Spin-Out, we and Ikaria
entered into a separation and distribution agreement which sets forth the key provisions relating to the separation of our business
from Ikaria’s other businesses. The separation and distribution agreement described the assets and liabilities that remained
with or were transferred to us and those that remained with or were transferred to Ikaria and the terms of Ikaria’s distribution
of all of our then outstanding units to its stockholders. The separation and distribution agreement provides for a full and complete
release and discharge of all liabilities between Ikaria and us, except as set forth in the agreement. We and Ikaria each agreed
to indemnify, defend and hold harmless the other party and its subsidiaries, and each of their respective past and present directors,
officers and employees, and each of their respective permitted successors and assigns, from any and all damages relating to, arising
out of or resulting from, among other things, our business and certain additional specified liabilities or Ikaria’s business
and certain additional specified liabilities, as applicable. The separation and distribution agreement also provides that we and
Ikaria will each use reasonable best efforts, including by cooperating with the other party, to, among other things, effect the
transfer of any assets being transferred in connection with the Spin-Out that had not been transferred as of the date of the Spin-Out.
In connection with the Spin-Out, we and Ikaria
have entered into other agreements that will govern various interim and ongoing relationships between us and Ikaria. These agreements,
the material terms of which are summarized below, include:
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transition services agreements;
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an exclusive cross-license, technology transfer, and regulatory matters agreement;
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an employee matters agreement;
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agreements not to compete; and
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drug and device supply agreements.
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Services Agreements
Transition Services Agreement.
In February
2014, we entered into the TSA. Pursuant to the terms and conditions of the TSA, Ikaria agreed to use commercially reasonable efforts
to provide certain services to us, including human resources support, real estate support, information technology support, accounting
and tax support, treasury support, financial planning and analysis support, purchasing support, management/executive services,
legal services, quality services, regulatory services, drug and device safety services, business development support, biometrics
support and manufacturing support. Ikaria was obligated, subject to the terms of the TSA (including the early termination provisions
thereof and our obligation to use commercially reasonable efforts to provide the services for ourselves as soon as practicable),
to provide such services until February 2016. Ikaria also agreed, on the terms and subject to the conditions of the TSA, to use
commercially reasonable efforts to allow our employees to remain in Ikaria’s Hampton, New Jersey facility for the continued
operation of our business during the term of the TSA. In July 2015, we entered into an amendment to the TSA advancing the termination
date from February 9, 2016 to September 30, 2015. Amounts incurred in 2015 totaled $7.0 million.
We were obligated to pay Ikaria a service fee
in the amount of $772,000 per month and to reimburse Ikaria for any out-of-pocket expenses incurred in connection with its provisions
of services under the TSA, any taxes imposed on Ikaria in connection with the performance or delivery of services under the TSA
and any costs and expenses incurred by Ikaria in connection with the performance of any services that require resources outside
of the existing resources of Ikaria or that otherwise interfere with the ordinary operations of Ikaria’s business. This
monthly service fee was payable by us regardless of the frequency or quantity of services actually utilized by us under the TSA.
We were also obligated to pay any fees, costs, expenses or other amounts incurred by Ikaria to obtain the right to allow our employees
to remain in the Hampton, New Jersey facility during the term of the TSA.
At the time of the Spin-Out, we deposited the sum of $18.5 million
into escrow, representing the aggregate of the $772,000 monthly service fees payable by us under the TSA, to guarantee payment
of the monthly service fees by us. Pursuant to the July 2015 amendment, during October 2015, we received from escrow $3.3 million,
which is equal to the amount it deposited to pay amounts owed to Ikaria under the TSA for the period from October 1, 2015 to February
9, 2016.
2015 Services Agreement.
We entered into
a services agreement with Ikaria, effective as of January 1, 2015, which we refer to as the 2015 Services Agreement. Pursuant to
the terms of the 2015 Services Agreement, we had agreed to use commercially reasonable efforts to provide certain services to Ikaria,
including services related to regulatory matters, drug and device safety, clinical operations, biometrics and scientific affairs.
We were obligated, subject to the terms of the 2015 Services Agreement, to provide such services until February 2016. In July 2015,
we entered into an amendment to the 2015 Services Agreement advancing the termination date from February 8, 2016 to September 30,
2015. In connection with the execution of the 2015 Services Agreement, Ikaria paid us a one-time service fee in the amount of $916,666
and was obligated to pay us a service fee in the amount of $83,333 per month, subject to our obligation to perform the services.
In addition, pursuant to the terms and conditions
of the 2015 Services Agreement, Ikaria had agreed to use commercially reasonable efforts to provide certain services to us, including
services related to information technology, and servicing and upgrades of INOpulse devices. Ikaria was obligated, subject to the
terms of the 2015 Services Agreement, to provide such services until February 2016. We were obligated to pay Ikaria certain fees
under the 2015 Services Agreement that total, in the aggregate, approximately $215,000, subject to termination of the 2015 Services
Agreement. In July 2015, we entered into an amendment to the 2015 Services Agreement advancing the termination date from February
8, 2016 to September 30, 2015. Amounts incurred in 2015 total $0.2 million.
Exclusive Cross-License, Technology Transfer and Regulatory Matters
Agreement
In February 2014, we entered into an exclusive
cross-license, technology transfer and regulatory matters agreement with Ikaria. Pursuant to the terms of the license agreement,
Ikaria granted to us a fully paid-up, non-royalty bearing, exclusive license under specified intellectual property rights controlled
by Ikaria to engage in the development, manufacture and commercialization of nitric oxide, devices to deliver nitric oxide and
related services for or in connection with out-patient, chronic treatment of patients with PAH, PH-COPD or PH-IPF, which we refer
to collectively as the Bellerophon indications. In November 2015, we entered into an amendment to our exclusive cross-license,
technology transfer and regulatory matters agreement with Ikaria that included a royalty equal to 3% of net sales of any commercial
products for PAH.
On July 27, 2015, we entered into an amendment
to the license agreement to expand the scope of our license to allow the Company to develop our INOpulse program for the treatment
of three additional indications: chronic thromboembolic pulmonary hypertension, or CTEPH, pulmonary hypertension associated with
sarcoidosis and pulmonary hypertension associated with pulmonary edema from high altitude sickness. Subject to the terms set forth
therein, the amendment to the license agreement also provides that we will pay Ikaria a royalty equal to 5% of net sales of any
commercialized products for the three additional indications.
We have granted to Ikaria a fully paid-up, non-royalty-bearing,
exclusive license under specified intellectual property rights that we control to engage in the development, manufacture and commercialization
of products and services for or used in connection with the diagnosis, prevention or treatment, whether in- or out-patient, of
certain conditions and diseases other than the Bellerophon indications and for the use of nitric oxide to treat or prevent conditions
that are primarily managed in the hospital, which we refer to collectively as the Ikaria nitric oxide business.
We have agreed that, during the term of the
license agreement, we will not, without the prior written consent of Ikaria, grant a sublicense under any of the intellectual property
licensed to us under the license agreement to any of our affiliates or any third party, in either case, that directly or indirectly
competes with the Ikaria nitric oxide business. We have also agreed that we will include certain restrictions in our agreements
with customers of our products to ensure that such products will only be used for the Bellerophon indications.
The license agreement will expire on a product-by-product
basis for products for a specific Bellerophon indication at such time as we are no longer developing or commercializing any product
for such indication. The license agreement may be terminated by either party in the event an act or order of a court or governmental
authority prohibits either party from substantially performing under the license agreement. Either party may also terminate the
license agreement in the event of an uncured material breach by the other party or in the event the other party is insolvent or
in bankruptcy proceedings. Ikaria may also terminate the license agreement if we or any of our affiliates breach the agreements
not to compete described below, or if we or any successor to our rights under the license agreement markets a generic nitric oxide
product that is competitive with INOmax. Under certain circumstances, if the license agreement is terminated, the licenses granted
to Ikaria by us will survive such termination.
Employee Matters Agreement
In February 2014, we entered into an employee
matters agreement with Ikaria, pursuant to which the employment of certain Ikaria employees was transferred to us or our subsidiaries
on the terms and conditions set forth therein. The employee matters agreement also sets forth the treatment of outstanding Ikaria
stock options and RSUs in connection with the Spin-Out. We have agreed to assume and pay, perform, fulfill and discharge, in accordance
with the terms of the employee matters agreement, all liabilities to or relating to such transferred employees. Effective as of
the date of the Spin-Out, such transferred employees terminated participation in Ikaria’s employee benefit plans, and we
or our subsidiaries adopted employee benefit plans substantially similar to the following Ikaria plans: a 401(k) plan, a medical
and dental plan, long-term disability, short-term disability, life and accidental death and dismemberment and flexible spending
accounts, pursuant to the terms of the employee matters agreement.
Agreements Not to Compete
In September 2013, October 2013 and February
2014, we and each of our subsidiaries entered into an agreement not to compete with a subsidiary of Ikaria, each of which was amended
in July 2015, or, collectively, the agreements not to compete. Pursuant to the agreements not to compete, as amended, we and each
of our subsidiaries agreed not to engage, anywhere in the world, in any manner, directly or indirectly, until the earlier of five
years after the effective date of such agreement not to compete amendments or the date on which Ikaria and all of its subsidiaries
are no longer engaged in such business, in:
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the development, manufacture, commercialization, promotion, sale, import, export, servicing, repair, training, storage, distribution,
transportation, licensing or other handling or disposition of any product or service (including, without limitation, any product
or service that utilizes, contains or includes nitric oxide for inhalation, a device intended to deliver nitric oxide or a service
that delivers or supports the delivery of nitric oxide), bundled or unbundled, for or used in connection with (a) the diagnosis,
prevention or treatment, in both adult and/or pediatric populations, and whether in- or out-patient, of: (i) hypoxic respiratory
failure associated with pulmonary hypertension, (ii) pulmonary hypertensive episodes and right heart failure associated with cardiovascular
surgery, (iii) bronchopulmonary dysplasia, (iv) the management of ventilation-perfusion mismatch in acute lung injury, (v) the
management of ventilation-perfusion mismatch in acute respiratory distress syndrome, (vi) the management of pulmonary hypertension
episodes and right heart failure in congestive heart failure, (vii) pulmonary edema from high altitude sickness, (viii) the management
of pulmonary hypertension episodes and right heart failure in pulmonary or cardiac surgery, (ix) the management of pulmonary hypertension
episodes and right heart failure in organ transplant, (x) sickle cell vaso-occlusive crisis, (xi) hypoxia associated with pneumonia
or (xii) ischemia-reperfusion injury or (b) the use of nitric oxide to treat or prevent conditions that are primarily managed in
the hospital; or
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any and all development, manufacture, commercialization, promotion, sale, import, export, storage, distribution, transportation,
licensing, or other handling or disposition of any terlipressin or any other product within the pressin family, (a) intended to
treat (i) hepatorenal syndrome in any form, (ii) bleeding esophageal varices or (iii) septic shock or (b) for or in connection
with the management of low blood pressure.
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The agreements not to compete expressly exclude
the Bellerophon indications.
Supply Agreements
Device Clinical Supply Agreement.
In
February 2014, we entered into the device supply agreement, pursuant to which Ikaria will use commercially reasonable efforts to
manufacture and supply our requirements for certain nitric oxide delivery devices specified in the device supply agreement for
use in our clinical programs for PAH and PH-COPD. Pursuant to the device supply agreement, we will pay to Ikaria an amount equal
to Ikaria’s internal and external manufacturing cost plus 20%. The device supply agreement expired on February 9, 2015.
Drug Clinical Supply Agreement.
In February
2014, we entered into the drug supply agreement, pursuant to which Ikaria has agreed to use commercially reasonable efforts to
manufacture and supply, and we have agreed to acquire from Ikaria, our requirements for nitric oxide for inhalation and corresponding
placebo for use in our clinical programs for PAH, PH-COPD and PH-IPF. Under the terms of the drug supply agreement, we have also
granted Ikaria a right of first negotiation in the event that we desire to obtain supply of nitric oxide for inhalation and corresponding
placebo (or any variant thereof or any version with different specifications) for commercial use. The drug supply agreement will
expire on a product-by-product basis on the date we discontinue clinical development of such product. In addition, either party
may terminate the drug supply agreement in the event of an uncured material breach by the other party.
In November 2015, we amended our drug supply
agreement with Ikaria to secure future supply and pricing for cartridges and nitric oxide. Under the amended supply agreement,
we paid Ikaria $6.6 million, $0.6 million of which was applied to outstanding amounts owed to Ikaria under the drug supply agreement.
The remaining $6.0 million resulted in a prepayment to Ikaria in exchange for defined levels of cartridges and nitric oxide. The
amendment to the agreement also fixes pricing for any additional cartridges or nitric oxide beyond the defined levels. Additionally,
the amendment requires us to pay to Ikaria an additional $1.75 million upon successful completion of the initial PAH phase 3 clinical
trial and a perpetual royalty calculated as 3% of PAH sales on a quarterly basis.
Participation in Initial Public Offering
In our IPO, certain of our directors, executive
officers and 5% stockholders and their affiliates purchased an aggregate of 1,914,464 shares of our common stock. Each of those
purchases was made through the underwriters or through the directed share program at the IPO price of $12.00 per share. The following
table sets forth the aggregate number of shares of our common stock that these directors, executive officers and 5% stockholders
and their affiliates purchased in our IPO:
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Purchaser
(1)
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Shares
of
common stock
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Total
purchase price
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New Mountain Entities
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1,070,166
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12,841,992
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Linde
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358,916
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4,306,992
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ARCH
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212,666
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2,551,992
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Venrock
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211,916
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2,542,992
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Jonathan M. Peacock
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20,800
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249,600
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Manesh Naidu
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1,500
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18,000
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Reinilde Heyrman
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1,500
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|
|
18,000
|
|
|
Martin Meglasson
|
|
|
12,000
|
|
|
|
144,000
|
|
|
Daniel Tassé
|
|
|
25,000
|
|
|
|
300,000
|
|
(1) See “Principal Stockholders” for more information
about the shares held by the below identified entities, directors and executive officers.
Entities
affiliated with
New Mountain Capital, LLC and Linde North America
,
existing stockholders, have agreed to purchase an aggregate of 7,634,286 Class A Units. The placement agent will receive a fee
of 4.0% from any shares of our common stock purchased by these parties.