We may, from time to time in one or more offerings, offer and sell up to $33,842,512, in the aggregate, of shares of our common stock. This continues the
registration of the remaining unsold amount under our Registration Statement on Form S-3 (Registration No. 333-193699) , which was declared effective by the Securities and Exchange Commission on March 19, 2014.
The prospectus provides a general description of the shares of common stock that we may offer. We will provide the specific terms of the shares offered in one
or more supplements to this prospectus. We may also authorize one or more free writing prospectuses to be provided to you in connection with these offerings. The prospectus supplement and any related free writing prospectus may add, update or change
information contained in this prospectus. You should carefully read this prospectus, the applicable prospectus supplement and any related free writing prospectus, as well as the documents incorporated by reference, before you invest in shares of our
common stock. This prospectus may not be used to sell shares of common stock unless accompanied by a prospectus supplement.
Our common stock is listed on
The NASDAQ Capital Market under the symbol CPRX. On December 22, 2016, the last reported sale price on The NASDAQ Capital Market was $1.09 per share.
RISK FACTORS
An investment in our securities involves a high degree of risk. You should carefully consider the risks described below as well as the other information in
this prospectus before deciding to invest in or maintain your investment in our company. You should also carefully review the Risk Factors contained in the applicable prospectus supplement and in our most recent Annual Report on Form
10-K and any updates in subsequent Quarterly Reports on Form 10-Q. The risks described below are not intended to be an all-inclusive list of the potential risks relating to an investment in our securities. Any of the risk factors described below
could significantly and adversely affect our business, prospects, financial condition and results of operations. Additional risks and uncertainties not currently known or that are currently considered to be immaterial may also materially and
adversely affect our business. As a result, the trading price or value of our common stock could be materially adversely affected and you may lose all or part of your investment.
Risks Related to our Business
We are a
development stage company. Our limited operating history makes it difficult to evaluate our future performance.
We are a development stage
company and, as such, we have a limited operating history upon which you can evaluate our current business and our prospects. The likelihood of our future success must be viewed in light of the problems, expenses, difficulties, delays and
complications often encountered in the operation of a business without revenues, especially in the pharmaceutical industry, where failures of companies are common. We are subject to the risks inherent in the ownership and operation of a development
stage company, including availability of capital, regulatory setbacks and delays, fluctuations in expenses, competition and government regulation. If we fail to address these risks and uncertainties our business, results of operations, financial
condition and prospects would be adversely affected.
We have no products currently available and we have never had any products available for
commercial sale.
We have had no revenues from product sales to date, currently have no products available for commercial sale, and have never had
any products available for commercial sale. We expect to incur losses at least until we are in a position to commercialize Firdapse
®
, which may never occur. Our net loss was $13.9 million and
$14.4 million for the nine months ended September 30, 2016 and September 30, 2015, respectively and $20.2 million and $15.5 million for the years ended December 31, 2015 and December 31, 2014, respectively. We may never obtain
approval of an NDA for any of our drug candidates and we may never achieve profitability.
Our business will require additional capital.
Our business will require additional capital to meet our product development objectives. Based on currently available information, we estimate
that we have sufficient working capital to support our operations through at least the next year. The expectations described above are based on current information available to us. If the cost of our ongoing activities are greater than we expect,
our assumptions may not prove to be accurate. There can be no assurance as to the exact amount of the funding we will require or as to whether any such required funding will be available to us when it is required.
We plan to raise additional funds in the future through public or private equity offerings, debt financings, capital lease transactions, corporate
collaborations, governmental research grants or cost sharing arrangements with appropriate agencies that operate under the umbrella of the National Institutes of
6
Health and/or other means. However, there is no assurance that any such grants will be made available, and if available, that we will qualify to receive any such grants. We may also seek to raise
additional capital to fund additional product development efforts, even if we have sufficient funds for our planned operations.
Any sale by us of
additional equity or convertible debt securities could result in dilution to our stockholders. There can be no assurance that any required additional funding will be available to us at all or available on terms acceptable to us. Further, to the
extent that we raise funds through collaborative arrangements, it may be necessary to relinquish some rights to our technologies or grant sublicenses on terms that are not favorable to us. If we are not able to secure funding when needed, we may
have to delay, reduce the scope of or eliminate one or more research and development programs, which could have an adverse effect on our business.
If we are not the first to obtain approval for Firdapse
®
for the treatment of
LEMS, we may not be able to bring it to market.
Another pharmaceutical company, Jacobus Pharmaceutical, has completed its own Phase 2 trial
studying their own formulation of amifampridine (3,4-DAP) for the treatment of LEMS. While there can be no assurance, we believe that Firdapse
®
is further along in development and as a result
we expect that we will be in a position to obtain the first approval of an NDA for 3,4-DAP. Under the Orphan Drug Act of 1983, the first pharmaceutical product to obtain approval for an indication receives the orphan exclusivity under the statute.
If Jacobus Pharmaceutical files an NDA and receives an approval of an NDA for its formulation of amifampridine for the treatment of LEMS before we are able to receive approval of Firdapse
®
for
the same indication, we would be barred from marketing Firdapse
®
in the United States during the seven-year orphan exclusivity period, which would have a severe adverse effect on our results
of operations. In addition, if Jacobus Pharmaceutical were to receive five-year new chemical entity exclusivity for amifampridine for any indication prior to approval of Firdapse
®
, we would be
barred from marketing Firdapse
®
in the United States during this five-year exclusivity period.
The development of CPP-115 is at an early stage.
Our development of CPP-115 is at an early stage, and it is going to be several years before we are in a position to submit an NDA for CPP-115, if our future
clinical trials of this product are successful. Further, our ability to develop CPP-115 will be dependent on our having the resources to conduct the studies and trials that would be required. There can be no assurance that we will ever submit an NDA
for CPP-115 or commercialize CPP-115.
7
Our business is subject to substantial competition.
The biotechnology and pharmaceutical industries are highly competitive. Many of our competitors have substantially greater financial and other resources,
larger research and development staffs and more experience developing products, obtaining FDA and other regulatory approvals of products and manufacturing and marketing products than we have. We compete against pharmaceutical companies that are
developing or currently marketing therapies that will compete with our drug candidates. In addition, we compete against biotechnology companies, universities, government agencies, and other research institutions in the development of pharmaceutical
products. While we believe that our drug candidates will offer advantages over many of the currently available competing therapies, our business could be negatively impacted if our competitors present or future offerings are more effective,
safer or less expensive than ours, or more readily accepted by regulators, healthcare providers or third-party payors. Further, if we are permitted to commence commercial sales of our drug candidates, we may also compete with respect to
manufacturing efficiency and marketing capabilities.
For example, amifampridine, the active ingredient in Firdapse
®
, despite not being FDA approved, has been available from compounding pharmacies and from Jacobus Pharmaceutical under compassionate use INDs for many years. Amifampridine from these sources can
be expected to be substantially less expensive than Firdapse
®
. The FDA Pharmacy Compounding Advisory Committee, however, has previously issued a list of drugs which should not be compounded,
and amifampridine was included on that list. In addition, drugs that are not approved by FDA for the treatment of LEMS, such as a related aminopyridine drug, dalfampridine (Ampyra
®
), may
nonetheless be prescribed by physicians for the treatment of LEMS.
For all of these reasons, we may not be able to compete successfully.
We face a risk of product liability claims and may not be able to obtain adequate insurance.
Our business exposes us to potential liability risks that may arise from the clinical testing, manufacture, and/or sale of our pharmaceutical products.
Patients have received substantial damage awards in some jurisdictions against pharmaceutical companies based on claims for injuries allegedly caused by the use of pharmaceutical products used in clinical trials or after FDA approval. Liability
claims may be expensive to defend and may result in large judgments against us. We currently carry liability insurance with an aggregate annual coverage limit of $15,000,000 per claim and $15,000,000 in the aggregate, with a deductible of $10,000
per occurrence. Our insurance may not reimburse us for certain claims or the coverage may not be sufficient to cover claims made against us. We cannot predict all of the possible harms or side effects that may result from the use of our current drug
candidates, or any potential future products we may acquire and use in clinical trials or after FDA approval and, therefore, the amount of insurance coverage we currently hold may not be adequate to cover all liabilities we might incur. If we are
sued for any injury allegedly caused by our products, our liability could exceed our ability to pay the liability. Whether or not we are ultimately successful in any adverse litigation, such litigation could consume substantial amounts of our
financial and managerial resources, all of which could have a material adverse effect on our business, financial condition, results of operations, prospects and stock price.
The obligations incident to being a public company place significant demands on our management.
As a public reporting company, we are required to comply with the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the SEC, including
periodic reports, disclosures and more complex
8
accounting rules. As directed by Section 404 of Sarbanes-Oxley, the SEC adopted rules requiring public companies to include a report of management on a companys internal control over
financial reporting in their Annual Report on Form 10-K. Based on current rules, we are required to annually report under Section 404(a) of Sarbanes-Oxley regarding our managements assessment as to the effectiveness of our internal
control over financial reporting. Further, under Section 404(b) of Sarbanes-Oxley, our auditors are required to report on their assessment as to the effectiveness of our internal control over financial reporting. If we or our auditors are
unable to conclude that we have effective internal control over our financial reporting, investors could lose confidence in the reliability of our financial statements, which could result in a decrease in the value of our common stock.
We are highly dependent on our small number of key personnel and advisors.
We are highly dependent on our officers and employees, on our Board of Directors and on our scientific advisors. The loss of the services of any of these
individuals could significantly impede the achievement of our scientific and business objectives. Other than an employment agreement with Patrick J. McEnany, our Chairman, President and Chief Executive Officer with respect to his services, and the
consulting agreements we have with several of our scientific advisors, we have no employment or retention agreements with our officers, directors or scientific advisors. If we lose the services of any of our existing officers, directors or
scientific advisors, or if we were unable to recruit qualified replacements on a timely basis for persons who leave our employ, our efforts to develop our drug candidates might be significantly delayed. We do not carry key-man insurance on any of
our personnel.
We have relationships with our scientific advisors and collaborators at academic and other institutions. Such individuals are employed by
entities other than us and may have commitments to, or consulting advisory contracts with, such entities that may limit their availability to us. Although each scientific advisor and collaborator has agreed not to perform services for another person
or entity that would create an appearance of a conflict of interest, conflicts may arise from the work in which other scientific advisors and/or collaborators are involved.
Risks Related to the Development of Our Drug Candidates
Our drug development efforts may fail.
Development of our pharmaceutical drug candidates is subject to risks of failure. For example:
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our drug candidates may be found to be ineffective or unsafe, or fail to receive necessary regulatory approvals;
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our drug candidates may not be economical to market or take substantially longer to obtain necessary regulatory approvals than anticipated; or
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competitors may market equivalent or superior products.
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As a result, our drug development activities may not
result in any safe, effective and commercially viable products, and we may not be able to commercialize our products successfully. For example, for several years, we evaluated CPP-109 (our formulation of vigabatrin) for the treatment of cocaine
addiction. However, CPP-109 failed to meet the primary and two key secondary endpoints in a Phase 2b trial for cocaine addiction, and we are no longer pursuing the evaluation of CPP-109 for addiction. Further, our lead compound, Firdapse
®
, is for a very rare condition for which there is no FDA-approved treatment. As such, the clinical development plan we pursued after consulting with FDA including the clinical endpoints, protocol
design, and statistical analysis plan, may not allow the FDA to ultimately conclude
9
that our Phase 3 trial of Firdapse
®
is adequate to establish the clinical benefit of the drug. In addition, FDA has indicated that
additional data from published studies, and data from a patient registry, would be useful in establishing the safety of Firdapse
®
, but we may not be able to obtain that data in a form that is
satisfactory to the FDA. Our failure to develop safe, effective, and/or commercially viable products would have a material adverse effect on our business, prospects, results of operations and financial condition.
Failure can occur at any stage of our drug development efforts.
We will only obtain regulatory approval to commercialize our drug candidates if we can demonstrate to the satisfaction of the FDA (or the equivalent foreign
regulatory authorities) in adequate and well-controlled clinical studies and trials that the drug is safe and effective for its intended use, that the clinical and other benefits outweigh the safety risks and that it otherwise meets approval
requirements. As we have experienced in the past, a failure of one or more pre-clinical or clinical trials or studies can occur at any stage of drug development. We may experience numerous unforeseen events during, or as a result of, testing that
could delay or prevent us from obtaining regulatory approval for, or commercializing our drug candidates, including but not limited to:
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regulators or Institutional Review Boards (IRBs) may not authorize us to commence a clinical trial or conduct a clinical trial at a prospective trial site;
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conditions may be imposed upon us by the FDA regarding the scope or design of our clinical trials, or we may be required to resubmit our clinical trial protocols to IRBs for reinspection due to changes in the regulatory
environment;
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the number of subjects required for our clinical trials may be larger, patient enrollment may take longer, or patients may drop out of our clinical trials at a higher rate than we anticipate;
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we may have to suspend or terminate one or more of our clinical trials if we, regulators, or IRBs determine that the participants are being subjected to unreasonable health risks;
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our third-party contractors, clinical investigators or contractual collaborators may fail to comply with regulatory requirements or fail to meet their contractual obligations to us in a timely manner;
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the FDA may not accept clinical data from trials that are conducted at clinical sites in countries where the standard of care is potentially different from the United States;
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our tests may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional testing; and
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the costs of our pre-clinical and/or clinical trials may be greater than we anticipate.
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We rely on
third parties to conduct our pre-clinical studies and clinical studies and trials, and if they do not perform their obligations to us we may not be able to obtain approval for our drug candidates.
We do not currently have the ability to independently conduct pre-clinical studies or clinical studies and trials for our drug candidates, and we rely on
third parties such as third-party contract research and governmental organizations, medical institutions and clinical investigators (including academic clinical investigators), to conduct studies and trials of our drug candidates. Our reliance on
third parties for development activities reduces our control over these activities. These third parties may not complete activities on schedule, or may not conduct our pre-clinical studies and our clinical studies and trials in accordance with
regulatory requirements or our study design. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may be adversely affected, and our efforts to obtain regulatory approvals for and commercialize
our drug candidates may be delayed.
10
If we conduct studies with other parties, we may not have control over all decisions associated with that trial.
To the extent that we disagree with the other party on such issues as study design, study timing and the like, it could adversely affect our drug development plans.
Although we rely on third parties to manage the data from our studies and trials, we are responsible for confirming that each of our studies and trials is
conducted in accordance with its general investigational plan and protocol. Moreover, the FDA and foreign regulatory agencies will require us to comply with applicable regulations and standards, including Good Laboratory Practice (GLP) and Good
Clinical Practice (GCP), for conducting, recording and reporting the results of such studies and trials to assure that the data and the results are credible and accurate and that the human study and trial participants are adequately protected. Our
reliance on third parties does not relieve us of these obligations and requirements, and we may fail to obtain regulatory approval for our drug candidates if these requirements are not met.
We will need to develop marketing, distribution and production capabilities or relationships to be successful.
In order to generate sales of any products we may develop, we must either acquire or develop an internal marketing force with technical expertise and with
supporting documentation capabilities, or make arrangements with third parties to perform these services for us. The acquisition and development of a marketing and distribution infrastructure requires substantial resources and compete for available
resources with our drug development efforts. To the extent that we enter into marketing and distribution arrangements with third parties, our revenues will depend on the efforts of others. If we fail to enter into such agreements, or if we fail to
develop our own marketing and distribution channels, we would experience delays in product sales and incur increased costs.
We have no in-house
manufacturing capacity and, to the extent we are successful in completing the development of our drug candidates, we will be obligated to rely on contract manufacturers. We cannot assure you that we will successfully manufacture any product we may
develop, either independently or under manufacturing arrangements, if any, with third party manufacturers. Moreover, if any manufacturer should cease doing business with us or experience delays, shortages of supply or excessive demands on their
capacity, we may not be able to obtain adequate quantities of product in a timely manner, or at all. Manufacturers, and in certain situations their suppliers, are required to comply with current NDA commitments and current good manufacturing
practices (cGMP) requirements enforced by the FDA, and similar requirements of other countries. The failure by a manufacturer to comply with these requirements could affect its ability to provide us with product. Although we intend to rely on
third-party contract manufacturers, we are ultimately responsible for ensuring that our products are manufactured in accordance with cGMP.
Any
manufacturing problem, natural disaster affecting manufacturing facilities, or the loss of a contract manufacturer could be disruptive to our operations and result in lost sales. Additionally, we will be reliant on third parties to supply the raw
materials needed to manufacture our potential products. Any reliance on suppliers may involve several risks, including a potential inability to obtain critical materials and reduced control over production costs, delivery schedules, reliability and
quality. Any unanticipated disruption to future contract manufacture caused by problems at suppliers could delay shipment of products, increase our cost of goods sold and result in lost sales. If our suppliers were to be unable to supply us with
adequate supply of our drug candidates, it could have a material adverse effect on our ability to commercialize our drug candidates.
11
We may not be able to sufficiently scale-up manufacturing of our drug candidates.
If our NDA for Firdapse
®
is approved, we will need to manufacture our product in larger quantities
than we have in the past to launch the product and meet customer requirements. With respect to our other products, to date they have only been manufactured in small quantities for pre-clinical studies and clinical trials, and, in order to conduct
large trials and commercialize these products, we will need to manufacture our products in larger quantities than we have in the past.
We may not be able
to successfully increase in a sufficient manner the manufacturing capacity for our drug candidates, whether in collaboration with third-party manufacturers or on our own, in a timely or cost-effective manner or at all. If a contract manufacturer
makes improvements in the manufacturing process for our drug candidates, we may not own, or may have to share, the intellectual property rights to those improvements. Significant scale-up of manufacturing may require additional validation studies,
which are costly and which the FDA must review and approve. In addition, quality issues may arise during those scale-up activities because of the inherent properties of a drug candidate itself or of a drug candidate in combination with other
components added during the manufacturing and packaging process, or during shipping and storage of the finished product or active pharmaceutical ingredients. If we are unable to successfully scale-up manufacture of any of our drug candidates in
sufficient quality and quantity, the development of that drug candidate and regulatory approval or commercial launch for any resulting drug products may be delayed or there may be a shortage in supply, which could significantly harm our business.
We may encounter difficulties in managing our growth, which would adversely affect our results of operations.
If we are successful in obtaining approval to commercialize Firdapse
®
or any of our other drug
candidates, we will need to significantly expand our operations, which could put significant strain on our management and our operational and financial resources. We currently have 18 employees and conduct many of our activities through outsourcing
arrangements. To manage future growth, we will need to hire, train, and manage additional employees. Concurrent with expanding our operational and marketing capabilities, we will also need to increase our product development activities. We may not
be able to support, financially or otherwise, future growth, or hire, train, motivate, and manage the required personnel. Our failure to manage growth effectively could limit our ability to achieve our goals.
Our success in managing our growth will depend in part on the ability of our executive officers to continue to implement and improve our operational,
management, information and financial control systems and to expand, train and manage our employee base, and particularly to expand, train and manage a specially-trained sales force to market our products. We may not be able to attract and retain
personnel on acceptable terms given the intense competition for such personnel among biotechnology, pharmaceutical and healthcare companies, universities and non-profit research institutions. Our inability to manage growth effectively could cause
our operating costs to grow at a faster pace than we currently anticipate, and could have a material adverse effect on our business, financial condition, results of operations and prospects.
12
Pressure on drug product third-party payor coverage, reimbursement and pricing may impair our ability to be
reimbursed for any of our drug candidates which we commercialize in the future at prices or on terms sufficient to provide a viable financial outcome.
The commercial success of Firdapse
®
will depend substantially on the extent to which the cost of
Firdapse
®
will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or reimbursed by government health administration authorities
(such as Medicare and Medicaid), private health coverage insurers and other third party payors. If reimbursement is not available, or is available only to limited levels, we may not be able to successfully commercialize Firdapse
®
. Even if coverage is provided, the approved reimbursement amount may not be high enough to establish and maintain pricing sufficient to realize a meaningful return on our investment.
Our ability to commercialize Firdapse
®
or any other product candidate will depend in large part on
the extent to which coverage and reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers and other organizations. Government authorities and third party
payors, such as private health insurers and health maintenance organizations, decide which medications they will cover and establish reimbursement levels. The healthcare industry is acutely focused on cost containment, both in the United States and
elsewhere. Government authorities and third party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications, which could affect our ability to sell our product candidate profitably. These
payors may not view our products, if any, as cost-effective, and coverage and reimbursement may not be available to our customers, or may not be sufficient to allow our products, if any, to be marketed on a competitive basis. Cost-control
initiatives could cause us to decrease the price we might establish for products, which could result in lower than anticipated product revenues. If the prices for our products, if any, decrease or if governmental and other third party payors do not
provide adequate coverage or reimbursement, our prospects for revenue and profitability will suffer.
There may also be delays in obtaining coverage and
reimbursement for newly approved drugs, and coverage may be more limited than the indications for which the drug is approved by the FDA. Moreover, eligibility for reimbursement does not imply that any drug will be paid for in all cases or at a rate
that covers our costs, including research, development, manufacture, sale and distribution. Reimbursement rates may vary, by way of example, according to the use of the drug and the clinical setting in which it is used. Reimbursement rates may also
be based on reimbursement levels already set for lower cost drugs or may be incorporated into existing payments for other services.
In addition,
increasingly, third party payors are requiring higher levels of evidence of the benefits and clinical outcomes of new technologies and are challenging the prices charged. We cannot be sure that coverage will be available for any product candidate
that we commercialize and, if available, that the reimbursement rates will be adequate. Further, the net reimbursement for drug products may be subject to additional reductions if there are changes to laws that presently restrict imports of drugs
from countries where they may be sold at lower prices than in the United States. An inability to promptly obtain coverage and adequate payment rates from both government-funded and private payors for any of our product candidates for which we obtain
marketing approval could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.
The pricing of pharmaceutical products, in general, and specialty drugs, in particular, has been a topic of concern in the U.S. Congress, where hearings on
the topic have been held, and has been a topic of speeches given by political figures, including President-Elect Donald Trump. There can be no assurance as to how this scrutiny on pricing of pharmaceutical products will impact future pricing of our
products or orphan drugs or pharmaceutical products generally.
13
We cannot assess the impact on our business of the recent activities of a vocal group of neuromuscular
physicians and some patients with LEMS.
There is a vocal group of neuromuscular physicians and some patients with LEMS who have raised public
concerns in a letter to the editor of a medical journal and in interviews quoted in articles published in the press that LEMS patients may not be able to get amifampridine treatment because of the concern that it would be priced too high as an
orphan drug if we are the first pharmaceutical company to receive an FDA approval for an amifampridine product, thereby giving us the seven year orphan drug exclusivity and the five year new chemical entity exclusivity for our product. Stories about
their concerns have been recently published in several national publications and some in the press have sought to tie their expectations about the anticipated pricing of Firdapse
®
to stories
about perceived abusive price increases of drug products by other pharmaceutical companies. This vocal group has also questioned the appropriateness of the provisions of the Orphan Drug Act that would grant us exclusivity if our product were to be
the first amifampridine product approved by the FDA and whether this exclusivity should be eliminated from the law. There can be no assurance as to the ultimate impact of these activities on us or our products.
Because the target patient population for Firdapse
®
and our other drug
candidates are small, we must achieve significant market share and obtain relatively high per-patient prices for our products to achieve meaningful gross margins.
Firdapse
®
and our other orphan drug candidates target diseases with small patient populations. A
key component of the successful commercialization of a drug product for these indications includes identification of patients and a targeted prescriber base for the drug product. Due to small patient populations, we believe that we would need
to have significant market penetration to achieve meaningful revenues and identifying patients and targeting the prescriber base are key to achieving significant market penetration. In addition, the per-patient prices at which we anticipate we
may sell Firdapse
®
will need to be relatively high in order for us to generate an appropriate return for the investment in these product development programs and achieve meaningful gross
margins. There can be no assurance that we will be successful in achieving a sufficient degree of market penetration and/or obtaining or maintaining high per-patient prices for Firdapse
®
for diseases with small patient populations. Further, even if we obtain significant market share for Firdapse
®
, if approved, because the potential target populations are very small, we may
never achieve profitability despite obtaining such significant market share. Furthermore, because the potential target populations are very small, even if we do obtain significant market share for Firdapse
®
, we may never achieve profitability. Additionally, patients who discontinue therapy or do not fill prescriptions are not easily replaced by new patients, given the limited patient
population.
Our internal computer systems, or those of our contract research organizations and other key vendors or consultants, may fail or suffer
security breaches, which could result in a material disruption of our product development programs.
Our internal computer systems and those of
our contract research organizations and other key vendors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. If such an event were to
occur and cause interruptions in our operations, it could result in a material disruption of our programs. For example, the loss of clinical trial data from completed or ongoing clinical trials could result in delays in our regulatory approval
efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach results in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or
proprietary information, we could incur liability and the further development of our drug candidates could be delayed.
14
Our employees and consultants may engage in misconduct or other improper activities, including
noncompliance with regulatory standards and requirements.
We are exposed to the risk of employee or consultant fraud or other misconduct.
Misconduct by our employees or consultants could include intentional failures to comply with FDA regulations, provide accurate information to the FDA, comply with manufacturing standards, comply with federal and state healthcare fraud and abuse laws
and regulations, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended
to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other
business arrangements. Employee and consultant misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. It is not always
possible to identify and deter such misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other
actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a
significant impact on our business, including the imposition of significant fines or other sanctions.
Risks Related to Government Regulation
We have not received regulatory approval in the United States or any foreign jurisdiction for the commercial sale of any of our drug candidates. The
regulatory approval process is lengthy, and we may not be able to obtain all of the regulatory approvals required to manufacture and commercialize our drug candidates.
We do not currently have any products that have been approved for commercialization. We will not be able to commercialize our products until we have obtained
the requisite regulatory approvals from applicable governmental authorities. To obtain regulatory approval of a drug candidate, we must demonstrate to the satisfaction of the applicable regulatory agency that such drug candidate is safe and
effective for its intended uses. The type and magnitude of the testing required for regulatory approval varies depending on the drug candidate and the disease or condition for which it is being developed. In addition, in the U.S. we must show that
the facilities used to manufacture our drug candidate are in compliance with cGMP requirements. We will also have to meet similar regulations in any foreign country where we may seek to commercialize our drug candidates. In general, these
requirements mandate that manufacturers follow elaborate design, testing, control, documentation and other quality assurance procedures throughout the entire manufacturing process. The process of obtaining regulatory approvals typically takes
several years and requires the expenditure of substantial capital and other resources. Despite the time, expense and resources invested by us in the approval process, we may not be able to demonstrate that our drug candidates are safe and effective,
in which event we would not receive the regulatory approvals required to market them.
The FDA and other regulatory authorities generally approve products
for particular indications. Our drug candidates may not be approved for any or all of the indications that we request, which would limit the indications for which we can promote it and adversely impact our ability to generate revenues. We may also
be required to conduct costly, post-marketing follow-up studies if FDA requests additional information.
15
The FDA and other regulatory bodies must approve trade names for products. The FDA typically conducts a thorough
review of a proposed trade name, including an evaluation of potential confusion with other trade names. We have previously submitted a request for FDA approval of the trade name Firdapse
®
,
which request has been conditionally approved.
If our pre-clinical studies or our clinical studies and trials are unsuccessful or significantly
delayed, our ability to commercialize our products will be impaired.
Before we can obtain regulatory approval for the sale of our drug
candidates, we may have to conduct, at our own expense, pre-clinical tests in animals in order to support the safety of our drug candidates. Pre-clinical testing is expensive, difficult to design and implement, can take several years to complete and
is uncertain as to outcome. Our pre-clinical tests may produce negative or inconclusive results, and on the basis of such results, we may decide, or regulators may require us, to halt ongoing clinical trials or conduct additional pre-clinical
testing.
In September 2014, we announced positive results from our Phase 3 clinical trial for
Firdapse
®
. In October 2016, we announced that we had reached an agreement with the FDA under a SPA for the protocol design, clinical endpoints, and statistical analysis approach to be taken in
our ongoing second Phase 3 study evaluating Firdapse
®
for the symptomatic treatment of LEMS. However, Firdapse
®
may nevertheless fail
to meet the safety and efficacy standards required by the FDA to obtain regulatory approval.
Additionally, future clinical trials for our drug candidates
may not be successfully completed or may take longer than anticipated because of any number of factors, including potential delays in the start of the trial, an inability to recruit clinical trial participants at the expected rate, failure to
demonstrate safety and efficacy, unforeseen safety issues, or unforeseen governmental or regulatory delays. Further, our drug candidates may not be found to be safe and effective, and may not be approved by regulatory authorities for the proposed
indication. Further, regulatory authorities and IRBs that must approve and monitor the safety of each clinical study may suspend a clinical study at any time if the patients participating in such study are deemed to be exposed to any unacceptable
health risk. We may also choose to suspend human clinical studies and trials if we become aware of any such risks. We might encounter problems in our clinical trials, such as problems associated with Visual Field Defects (VFDs) or other side effects
that will cause us, regulatory authorities, or IRBs to delay or suspend such trial or study.
In other countries where Firdapse
®
, CPP-115 or any other product we develop or license may be marketed, we will also be subject to regulatory requirements governing human clinical studies, trials and marketing approval for drugs.
The requirements governing the conduct of clinical studies, trials, product licensing, pricing and reimbursement varies widely from country to country.
We may face significant delays in our clinical studies and trials due to an inability to recruit patients for our clinical studies and trials or to
retain patients in the clinical studies and trials we may perform.
We may encounter difficulties in our current and future clinical studies and
trials recruiting patients, particularly since the conditions we are studying are rare conditions. We compete for study and trial subjects with others conducting clinical trials testing other treatments for the indications we are studying for our
drug candidates. Further, unrelated third parties and investigators in the academic community have expressed interest in testing our drug candidates. If these third-party tests are unsuccessful, or if they show significant health risk to the test
subjects, our development efforts may also be adversely affected.
If our third-party suppliers or contract manufacturers do not maintain
appropriate standards of manufacturing in accordance with cGMP and other manufacturing regulations, our development and commercialization activities could suffer significant interruptions or delays.
We rely, and intend to continue to rely, on third-party suppliers and contract manufacturers to provide us with materials for our clinical trials and
commercial-scale production of our products. These suppliers and
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manufacturers must continuously adhere to cGMP as well as any applicable corresponding manufacturing regulations outside of the U.S. In complying with these regulations, we and our third-party
suppliers and contract manufacturers must expend significant time, money and effort in the areas of design and development, testing, production, record-keeping and quality control to assure that our products meet applicable specifications and other
regulatory requirements. Failure to comply with these requirements could result in an enforcement action against us, including warning letters, the seizure of products, suspension or withdrawal of approvals, shutting down of production and criminal
prosecution. Any of these third-party suppliers or contract manufacturers will also be subject to inspections by the FDA and other regulatory agencies. If any of our third-party suppliers or contract manufacturers fail to comply with cGMP or other
applicable manufacturing regulations, our ability to develop and commercialize our products could suffer significant interruptions and delays.
Reliance
on third-party manufacturers entails risks to which we would not be subject if we manufactured the product ourselves, including:
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reliance on the third party for regulatory compliance and quality assurance;
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reliance on the continued financial viability of the third parties;
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limitations on supply availability resulting from capacity and scheduling constraints of the third parties;
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impact on our reputation in the marketplace if manufacturers of our products, once commercialized, fail to meet the demands of our customers;
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the possible breach of the manufacturing agreement by the third party because of factors beyond our control; and
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the possible termination or nonrenewal of the agreement by the third party, based on its own business priorities, at a time that is costly or inconvenient for us.
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If any of our contract manufacturers fail to achieve and maintain appropriate manufacturing standards, patients using our drug candidates could be injured or
die, resulting in product liability claims. Even absent patient injury, we may be subject to product recalls, product seizures or withdrawals, delays or failures in testing or delivery, cost overruns or other problems that could seriously harm our
business or profitability.
If we rely on a sole source of supply to manufacture our products we could be impacted by the viability of our supplier.
We intend to attempt to source our products from more than one supplier. We also intend to enter into contracts with any supplier of our products
to contractually obligate them to meet our requirements. However, if we are reliant on a single supplier and that supplier cannot or will not meet our requirements (for whatever reason), our business could be adversely impacted.
Even if we obtain regulatory approvals, our drug candidates will be subject to ongoing regulatory review. If we fail to comply with continuing U.S. and
applicable foreign regulations, we could lose those approvals, and our business would be severely harmed.
Even if we receive regulatory approval
of any drugs we are developing or may develop, we will be subject to continuing regulatory review, including the review of clinical results which are reported after
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our drug candidates become commercially available approved drugs. As greater numbers of patients use a drug following its approval, side effects and other problems may be observed after approval
that were not seen or anticipated during preapproval clinical studies and trials. In addition, the manufacturer, and the manufacturing facilities we use to make any approved drugs, will also be subject to periodic review and inspection by the FDA.
The subsequent discovery of previously unknown problems with the drug, manufacturer or facility may result in restrictions on the drug, manufacturer or facility, including withdrawal of the drug from the market. If we fail to comply with applicable
continuing regulatory requirements, we may be subject to fines, suspension or withdrawal of regulatory approval, product recalls and seizures, operating restrictions and criminal prosecutions.
As a condition of NDA approval for some of our products, the FDA might require a Risk Evaluation and Mitigation Strategy (REMS) to help ensure that the
benefits of the drug outweigh the potential risks. REMS can include medication guides, communication plans for healthcare professionals, and elements to assure safe use, or ETASU. ETASU can 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. For example, approved versions of vigabatrin, the active moiety in our CPP-109 product (which operates
by the same mechanism of action as our CPP-115 product) were approved with an FDA-mandated REMS program due to the risks of visual field damage and are only available through a special restricted distribution program approved by the FDA.
Accordingly, our ANDA for vigabatrin, if approved, will be subject to either the same REMS, or a comparable REMS that will need to be reviewed and approved by the FDA. If any of our products were to be approved with a REMS, the potential market and
profitability of the drug could be materially affected.
Our product promotion and advertising is also subject to regulatory requirements and continuing
regulatory review. In particular, the marketing claims we will be permitted to make in labeling or advertising regarding our marketed products will be limited by the terms and conditions of the FDA-approved labeling. We must submit copies of our
advertisements and promotional labeling to the FDA at the time of initial publication or dissemination. If the FDA believes these materials or statements promote our products for unapproved indications, or with unsubstantiated claims, or if we fail
to provide appropriate safety related information, the FDA could allege that our promotional activities misbrand our products. Specifically, the FDA could issue an untitled letter or warning letter, which may demand, among other things, that we
cease such promotional activities and issue corrective advertisements and labeling. The FDA also could take enforcement action including seizure of allegedly misbranded product, injunction or criminal prosecution against us and our officers or
employees. If we repeatedly or deliberately fail to submit such advertisements and labeling to the agency, the FDA could withdraw our approvals. Moreover, the Department of Justice can bring civil or criminal actions against companies that promote
drugs or biologics for unapproved uses, based on the False Claims Act and other federal laws governing reimbursement for such products under the Medicare, Medicaid and other federally supported healthcare programs. Monetary penalties in such cases
have often been substantial, and civil penalties can include costly mandatory compliance programs and exclusion from federal healthcare programs.
Enacted and future legislation may increase the difficulty and cost for us to commercialize Firdapse
®
or any other drug candidate we develop and affect the prices we may obtain.
In
the U.S., there have been a number of legislative and regulatory changes and proposed changes relating to the healthcare system that restrict or regulate post-approval activities, which may affect our ability to profitably sell Firdapse
®
or any other drug candidate for which we obtain marketing approval.
The Medicare Prescription Drug
Improvement and Modernization Act of 2003, or MMA, changed the way Medicare covers and pays for pharmaceutical products. The legislation expanded Medicare coverage for outpatient drug purchases by those covered by Medicare under a new Part D
and introduced a reimbursement methodology based on average sales prices for Medicare Part B physician-administered
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drugs. In addition, this legislation authorized Medicare Part D prescription drug plans to use formularies whereby they can limit the number of drugs that will be covered in any therapeutic
class. As a result of this legislation and the expansion of federal coverage of drug products, there is additional pressure to contain and reduce costs. While the MMA applies only to drug benefits for Medicare beneficiaries, private payors
often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates, and any reduction in reimbursement that results from the MMA may result in a similar reduction in payments from private payors. These cost
reduction initiatives and other provisions of the MMA could decrease the coverage and reimbursement that we receive for any approved products, and could seriously harm our business. Manufacturers contributions to this area, including
donut hole coverage (as described below) or potential excise taxes, are increasing and are subject to additional changes in the future.
In 2010,
President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (together, the Health Care Reform Law), a sweeping law intended to broaden access to
health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for healthcare and health insurance industries, impose new taxes and fees on the health industry and
impose additional health policy reforms. The Health Care Reform Law, among other things, revised the definition of AMP for reporting purposes, which could increase the amount of Medicaid drug rebates to states and extended the rebate program to
beneficiaries enrolled in Medicaid managed care organizations. The Health Care Reform Law also imposed a significant annual fee on companies that manufacture or import branded prescription drug products and established an annual non-deductible
fee on entities that sell branded prescription drugs or biologics to specified government programs in the U.S. The Health Care Reform Law also expanded the 340B drug discount program (excluding orphan drugs), including the creation of new
penalties for non-compliance and included a 50% discount on brand name drugs for Medicare Part D participants in the coverage gap, or donut hole. The Health Care Reform Law includes a provision to increase the Medicaid rebate for
line extensions or reformulated drugs, which depending on how this provision is implemented could substantially increase our Medicaid rebate rate (in effect limiting reimbursement for these patients). Additionally, in response to controversies
regarding pricing of pharmaceutical products, there has been a recent push to propose legislation, both on state and federal levels, that would require greater disclosure as to the reasoning behind drug prices and, in some cases, could give state or
federal-level commissions the right to impose cost controls on certain drugs. These and other new provisions are likely to continue the pressure on pharmaceutical pricing, may require us to modify our business practices with healthcare
practitioners, and may also increase our regulatory burdens and operating costs. Finally, both President-Elect Donald Trump and certain members of the incoming Congress have expressed their intention to modify or eliminate the Health Care
Reform Law. It is unknown what form any such modifications or any law proposed to replace the Health Care Reform Law would take, and how or whether it may affect or business in the future.
Legislative and regulatory proposals also have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical
products. In addition, increased scrutiny by the U.S. Congress of the FDAs approval process may subject us to more stringent product labeling and post-marketing testing and other requirements. Delays in feedback from the FDA may
affect our ability to quickly update or adjust our label in the interest of patient adherence and tolerability. We cannot predict whether other legislative changes will be adopted or how such changes would affect the pharmaceutical industry
generally and specifically the commercialization of Firdapse
®
.
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If we fail to obtain or subsequently maintain orphan drug exclusivity or regulatory exclusivity for
Firdapse
®
and our other orphan drug candidates, our competitors may sell products to treat the same conditions at greatly reduced prices, and our revenues would be significantly adversely
affected.
In the U.S., orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical
trial costs, tax advantages and user-fee waivers. The company that first obtains FDA approval for a designated orphan drug for a given rare disease receives marketing exclusivity for use of that drug for the stated condition for a period of
seven years, with an additional six months if for a pediatric indication. Orphan drug exclusive marketing rights may be lost if the FDA later determines that the request for designation was materially defective, a subsequent product is deemed
clinically superior, or if the manufacturer is unable to deliver sufficient quantity of the drug.
In the EU, the EMAs Committee for Orphan
Medicinal Products, or COMP, grants orphan drug designation to promote the development of products that are intended for the diagnosis, prevention or treatment of life-threatening or chronically debilitating conditions affecting not more than five
in 10,000 persons in the EU Community and for which no satisfactory method of diagnosis, prevention, or treatment has been authorized (or the product would be a significant benefit to those affected). Additionally, designation is granted for
products intended for the diagnosis, prevention, or treatment of a life-threatening, seriously debilitating or serious and chronic condition and when, without incentives, it is unlikely that sales of the drug in the EU would be sufficient to justify
the necessary investment in developing the medicinal product. An EU orphan drug designation entitles a party to financial incentives such as reduction of fees or fee waivers and 10 years of market exclusivity is granted following medicinal
product approval. This period may be reduced to six years if the orphan drug designation criteria are no longer met, including where it is shown that the product is sufficiently profitable not to justify maintenance of market
exclusivity. Orphan drug designation must be requested before submitting an application for marketing approval. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process.
Because the extent and scope of patent protection for some of our drug products may be particularly limited, orphan drug designation is especially
important for our products that are eligible for orphan drug designation. For eligible drugs, we plan to rely on the orphan exclusivity period to maintain a competitive position. However, if we do not obtain orphan drug exclusivity for our
drug candidates or we cannot maintain orphan exclusivity for our drug candidates, our competitors may then sell the same drug to treat the same condition and our revenues will be reduced. Also, without strong patent protection, competitors may
sell a generic version upon the expiration of orphan exclusivity, if our patent position is not upheld.
Even if we obtain orphan drug designation for our
future drug candidates, we may not fulfill the criteria for exclusivity or we may not be the first to obtain marketing approval for any orphan indication. Further, even if we obtain orphan drug exclusivity for a particular product, that
exclusivity may not effectively protect the product from competition because different drugs can be approved for the same condition. Even after an orphan drug is approved, the FDA can subsequently approve a drug for the same condition if the FDA
concludes that the later drug is safer, more effective or makes a major contribution to patient care. The FDA can discontinue Orphan Drug exclusivity after it has been granted if the orphan drug cannot be manufactured in sufficient quantities
to meet demand.
Breakthrough Therapy Designation may not actually lead to a faster review process.
Under the Prescription Drug User Fee Act, the FDA has a goal of responding to NDAs for new molecular entities within 10 months of the date that the FDA files
the NDA for standard review, but this timeframe is also often extended. We have in the past and we may in the future, seek approval of our drug candidates under programs designed to accelerate the FDAs review and approval of
NDAs. For example,
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there is a new category of drugs referred to as breakthrough therapies, which are defined as drugs intended, alone or in combination with one or more other drugs, to treat a serious
or life-threatening disease or condition, and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment
effects observed early in clinical development. In our case, Firdapse
®
has been granted breakthrough therapy designation for the treatment of LEMS. In the future, we may request
breakthrough designation or fast track designation from the FDA for our other drug candidates or for treatment of other diseases, but we cannot assure that we will obtain such designations. Moreover, even if we obtain breakthrough designation or
fast track designation from the FDA, the designations do not guarantee FDA approval of our NDA, that the development program or review timeline will ultimately be shorter than if we had not obtained the designations, or that the FDA will not request
additional information, including requesting additional clinical studies (although potentially a post-marketing requirement), during its review. Any request for additional information or clinical data could delay the FDAs timely review of our
NDA.
Risks Related to Our Intellectual Property
We are dependent on our relationships and license agreements, and we rely upon the patent rights granted to us pursuant to the license agreements.
All of our patent rights for Firdapse
®
are derived from our license agreement with
BioMarin. Pursuant to this license agreement, we have licensed rights under BioMarins Firdapse
®
patent applications in the United States, which expire in 2022 and 2034. We may lose our
rights to these patents and patent applications if we breach our obligations under the license agreement, including, without limitation, our financial obligations to BioMarin. If we violate or fail to perform any term or covenant of the license
agreement, BioMarin may terminate the license agreement upon satisfaction of any applicable notice requirements and expiration of any applicable cure periods. Additionally, any termination of the license agreement, whether by us or by BioMarin, will
not relieve us of our obligation to pay any license fees owing at the time of such termination. If we fail to retain our rights under the license agreement, we would not be able to commercialize
Firdapse
®
, and our business, results of operations, financial condition and prospects would be materially adversely affected.
Most of our patent rights for CPP-115 are derived from our license agreement with Northwestern University. Pursuant to this license agreement, we have
exclusive worldwide rights to two patents in the United States. These were filed and obtained by Northwestern relating to compositions of matter for a class of molecules, including CPP-115. Both patents expire in 2023. Additionally, we have licensed
rights from Northwestern to a pending patent for derivatives of vigabatrin that are unrelated to CPP-115. These rights are subject to the right of Northwestern, under limited circumstances, to practice the covered inventions for or on its own behalf
for research. We may lose our rights to these patents and patent applications if we breach our obligations under the license agreement, including, without limitation, our financial obligations, including milestone payments, to Northwestern. If we
violate or fail to perform any term or covenant of the license agreement, Northwestern may terminate the license agreement upon satisfaction of any applicable notice requirements and expiration of any applicable cure periods. Additionally, any
termination of the license agreement, whether by us or by Northwestern, will not relieve us of our obligation to pay any license fees owing at the time of such termination. If we fail to retain our rights under the license agreement, we would not be
able to commercialize CPP-115, and our business, results of operations, financial condition and prospects would be materially adversely affected.
If we
obtain approval to market Firdapse
®
or CPP-115, our commercial success will depend in large part on our ability to use patents, especially those licensed to us by BioMarin and Northwestern,
respectively, to exclude others from competing with us. The patent position of emerging pharmaceutical companies like us can be highly uncertain and involve complex legal and technical issues. Until our licensed patents
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are interpreted by a court, either because we have sought to enforce them against a competitor or because a competitor has preemptively challenged them, we will not know the breadth of protection
that they will afford us. Our patents may not contain claims sufficiently broad to prevent others from practicing our technologies or marketing competing products. Third parties may intentionally attempt to design around our patents or design around
our patents so as to compete with us without infringing our patents. Moreover, the issuance of a patent is not conclusive as to its validity or enforceability, and so our patents may be invalidated or rendered unenforceable if challenged by others.
As a result of the foregoing factors, we cannot be certain how much protection from competition patent rights will provide us.
Our success will depend significantly on our ability to operate without infringing the patents and other proprietary rights of third parties.
While we are not currently aware of any third-party patents which we may infringe, there can be no assurance that we do not or will not infringe
on patents held by third parties or that third parties will not claim that we have infringed on their patents. In the event that our technologies infringe or violate the patent or other proprietary rights of third parties, we may be prevented from
pursuing product development, manufacturing or commercialization of our products that utilize such technologies. There may be patents held by others of which we are unaware that contain claims that our products or operations infringe. In addition,
given the complexities and uncertainties of patent laws, there may be patents of which we are aware that we may ultimately be held to infringe, particularly if the claims of the patent are determined to be broader than we believe them to be. Adding
to this uncertainty, in the U.S., patent applications filed in recent years are confidential for 18 months, while older applications are not publicly available until the patent issues. As a result, avoiding patent infringement may be difficult.
If a third party claims that we infringe its patents, any of the following may occur:
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we may be required to pay substantial financial damages if a court decides that our technologies infringe a competitors patent, which can be tripled if the infringement is deemed willful, or be required to
discontinue or significantly delay development, marketing, selling and licensing of the affected products and intellectual property rights;
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a court may prohibit us from selling or licensing our product without a license from the patent holder, which may not be available on commercially acceptable terms or at all, or which may require us to pay substantial
royalties or grant cross-licenses to our patents; and
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we may have to redesign our product so that it does not infringe others patent rights, which may not be possible or could require substantial funds or time and require additional studies.
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In addition, employees, consultants, contractors and others may use the proprietary information of others in their work for us or disclose our proprietary
information to others. As an example, we do not currently have written agreements regarding confidentiality or any other matters with several principal members of our Scientific Advisory Board. If our employees, consultants, contractors or others
disclose our data to others or use data belonging to others in connection with our business, it could lead to disputes over the ownership of inventions derived from that information or expose us to potential damages or other penalties.
The occurrence of any of these events could have a material adverse effect on our business, financial condition, results of operations or prospects.
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We may incur substantial costs as a result of litigation or other proceedings relating to patent and other
intellectual property rights.
There is substantial history of litigation and other proceedings regarding patent and intellectual property rights
in the pharmaceutical industry. We may be forced to defend claims of infringement brought by our competitors and others, and we may institute litigation against others who we believe are infringing our intellectual property rights. The outcome of
intellectual property litigation is subject to substantial uncertainties and may, for example, turn on the interpretation of claim language by the court, which may not be to our advantage, or on the testimony of experts as to technical facts upon
which experts may reasonably disagree.
Under our license agreements, we have the right to bring legal action against any alleged infringers of the
patents we license. However, we are responsible for all costs relating to such potential litigation. We have the right to any proceeds received as a result of such litigation, but, even if we are successful in such litigation, there is no assurance
we would be awarded any monetary damages.
Our involvement in intellectual property litigation could result in significant expense to us. Some of our
competitors have considerable resources available to them and a strong economic incentive to undertake substantial efforts to stop or delay us from commercializing products. Moreover, regardless of the outcome, intellectual property litigation
against or by us could significantly disrupt our development and commercialization efforts, divert our managements attention and quickly consume our financial resources.
In addition, if third parties file patent applications or issue patents claiming technology that is also claimed by us in pending applications, we may be
required to participate in interference proceedings with the U.S. Patent Office or in other proceedings outside the U.S., including oppositions, to determine priority of invention or patentability. Even if we are successful in these proceedings, we
may incur substantial costs, and the time and attention of our management and scientific personnel will be diverted from product development or other more productive matters.
Risks Related to Our Common Stock
The trading
price of the shares of our common stock has been and could in the future be highly volatile.
The market price of our common stock has fluctuated
in the past and is likely to fluctuate in the future. Market prices for biopharmaceutical companies have historically been particularly volatile. Some of the factors that may cause the market price of our common stock to fluctuate include:
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developments concerning our clinical studies and trials and our pre-clinical studies;
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status of regulatory requirements for approval of our drug candidates;
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announcements of product development successes and failures by us or our competitors;
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new products introduced or announced by us or our competitors;
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adverse changes in the abilities of our third party manufacturers to provide drug or product in a timely manner or to meet FDA requirements;
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changes in reimbursement levels;
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changes in financial estimates by securities analysts;
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actual or anticipated variations in operating results;
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expiration or termination of licenses (particularly our licenses from BioMarin and Northwestern), research contracts or other collaboration agreements;
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conditions or trends in the regulatory climate and the biotechnology and pharmaceutical industries;
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intellectual property, product liability or other litigation against us;
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changes in the market valuations of similar companies;
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changes in pharmaceutical company regulations or reimbursements as a result of healthcare reform or other legislation;
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changes in economic conditions; and
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sales of shares of our common stock, particularly sales by our officers, directors and significant stockholders, or the perception that such sales may occur.
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In addition, equity markets in general, and the market for emerging pharmaceutical and life sciences companies in particular, have experienced substantial
price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies traded in those markets. Further, changes in economic conditions in the United States, Europe or globally could impact our
ability to grow profitably. Adverse economic changes are outside our control and may result in material adverse impacts on our business or financial results. These broad market and industry factors may materially affect the market price of our
shares, regardless of our own development and operating performance. In the past, following periods of volatility in the market price of a companys securities, securities class-action litigation has often been instituted against that company.
Such litigation could cause us to incur substantial costs and divert managements attention and resources, which could have a material adverse effect on our business, financial condition and results of operations.
Delaware law and our certificate of incorporation and by-laws contain provisions that could delay and discourage takeover attempts that stockholders may
consider favorable.
Certain provisions of our certificate of incorporation and by-laws, and applicable provisions of Delaware corporate law, may
make it more difficult for or prevent a third party from acquiring control of us or changing our Board of Directors and management. These provisions include:
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the ability of our Board of Directors to issue preferred stock with voting or other rights or preferences;
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limitations on the ability of stockholders to amend our charter documents, including stockholder supermajority voting requirements;
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the inability of stockholders to act by written consent or to call special meetings;
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requirements that special meetings of our stockholders may only be called by the Board of Directors; and
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advance notice procedures our stockholders must comply with in order to nominate candidates for election to our Board of Directors or to place stockholders proposals on the agenda for consideration at meetings of
stockholders.
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On September 20, 2011, the Board of Directors approved the adoption of a stockholder rights plan, which was amended on
September 19, 2016. The rights plan was implemented through our entry into a rights agreement with Continental Stock Transfer & Trust Company, as rights agent, and the declaration of a non-taxable dividend distribution of one preferred
stock purchase right (each, a Right) for each outstanding share of our common stock. The dividend was paid on October 7, 2011 to holders of record as of that date. Each right is attached to and trades with the associated share of common stock.
The rights will become exercisable only if a person acquires beneficial ownership of 17.5% or more of our common stock (or, in the case of a person who beneficially owned 17.5% or more of our common stock on the date the rights plan was adopted,
such person acquires beneficial ownership of any additional shares of our common stock) or after the date of the Rights Agreement, commences a tender offer that, if consummated, would result in beneficial ownership by a person of 17.5% or more of
our common stock. The rights will expire on September 20, 2019, unless the rights are earlier redeemed or exchanged.
The intent of the stockholder
rights plan is to protect our stockholders interests by encouraging anyone seeking control of our company to negotiate with our Board of Directors. However, our stockholder rights plan could make it more difficult for a third party to acquire
us without the consent of our Board of Directors, even if doing so may be beneficial to our stockholders. This plan may discourage, delay or prevent a tender offer or takeover attempt, including offers or attempts that could result in a premium over
the market price of our common stock. This plan could reduce the price that stockholders might be willing to pay for shares of our common stock in the future. Furthermore, the anti-takeover provisions of our stockholder rights plan may entrench
management and make it more difficult to replace management even if the stockholders consider it beneficial to do so.
In addition, Section 203 of
the Delaware General Corporation Law generally prohibits us from engaging in a business combination with any person who owns 15% or more of our common stock for a period of three years from the date such person acquired such common stock, unless
Board or stockholder approval is obtained. These provisions could make it difficult for a third party to acquire us, or for members of our Board of Directors to be replaced, even if doing so would be beneficial to our stockholders.
Any delay or prevention of a change of control transaction or changes in our Board of Directors or management could deter potential acquirors or prevent the
completion of a transaction in which our stockholders could receive a substantial premium over the then current market price for their shares.
Future sales of our common stock may cause our stock price to decline.
As of December 22, 2016, we had 82,972,316 shares of our common stock outstanding, of which 6,022,623 shares were held by our officers and directors. We also
had outstanding: (i) common stock purchase warrants to purchase an aggregate of 2,407,663 additional shares of our common stock at exercise prices ranging from $1.04 to $2.08 per share, (ii) stock options to purchase an aggregate of
4,660,000 shares at exercise prices ranging from $0.47 to $4.64 per share (2,016,662) of which are currently exercisable), and 26,667 restricted stock units that are subject to vesting. Sales of restricted shares or shares underlying stock options
and common stock purchase warrants, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock.
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Our Board of Directors has the ability to issue blank check preferred stock.
Our Certificate of Incorporation authorizes the issuance of up to 5,000,000 shares of blank check preferred stock, with such designation rights
and preferences as may be determined from time to time by our Board of Directors. Our Board of Directors is empowered, without stockholder approval, to issue shares of preferred stock with dividend, liquidation, conversion, voting or other rights
which could adversely affect the voting power or other rights of the holders of our common stock. In the event of such issuances, the preferred stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing
a change in control of our company, pursuant to our stockholder rights plan. Although we have no present intention to issue any shares of our preferred stock, there can be no assurance that we will not do so in the future.
We do not intend to pay cash dividends on our common stock in the foreseeable future.
We have never declared or paid any cash dividends on our common stock or other securities, and we currently do not anticipate paying any cash dividends in the
foreseeable future. Accordingly, investors should not invest in our common stock if they require dividend income. Our stockholders will not realize a return on their investment unless the trading price of our common stock appreciates, which is
uncertain and unpredictable.
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