ITEM 1. BUSINESS
Business Overview
Insmed
is a global biopharmaceutical company focused on the unmet needs of patients with rare diseases. Our lead product candidate is ARIKAYCE, or liposomal amikacin for inhalation
(LAI), which is in late-stage development for adult patients with treatment refractory nontuberculous mycobacteria (NTM) lung disease caused by
Mycobacterium
avium
complex (MAC), a rare and often chronic infection that is capable of causing irreversible lung damage and can be fatal. Our earlier clinical-stage pipeline includes
INS1007 and INS1009. INS1007 is a novel oral, reversible inhibitor of dipeptidyl peptidase 1 (DPP1), an enzyme responsible for activating neutrophil serine proteases, which are implicated in the
pathology of chronic inflammatory lung diseases, such as non-cystic fibrosis (non-CF) bronchiectasis. INS1009 is an inhaled nanoparticle formulation of a treprostinil prodrug that may offer a
differentiated product profile for rare pulmonary disorders, including pulmonary arterial hypertension (PAH).
The
table below summarizes the current status and anticipated milestones for our principal product candidates: ARIKAYCE, INS1007, and INS1009.
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Product
Candidate/Target
Indications
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Status
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Next Expected Milestones
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ARIKAYCE (LAI) for adult patients with treatment refractory NTM lung infections caused by MAC
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We are advancing the
CONVERT (or 212) study, a randomized, open-label global phase 3 clinical study of ARIKAYCE in adult patients with treatment refractory NTM lung disease caused by MAC. We have achieved our enrollment objective for the CONVERT study.
The US Food and Drug
Administration (FDA) has designated ARIKAYCE as an orphan drug, a breakthrough therapy, and a qualified infectious disease product (QIDP).
The European Commission has granted an orphan designation for ARIKAYCE
for the treatment of NTM lung disease.
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We expect to report
top-line results for the Month 6 primary endpoint in the second half of 2017.
If the CONVERT study meets its primary endpoint, we intend to seek accelerated marketing approval for ARIKAYCE in the US. We intend to seek marketing approvals for ARIKAYCE in
certain countries outside the US, when sufficient data are available. If approved, we expect ARIKAYCE would be the first inhaled antibiotic specifically indicated for the treatment of refractory NTM lung infections caused by MAC in North America,
Europe, and Japan.
If
approved, we plan to commercialize ARIKAYCE in the US, certain countries in Europe, Japan and certain other countries.
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Product
Candidate/Target
Indications
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Status
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Next Expected Milestones
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INS1007 (oral reversible inhibitor of dipeptidyl peptidase 1) for non-CF bronchiectasis
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In October 2016, we
entered into a license agreement with AstraZeneca for the exclusive global rights for the purpose of developing and commercializing AZD7986 (AZ License Agreement). We renamed the compound INS1007 and plan to pursue an initial indication of non-CF
bronchiectasis.
We are defining our
regulatory strategies to potentially secure US and EU orphan drug designations and expedite the development and regulatory review of INS1007 through programs such as US fast track designation and breakthrough therapy.
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We plan to submit an
Investigational New Drug (IND) application with the FDA for non-CF bronchiectasis and subsequently commence a phase 2 clinical study of INS1007. The study is expected to begin in 2017.
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INS1009 (inhaled nanoparticle formulation of a treprostinil prodrug) for rare pulmonary disorders
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The results of our
phase 1 study of INS1009 were presented at the European Respiratory Society international congress in September 2016.
The phase 1 study was a randomized, double-blind, placebo-controlled, single ascending dose study of INS1009 for inhalation to determine
its safety, tolerability, and pharmacokinetics in healthy volunteers.
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We believe INS1009 may
offer a differentiated product profile for rare pulmonary disorders, including PAH, and we are currently evaluating our options to advance its development.
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Our
earlier-stage pipeline includes preclinical compounds that we are evaluating in multiple rare diseases of unmet medical need, including methicillin-resistant staph aureus (MRSA) and
NTM. To complement our internal research and development, we actively evaluate in-licensing and acquisition opportunities for a broad range of rare diseases.
Corporate History
We
were incorporated in the Commonwealth of Virginia on November 29, 1999. On December 1, 2010, we completed a business combination with Transave, Inc. (Transave),
a privately held New Jersey-based company focused on the development of differentiated and innovative inhaled pharmaceuticals for the site-specific treatment of serious lung diseases.
Our Strategy
Our
strategy focuses on the needs of patients with rare diseases. We are currently focused on the development and commercialization of ARIKAYCE. We are not aware of any inhaled products
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specifically
indicated to treat refractory NTM lung disease in North America, Europe or Japan. While we believe that ARIKAYCE has the potential to treat a number of different bacterial infections, we
are prioritizing securing US regulatory approval of ARIKAYCE for adult patients with refractory NTM lung disease caused by MAC. We are also advancing earlier-stage programs in other rare pulmonary
disorders.
Our
current priorities are as follows:
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Advancing the CONVERT study;
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Preparing a New Drug Application (NDA) for submission to the FDA for
ARIKAYCE, which we
plan to base on the primary endpoint of the CONVERT study;
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Ensuring our product supply chain will support the clinical development and, if
approved, commercialization of ARIKAYCE;
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Preparing for potential commercialization of ARIKAYCE in the US, certain countries in
Europe, Japan, and certain other countries;
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Developing the core value dossier to support the global reimbursement of ARIKAYCE;
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Supporting further research and lifecycle management strategies for ARIKAYCE;
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Filing an IND with the FDA and starting a phase 2 study of INS1007 in non-CF
bronchiectasis;
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Generating preclinical findings from our earlier-stage program(s);
and
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Expanding our rare disease pipeline through corporate development.
Product Pipeline
ARIKAYCE for patients with NTM lung disease
Our
lead product candidate is ARIKAYCE, or LAI, a novel, once-daily liposomal formulation of amikacin that is in late-stage clinical development for adult patients with treatment
refractory NTM lung disease caused by MAC, a rare and often chronic infection that is capable of causing irreversible lung damage and which can be fatal. Amikacin solution for parenteral
administration is an established drug that has activity against a variety of NTM; however, its use is limited by the need to administer it intravenously and by toxicity to hearing, balance, and kidney
function (Peloquin et al., 2004). Unlike intravenous amikacin, our advanced liposome technology uses charge-neutral liposomes to deliver amikacin directly to the lung where it is taken up by the lung
macrophages where the NTM infection resides. This prolongs the release of amikacin in the lungs while minimizing systemic exposure thereby offering the potential for decreased systemic toxicities.
ARIKAYCE's ability to deliver high levels of amikacin directly to the lung distinguishes it from intravenous amikacin. ARIKAYCE is administered once-daily, using a portable aerosol delivery system,
via an optimized, investigational eFlow® Nebulizer System manufactured by PARI.
The
FDA has designated ARIKAYCE as an orphan drug, a breakthrough therapy, and a QIDP for NTM lung disease. Orphan designation features seven years of post-approval market exclusivity,
and QIDP features an additional five years of post-approval exclusivity. As a result, ARIKAYCE would have 12 years of post-approval marketing exclusivity in the US, if approved. A
QIDP-designated product is eligible for fast track status and is often granted priority review status. A priority review designation for a drug means the FDA's goal is to take action on the NDA within
six months following the 60-day filing date, as compared to 10 months of the 60-day filing date under a standard review.
ARIKAYCE
is currently being evaluated in a phase 3 randomized, open-label clinical study taking place in North America, Europe, Australia, New Zealand and Asia that is designed
to confirm the culture conversion results seen in our phase 2 clinical trial, which we expect will provide the basis
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for
submitting an NDA to the FDA. Because the highest response to ARIKAYCE treatment in our phase 2 study was observed in the subgroup of non-CF patients with NTM lung infection caused by MAC,
the CONVERT study is comprised of non-CF patients 18 years and older with an NTM lung infection caused by MAC that is refractory to a stable multi-drug regimen for at least six months, with
the regimen either ongoing or interrupted within 12 months of screening. The CONVERT study excludes subjects whose susceptibility scores indicate that their MAC lung infection is resistant to
amikacin. We achieved our enrollment objective for the CONVERT study in the fourth quarter of 2016.
After
a screening period of approximately 10 weeks, eligible subjects were randomized 2:1 to once-daily ARIKAYCE plus a multi-drug regimen or a multi-drug regimen without
ARIKAYCE. The first analysis, after the last patient has completed Month 6, will be based on the primary efficacy endpoint comparing the proportion of subjects who achieve culture conversion (three
consecutive monthly negative sputum cultures) by Month 6 in the ARIKAYCE plus multi-drug regimen arm compared to the arm in which subjects receive a multi-drug regimen without ARIKAYCE. The study's
key secondary endpoint in the first analysis includes the change from baseline in the six-minute walk test. A subsequent analysis will examine off-treatment assessments to evaluate the durability of
the anti-mycobacterial effect on sputum culture at 3 months off all treatment. The study also includes a comprehensive pharmacokinetic sub-study in Japanese subjects in lieu of a separate local
pharmacokinetic study in Japan.
At
Month 8, after all sputum culture results are known up to and including Month 6, subjects will be assessed as converters (those achieving culture conversion by Month 6) or
non-converters for the primary efficacy endpoint. All converters will continue on their randomized treatment regimen for an additional 12 months. All converters will return for off-treatment
follow-up visits. A 12-month off-treatment study visit will be the last visit for the CONVERT study. All non-converters, as determined at the Month 8 visit, may be eligible to enter a separate
12-month, single-arm, open-label study (the 312 study). The primary objective of the 312 study is to evaluate the long-term safety and tolerability of ARIKAYCE in combination with a standard
multi-drug regimen. The secondary endpoints of the 312 study include evaluating the proportion of subjects achieving culture conversion (three consecutive monthly negative sputum cultures) by Month 6
and the proportion of subjects achieving culture conversion by Month 12 (end of treatment).
The
protocol for the CONVERT study incorporates feedback from the FDA and the EMA via its scientific advice working party process, as well as local health authorities in other
countries, including Japan's Pharmaceuticals and Medical Devices Agency. If the CONVERT study meets the primary endpoint of culture conversion by Month 6, we believe we would be eligible to submit an
NDA pursuant to 21 C.F.R. Part 314 Subpart H (Accelerated Approval of New Drugs for Serious or Life-Threatening Illnesses), which permits the FDA to approve a drug based on a surrogate
or intermediate endpoint, provided the sponsor commits to study the drug further to verify and describe the confirmatory data of the drug's clinical benefit. We believe that efficacy data from the
CONVERT study after Month 6 in combination with the durability data, if successful, will suffice to meet both the accelerated and confirmatory data requirements.
Our
completed phase 2 study, which is also known as the 112 study, was a randomized, double-blind, placebo-controlled study that evaluated the efficacy and safety of ARIKAYCE in
adults with NTM lung disease due to MAC or
M. abscessus
that was refractory to guideline-based therapy. In October 2016, the results from the
phase 2 study were published online in the
American Journal of Respiratory and Critical Care Medicine
(Olivier et al. 2016).
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The
study included an 84-day double-blind phase in which subjects were randomized 1:1 either to ARIKAYCE once-daily plus a multi-drug regimen or to placebo once-daily plus a multi-drug
regimen. After completing the 84-day double-blind phase, subjects had the option of continuing in an 84-day open-label phase during which all subjects received ARIKAYCE plus the same multi-drug
regimen. The study also included 28-day and 12-month off-ARIKAYCE follow-up assessments. Eighty-nine (89) subjects were randomized and dosed in the study. Of the 80 subjects who completed the
84-day double-blind phase, 78 subjects entered the open-label phase and received ARIKAYCE plus the same multi-drug regimen for an additional 84 days. Seventy-six (76) percent (59/78) of
subjects who entered the open-label phase of the study completed the open-label study.
The
primary efficacy endpoint of the study was the change from baseline (Day 1) to the end of the double-blind phase of the trial (Day 84) in a semi-quantitative
measurement of mycobacterial density on a seven-point scale. ARIKAYCE did not meet the pre-specified level for statistical significance although there was a positive trend (p=0.072) in favor of
ARIKAYCE. The p-value for the key secondary endpoint of culture conversion to negative at Day 84 was 0.003, in favor of ARIKAYCE. A shorter time to first negative sputum culture was also observed with
ARIKAYCE relative to placebo during the double-blind phase (p=0.013).
The
microbiologic outcomes from the 112 study were also explored post hoc using a more stringent definition of culture conversion, which was defined as at least three consecutive
monthly sputum samples that test negative for NTM, consistent with the definition of culture conversion in the guidelines and in clinical practice. Twenty-three (23) subjects achieved at least
three consecutive negative monthly sputum samples by the 28-day follow-up assessment, of which four started to convert at baseline prior to administration of study drug. For the other 19 patients who
achieved culture
conversion, 17 achieved culture conversion after receiving ARIKAYCE (10 during the double-blind phase and seven after entering the open-label phase, of which six received ARIKAYCE for the first time
in the open-label phase). Two patients achieved culture conversion while receiving placebo during the double-blind phase. The majority of subjects who achieved culture conversion (three consecutive
negative monthly sputum samples) during the double-blind phase continued to have negative cultures through the open-label and follow-up phases.
At
the end of the double-blind phase, the ARIKAYCE group improved from baseline in mean distance walked in the six-minute walk test. At the end of the open-label phase, patients in the
ARIKAYCE group continued to improve in the mean distance walked in the six-minute walk test, while the patients who previously received placebo in the double-blind phase and subsequently received
ARIKAYCE in the open-label phase demonstrated a reduced rate of decline from baseline.
Ninety
(90) percent of patients in both treatment groups experienced at least one treatment-emergent adverse event with most events either mild or moderate in severity. During
the double-blind phase a greater percentage of patients treated with ARIKAYCE experienced dysphonia, bronchiectasis exacerbation, cough, oropharyngeal pain, fatigue, chest discomfort, wheezing,
and infective pulmonary exacerbation of cystic fibrosis. No clinically relevant changes were detected in laboratory values and vital signs.
We
are exploring and supporting research and lifecycle management programs for ARIKAYCE beyond NTM lung infections caused by MAC. Lifecycle management initiatives are company-driven
planning programs to help us reach more potential patients for ARIKAYCE, once sufficient data are generated and applicable regulatory bodies approve ARIKAYCE for these indications. These programs may
include new clinical studies sponsored by us to develop data for such additional indications. We
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may
also support investigator-initiated studies, which are clinical studies initiated and sponsored by physicians or research institutions with funding from us.
In
the fourth quarter of 2014, we filed an MAA with the EMA for ARIKAYCE as a treatment for NTM lung disease in adult patients and for cystic fibrosis (CF) patients with
Pseudomonas
lung infections. The
filing was based on data from our phase 3 study in CF patients with
Pseudomonas
and our phase 2 study in patients with NTM. In February 2015, the EMA validated our MAA as complete for review.
The EMA subsequently
requested additional information with respect to the CF indication regarding the similarity of ARIKAYCE to another product that has an orphan designation for the same
Pseudomonas
indication. In the
third quarter of 2015, the EMA adopted our request to withdraw the
Pseudomonas
indication from our MAA. In April 2016, we submitted our written responses to the EMA's 180-day list of outstanding issues
(LOI). In May
2016, we participated in an oral explanation meeting with the EMA's Committee for Medicinal Products for Human Use (CHMP) for the NTM indication to address the LOI. After the oral explanation meeting,
the CHMP concluded that the data submitted did not provide enough evidence to support an approval. In June 2016, we withdrew our MAA. We intend to resubmit our MAA when sufficient clinical data are
available.
NTM
is a rare and serious disorder associated with increased morbidity and mortality. NTM currently includes over 185 species. MAC is the predominant pathogenic species in NTM pulmonary
disease in the US, Japan and Europe, followed by
M. abscessus
, both of which we have studied in our development of ARIKAYCE. Our CONVERT trial is
studying refractory NTM lung infections caused by MAC in adult patients. The prevalence of human disease attributable to NTM has increased over the past two decades, and it is an emerging public
health concern worldwide.
A
2015 publication from co-authors from several US government departments projected approximately 180,000 cases of NTM lung disease in the US in 2014 (Strollo et al., 2015) (the Strollo
publication) and is increasing at a rate of approximately 8% per year (1997-2007 research study). Previously, based on market research in 2012 and 2013 conducted by Clarity Pharma Research, we
estimated that of patients who had a confirmed diagnosis of NTM lung disease, an estimated 10 to 30 percent were refractory to current treatments. In 2013, we engaged Clarity Pharma Research to
perform a chart audit study of
NTM lung disease in Europe and Japan, which estimated that there are approximately 20,000 cases of pulmonary disease attributable to NTM within the EU5, approximately 30,000 total cases in the 28
countries then-comprising the European Union (EU) and nearly 32,000 cases in Japan. Although population-based data on the epidemiology of NTM lung disease are limited, and determining the true
prevalence and incidence of rare diseases can be challenging, studies worldwide have described an increasing prevalence of NTM lung disease.
Patients
with NTM lung disease may experience a multitude of symptoms such as chronic cough, fever, weight loss, lack of appetite, night sweats, blood in the sputum, and fatigue, and
frequently require lengthy, and repeat, hospital stays to manage their condition. In a burden of illness study that we conducted in the US with a major medical benefits provider, we concluded that
patients with NTM lung infections are costly to healthcare plans and ATS/IDSA guideline-based treatment results in healthcare savings as opposed to suboptimal treatment. Other claims-based studies
have shown the following:
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A 36.1% increase in the incidence of NTM lung infections between 2008 and 2013 in the
US Medicare population of a national managed care health plan, with the greatest incidence increase (56.3%) observed in members 65 to 74 years of age. Following diagnosis with NTM
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Current
ATS/IDSA guideline-based approaches involve multi-drug regimens that may cause severe side effects and treatment can last two years or more. We are not aware of any inhaled
antibiotic treatments specifically indicated for the treatment of refractory NTM lung disease in North America, Europe or Japan.
INS1007
INS1007
is a small molecule, oral, reversible inhibitor of DPP1, which we in-licensed from AstraZeneca in October 2016. DPP1 is an enzyme responsible for activating neutrophil serine
proteases in neutrophils when they are formed in the bone marrow. Neutrophils are the most common type of white blood cell and play an essential role in pathogen destruction and inflammatory
mediation. Neutrophils, which play a key role in the pathologic inflammatory process, contain three neutrophil serine proteases, neutrophil elastase, proteinase 3, and cathepsin G, that have been
implicated in a variety of inflammatory diseases. In chronic inflammatory lung diseases, neutrophils accumulate in the airways and result in excessive active neutrophil serine proteases that cause
lung destruction and inflammation. INS1007 may decrease the damaging effects of inflammatory diseases, such as non-CF bronchiectasis, by inhibiting DPP1 and its activation of neutrophil serine
proteases.
Non-CF
bronchiectasis is a rare, progressive pulmonary disorder in which the bronchi become permanently dilated due to chronic inflammation and infection. Symptoms include chronic
cough, excessive sputum production, shortness of breath, and repeated respiratory infections, which can worsen the underlying condition. There is currently no cure for non-CF bronchiectasis.
Bronchiectasis increases
susceptibility to NTM lung disease, and up to 50 percent of patients with bronchiectasis may also have an active NTM lung infection.
In
a phase 1 study of healthy volunteers, INS1007 (previously AZD7986) was well tolerated and demonstrated inhibition of the activity of the neutrophil serine protease neutrophil
elastase in a dose and concentration dependent manner. In preclinical studies, it was shown to reversibly inhibit DPP1 and the activation of neutrophil serine proteases within maturing neutrophils.
We
plan to submit an IND application with the FDA for INS1007 in non-CF bronchiectasis, and after it becomes effective, to commence a phase 2 clinical study of INS1007 in that
indication. We expect the study to begin in 2017. In addition, we are evaluating INS1007 in other potential indications.
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INS1009
INS1009
is an investigational sustained-release inhaled treprostinil prodrug nanoparticle formulation that has the potential to address certain of the current limitations of existing
prostanoid therapies. We believe that INS1009 prolongs duration of effect and may provide PAH patients with greater consistency in pulmonary arterial pressure reduction over time. Current inhaled
prostanoid therapies must be dosed four to nine times per day for the treatment of PAH. Reducing dose frequency has the potential to ease patient burden and improve compliance. Additionally, we
believe that INS1009 may be associated with fewer side effects, including elevated heart rate, low blood pressure, and severity and/or frequency of cough, associated with high initial drug levels and
local upper airway exposure
when using current inhaled prostanoid therapies. We believe INS1009 may offer a differentiated product profile for rare pulmonary disorders, including PAH, and we are currently evaluating our options
to advance its development.
In
late 2014, we had a pre-investigational new drug (pre-IND) meeting with the FDA for INS1009 and clarified that, subject to final review of the preclinical data, INS1009 could be
eligible for an approval pathway under Section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act (FDCA) (505(b)(2) approval). Like a traditional NDA that is submitted under
Section 505(b)(1) of the FDCA, a 505(b)(2) NDA must establish that the drug is safe and effective, but unlike a traditional NDA, the applicant may rely at least in part on studies not conducted
by or for the applicant and for which the applicant does not have a right of reference. The ability to rely on existing third-party data to support safety and/or effectiveness can reduce the time and
cost associated with traditional NDAs.
We
have completed a phase 1 study of INS1009. The phase 1 study was a randomized, double-blind, placebo-controlled single ascending dose study of INS1009 for inhalation to
determine its safety, tolerability, and pharmacokinetics in healthy volunteers. Twenty-four (24) subjects were enrolled and received INS1009 with cohorts of eight subjects receiving doses of 85
micrograms (mcg), 170 mcg, 340 mcg or placebo. Participants in the first cohort (8 patients) received a single dose of open label treprostinil (Tyvaso) at 54 mcg 24 hours prior to
receiving INS1009 at 85 mcg. The 85 mcg dose of INS1009 provides an equivalent amount of treprostinil on a molar basis as the 54 mcg dose of Tyvaso. The peak serum concentration was approximately 90%
lower for treprostinil after INS1009 administration compared with Tyvaso, which could indicate a reduced future adverse event (AE) profile. The pharmacokinetic characteristics also supported
once- or twice-daily dosing. The longer half-life of treprostinil for INS1009 was likely due to a sustained pulmonary release. The AE profile was consistent with other inhaled prostanoids. These data
were presented at the European Respiratory Society international congress in September 2016.
Research and Development
Research
and development expenses consist primarily of salaries, benefits and other related costs, including stock-based compensation, for personnel serving in our research and
development functions. Expenses also include other internal operating expenses, the cost of manufacturing our drug candidates for clinical study (primarily related to activities at contract
manufacturing organizations (CMOs) that manufacture ARIKAYCE for our use), the cost of conducting clinical studies (primarily related to activities at contract research organizations (CROs) that
conduct and manage clinical trials on our behalf), and the cost of conducting preclinical and research activities. In addition, research and development expenses include payments to third parties for
the license rights to products in development (prior to marketing approval). We incurred approximately $122.7 million, $74.3 million, and $56.3 million for research and
development expenses in 2016, 2015 and 2014, respectively.
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Corporate Development
In
October 2016, we exclusively licensed global rights to INS1007 from AstraZeneca and we plan to continue to develop, acquire, in license or co-promote complementary products that
address rare diseases. We are focused broadly on rare disease therapeutics and prioritizing those areas that best align with our core competencies and current therapeutic focus in the area of rare
pulmonary diseases.
Manufacturing
We
do not have any in-house manufacturing capability other than for small-scale pre-clinical development programs, and depend on a small number of third-party manufacturers and
suppliers for the manufacture of our product candidates for use in clinical trials. We plan to rely on third-party manufacturers and suppliers for the commercial manufacture and supply of any product
candidates that we may commercialize. ARIKAYCE is manufactured by Therapure Biopharma Inc. (Therapure) in
Canada at a 200 liter scale and by Ajinimoto Althea, Inc. (Althea) in the US at a 50 liter scale. For additional information about our agreements with Therapure and Althea, see
License and Other
AgreementsARIKAYCE-Related Agreements
. We have also identified certain second source suppliers for our supply chain and
plan to enter into supply and quality agreements with certain of these second source suppliers in preparation for commercialization of ARIKAYCE. In addition, we have entered into a commercialization
agreement with PARI, the manufacturer of our drug delivery nebulizer for ARIKAYCE, to address our commercial supply needs (Commercialization Agreement).
We
expect to enter into a commercial supply agreement with AstraZeneca related to certain short-term production needs for INS1007. We expect our future requirements for INS1007, beyond
phase 2, will be manufactured by a CMO.
We
currently produce INS1009 and plan to utilize third parties to manufacture INS1009 at a larger scale and to manufacture the nebulizer used to deliver the drug.
Intellectual Property
We
own or license rights to more than 350 issued patents and pending patent applications in the US and in foreign countries, including more than 175 issued patents and pending patent
applications related to ARIKAYCE. Our success depends in large part on our ability to maintain proprietary protection surrounding our product candidates, technology and know-how; to operate without
infringing the proprietary rights of others; and to prevent others from infringing our proprietary rights. We actively seek patent protection by filing patent applications, including on inventions
that are important to the development of our business in the US, Europe, Japan, Canada, and selected other foreign markets that we consider key for our product candidates. These international markets
generally include Australia, China, India, Israel, and Mexico.
Our
patent strategy includes obtaining patent protection, where possible, on compositions of matter, methods of manufacture, methods of use, methods of treatment, dosing and
administration regimens and formulations. We also rely on trade secrets, know-how, continuing technological innovation, in-licensing and partnership opportunities to develop and maintain our
proprietary position.
We
monitor for activities that may infringe our proprietary rights, as well as the progression of third-party patent applications that may have the potential to create blocks to our
products or otherwise interfere with the development of our business. We are aware, for example, of US patents,
and corresponding international counterparts, owned by third parties that contain claims related to treating lung infections using inhaled antibiotics. If any of these patents were to be asserted
against us,
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we
do not believe that our proposed products would be found to infringe any valid claim of these patents.
Reflecting
our commitment to safeguarding proprietary information, we require our employees, consultants, advisors, collaborators and other third-party partners to sign confidentiality
agreements to protect the exchange of proprietary materials and information. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security
of our premises and physical and electronic security of our information technology systems.
Of
the patents and applications related to ARIKAYCE, there are seven issued US patents that cover the ARIKAYCE composition and its use in treating NTM. Upon ARIKAYCE approval for the
treatment of NTM, these patents may be eligible for listing in the FDA Orange Book. These patents and their expiration dates are as follows:
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US Patent No. 7,718,189 (expires June 6, 2025)
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US Patent No. 8,226,975 (expires
August 15, 2028)
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US Patent No. 8,632,804 (expires December 5, 2026)
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US Patent No. 8,802,137 (expires April 8, 2024)
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US Patent No. 8,679,532
(expires December 5, 2026)
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US Patent No. 8,642,075 (expires December 5,
2026)
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US Patent No. 9,566,234 (expires January 18, 2034)
In
addition, we own five pending US patent applications that cover the ARIKAYCE composition and its use in treating NTM. Upon ARIKAYCE approval for the treatment of refractory NTM lung
disease caused by MAC, these patent applications, if issued as patents, may be eligible for listing in the FDA Orange Book. We also own a pending US application that covers methods for making
ARIKAYCE.
Four
patents have been granted by the European Patent Office (EPO) (European Patent Nos. 1581236, 1909759, 1962805 and 2363114) that cover ARIKAYCE and its use in treating NTM.
In addition, we have five applications pending before the EPO that cover ARIKAYCE and its use in treating NTM lung disease. We also have a pending European application that covers methods of making
ARIKAYCE. More than 40 patents have also been issued in other major foreign markets, e.g., Japan, China, Korea, Australia, and India, that cover ARIKAYCE and/or methods of using ARIKAYCE for
treating various pulmonary disorders, including NTM lung disease. More than 60 foreign patent applications are pending that cover the ARIKAYCE composition and/or its use in treating various
pulmonary disorders, including NTM lung disease. We anticipate that in the US, we will have potential patent coverage for ARIKAYCE and its use in treating NTM lung disease, through January 18,
2034, which does not include a potential six months of pediatric exclusivity.
Currently,
our European Patent No. 2363114 is being opposed by Generics (UK) Ltd, a wholly-owned subsidiary of Mylan NV. The European Patent Office Opposition
Division (EPOOD) issued a preliminary non-binding opinion regarding the opposition on January 2, 2017, and an oral hearing regarding the opposition has been scheduled for November 15,
2017. The preliminary non-binding opinion did not address every issue in the opposition, but was favorable to us regarding the issues that were addressed. European Patent No. 1909759, owned by
us, was previously opposed by Generics (UK) Ltd. An oral hearing was held on October 19, 2015 during which, we submitted amended claims. The EPOOD maintained the patent as amended. This
decision is currently under appeal by Generics (UK) Ltd.
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Through our agreements with PARI, we have license rights to US and foreign patents and applications that cover the eFlow Nebulizer System medical
device through
January 18, 2034. We have rights to use the nebulizers in clinical trials, and we have entered into a commercial supply agreement with PARI.
The
basic terms of utility patents issued in the US are the longer of 17 years from the issue date or 20 years from the earliest effective filing date, if the patent was
in force on or was issued from a patent application that was filed prior to June 8, 1995; or 20 years from the earliest effective filing date, if the patent application was filed on or
after June 8, 1995. All ARIKAYCE patent applications have earliest effective filing dates falling after June 8, 1995. The basic term of foreign utility patents may vary in accordance
with provisions of applicable local law, but is typically 20 years from the earliest effective filing date.
Through
our agreement with AstraZeneca, we have licensed U.S. Patent No. 9,522,894, which has claims directed to INS1007 and expires January 21, 2035 (not taking into
account any potential patent term extension). Counterpart patent applications are pending throughout the world and a continuation application is pending in the US.
We
own US Patent No. 9,255,064 (expires October 24, 2034), which is the first patent to issue with claims covering hexadecyl-treprostinil, the treprostinil component of
INS1009. Other treprostinil prodrugs are also claimed and described in the patent. We also own US Patent No. 9,469,600, which has claims directed to INS1009 and other treprostinil prodrug
nanoparticle formulations and expires October 24, 2034. Counterpart patent applications to US Patent Nos. 9,255,064 and 9,469,600 are pending in Europe, Japan and other foreign
jurisdictions.
We
own pending patent applications that if granted, would cover methods for using treprostinil prodrugs and nanoparticle formulations comprising the same, including INS1009 in treating
patients with PAH and other diseases, as well as methods for manufacturing such treprostinil prodrugs and nanoparticle formulations.
Trademarks
In
addition to our patents and trade secrets, we have filed applications to register certain trademarks in the US and/or abroad, including INSMED and ARIKAYCE. At present, we have
received either a registration or a notice of allowance for the INSMED and ARIKAYCE marks from the US Patent and Trademark Office. We have also received foreign notices of allowance or registrations
for the INSMED and ARIKAYCE marks, among others. The EMA has indicated it has no objection to our use of the name ARIKAYCE, and the FDA has conditionally approved our use of the name ARIKAYCE as the
proposed trade name for our LAI product candidate. Our ability to obtain and maintain trademark registrations will in certain geographical locations depend on making use of the mark in commerce on or
in connection with our products and approval of the trademarks for our products by regulatory authorities in each country.
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License and Other Agreements
We
currently rely, and will continue to rely, on agreements with a number of third parties in connection with the development and manufacture of ARIKAYCE.
We
have a licensing agreement with PARI for use of the optimized eFlow Nebulizer System for delivery of ARIKAYCE in treating patients with NTM lung infections, CF and bronchiectasis.
Under the licensing agreement, we have rights under several US and foreign issued patents, and patent applications involving improvements to the optimized eFlow Nebulizer System, to exploit such
system with ARIKAYCE for the treatment of such indications, but we cannot manufacture such nebulizers except as permitted under our Commercialization Agreement with PARI. We currently have rights to
use the nebulizers in clinical trials. The eFlow Nebulizer System is labeled as investigational for use in our clinical trials in the US, Japan, Canada and Australia and must receive regulatory
approval before we can market ARIKAYCE; the eFlow Nebulizer System has been approved for use in the EU.
We
have certain obligations under this licensing agreement in relation to specified licensed indications. With respect to CF, we are obligated to use commercially reasonable efforts to
develop, obtain regulatory and reimbursement approval, market and sell ARIKAYCE in two or more major European countries. With respect to NTM, CF and bronchiectasis, we have specific obligations to use
commercially reasonable efforts to achieve certain developmental and regulatory milestones by set deadlines. Additionally, for NTM, we are obligated to use commercially reasonable efforts to achieve
certain commercial milestones in the US, Europe and Canada. The consequences of our failing to use commercially reasonable efforts to achieve these milestones are context-specific, but include ending
PARI's non-compete obligation, making the license non-exclusive and terminating the license, in each case with respect to the applicable indication. Termination of the licensing agreement or loss of
exclusive rights may occur if we fail to meet our obligations, including payment of royalties to PARI, or if we do not meet certain milestones contained in the licensing agreement such as obtaining
marketing approval or achieving the first commercial sale of ARIKAYCE.
Under
the licensing agreement, we paid PARI an upfront license fee and PARI is entitled to receive milestone payments up to an aggregate of €4.3 million either in
cash, qualified stock or a combination of both, at PARI's discretion, based on achievement of certain future milestone events including first acceptance of MAA submission (or equivalent) in the US of
ARIKAYCE and the device, first receipt of marketing approval in the US for ARIKAYCE and the device, and first receipt of marketing approval in a major EU country for ARIKAYCE and the device. In
addition, PARI is entitled to receive royalty payments in the mid-single digits on the net commercial sales of ARIKAYCE pursuant to the licensing agreement, subject to certain specified annual minimum
royalties.
This
license agreement will remain in effect on a country-by-country basis until the final royalty payments have been made with respect to the last country in which ARIKAYCE is sold, or
until the agreement is otherwise terminated by either party. We have the right to terminate this license agreement upon written notice for PARI's uncured material breach, if PARI is the subject of
specified
bankruptcy or liquidation events, or if PARI fails to reach certain specified obligations. PARI has the right to terminate this license agreement upon written notice for our uncured material breach,
if we are the subject of specified bankruptcy or liquidation events, if we assign or otherwise transfer the agreement to a third party that does not agree to assume all of our rights and obligations
set forth in the agreement, or if we fail to reach certain specified milestones.
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In
July 2014, we entered into the Commercialization Agreement with PARI for the manufacture and supply of eFlow nebulizer systems and related accessories (the Device) as optimized for
use with our proprietary LAI. The Commercialization Agreement envisages that PARI will undertake the manufacturing of the Device except in the case of certain defined supply failures, when we will
have the right to make the Device and have it made by third parties (but not certain third parties deemed under the Commercialization Agreement to compete with PARI). The Commercialization Agreement
has an initial term of fifteen years from the first commercial sale of ARIKAYCE pursuant to the licensing agreement. The term of the Commercialization Agreement may be extended by us for an additional
five years by providing written notice to PARI at least one year prior to the expiration of the initial term.
In
September 2015, we entered into a Commercial Fill/Finish Services Agreement (the Fill/Finish Agreement) with Althea to produce, on a non-exclusive basis, ARIKAYCE in finished dosage
form at a 50-liter scale. We are obligated to pay a minimum of $2.7 million for the batches of ARIKAYCE produced by Althea each calendar year during the term of the Fill/Finish Agreement. The
Fill/Finish Agreement became effective as of January 1, 2015, and had an initial term that was to end on December 31, 2017. In 2016, we signed an extension of the Fill/Finish Agreement
through December 31, 2019, and it may be extended for additional two-year periods upon mutual written agreement of us and Althea at least one year prior to the expiration of its then-current
term.
Either
we or Althea may terminate the Fill/Finish Agreement upon the occurrence of certain events, including (i) material breach of the Fill/Finish Agreement by either party,
provided such breach is not cured within 30 days after receipt by the breaching party of written notice of the breach or (ii) insolvency or bankruptcy of the other party. In addition, we
may terminate the Fill/Finish Agreement without
cause with 12 months' prior written notice to Althea, and Althea may terminate the Agreement without cause with 24 months' prior written notice to us.
In
February 2014, we entered into a Contract Manufacturing Agreement with Therapure for the manufacture of ARIKAYCE at a 200-liter scale. Pursuant to the agreement, we collaborated with
Therapure to construct a production area for the manufacture of ARIKAYCE in Therapure's existing manufacturing facility in Mississauga, Ontario, Canada. Therapure manufactures ARIKAYCE for us on a
non-exclusive basis. The agreement has an initial term of five years from the first date on which Therapure delivers ARIKAYCE to us after we obtain permits related to the manufacture of ARIKAYCE, and
will renew automatically for successive periods of two years each, unless terminated by either party by providing the required two years' prior written notice to the other party. Notwithstanding the
foregoing, the parties have rights and obligations under the agreement prior to the commencement of the initial term. Under the agreement, we are obligated to pay certain minimum amounts for the
batches of ARIKAYCE produced each calendar year. The agreement allows for termination by either party upon the occurrence of certain events, including (i) the material breach by the other party
of any provision of the agreement or the quality agreement expected to be entered into between the parties, and (ii) the default or bankruptcy of the other party. In addition, we may terminate
the agreement for any reason upon no fewer than 180 days' advance notice.
We
entered into a services agreement with Synteract pursuant to which we retained Synteract to perform implementation and management services in connection with the 212 study. We may
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terminate
the services agreement or any work order for any reason and without cause with 30 days' written notice. Either party may terminate the agreement in the event of a material breach or,
bankruptcy petition by the other party or, if any approval from a regulatory authority is revoked, suspended or expires without renewal. We anticipate that aggregate costs relating to all work orders
for the 212 study will be approximately $45 million over the period of the study. In April 2015, we entered into a work order with Synteract to perform implementation and management services
for the 312 study. We anticipate that aggregate costs relating to all work orders for the 312 study will be approximately $25 million over the period of the study.
In
2004 and 2009, we entered into research funding agreements with CFFT whereby we received $1.7 million and $2.2 million for each respective agreement in research funding
for the development of ARIKAYCE. If ARIKAYCE becomes an approved product for CF in the US, we will owe a payment to CFFT of up to $13.4 million that is payable over a three-year period after
approval as a commercialized drug in the US. Furthermore, if certain global sales milestones are met within five years of the drug commercialization, we would owe an additional payment of
$3.9 million. Under the 2009 agreement, in the event we terminate development of ARIKAYCE for CF prior to first commercial sale of a product containing ARIKAYCE for a period of 360 continuous
days, and such termination is not for reasons outside of our reasonable control, then at CFFT's election and within 180 days of such termination, CFFT (1) may elect to develop ARIKAYCE
and (2) will have the right to receive from us an exclusive (subject to certain exceptions), royalty-free, sub-licensable license to use, develop, sell and commercialize a product containing
ARIKAYCE in the treatment of certain infections in CF patients or pulmonary disease.
In
October 2016, we entered into the AZ License Agreement, pursuant to which AstraZeneca granted us exclusive global rights for the purpose of developing and commercializing AZD7986
(renamed INS1007). In consideration of the licenses and other rights granted by AstraZeneca, we made an upfront payment of $30.0 million in late October 2016. We are obligated to make a series
of contingent milestone payments to AstraZeneca totaling up to an additional $85.0 million upon the achievement of clinical development and regulatory filing milestones. If we elect to develop
INS1007 for a second indication, we will be obligated to make an additional series of contingent milestone payments totaling up to $42.5 million. We are not obligated to make any additional
milestone payments for any additional indications. In addition, we have agreed to pay AstraZeneca tiered royalties ranging from a high single-digit to mid-teen on net sales of any approved product
based on INS1007 and one additional payment of $35.0 million upon the first achievement of $1 billion in annual net sales. The AZ License Agreement provides AstraZeneca with the option
to negotiate a future agreement with us for commercialization of INS1007 in chronic obstructive pulmonary disease or asthma. If we fail to comply with our obligations under our agreements with
AstraZeneca (including, among other things, if we fail to use commercially reasonable efforts to develop and commercialize a product based on INS1007, or we are subject to a bankruptcy or insolvency),
AstraZeneca would have the right to terminate the license.
In
November 2015, we entered into an agreement with Respironics Inc., a division of Philips (Respironics), for the clinical supply of nebulizers to be used in the development of
INS1009 for PAH. The agreement calls for payments to Respironics upon the achievement of certain clinical milestones
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relating
to the development of INS1009, aggregating to $7.6 million. In addition, we will be required to pay a royalty on net sales of the product, if any.
Competition
The
biotechnology and pharmaceutical industries are highly competitive. We face potential competitors from many different areas including commercial pharmaceutical, biotech and device
companies, academic institutions and scientists, other smaller or earlier stage companies and non-profit organizations developing anti-infective drugs and drugs for respiratory diseases. Many of these
companies have greater human and financial resources and may have product candidates in more advanced stages of development and may reach the market before our product candidates. Competitors may
develop products that are more effective, safer or less expensive or that have better tolerability or convenience. We also may face generic competitors where third-party payers will encourage use of
the generic products. Although we believe that our formulation delivery technology, respiratory and anti-infective expertise, experience and knowledge in our specific areas of focus provide us with
competitive advantages, these potential competitors could reduce our commercial opportunity. Additionally, there currently are, and in the future there may be, already-approved products for certain of
the indications for which we are developing, or in the future may choose to develop, our product candidates. For instance, PAH is a competitive indication with established products, including other
formulations of treprostinil.
In
the NTM lung disease market, our major competitors include pharmaceutical and biotechnology companies that have approved therapies or therapies in development for the treatment of
chronic lung infections. While some companies have expressed interest in studying their products for NTM, we are not aware of any companies that are currently conducting clinical trials for the
treatment of refractory NTM lung disease or of any approved inhaled therapies specifically indicated for refractory NTM lung infections in North America, Europe or Japan, but, as previously described,
there is an ATS/IDSA-recommended treatment regimen that is utilized.
Government Regulation
Orphan Drug Designation
United States
Under
the Orphan Drug Act (ODA), the FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition (for the purposes of the ODA, "rare" is generally
defined as a disease or condition for which the drug is intended affects fewer than 200,000 people in the US) if it meets certain criteria specified by the ODA and FDA. After the FDA grants orphan
drug designation, the drug and the specific intended use(s) for which it has obtained designation are listed by the FDA in a publicly-accessible database. The FDA has designated ARIKAYCE as an orphan
drug for treatment of (i) infections caused by NTM, (ii) bronchiectasis in patients with
Pseudomonas
aeruginosa or other susceptible
microbial pathogens and (iii) bronchopulmonary
Pseudomonas
aeruginosa infections in CF patients.
Orphan
drug designation qualifies the sponsor for various development incentives of the ODA, including tax credits for qualified clinical testing, and a waiver of the NDA user fee
(unless the application seeks approval for an indication not included in the orphan drug designation). Orphan drug designation also affords the company a period of marketing exclusivity upon approval
of the drug. Specifically, the first NDA applicant with an FDA orphan drug designation for a particular active
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moiety
to receive FDA approval of the drug for an indication covered by the orphan designation is entitled to a seven-year exclusive marketing period, often referred to as orphan drug exclusivity, in
the US for that drug and indication. A product that has several separate orphan designations may have several separate market exclusivities. During the orphan drug exclusivity period, the FDA may not
approve any other applications to market the same drug for the same indication for use, except in limited circumstances, such as a showing of clinical superiority to the product that has orphan drug
exclusivity. Orphan drug exclusivity does not prevent the FDA from approving a different drug for the same disease or condition or the same drug for a different disease or condition, and it does not
alter the timing or scope of the regulatory review and approval process; the sponsor must still submit evidence from clinical and non-clinical studies sufficient to demonstrate the safety and
effectiveness of the drug.
The
European Commission grants orphan drug designation to promote the development of drugs or biologics (1) for life-threatening or chronically debilitating conditions affecting
not more than five in 10,000 people in the EU, or (2) for life threatening, seriously debilitating or serious and chronic condition in the EU where, without incentives, sales of the drug in the
European Economic Area (the European Union plus Iceland, Lichtenstein, and Norway) (EEA) are unlikely to be sufficient to justify its development. Orphan drug designation is available either if no
other satisfactory method of diagnosing, preventing or treating the condition is approved in the EEA or if such a method does exist but the proposed orphan drug will be of significant benefit to
patients. The European Commission has granted an orphan designation for ARIKAYCE for the treatment of NTM lung disease.
If
a drug with an orphan drug designation subsequently receives a marketing authorization for a therapeutic indication which is covered by such designation, the drug is entitled to
orphan exclusivity. Orphan exclusivity means that the EMA or national medicines agency may not accept another application for authorization, or grant an authorization, for a same or similar drug for
the same therapeutic indication. Competitors may receive such a marketing authorization despite orphan exclusivity, provided that they demonstrate that the existing orphan product is not supplied in
sufficient quantities or that the 'second' drug or biologic is clinically superior to the existing orphan product. The 'second' drug may but need not have an orphan designation as well. The period of
orphan exclusivity is ten years, which can be extended by two years where an agreed pediatric investigation plan has been implemented. The exclusivity period may also be reduced to six years if the
designation criteria are no longer met, including where it is shown that the product is sufficiently profitable not to justify maintenance of market exclusivity. Each orphan designation carries the
potential for one market
exclusivity for all the therapeutic indications that are covered by the designation. A product that has several separate orphan designations may have several separate market exclusivities.
Orphan
drug designation also provides opportunities for free protocol assistance and fee reductions for access to the centralized regulatory procedure or fee exemptions for companies
with a small and medium enterprises status. In addition, Member States may provide national benefits to orphan drugs, such as early access to the reimbursement procedure or exemption from any turnover
tax imposed on pharmaceutical companies.
The
orphan designation may be applied for at any time during the development of the drug but before the application for marketing authorization. At the time of marketing authorization,
the criteria for orphan designation are examined again, and the Commission decides on the maintenance of the orphan designation. The non-maintenance of the orphan designation means that the drug loses
its orphan status and thus no longer benefits from orphan exclusivity, fee reductions or exemptions, and national benefits.
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Drug Approval
United States
In
the US, pharmaceutical products are subject to extensive regulation by the FDA and other government bodies. The FDCA and other federal and state statutes and regulations govern,
among other things, the research, development, testing, manufacture, storage, recordkeeping, approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling
and
import and export of pharmaceutical products. Failure to comply with applicable US requirements at any time during product development, approval, or after approval may subject a company to a variety
of administrative or judicial sanctions, such as imposition of clinical holds, FDA refusal to file or approve new drug applications, warning letters, product recalls, product seizures, total or
partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement, civil penalties, and criminal prosecution. The description below
summarizes the current approval process in the US for our product candidates.
Preclinical
studies include laboratory evaluation of product chemistry, formulation and toxicity, and pharmacology, as well as animal trials to assess the characteristics and potential
safety and efficacy of the product. The conduct of the preclinical tests must comply with federal regulations and requirements including the FDA's good laboratory practices (GLP) regulations and the
US Department of Agriculture's regulations implementing the Animal Welfare Act. An IND sponsor must submit the results of the preclinical tests, together with manufacturing information, analytical
data, any available clinical data or literature, and a proposed clinical trial protocol, among other things, to the FDA as part of an IND application. Certain non-clinical tests, such as animal tests
of reproductive toxicity and carcinogenicity, may continue even after the IND is submitted. An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time the
FDA raises concerns or questions related to one or more proposed clinical trials and places the clinical trial on a clinical hold. In such a case, the IND sponsor and the FDA must resolve any
outstanding concerns before the clinical trial can begin. As a result, submission of an IND may not result in the FDA allowing clinical trials to commence.
Clinical
trials involve the administration of the investigational new drug to human subjects (healthy volunteers or patients) under the supervision of a qualified investigator. Clinical
trials must be conducted (i) in compliance with all applicable federal regulations and guidance, including those pertaining to good clinical practice (GCP) standards that are meant to protect
the rights, safety, and welfare of human subjects and to define the roles of clinical trial sponsors, investigators, and monitors
as well as (ii) under protocols detailing, among other things, the objectives of the trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. Each
protocol involving testing of a new drug in the US (whether in patients or healthy volunteers) must be included as a submission to the IND, and the FDA must be notified of subsequent protocol
amendments, including new protocols. In addition, the protocol must be reviewed and approved by an institutional review board (IRB), and all study subjects must provide informed consent. Typically,
before any clinical trial, each institution participating in the trial will require review of the protocol before the trial commences at that institution. Progress reports detailing the results of the
clinical trials must be submitted at least annually to the FDA and there are additional, more frequent reporting requirements for certain adverse events.
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A
study sponsor might choose to discontinue a clinical trial or a clinical development program for a variety of reasons. The FDA may impose a temporary or permanent clinical hold, or
other sanctions, if it believes that the clinical trial either is not being conducted in accordance with the FDA requirements or presents an unacceptable risk to the clinical trial subjects. An IRB
may also require the clinical trial at the site to be halted, either temporarily or permanently, for failure to comply with the IRB's requirements, or may impose other conditions.
Clinical
trials to support NDAs for marketing approval are typically conducted in three sequential pre-approval phases, but the phases may overlap or be combined. In Phase 1,
short term (typically less than a few months) testing is conducted in a small group of subjects (typically 20-100), who may be patients with the target disease or condition or healthy volunteers, to
evaluate its safety, determine a safe dosage range, and identify side effects. In Phase 2, the drug is given to a larger group of subjects (typically up to several hundred) with the target
condition to further evaluate its safety and gather preliminary evidence of efficacy. Phase 3 studies typically last between several months and two years. In Phase 3, the drug is given
to a large group of subjects with the target disease or condition (typically several hundred to several thousand), often at multiple geographical sites, to confirm its effectiveness, monitor side
effects, and collect data to support drug approval. Only a small percentage of investigational drugs complete all three phases of development and obtain marketing approval.
After
completion of the required clinical testing, an NDA can be prepared and submitted to the FDA. FDA approval of the NDA is required before marketing of the product may begin in the
US. The NDA is a large submission that must include, among other things, the results of all preclinical, clinical and other testing and a compilation of data relating to the product's pharmacology,
chemistry, manufacture, and controls. The application also includes representative samples, copies of all drug product labeling, patent information, and a financial certification or disclosure
statement. The cost of preparing and submitting an NDA is substantial. Under federal law, the submission of most NDAs is additionally subject to a substantial application user fee, and annual product
and establishment user fees also apply, which typically increase annually.
The
FDA has 60 days from its receipt of an NDA to determine whether the application is accepted for filing based on the FDA's threshold determination that it is sufficiently
complete to permit substantive review. Once the submission is accepted for filing, the FDA begins a substantive review. The FDA may refer applications for novel drug products or drug products that
present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes outside clinicians and other experts, for review, evaluation and a recommendation as to
whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations.
Before
approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP. Additionally, the FDA will typically inspect the facility or the
facilities at which the drug is manufactured. FDA will not approve the product unless compliance with current good manufacturing practices (cGMP) is satisfactory and the NDA contains data that provide
substantial evidence, generally consisting of adequate and well-controlled clinical investigations, that the drug is safe and effective in the indication(s) studied. The FDA also reviews the proposed
labeling submitted with the NDA and typically requires changes in the labeling text.
After
the FDA evaluates the NDA and the manufacturing and testing facilities, it issues either an approval letter or a complete response letter. Complete response letters generally
outline the deficiencies in the submission and delineate the additional testing or information needed in order for
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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. An approval
letter, which may specify post approval requirements, authorizes commercial marketing of the drug for the approved indication or indications and the other conditions of use set out in the approved
prescribing information. Once granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained or problems are identified following initial marketing. Under
priority review status, the FDA has 180 days from the date of an NDA filing to issue either an approval letter or a complete response letter, unless the review period is adjusted by mutual
agreement between the FDA and the applicant or as a result of the applicant submitting a major amendment. In practice,
however, the performance goals established pursuant to the Prescription Drug User Fee Act have effectively extended the initial review cycle beyond 180 days. The FDA's current performance goals
call for the FDA to complete review of 90 percent of standard (non-priority) NDAs within 10 months of filing and within six months of filing for priority NDAs (two additional months are
added to standard and priority NDAs for a new molecular entity (NME) after the FDA receives an application for the agency to determine whether the application may be filed).
As
a condition of NDA approval, the FDA may require substantial post-approval testing, known as phase 4 studies, to be conducted in order to gather additional information on the
drug's effect in various populations and any side effects associated with long-term use. Beyond routine post marketing safety surveillance, the FDA may require specific additional surveillance to
monitor the drug's safety or efficacy and may impose other conditions, including labeling restrictions that can materially affect the potential market and profitability of the drug. As a condition of
approval, or after approval, the FDA also may require submission of a risk evaluation and mitigation strategy (REMS) to mitigate any identified or suspected serious risks. The REMS may include
medication guides, physician communication plans, assessment plans, and elements to assure safe use, such as restricted distribution methods, patient registries, or other risk minimization tools.
Further post-approval requirements are discussed below.
Accelerated
approval regulations allow certain drugs for serious or life-threatening conditions to be approved on the basis of surrogate endpoints (i.e., clinical endpoints other
than survival or irreversible morbidity) or intermediate clinical endpoints, which can substantially reduce time to approval. A surrogate endpoint used for accelerated approval is a
markera 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. Likewise,
an intermediate clinical endpoint is a measure of a therapeutic effect that is considered reasonably likely to predict the clinical benefit of a drug, such as an effect on irreversible morbidity and
mortality. The FDA bases its decision on whether to accept the proposed surrogate or intermediate clinical endpoint on the scientific support for that endpoint.
As
a condition of approval, the FDA may require certain adequate and well-controlled post-marketing clinical studies to verify and describe clinical benefit of the product, and may
impose restrictions on distribution to assure safe use. Post marketing studies would usually be required to be studies already underway at the time of the accelerated approval. In addition,
promotional materials for an accelerated approval drug to be used in the first 120 days post-approval must be submitted to the FDA prior to approval, and materials to be used after that 120-day
period must be submitted 30 days prior to first use. If the required post-marketing studies fail to verify the clinical benefit of the drug, or if the applicant fails to perform the required
post-marketing studies with due diligence, the FDA may
withdraw approval of the drug under streamlined procedures in accordance with the agency's regulations. The agency may also withdraw approval of a drug if, among other things, the promotional
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materials
for the product are false or misleading, or other evidence demonstrates that the drug product is not shown to be safe or effective under its conditions of use.
The
FDA also has various programsfast track designation, priority review, and breakthrough designationthat are intended to expedite or streamline the process
for the development and FDA review of drugs that meet certain qualifications. The purpose of these programs is to provide important new drugs to patients earlier than under standard FDA review
procedures. The programs each have different eligibility criteria and provide different benefits, and can be applied either alone or in combination depending on an applicant's circumstances. Fast
track designation applies to a drug that is intended to treat a serious condition and for which nonclinical or clinical data demonstrate the potential to address unmet medical need. It should be
requested at the time of IND submission or ideally no later than the pre-NDA meeting. The FDA must respond to requests for fast track designation within 60 days of receipt of the request. If
granted, the applicant is eligible for actions to expedite development and review, such as frequent interaction with the review team, as well as for rolling review, meaning that the applicant may
submit sections of the application as they are available. The timing of FDA's review of these sections depends on a number of factors, and the review clock does not start running until the agency has
received a complete NDA submission. The FDA may withdraw fast track designation if the agency determines that the designation is no longer supported by data emerging in the clinical trial process.
Priority
review applies to an application (both original and efficacy supplement) for a drug that treats a serious condition and that, if approved, would provide a significant
improvement in safety or effectiveness. It also applies to any supplement that proposes a labeling change pursuant to a report on a pediatric study. A request for priority review is submitted at the
time of NDA or supplemental NDA submission. The FDA must respond within 60 days of receipt of the request. If granted, the review time is shortened from the standard 10 months to
6 months, with two additional months in the case of a NME.
Breakthrough
therapy designation applies to a drug that is intended to treat a serious condition and for which preliminary clinical evidence indicates that the drug may demonstrate
substantial improvement on a clinically significant endpoint(s) over available therapies. It can be requested with the IND submission and ideally no later than the end-of-phase 2 meeting. The
FDA must respond within 60 days of receipt of the request. If granted, the applicant receives intensive guidance on efficient drug development, intensive involvement of senior managers and
experienced review and regulatory health project management staff in a proactive, collaborative, cross-disciplinary review, rolling review, and other actions to expedite review. Designation may be
rescinded if the product no longer meets the
criteria for breakthrough therapy designation. ARIKAYCE has been designated as a breakthrough therapy.
Drugs
that are designated as QIDPs are eligible for priority review and fast track designation, and well as market exclusivity. A product is eligible if it is an antibacterial or
anti-fungal drug for human use that is intended to treat serious or life-threatening infections, including: those caused by an anti-bacterial or anti-fungal resistant pathogen, including novel or
emerging infectious pathogens; or caused by qualifying pathogens listed by the FDA. A drug sponsor may request that the FDA designate its product as a QIDP at any time prior to NDA submission. The FDA
must make a QIDP determination within 60 days of receiving the designation request. ARIKAYCE has been designated as a QIDP for NTM lung disease.
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After
NDA approval, owners of relevant drug patents may apply for up to a five-year patent extension on a single patent. The allowable patent term extension is calculated as half of the
drug's testing phase (the time between IND application and NDA submission) and all of the review phase (the time between NDA submission and approval) up to a maximum of five years. The time can be
shortened if the FDA determines that the applicant did not pursue approval with due diligence. The total patent term after the extension may not exceed 14 years. For patents that might expire
during the application phase, the patent owner may request an interim patent extension. An interim patent extension increases the patent term by one year and may be renewed up to four times. For each
interim patent extension granted, the post-approval patent extension is reduced by one year. The director of the United States Patent and Trademark Office must determine that approval of the drug
covered by the patent for which a patent extension is being sought is likely. Interim patent extensions are not available for a drug for which an NDA has not been submitted.
A
variety of non-patent exclusivity periods are available under the FDCA that can delay the submission or approval of certain applications for competing products.
A
five-year period of non-patent exclusivity within the US is granted to the first applicant to gain approval of an NDA for a new chemical entity (NCE). An NCE is a drug that contains
no active moiety (the molecule or ion responsible for the action of the drug substance) that has been approved by the FDA in any other application submitted under section 505(b) of the Act.
During the exclusivity period for a NCE, the FDA may not accept for review an abbreviated new drug application, or ANDA, or a 505(b)(2) NDA submitted by another company that references
(i.e., relies on FDA prior approval of) the NCE drug. However, an ANDA or 505(b)(2) NDA may be submitted after four years if it contains a certification of patent invalidity or non-infringement
with respect to a patent listed with the FDA for the reference NDA.
A
three-year period of non-patent exclusivity is granted for a drug product that contains an active moiety that has been previously approved, when the application contains reports of
new clinical investigations (other than bioavailability studies) conducted or sponsored by the sponsor that were essential to approval of the application, for example, for new indications, dosages,
strengths or dosage forms of an existing drug. This three-year exclusivity covers only the conditions of use associated with the new clinical investigations, which means that the FDA may approve
applications for other versions of the original, unmodified drug product. Where this form of exclusivity applies, it prevents FDA approval of an ANDA or 505(b)(2) NDA subject to the exclusivity for
the three-year period; however, the FDA may accept and review ANDAs or 505(b)(2) NDAs during the three-year period.
These
exclusivities also do not preclude FDA approval of a 505(b)(1) application for a duplicate version of the drug during the period of exclusivity, provided that the applicant
conducts or obtains a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.
Products
with QIDP designation may receive a five-year extension of other non-patent exclusivities for which the drug is also eligible. The exclusivity does not prevent the FDA from
approving a subsequent application for a change to the QIDP-designated drug that results in a new indication, route of administration, dosing, schedule, dosage form, delivery system, delivery device
or strength. For example, an approved product with orphan designation and QIDP designation, like ARIKAYCE, would have 12 years of marketing exclusivity.
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Medical
devices, such as the eFlow Nebulizer System, may receive marketing authorization from the FDA as stand-alone devices, or in some cases, may receive marketing authorization as
part of a combination product. In either case, the ultimate product will need to satisfy FDA requirements. The primary pathways for marketing authorization for devices in the US are 510(k) clearance
or premarket approval (PMA).
Medical
devices are also subject to certain post-clearance, post-approval requirements. Those requirements include continuing Quality System Regulation compliance, Medical Device
Reporting, Correction and Removal, and requirements governing labeling and promotional advertising.
The
FDCA permits medical devices intended for investigational use to be shipped to clinical sites if such devices comply with prescribed procedures and conditions. Devices intended for
investigational use may be exempted from premarket notification and premarket approval requirements when shipped for use in clinical trials, but they must bear a label indicating that they are for
investigational use. This labeling may not represent that the device is safe or effective for the purposes for which it is being investigated.
A
combination product is a product comprising two or more regulated components (e.g., a drug and device) that are combined into a single product, co-packaged, or sold separately
but intended for co-administration, as evidenced by the labeling for the products. A drug that is administered using a nebulizer, such as ARIKAYCE or INS1009, is an example of a combination
drug/device product.
The
FDA is divided into various Centers, which each have authority over a specific type of product. NDAs are reviewed by personnel within the Center for Drug Evaluation and Research,
while device applications and premarket notifications are reviewed by the Center for Devices and Radiological Health. When reviewing a drug/device combination product, the FDA must assign a lead
Center to review the product, based on the combination product's primary mode of action (PMOA), which is the single mode of a combination product that provides the most important therapeutic action of
the combination product. The Center that regulates that portion of the product that generates the PMOA becomes the lead evaluator. If there are two independent modes of action, neither of which is
subordinate to the other, the FDA makes a determination as to which Center to assign the product based on consistency with other combination products raising similar types of safety and effectiveness
questions or to the Center with the most expertise in evaluating the most significant safety and effectiveness questions raised by the combination product. In addition, the Office of Combination
Products (OCP) oversees the alignment of feedback regarding reviews involving multiple Centers and ensures that each Center completes its review and provides results to the lead Center in a timely
manner.
When
evaluating an application, a lead Center may consult other Centers and apply the standards that would be applicable but still retain complete reviewing authority, or it may
collaborate with another Center, by which the Center assigns review of a specific section of the application to another Center,
delegating its review authority for that section. Depending on the type of combination product, approval or clearance could be obtained through submission of a single marketing application or through
separate applications for the individual constituent parts (i.e., an NDA for the drug and a premarket notification for the device). The FDCA directs the FDA to conduct a review of a combination
product under a single marketing application whenever appropriate. This application is submitted to the Center selected to be the lead evaluator. The agency has the discretion to require
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separate
applications to more than one Center, and applicants may choose to submit separate applications for constituent parts of a combination (unless the FDA determines one application is
necessary). One reason to submit multiple applications is if the applicant wishes to receive some benefit that accrues only from approval under a particular type of application, like new drug product
exclusivity. If multiple applications are submitted, each application is generally reviewed by the Center with authority over each application type. For combination products that contain an approved
constituent part (such as a drug-device combination product in which the device has previously received clearance), the FDA may require that the application(s) include only such information as is
necessary to meet the standard for clearance or approval, taking into account any prior finding of safety or effectiveness for the approved constituent part.
Like
their constituent productse.g., drugs and devicescombination products are highly regulated and subject to a broad range of post marketing
requirements including cGMPs, adverse event reporting, periodic reports, labeling and advertising and promotion requirements and restrictions.
Under
US and certain foreign laws intended to improve clinical trial transparency, sponsors of clinical trials may be required to register and disclose certain information about their
clinical trials. This can include information related to the investigational drug, patient population, phase of investigation, study sites and investigators, and other aspects of the clinical trial.
This information is then made publicly available. Under a recently revised regulation in the US, sponsors are obligated to disclose the results of these trials after completion (prior to the new
rulemaking, disclosure of results was only required if the product or new indication was approved by the FDA). In the US, disclosure of the results of these trials can be delayed for up to two years
if the sponsor is seeking approval of the product or a new
indication. Competitors may use this publicly-available information to gain knowledge regarding the progress of development programs.
Once
an NDA is approved, a product will be subject to certain post-approval requirements, including those relating to advertising, promotion, adverse event reporting, recordkeeping, and
cGMP, as well as registration, listing, and inspection. 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.
The
FDA regulates the content and format of prescription drug labeling, advertising, and promotion, including direct-to-consumer advertising and promotional Internet communications. FDA
also establishes parameters for permissible non-promotional communications between industry and the medical community, including industry-supported scientific and educational activities. The FDA and
other agencies actively enforce the laws and regulations prohibiting the promotion for uses not consistent with the approved labeling, and a company that is found to have improperly promoted off-label
uses or otherwise not to have met applicable promotion rules may be subject to significant liability under both the FDCA and other statutes, including the False Claims Act.
Manufacturers
are subject to requirements for adverse event reporting and submission of periodic reports following FDA approval of an NDA.
All
aspects of pharmaceutical manufacture must conform to cGMPs after approval. Drug manufacturers and certain of their subcontractors are required to register their establishments with
the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA
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during
which the FDA inspects manufacturing facilities to assess compliance with cGMPs. 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 areas of production and quality control to maintain compliance with
cGMPs.
Drugs
may be marketed only for the approved indications and in accordance with the provisions of the approved labeling. Changes to some of the conditions established in an approved
application, including changes in indications, labeling, product formulation, or manufacturing processes or facilities, require submission and FDA approval of a new NDA or NDA supplement, in some
cases before the change may be implemented. An NDA supplement for a new indication typically requires clinical data similar to that in the original application, and the FDA uses the same procedures
and actions in reviewing NDA supplements as it does in reviewing NDAs.
As
previously mentioned, the FDA also may require phase 4 studies and may require a REMS, which could restrict the distribution or use of the product.
In
addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act (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.
To
obtain approval of a drug under the EU regulatory system, an application for a marketing authorization may be submitted under a centralized, a decentralized or a national procedure.
The
centralized procedure, which is compulsory for medicines produced by certain biotechnological processes or for orphan drugs, provides for the grant of a single marketing authorization that is valid
for all EU member states, which grants the same rights and obligations in each member state as a national marketing authorization. As a general rule, only one marketing authorization may be granted
for drugs approved through the centralized procedure and the marketing authorization is also relevant for the EEA countries.
Under
the centralized procedure, the CHMP is required to adopt an opinion on a valid application within 210 days, excluding clock stops when additional information is to be
provided by the applicant in response to questions. More specifically, on day 120 of the procedure, once the CHMP has received the preliminary assessment reports and opinions from the Rapporteur and
Co-Rapporteur designated by the CHMP, it adopts a list of questions, which are sent to the applicant together with the CHMP's overall conclusions. Applicants then have three months to respond to the
CHMP (and can request a three-month extension). The Rapporteur and Co-Rapporteur assess the applicant's replies, revise the assessment report as necessary and may prepare a list of outstanding issues.
The revised assessment report and list of outstanding issues are sent to the applicant together with the CHMP's recommendation by day 180 of the procedure. Applicants then have one month to respond to
the CHMP (and can request a one or two-month extension). The Rapporteur and Co-Rapporteur assess the applicant's replies, submit them for discussion to the CHMP and prepare a final assessment report.
Once its scientific evaluation is completed, the CHMP gives a favorable or unfavorable opinion as to
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whether
to grant the marketing authorization. After the adoption of the CHMP opinion, a decision must be adopted by the European Commission, after consulting the Standing Committee of the Member
States. The European Commission prepares a draft decision and circulates it to the member states; if the draft decision differs from the CHMP opinion, the Commission must provide detailed
explanations. The European Commission adopts a decision within 15 days of the end of the consultation procedure.
Various
programs, including accelerated procedure, conditional approval and approval under exceptional circumstances, are intended to expedite or simplify the approval of drugs that
meet certain
qualifications. The purpose of these programs is to provide important new drugs to patients earlier than under standard approval procedures.
For
drugs which are of major interest from the point of view of public health, in particular from the viewpoint of therapeutic innovation, applicants may submit a substantiated request
for accelerated assessment. If the CHMP accepts the request, the review time is reduced from 210 to 150 days.
Furthermore,
for certain categories of medicinal products, marketing authorizations may be granted on the basis of less complete data than is normally required in order to meet unmet
medical needs of patients or in the interest of public health. In such cases, the company may request, or the CHMP may recommend, the granting of a marketing authorization, subject to certain specific
obligations; such marketing authorization may be conditional or under exceptional circumstances. The timelines for the centralized procedure described above also apply with respect to applications for
a conditional marketing authorization or marketing authorization under exceptional circumstances.
Conditional
marketing authorizations may be granted for products designated as orphan medicinal products, if all of the following conditions are met: (1) the risk-benefit balance
of the product is positive, (2) the applicant will likely be in a position to provide the required comprehensive clinical trial data, (3) the product fulfills unmet medical needs, and
(4) the benefit to public health of the immediate availability on the market of the medicinal product concerned outweighs the risk inherent in the fact that additional data are still required.
Conditional
marketing authorizations are valid for one year, on a renewable basis until the holder provides a comprehensive data package. The granting of conditional marketing
authorization depends on the applicant's ability to fulfill the conditions imposed within the agreed upon deadline. They are subject to "conditions", i.e. the holder is required to complete
ongoing studies or to conduct new studies with a view to confirming that the benefit-risk balance is positive or to fulfill specific obligations in relation to pharmacovigilance. Once the holder has
provided a comprehensive data package, the conditional marketing authorization is replaced by a 'regular' marketing authorization.
Marketing
authorizations under exceptional circumstances may be granted where the applicant demonstrates that, for objective and verifiable reasons, they are unable to provide
comprehensive data on the efficacy and safety of the drug under normal conditions of use. Such marketing authorizations are subject to certain conditions, in particular relating to safety of the drug,
notification of incidents relating to its use or actions to be taken. They are valid for an indefinite period of time, but the conditions upon which they are based are subject to an annual
reassessment in order to ensure that the risk-benefit balance remains positive.
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If
an approved drug contains a new active substance, it is protected by data exclusivity for eight years from the notification of the Commission decision granting the marketing
authorization and then by marketing protection for an additional two or three years. Overall, the drug is protected for ten or eleven years against generic competition, and no additional exclusivity
protection is granted for any new development of the active substance it contains.
During
the eight-year period of data exclusivity, competitors may not refer to the marketing authorization dossier of the approved drug for regulatory purposes. During the period of
marketing protection, competitors may not market their generic drugs. The period of marketing protection is normally two years but may become three years if, during the eight-year data exclusivity
period, a new therapeutic indication is approved that is considered as bringing a significant clinical benefit over existing therapies.
In
the EU, the marketing of medical devices is not subject to a prior approval by a health authority, but, depending on the class of device, may require prior review by a Notified Body.
Notified Bodies are technical review bodies that are accredited and supervised by national health authorities. They conduct conformity assessment procedures of, among others, medical devices.
Medical
devices are generally governed by Directive 93/42/EEC on Medical Devices that harmonizes the conditions for placing medical devices on the European market. This Directive
however does not regulate certain important marketing aspects, such as advertising or pricing and reimbursement, which remain governed by national law.
Directive
93/42 requires medical devices to meet the essential requirements which are enumerated in the annexes to the Directive. Compliance with those requirements is demonstrated by
the CE mark as the manufacturer may only affix the CE mark if it may declare conformity with the essential requirement for each medical device that is marketed. Directive 93/42 provides recourse to
harmonized European standards in order to facilitate compliance with the essential requirements. Harmonized standards provide a presumption of conformity with the essential requirements.
Directive
93/42 institutes several conformity assessment procedures. The relevant conformity assessment procedure depends on the type of medical device and the risks involved. Devices
are divided in four groups: Class I, Class IIa, Class IIb, and Class III. Class I devices present the lowest level of risk so that, for most of these devices the
manufacturer can self-certify the product and need not rely on certification by a Notified Body. For the other classes, a Notified Body must review the manufacturer's procedures and/or the product.
Every device is initially classified by the manufacturer. However, the Notified Body may dispute the classification and assert that the device should be included in a class requiring stricter
conformity assessment procedures. Specific rules apply to custom-made medical devices, medical devices that are used in clinical trials, and medical devices that incorporate a medicinal ingredient.
For
classes of devices other than Class I, a manufacturer must have a Notified Body test and certify conformity of its design and production procedures or its products with the
essential requirements of Directive 93/42. Certification takes the form of a certificate of conformity issued by the Notified Body, which is valid throughout the European Union. Upon certification by
the Notified Body, the manufacturer affixes the CE mark to the medical device, which allows the product to move freely within the EU and thus prevents EU Member States from restricting sales and
marketing of the
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devices,
unless such measure is justified on the basis of evidence of non-compliance. Ultimately, the manufacturer is responsible for the conformity of the device with the essential requirements and
for the affixing of the CE mark. The eFlow Nebulizer System is CE marked by PARI in the EU.
Manufacturers
of medical devices are subject to materiovigilance obligations that require reporting of incidents or near incidents related to the use of a medical device, which
incidents may demonstrate the need for corrective action by the manufacturer. In addition, Notified Bodies regularly re-assess the conformity of a medical device to the essential requirements of
Directive 93/42 and may from time to
time audit the manufacturer and may, where needed, suspend or withdraw the manufacturer's certificate of conformity.
The
Minister of Health, Labor and Welfare is the government agency that provides regulatory approval for pharmaceutical products in Japan. Parties engaged in manufacture or sale of
products in Japan must receive the approval of the Minister of Health, Labor and Welfare. The Pharmaceutical Affairs Law of Japan requires a license for marketing authorization when importing to Japan
and selling pharmaceutical products manufactured in other countries. It also requires a foreign manufacturer to get each of its manufacturing sites certified as a manufacturing site of pharmaceutical
products to be marketed in Japan. To receive a license for marketing authorization, the manufacturer or seller must, at the very least, employ certain manufacturing marketing, quality and safety
personnel. A license for marketing authorization may not be granted if the quality management methods and post marketing safety management methods applied with respect to the pharmaceutical product
fail to conform to the standards stipulated in the ordinances promulgated by the Ministry of Health, Labor and Welfare.
In
addition to the licensing requirements for entities that engage in manufacturing, importing and sales of medical products as mentioned above, the law also requires that the medical
products have obtained approval before they are marketed and sold in Japan. The process for the approval includes such elements as evaluation and testing of trustworthiness of the clinical trial,
testing of quality, efficacy, absorption and egestion, toxicity, and safety of the products. The time required for the approval process varies depending on the product, but it can take years. The
product also needs approval for pricing to be applied for redemption of health insurance. The medical products which once are approved and marketed are also subject to regular post-marketing vigilance
of safety and quality under the standards of Good Manufacturing Practice.
Pediatric Information
United States
Under
the Pediatric Research Equity Act of 2003 (PREA), NDAs and NDA supplements must contain data that are adequate to assess the safety and effectiveness of the drug for the claimed
indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the drug is safe and effective. The FDA may, on its own
initiative or at the request of an applicant, grant deferrals for submission of data or full or partial waivers. Unless otherwise required by regulation, PREA does not apply to any drug for an
indication for which orphan designation has been granted. Under the Best Pharmaceuticals for Children Act (BPCA), pediatric research is incentivized by the possibility of six additional months of
pediatric exclusivity, which if granted, is added to existing exclusivity periods and patent terms listed for the applicable drug in the FDA's Orange Book at the time the sponsor satisfies the FDA's
"written request" for pediatric research. Sponsors may seek to negotiate the terms of a written request during drug development. While the
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sponsor
of an orphan designated drug may not be required to perform pediatric studies under PREA, they are eligible to participate in the incentives under the BPCA.
In
the EU, new drugs (i.e. drugs containing a new active substance) for adults, must also be tested in children. This mandatory pediatric testing is carried out through the
implementation of a pediatric investigation plan, or PIP, which is proposed by the applicant and approved by the EMA. A PIP contains all the studies to be conducted and measures to be taken in order
to support the approval of the new drug, including pediatric pharmaceutical forms, in all subsets of the pediatric population. Validation of the marketing authorization application for adults is
subject to the implementation of the PIP, subject to one or more waivers or deferrals. On the one hand, the PIP may allow a deferral for
one or more of the studies or measures included therein in order not to delay the approval of the drug in adults, and, on another hand, the EMA may grant either a product-specific waiver for the
(adult) disease/condition or one or more pediatric subsets or a class waiver for the disease/condition. PIPs are subject to modifications from time to time, when they no longer are workable. Prior to
obtaining the validation of a marketing authorization application for adults, the applicant has to demonstrate compliance with the PIP at the time of submission of the application. In the case of
orphan medicinal products, completion of an approved PIP can result in an extension of the market exclusivity period from ten to twelve years.
In
addition to regulations in the US, Europe and Japan, we will be subject to a variety of regulations in other jurisdictions governing clinical studies of our candidate products,
including medical devices. Regardless of whether we obtain FDA approval for a product candidate, we must obtain approval of the product candidate (including a medical device) by the comparable
regulatory authorities of countries outside the US before we can commence clinical studies or marketing of the product candidate in those countries. The requirements for approval and the approval
process vary from country to country, and the time may be longer or shorter than that required for FDA approval. Under certain harmonized medical device approval/clearance regulations outside the US,
reference to US clearance permits fast-tracking of market clearance. Other regions are harmonized with EU standards, and therefore recognize the CE mark as a declaration of conformity to applicable
standards. Furthermore, we must obtain any required pricing approvals in addition to regulatory approval prior to launching a product candidate in the approving country.
Health
Canada (HC) is the government agency that provides regulatory and marketing approval for drugs and therapeutic products in Canada. The ongoing Legislative and Regulatory
Modernization (LRM) is the most significant drug regulatory system reform in Canada in more than 50 years and is expected to overhaul Canada's Food and Drugs Act and Regulations. The LRM
supports a 'lifecycle' regulatory approach and is focused on strengthening evidence-based decision making, good regulatory planning, licensing, post-licensing, accountability, authority and
enforcement. Through this framework,
HC intends to improve the market authorization process and implement necessary regulatory frameworks. In October 2010, HC accelerated its modernization efforts. This included the proposed regulatory
pathways for orphan drugs (harmonized with US/EU regulations).
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The
Therapeutic Goods Administration (TGA) is the regulatory body, under the Australian Department of Health, responsible for conducting assessment and monitoring activities of
therapeutic goods in Australia. Products under the jurisdiction of the TGA include prescription medicines, medical devices (simple and complex), diagnostic products, vaccines, and biologics.
Activities of the TGA include classifying the product based on risk to the person, implementing appropriate regulatory controls for the manufacturing processes, and monitoring approved products with a
comprehensive adverse event reporting program. The TGA requires that a marketing authorization be submitted and reviewed for safety and efficacy, and approved before a medication can be marketed and
provided to patients commercially. A separate regulatory pathway is utilized to conduct clinical trials in Australia. Australia has also an Orphan drug designation.
Early Access Programs in the European Union
Under
EU law, member states are authorized to adopt national legal regimes for the supply or use of non-authorized drugs in case of therapeutic needs. The most common national legal
regimes are compassionate use programs and named patient sales, but other national regimes for early access may be available, depending on the member state. For drugs that must be approved through the
centralized procedure, such as orphan drugs, compassionate use programs are also regulated at the European level. ARIKAYCE is available in certain European countries under early access programs.
Special
programs can be set up to make available to patients with an unmet medical need a promising drug which has not yet been authorized for their condition ("compassionate use"). As
a general rule, compassionate use programs can only be put in place for drugs or biologics that are expected to help patients with life-threatening, long-lasting or seriously disabling illnesses who
currently cannot be treated satisfactorily with authorized medicines, or who have a disease for which no medicine has yet been authorized. The compassionate use route may be a way for patients who
cannot enroll in an ongoing clinical trial to obtain treatment with a potentially life-saving medicine. Compassionate use programs are coordinated and implemented by the EU member states, which decide
independently how and when to open such programs according to national rules and legislation. Generally, doctors who wish to obtain a promising drug for their seriously ill patients will need to
contact the relevant national authority in their respective country and follow the procedure that has been set up. Typically, the national authority keeps a register of the patients treated with the
drug within the compassionate use program, and a system is in place to record any side effects reported by the patients or their doctors. Orphan drugs very often are subject to compassionate use
programs due to their very nature (rare diseases are life-threatening, long-lasting or seriously disabling diseases) and the long time required for both their approval and effective marketing.
Doctors
can also obtain certain drugs for their patients by requesting a supply of a drug from the manufacturer or a pharmacist located in another country, to be used for an individual
patient under their direct responsibility. This is often called treatment on a 'named-patient basis' and is distinct from compassionate use programs. In this case, the doctor responsible for the
treatment will either contact the manufacturer directly or issue a prescription to be fulfilled by a pharmacist. While manufacturers or pharmacists do record what they supply, there is no central
register of the patients that are being treated in this way.
Reimbursement of Pharmaceutical Products
In
the US, many independent third-party payers, as well as the Medicare and state Medicaid programs, reimburse buyers of pharmaceutical products. Medicare is the federal program that
provides
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health
care benefits to senior citizens and certain disabled and chronically ill persons. Medicaid is the need-based federal and state program administered by the states to provide health care
benefits to certain persons.
As
one of the conditions for obtaining Medicaid and Medicare Part B coverage for our marketed pharmaceutical products, we will need to agree to pay a rebate to state Medicaid
agencies that provide reimbursement for those products. We will also have to agree to sell our commercial products under contracts with the Department of Veterans Affairs, Department of Defense,
Public Health Service, and numerous other federal agencies as well as certain hospitals that are designated by federal statutes to receive drugs at prices that are significantly below the price we
charge to commercial pharmaceutical distributors. These programs and contracts are highly regulated and will impose restrictions on our business. Failure to comply with these regulations and
restrictions could result in a loss of our ability to continue receiving reimbursement for our drugs once approved. We may also be subject to penalties for improper marketing, including off-label
marketing, of our drugs that are reimbursed by Medicare and Medicaid.
Private
healthcare payers also attempt to control costs and influence drug pricing through a variety of mechanisms, including through negotiating discounts with the manufacturers and
through the use of tiered formularies and other mechanisms that provide preferential access to certain drugs over others within a therapeutic class. Payers also set other criteria to govern the uses
of a drug that will be deemed medically appropriate and therefore reimbursed or otherwise covered. The newly elected US President has indicated an interest in having the federal government negotiate
drug prices with pharmaceutical manufacturers.
Different
pricing and reimbursement schemes exist in other countries. In the EU, governments influence the price of drugs through their pricing and reimbursement rules and control of
national health care systems that fund a large part of the cost of those products to patients. Some jurisdictions operate positive and negative list systems under which drugs may only be marketed once
a reimbursement price has been agreed. To obtain reimbursement or pricing approval, some of these countries may require the completion of clinical trials that compare the cost-effectiveness of a
particular drug candidate to currently available therapies. Other member states allow companies to fix their own prices for drugs, but monitor and control company profits. The downward pressure on
health care costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of new drugs. In addition, in some
countries, cross-border imports from low-priced markets exert a commercial pressure on pricing within a country. There can be no assurance that any country that has price controls or reimbursement
limitations for drugs will allow favorable reimbursement and pricing arrangements for any of our products.
Fraud and Abuse and Other Laws
Healthcare
providers, physicians and third-party payers (government or private) often play a primary role in the recommendation and prescription of health care products. In the US and
most jurisdictions, numerous detailed requirements apply to government and private health care programs, and a broad range of fraud and abuse and transparency laws are relevant to pharmaceutical
companies. US federal and state healthcare laws and regulations in these areas include the following:
-
·
-
The federal anti-kickback statute;
-
·
-
The federal civil False Claims Act;
-
·
-
The federal Health Insurance Portability and Accountability Act of 1996 (HIPAA), as
amended by the Health Information Technology for Economic and Clinical Health Act (HITECH), and similar state privacy laws;
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-
·
-
The federal criminal false statements statute;
-
·
-
The price reporting requirements under the Medicaid
Drug Rebate Program and the Veterans
Health Care Act of 1992;
-
·
-
The federal Physician Payment Sunshine Act, being implemented as the Open Payments
Program; and
-
·
-
Analogous and similar state laws and regulations.
Similar
restrictions apply in the member states of the EU, which have been set out by laws or industry codes of conducts.
Employees
As
of December 31, 2016, we had a total of 161 employees, including 86 in research, clinical, regulatory, medical affairs and quality assurance; 17 in technical operations,
manufacturing and quality control; 42 in general and administrative functions; and 16 in pre-commercial activities. We had 140 employees in the US and 21 employees in Europe. We anticipate increasing
our headcount in 2017.
None
of our employees are represented by a labor union and we believe that our relations with our employees are generally good. Generally, our employees are at-will employees; however,
we have entered into employment agreements with certain of our executive officers.
Available Information
We
file electronically with the Securities and Exchange Commission (SEC), our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (Exchange Act). We make available on our website at
http://www.insmed.com, free of charge, copies of these reports as soon as reasonably practicable after filing, or furnishing them to, the SEC. The public can also obtain materials that we file with
the SEC through the SEC's website at http://www.sec.gov or at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549. Information on the operation of the Public
Reference Room is available by calling the SEC at 1-800-SEC-0330.
Also
available through our website's "Investor Relations Corporate Governance" page are charters for the Audit, Compensation and Nominations and Governance committees of our board of
directors, our Corporate Governance Guidelines, and our Code of Business Conduct and Ethics.
The
references to our website and the SEC's website are intended to be inactive textual references only. Neither the contents of our website, nor the contents of the SEC's website, are
incorporated by reference in this Annual Report on Form 10-K.
Financial Information
The
financial information required under this Item 1 is incorporated herein by reference to Item 8 of this Annual Report on Form 10-K.
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ITEM 1A. RISK FACTORS
Our business is subject to substantial risks and uncertainties. Any of the risks and uncertainties described below, either alone or taken together, could
materially and adversely affect our business, financial condition, results of operations, prospects for growth, and the value of an investment in our common stock. In addition, these risks and
uncertainties could cause actual results to differ materially from those expressed or implied by forward-looking statements contained in this Form 10-K (please read the Cautionary Note
Regarding Forward-Looking Statements appearing at the beginning of this Form 10-K). The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties
not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business, financial condition, results of operations, prospects and the value of an
investment in our common
stock and could cause actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements.
Risks Related to Development and Commercialization of our Product Candidates
Our near term prospects are highly dependent on the success of our most advanced product candidate, ARIKAYCE.
If we are unable to successfully complete the development of, obtain regulatory approval for, and successfully commercialize ARIKAYCE, our business, financial condition, results of operations, the
value of our common stock and our prospects may be materially adversely affected.
We
are investing substantially all of our efforts and financial resources in the development of ARIKAYCE, our most advanced product candidate. Our ability to generate product revenue
from ARIKAYCE will depend heavily on the successful completion of development of, receipt of regulatory approval for, and commercialization of, ARIKAYCE.
Positive
results from preclinical studies of a drug candidate may not be predictive of similar results in human clinical trials, and promising results from earlier clinical trials of a
drug candidate may not be replicated in later clinical trials. Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials even
after achieving promising results in earlier stages of development. Accordingly, the results of the completed clinical trials for ARIKAYCE may not be predictive of the results we may obtain in our
clinical trials currently in progress or other trials. In addition, even if we believe our clinical trials demonstrate promising results, regulators may decline to grant regulatory
approvalconditional or otherwise. Further, even if we subsequently obtain conditional approval, it may be withdrawn under certain circumstances and confirmatory clinical studies may be
required and could fail to demonstrate sufficient safety and efficacy to obtain full approval.
We
are conducting a global phase 3 clinical study of ARIKAYCE (the 212 or CONVERT study) in adult non-CF patients with NTM lung infections caused by MAC that are refractory to
treatment. The CONVERT study is designed to confirm the culture conversion results seen in our phase 2 clinical trial (the 112 study). CONVERT study subjects who are non-converters by Month 6
may be eligible to enter a separate 12-month open-label study (the 312 study). The primary objective of the 312 study is to
evaluate the long-term safety and tolerability of ARIKAYCE in combination with a standard multi-drug regimen. The clinical trial process may fail to demonstrate with statistical significance that our
drug product candidates are effective for the proposed indications, or may fail to establish adequate safety. Such failure may cause us to abandon a drug product candidate and may delay development of
other drug product candidates.
In
the fourth quarter of 2014, we filed an MAA with the EMA for ARIKAYCE as a treatment for NTM lung disease in adult patients and for cystic fibrosis (CF) patients with
Pseudomonas
lung
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infections.
The filing was based on data from our phase 3 study in CF patients with
Pseudomonas
and our phase 2 study in patients with
NTM. In February 2015, the EMA validated our MAA as complete for review. The EMA subsequently requested additional information with respect to the CF indication regarding the similarity of ARIKAYCE to
another product that has an orphan designation for the same
Pseudomonas
indication. In the third quarter of 2015, the EMA adopted our request to
withdraw the
Pseudomonas
indication from our MAA. In April 2016, we submitted our written responses to the EMA's 180-day list of outstanding issues
(LOI). In May 2016, we participated in an oral explanation meeting with the CHMP for the NTM indication to address the LOI. After the oral explanation meeting, the CHMP concluded that the data
submitted did not provide enough evidence to support an approval. In June 2016, we withdrew our MAA. We intend to resubmit our MAA when sufficient clinical data are available.
We
do not expect ARIKAYCE or any other drug candidates we may develop to be commercially available in any market until we receive requisite approval from the FDA, EMA or equivalent
regulatory agency. The failure to obtain such approvals may materially adversely affect our business, financial condition, results of operations, the value of our common stock and our prospects.
We may not be able to obtain regulatory approvals for ARIKAYCE or any other products we develop in the US,
Europe or other countries. If we fail to obtain such approvals, we will not be able to commercialize our products.
We
are required to obtain various regulatory approvals prior to studying our products in humans and then again before we market and distribute our products, and the failure to do so
will prevent us from
commercializing our products, which would materially adversely affect our business, financial condition, results of operations, prospects and the value of our common stock. The regulatory review and
approval processes in both the US and Europe require evaluation of preclinical studies and clinical studies, as well as the evaluation of our manufacturing process. These processes are complex,
lengthy, expensive, resource intensive and uncertain. Securing regulatory approval to market our products requires the submission of much more extensive preclinical and clinical data, manufacturing
information regarding the process and facility, scientific data characterizing our product and other supporting data to the regulatory authorities in order to establish its safety and effectiveness.
This process also is complex, lengthy, expensive, resource intensive and uncertain. We have limited experience in submitting and pursuing applications necessary to gain these regulatory approvals.
Data
submitted to the regulators is subject to varying interpretations that could delay, limit or prevent regulatory agency approval. We may also encounter delays or rejections based on
changes in regulatory agency policies during the period in which we develop a product and the period required for review of any application for regulatory agency approval of a particular product. For
example, FDA has designated ARIKAYCE for fast track, breakthrough therapy and QIDP status, all programs intended to expedite or streamline the development and regulatory review of the drug. If we were
to lose the current designation under one or more of those programs, we could face delays in the FDA review and approval process. Resolving such delays could force us or third parties to incur
significant costs, could limit our allowed activities or the allowed activities of third parties, could diminish any competitive advantages that we or our third parties may attain or could adversely
affect our ability to receive royalties, any of which could materially adversely affect our business, financial condition, results of operations or prospects. Even with these designations, there is no
guarantee we will receive approval for ARIKAYCE on a timely basis, or at all. Similarly, we are defining our regulatory strategies to potentially secure US and EU orphan drug designations and expedite
the development and regulatory review of INS1007 through programs such as US fast track designation and breakthrough therapy, but we may be unable to obtain them. In addition, although we believe that
INS1009 could be eligible for approval under Section 505(b)(2) of the FDCA, and thus could rely at least in part on studies not
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conducted
by or for us and for which we do not have a right of reference, we may not obtain approval from the FDA to use this pathway.
Approval
by the FDA or the EMA does not ensure approval by the regulatory authorities of other countries. To market our products outside of the US and Europe we, and potentially our
third party providers, must comply with numerous and varying regulatory requirements of other countries. The approval procedures vary among countries and can involve additional product testing
and administrative review periods. The time required to obtain approval in these other territories might differ from that required to obtain FDA or EMA approval. In addition, we may be subject to
fines, suspension or withdrawal of marketing approvals, product recalls, seizure of products, operating restrictions (including with respect to our target market) and criminal prosecution if we fail
to comply with applicable US and foreign regulatory requirements.
We have not completed the research and development stage of ARIKAYCE or any other product candidates. If we
are unable to successfully commercialize ARIKAYCE or any other products, it may materially adversely affect our business, financial condition, results of operations, the value of our common stock and
our prospects.
Our
long-term viability and growth depend on the successful commercialization of ARIKAYCE and potentially other product candidates. Pharmaceutical product development is an expensive,
high risk, lengthy, complicated, resource intensive process. In order to conduct the development programs for our products, we must, among other things, be able to
successfully:
-
·
-
Identify potential product candidates;
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·
-
Design and conduct appropriate laboratory, preclinical and
other research;
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·
-
Submit for and receive regulatory approval to perform clinical studies;
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·
-
Design and conduct appropriate preclinical and clinical studies according to GLP and GCP
and disease-specific expectations of the FDA and other regulatory bodies;
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·
-
Select and recruit clinical investigators and subjects for our studies;
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·
-
Collect, analyze and correctly interpret the data from our studies;
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·
-
Submit for and receive regulatory
approvals for marketing;
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·
-
Submit for and receive reimbursement approvals for market access: and
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·
-
Manufacture the product candidates and device components according to cGMP.
The
development program with respect to any given product will take many years and thus delay our ability to generate profits associated with that product. In addition, potential
products that appear promising at early stages of development may fail for a number of reasons, including the possibility that the products may require significant additional testing or turn out to be
unsafe, ineffective, too difficult or expensive to develop or manufacture, too difficult to administer or unstable, or regulators may require additional testing to substantiate our claims. If we do
not proceed with the development of our ARIKAYCE program in the NTM lung disease or CF indications, certain organizations that provided funding to us for such developmental efforts may elect to
proceed with the development of these indications. Even if we are successful in obtaining regulatory approval for our product candidates, including ARIKAYCE, we may not obtain labeling that permits us
to market them with commercially viable claims because the final wording of the approved indication may be restrictive, or the available clinical data may not provide adequate comparative data with
other products. Failure to successfully commercialize our products will adversely affect our business, financial condition, results of operations, the value of our common stock, and our prospects.
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If our clinical studies do not produce positive results or our clinical trials are delayed, or if serious
side effects are identified during drug development, we may experience delays, incur additional costs and ultimately be unable to commercialize our product candidates in the US, Europe, Japan or other
countries.
Before
obtaining regulatory approval for the sale of our product candidates, we must conduct, at our own expense, extensive preclinical tests to demonstrate the safety of our product
candidates in animals, and clinical trials to demonstrate the safety and efficacy of our product candidates in humans.
Preclinical
and clinical testing is expensive, difficult to design and implement and can take many years to complete. Special challenges can arise in conducting trials in diseases or
conditions with small populations, such as difficulties enrolling adequate numbers of patients. Our product development costs have and may continue to increase if we experience further delays in
testing or approvals. A failure of one or more of our preclinical studies or clinical trials can occur at any stage of testing. We may experience numerous unforeseen events during, or as a result of,
preclinical testing and the clinical trial process that could delay or prevent our ability to obtain regulatory approval or commercialize our product candidates,
including:
-
·
-
Our preclinical tests or clinical trials may produce negative or inconclusive results,
and we may decide, or regulators may require us, to conduct additional preclinical testing or clinical trials or we may abandon projects that we expect to be promising;
-
·
-
Regulators or institutional review boards (IRBs) may prevent us from commencing a
clinical trial or conducting a clinical trial at a prospective trial site;
-
·
-
Enrollment in the clinical trials may take longer than expected or the clinical trials
as designed may not allow for sufficient patient accrual to complete enrollment of the trial;
-
·
-
We may experience diffculties or delays due to the number of clinical sites
involved in
our clinical trials;
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·
-
We may decide to limit or abandon our commercial development programs;
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·
-
Conditions imposed on us by the FDA or any non-US regulatory authority regarding the
scope or design of our clinical trials may require us to collect and submit information to regulatory authorities, ethics committees, IRBs or others for review and approval;
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·
-
The number of patients required for our clinical trials may be larger than we anticipate
or participants may drop out of our clinical trials at a higher rate than we anticipate;
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·
-
Our third party contractors, contract research organizations, which we refer to
as CROs,
clinical investigators, clinical laboratories, product supplier or inhalation device supplier may fail to comply with regulatory requirements or fail to meet their contractual obligations to us in a
timely manner;
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·
-
We may have to suspend or terminate one or more of our clinical trials if we, the
regulators or the IRBs determine that the participants are being exposed to unacceptable health risks or for other reasons;
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·
-
We may not be able to claim that a product
candidate provides an advantage over current
standard of care or future competitive therapies in development because our clinical studies may not have been designed to support such claims;
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·
-
Regulators or IRBs may
require that we hold, suspend or terminate clinical research for
various reasons, including potential safety concerns or noncompliance with regulatory requirements;
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·
-
The cost of our clinical trials may be greater than we anticipate;
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·
-
The supply or quality of product used in clinical trials or other materials necessary to
conduct our clinical trials may be insufficient or inadequate or we may not be able to reach agreements on acceptable terms with prospective contract manufacturers or CROs;
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·
-
The effects of our product candidates may not be the desired effects or may include
undesirable side effects or the product candidates may have other unexpected characteristics;
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·
-
Shortening of the patent protection period during which we may have the
exclusive right
to commercialize our product candidates; and
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·
-
Our competitors may be able to bring products to market before we do.
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For
example, results from our rat carcinogenicity study showed that when rats were given ARIKAYCE daily by inhalation for two years, two of the 120 rats receiving the highest dose
developed lung carcinomas. These rats received ARIKAYCE doses that were within two-fold of those in clinical studies (normalized on a body surface area basis or a lung weight basis). Based on these
results, in 2011 the
FDA placed clinical holds on our phase 3 clinical trials for ARIKAYCE, which holds were lifted in 2012. Approvability or labeling of ARIKAYCE may be negatively affected by the results from this
rat carcinogenicity study. In addition, we withdrew our MAA for ARIKAYCE in June 2016 after the CHMP concluded the data underlying it did not provide enough evidence to support approval, thereby
delaying approval and commercialization of ARIKAYCE in Europe.
Significant
preclinical or clinical trial delays also could shorten the patent protection period during which we may have the exclusive right to commercialize our product candidates.
Such delays could allow our competitors to bring products to market before we do and impair our ability to commercialize our products or product candidates.
If
we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, if we are unable to successfully complete
our clinical trials or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we
may:
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·
-
Experience increased product development costs, as we have in the past;
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·
-
Be delayed in obtaining, or
be unable to obtain, marketing approval for one or more of
our product candidates;
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·
-
Obtain approval for indications that are not as broad as intended or entirely different
than those indications for which we sought approval;
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·
-
Have the product removed from the market after obtaining marketing approval; or
-
·
-
Face a shortened patent protection period during which we may have the exclusive right to
commercialize our product candidates.
We have limited experience in conducting and managing the preclinical development activities and clinical
trials necessary to obtain regulatory approvals, including approval by the FDA and EMA and other regulatory agencies.
We
have limited experience in conducting and managing the preclinical development activities and clinical trials necessary to obtain regulatory approvals, including approval by the FDA
and EMA. Since our merger with Transave, we have not completed a regulatory filing and review process for, obtained regulatory approval of or commercialized any of our product candidates. Our limited
experience might prevent us from successfully designing, implementing, or completing a clinical trial. The application processes for the FDA, EMA and other regulatory agencies are complex and
difficult and vary by regulatory agency. We have limited experience in conducting and managing the application processes necessary to obtain regulatory approvals in the various countries and we might
not be able to demonstrate that our product candidates meet the appropriate standards for regulatory approval. If we are not successful in conducting and managing our preclinical development
activities or clinical trials or obtaining regulatory approvals, we might not be able to commercialize ARIKAYCE, or might be significantly delayed in doing so, which may materially adversely affect
our business, financial condition, results of operations, the value of our common stock and our prospects.
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We may not be able to enroll enough patients to complete our clinical trials or retain a sufficient number of
patients in our clinical trials to generate the data necessary for regulatory approval of our product candidates.
The
completion rate of our clinical studies is dependent on, among other factors, the patient enrollment rate. Patient enrollment is a function of many factors,
including:
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·
-
Investigator identification and recruitment;
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·
-
Regulatory approvals to initiate study sites;
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·
-
Patient population size;
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·
-
The nature of the protocol to be used in the trial;
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·
-
Patient proximity to clinical sites;
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·
-
Eligibility criteria for the study;
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·
-
The patients' willingness to participate in the study;
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·
-
Discontinue rates; and
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·
-
Competition from other companies' potential clinical studies for the same patient
population
Delays
in patient enrollment for future clinical trials, such as those we encountered in enrolling the CONVERT study, could increase costs and delay ultimate commercialization and
sales, if any, of our products. We achieved our enrollment objective for the CONVERT study in the fourth quarter of 2016. The CONVERT study was designed to enroll enough subjects to ensure a
sufficient number of patients are evaluable for the primary endpoint. Once enrolled, patients may elect to discontinue participation in a clinical trial at any time. If patients elect to discontinue
participation in our clinical trials at a higher rate than expected, we may be unable to generate the data required by regulators for approval of our product candidates.
The commercial success of ARIKAYCE or any other product candidates that we may develop will depend upon many
factors, including the degree of market acceptance by physicians, patients, third-party payers and others in the medical community.
Even
if we are able to successfully complete development of, obtain regulatory approval for, and bring our product candidates to market, they may not gain market acceptance by
physicians, patients, third-party payers and others in the medical community. If ARIKAYCE, or any other product candidate we bring to market, does not achieve an adequate level of acceptance, we may
not generate significant product revenue and we may not become profitable. The degree of market acceptance of ARIKAYCE and any other product candidates, if approved for commercial sale, will depend on
a number of factors, including:
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·
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The prevalence and severity of any side effects, including any limitations or warnings
contained in a product's approved labeling;
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·
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The efficacy and potential advantages over alternative treatments;
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·
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The pricing of our product candidates;
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·
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Relative convenience and ease of administration;
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·
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The willingness of the target patient population to try new therapies and of physicians
to prescribe these therapies;
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·
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The strength of marketing and distribution support and timing of market introduction of
competitive products;
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·
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Publicity concerning our products or competing products and treatments, including
competing products becoming subject to generic pricing; and
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·
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Sufficient third party insurance coverage and reimbursement.
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Even
if a potential product displays a favorable efficacy and safety profile in preclinical and clinical trials, market acceptance of the product will not be known until after it is
launched. For example, if a clinical trial is not designed to demonstrate advantages over alternative treatments, we may be prohibited from promoting our product candidates on any such advantages. Our
efforts to educate the medical community and third-party payers on the benefits of our product candidates may require significant resources and may never be successful. Such efforts to educate the
marketplace may require more resources than are required to commercialize more established technologies marketed by our competitors.
We currently have a very small marketing or sales organization, and we have limited experience as a company
in marketing drug products. If we are unable to establish our own marketing and sales capabilities, or are unable to enter into agreements with third parties, to market and sell our products after
they are approved, our ability to generate product revenues will be adversely affected.
We
have a small commercial organization for the marketing, market access, sales and distribution of our products. In order to commercialize ARIKAYCE or any other product candidates, we
must develop these capabilities on our own or make arrangements with third parties for the marketing, sales and distribution of our products. The establishment and development of our own sales force
will be expensive and time consuming and could delay any product launch, and we may be unable to successfully develop this capability. As a result, we may seek one or more partners to handle some or
all of the sales and marketing of ARIKAYCE in certain markets. However, we may not be able to enter into arrangements with third parties to sell ARIKAYCE on favorable terms or at all. In the event we
are unable to develop our own marketing, market access, and sales force or collaborate with a third-party marketing, market access, and sales organization, we may not be able to successfully
commercialize ARIKAYCE or any other product candidates that we develop, which would adversely affect our ability to generate product revenues. Further, whether we commercialize products on our own or
rely on a third party to do so, our ability to generate revenue will be dependent on the effectiveness of the sales force.
We have limited experience operating internationally, are subject to a number of risks associated with our
international activities and operations and may not be successful in our efforts to expand internationally.
We
currently have limited operations outside of the US. As of December 31, 2016, we had 21 employees located in Europe, and we have suppliers located around the world. In
order to meet our long-term goals, we will need to grow our international operations over the next several years, including in Japan, and continue to source material used in the manufacture of our
product candidates from abroad. Consequently, we are and will continue to be subject to additional risks related to operating in foreign countries,
including:
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·
-
Our limited experience operating our business internationally;
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·
-
An inability to achieve the optimal
pricing and reimbursement for ARIKAYCE or subsequent
changes in reimbursement, pricing and other regulatory requirements;
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·
-
Any implementation of, or changes to, tariffs, trade barriers and other import-export
regulations in the US or other countries in which we operate;
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·
-
Unexpected adverse events related to ARIKAYCE or our other product candidates occurring
in foreign markets that we have not experienced in the US;
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·
-
Economic and political conditions, including geopolitical events, such as war and
terrorism, foreign currency fluctuations and inflation, which could result in increased or unpredictable operating expenses and reduced revenues and other obligations incident to doing business in, or
with a company located in, another country;
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·
-
Changes resulting from (i) the uncertainty and instability in economic and market
conditions caused by the UK's vote to exit the European Union; and (ii) the uncertainty regarding how the UK's access to the EU Single Market and the wider trading, legal, regulatory and labor
environments, especially in the UK and European Union, will be impacted by the UK's vote to exit the European Union, including the resulting impact on our business; and
-
·
-
Compliance with foreign or US laws, rules and regulations, including data privacy
requirements, labor relations laws, tax laws, anti-competition regulations, import, export and trade restrictions, anti- bribery/anti-corruption laws, regulations or rules, which could lead to actions
by us or our licensees, distributors, manufacturers, other third parties who act on our behalf or with whom we do business in foreign countries or our employees who are working abroad that could
subject us to investigation or prosecution under such foreign or US laws.
These
and other risks associated with our international operations may materially adversely affect our business, financial condition, results of operations and the value of our common
stock.
If estimates of the size of the potential markets for our product candidates are overstated or regulators
limit the proposed treatment population for our product candidates, our ability to commercialize such product candidates successfully or achieve sufficient revenue to support our business could be
materially adversely affected.
We
have relied on market research, funded by us and third parties, and certain government publications to estimate the potential market opportunity for NTM lung disease and we expect to
do so in the future with respect to market opportunities for other product candidates. Development of such estimates, however, necessarily requires a number of assumptions subject to significant
judgment, and such assumptions, as well as the resulting market opportunity estimates, could prove to be inaccurate. In addition, a potential market opportunity could be reduced if a regulator limits
the proposed treatment population for a product candidate. In such circumstances, even if we obtain regulatory approval for a product candidate, we may be unable to commercialize it on a scale
sufficient to generate material revenues, which could have a material adverse effect on our business, results of operations, financial condition, the value of our common stock and our prospects.
Risks Related to Our Reliance on Third Parties
We rely on third parties including collaborators, CROs, clinical and analytical laboratories, CMOs and other
providers for many services that are critical to our business. If we are unable to form and sustain these relationships, or if any third-party arrangements that we may enter into are unsuccessful,
including due to non-compliance by such third parties with our agreements or applicable law, our ability to develop and commercialize our products may be materially adversely affected.
We
currently rely, and expect that we will in the future continue to rely, on third parties for significant research, analytical services, preclinical development, clinical development
and manufacturing of our product candidates. For example, almost all of our clinical trial work is done by CROs, such as Synteract, our CRO for both the 212 and 312 studies, and clinical laboratories.
Reliance on these third parties poses a number of risks, including the following:
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·
-
Significant competition in seeking appropriate partners;
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·
-
The complex and time-consuming nature of
negotiation, documentation and implementation of
agreements with third parties in the pharmaceutical industry;
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·
-
Our potential inability to establish and implement collaborations or other alternative
arrangements that we might pursue on favorable terms;
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-
·
-
Our potential inability to control whether third parties devote sufficient resources to
our programs or products, including with respect to meeting contractual deadlines;
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·
-
Our potential inability to control the regulatory and contractual compliance of third
parties, including their processes and procedures, systems utilized to collect and analyze data, and equipment used to test drug product and/or clinical supplies;
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·
-
Disagreements with third parties, including CROs, that result in a dispute over and loss
of intellectual property rights, delay or termination of research, development, or commercialization of product candidates or litigation or arbitration;
-
·
-
Contracts with
our collaborators that fail to provide sufficient protection of our
intellectual property; and
-
·
-
Difficulty enforcing the contracts if one of these third parties fails to perform.
Such
risks could materially harm our business, financial condition, results of operations, the value of our common stock and our prospects.
We may not have, or may be unable to obtain, sufficient quantities of our product candidates to meet our
required supply for clinical studies or commercialization requirements, which would materially harm our business.
We
do not have any in-house manufacturing capability other than for development and characterization and depend completely on a small number of third-party manufacturers and suppliers
for the
manufacture of our product candidates on a clinical or commercial scale. For instance, we are and expect to remain dependent upon Althea and Therapure being able to provide an adequate supply of
ARIKAYCE both for our clinical trials and for commercial sale in the event ARIKAYCE receives marketing approvals. Althea currently manufactures ARIKAYCE at a relatively small scale. In order to meet
potential commercial demand, if ARIKAYCE is approved, we have constructed a manufacturing operation at Therapure in Canada that operates at a larger scale. We may not be able to secure an alternative
source of ARIKAYCE at an adequate scale of production should either of these suppliers be unable to provide us with ARIKAYCE.
We
are also dependent upon PARI being able to provide an adequate supply of nebulizers both for our clinical trials and for commercial sale in the event ARIKAYCE receives marketing
approval, as PARI is the sole manufacturer of the eFlow Nebulizer System. We have no alternative supplier for the Device, and we do not intend to seek an alternative or secondary supplier. Significant
effort and time were expended in the optimization of the nebulizer for use with ARIKAYCE. In the event PARI cannot provide us with sufficient quantities of the Device, replication of the optimized
device by another party may require considerable time and additional regulatory approval. In the case of certain defined supply failures, we will have the right under the Commercialization Agreement
to make the Device and have it made by certain third parties, but not those deemed under the Commercialization Agreement to compete with PARI.
We
do not have long-term commercial agreements with all of our suppliers and if any of our suppliers are unable or unwilling to perform for any reason, we may not be able to locate
suppliers or enter into favorable agreements with them. For instance, an inadequate supply of ARIKAYCE or the Device could delay, impair or prevent clinical trials, the development and
commercialization of ARIKAYCE and adversely affect our business, financial condition, results of operations, the value of our common stock and our prospects.
We
also rely on third parties to select and enter into agreements with clinical investigators to conduct clinical trials to support approval of our products and the failure of these
third parties to carry out such evaluation and selection can adversely affect the quality of the data from these studies and,
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potentially,
the approval of our products. In particular, as part of our new drug approval submissions, we must disclose any financial interests of investigators who participated in any of the
clinical studies being submitted in support of approval, or must certify to the absence of such financial interests. The FDA evaluates the information contained in such disclosures to determine
whether disclosed interests may have an impact on the reliability of a study. If the FDA determines that financial interests of any clinical investigator raise serious questions of data integrity, the
FDA can institute a data audit, request that we submit further data analyses, conduct additional independent studies to confirm the results of the questioned study, or refuse to use the data from the
questioned study as a basis for approval. A
finding by the FDA that a financial relationship of an investigator raises serious questions of data integrity, could delay or otherwise adversely affect approval of our products.
Risks Related to Our Financial Condition and Capital Requirements
We have a history of operating losses, and we currently have no material source of revenue. We expect to
incur operating losses for the foreseeable future and may never achieve or maintain profitability.
We
have incurred losses each previous year of our operation, except in 2009, when we sold our manufacturing facility and certain other assets to Merck and we did not generate material
revenue in 2016, 2015 or 2014. We expect to continue incurring operating losses for the foreseeable future. The process of developing and commercializing our products requires significant pre-clinical
and clinical testing as well as regulatory approvals for commercialization and marketing before we are allowed to begin product sales. In addition, commercialization of our drug candidates likely
would require us to significantly expand our sales and marketing organization and establish contractual relationships to enable product manufacturing and other related activities. We expect that our
activities, together with our general and administrative expenses, will continue to result in substantial operating losses for the foreseeable future. As of December 31, 2016, our accumulated
deficit was $765.2 million. For the year ended December 31, 2016, our consolidated net loss was $176.3 million. To achieve and maintain profitability, we need to generate
significant revenues from future product sales. The process of developing and commercializing our products will require significant expenditures for pre-clinical and clinical testing, regulatory
approvals for commercialization and marketing, development of an internal or external sales and marketing organization and other related activities. Because of the numerous risks and uncertainties
associated with drug development and commercialization, we are unable to predict the extent of any future losses, and we may never generate significant future revenues or achieve and sustain
profitability.
We will need additional funds in the future to continue our operations, but we face uncertainties with
respect to our ability to access capital.
Our
operations have consumed substantial amounts of cash since our inception. We expect to continue to incur substantial research and development expenses, and we expect to expend
substantial financial resources to complete development of, seek regulatory approval for, and prepare for commercialization of ARIKAYCE. We will need to seek additional funding in order to complete
any clinical trials related to ARIKAYCE, seek regulatory approvals of ARIKAYCE, and commercially launch ARIKAYCE, including due to changes in our product development plans or misjudgment of expected
costs. We also may require additional future capital in order to continue our other research and development activities, fund corporate development, maintain our intellectual property portfolio or
resolve litigation. As of December 31, 2016, we had $162.6 million of cash and cash equivalents on hand but no committed sources of capital. We do not know whether additional financing
will be available when needed, or, if available, that the terms will be favorable. If adequate funds are not available to us when needed, we may be required to reduce or eliminate research and
development programs or commercial efforts, which would likely have a material adverse effect on our business and prospects, as well as the value of our common stock.
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Our loan agreement with Hercules Capital, Inc. (Hercules) contains covenants and other provisions that
impose restrictions on our operations, which may adversely affect our ability to optimally operate our business or to maximize shareholder value.
Our
A&R Loan Agreement contains various restrictive covenants, including restrictions on our ability to incur additional debt, transfer or place a lien or security interest on our
assets, including our intellectual property, merge with or acquire other companies, redeem or repurchase any shares of our capital stock or pay cash dividends to our shareholders. The loan agreement
also contains certain other covenants (including limitations on other indebtedness, liens, acquisitions, investments and dividends). Upon the occurrence of an event of default, a default interest rate
of an additional 5% may be applied to the outstanding loan balances, and the lender may terminate its lending commitment, declare all outstanding obligations immediately due and payable, and take such
other actions as set forth in the A&R Loan Agreement. In addition, pursuant to the A&R Loan Agreement, the lender has the right to
participate, in an amount of up to $2.0 million, in a subsequent private financing that involves the issuance of our equity securities.
The
interest-only period under the A&R Loan Agreement extends through November 1, 2018, and can only be extended up to six months under certain conditions. The maturity date of
the loan facility is October 1, 2020. Pursuant to the A&R Loan Agreement, we are required to have a consolidated minimum cash liquidity in an amount no less than $25.0 million. Such
requirement terminates upon the earlier of the date by which we complete an equity financing with at least $75.0 million in proceeds or the date we generate and announce data from the CONVERT
study in a manner that could support an NDA filing.
Our
borrowings under the A&R Loan Agreement are secured by a lien on our assets, excluding our intellectual property, and in the event of a default on the loan, Hercules may have the
right to seize our assets securing our obligations under the A&R Loan Agreement. The terms and restrictions provided for in the A&R Loan Agreement may inhibit our ability to conduct our business and
to maximize shareholder value. Future debt securities or other financing arrangements could contain negative covenants similar to, or even more restrictive than, the Hercules loan.
In-process research and development (IPRD) currently comprises approximately 24% of our total assets. A
reduction in the value of our IPRD could have a material adverse effect on our results of operations, financial condition and the value of our common stock.
As
a result of the merger with Transave in 2010, we recorded an intangible IPRD asset of $77.9 million and goodwill of $6.3 million on our balance sheet. As a result of
the clinical hold on ARIKAYCE announced in late 2011, we recorded a charge of $26.0 million in the fourth quarter of 2011 that reduced the value of IPRD to $58.2 million and reduced
goodwill to zero. Other potential future activities or results could result in additional write-downs of IPRD, which could materially adversely affect our results of operations, financial condition
and the value of our common stock.
We may be unable to use our net operating losses.
We
have substantial tax loss carry forwards for US federal income tax and state income tax purposes and beginning in 2015, we have tax loss carry forwards in Ireland as well. Our
ability to fully use certain US tax loss carry forwards prior to December 2010 to offset future income or tax liability is limited under section 382 of the Internal Revenue Code of 1986, as
amended. Changes in the ownership of our stock, including those resulting from the issuance of shares of our common stock upon exercise of outstanding options, may limit or eliminate our ability to
use certain net operating losses in the future.
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Any acquisitions we make, or collaborative relationships we enter into, may require a significant amount of
our available cash and may not be scientifically or commercially successful.
As
part of our business strategy, we may effect acquisitions to obtain additional businesses, products, technologies, capabilities and personnel, but we cannot assure you that we will
identify suitable products or enter into such acquisitions on acceptable terms.
Acquisitions
involve a number of operational risks, including:
-
·
-
Failure to achieve expected synergies;
-
·
-
Difficulty and expense of assimilating the operations,
technology and personnel of the
acquired business;
-
·
-
Our inability to retain the management, key personnel and other employees of the acquired
business;
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·
-
Our inability to maintain the acquired company's relationship with key third parties,
such as alliance partners;
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·
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Exposure to legal claims for activities of the acquired business prior to the
acquisition;
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·
-
The diversion of our management's attention from our core business; and
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·
-
The
potential impairment of goodwill and write-off of in-process research and development
costs, adversely affecting our reported results of operations and financial condition.
We
also may enter into collaborative relationships that would involve our collaborators conducting proprietary development programs. Any conflict with our collaborators could limit our
ability to obtain future collaboration agreements and negatively influence our relationship with existing collaborators. Disagreements with collaborators may also develop over the rights to our
intellectual property.
If
we make one or more significant acquisitions or enter into a significant collaboration in which the consideration includes cash, we may be required to use a substantial portion of
our available cash and/or need to raise additional capital. For instance, in September and October of 2016, we borrowed $30.0 million under the A&R Loan Agreement to fund the payment due under
the AZ License Agreement, and this investmentas with any acquisition or collaborationmay not be successful.
Risks Related to Regulatory Matters
There is little or no precedent for clinical development and regulatory expectations for agents to treat NTM;
as a result, we may encounter challenges developing clinical endpoints that will ultimately be satisfactory to regulators, which could delay commercialization of our product candidates or subject us
to the risk of having any approval withdrawn.
The
FDA may base accelerated approval for drugs for serious conditions that fill an unmet medical need on whether the drug has an effect on a surrogate or an intermediate clinical
endpoint (other than survival or irreversible morbidity). We are using a surrogate endpoint in our CONVERT study. Developing clinical endpoints that are unsatisfactory to regulators could delay
clinical trials and the FDA approval process which could materially adversely affect our business, financial condition, results of operations, the value of our common stock and our prospects.
If
one or more of our product candidates is approved based on a surrogate or an intermediate clinical endpoint under the accelerated approval regulations, the approval will be subject
to the requirement that we study the product candidate further to verify and describe its clinical benefit,
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where
there is uncertainty as to the relation of the surrogate or intermediate clinical endpoint to clinical benefit or of the observed clinical benefit to the ultimate outcome. Thus, even if we are
successful in obtaining accelerated approval in the US or under comparable pathways in other jurisdictions, we may face requirements and limitations that will adversely affect our prospects. For
example, we may not successfully complete required post-approval trials, or such trials may not confirm the clinical benefit of our drug, and we may be required to withdraw approval of the drug.
For ARIKAYCE to be successfully developed and commercialized in a given market, in addition to regulatory
approvals required for ARIKAYCE, the eFlow nebulizer system must satisfy certain regulatory requirements and its use as a delivery system for ARIKAYCE must be approved for use by regulators.
The
eFlow Nebulizer System must receive regulatory approval in order for us to develop and commercialize ARIKAYCE. Although the optimized eFlow Nebulizer System is CE marked by PARI the
EU, outside the EU, it is labeled as investigational for use in our clinical trials in the US, Japan, Canada and Australia. The optimized eFlow Nebulizer System is not approved for commercial use in
the US, Canada or certain other markets in which we may choose to commercialize ARIKAYCE if approved. We continue to work closely with PARI to coordinate efforts regarding regulatory requirements,
including our proposed filings for a drug and device. However, we or PARI may not be successful in meeting the regulatory requirements for the eFlow Nebulizer System, which would prevent or hinder our
ability to bring ARIKAYCE to market or market it successfully.
Even if we obtain marketing approval for ARIKAYCE or any of our other product candidates, we will continue to
face extensive regulatory requirements and our products may face future development and regulatory difficulties.
Even
if marketing approval in the US is obtained, the FDA may still impose significant restrictions on a product's indicated uses or marketing, including risk evaluation and mitigation
strategies (REMS), or may impose ongoing requirements on us, including with respect to:
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·
-
Labeling, such as black box or other warnings or contraindications;
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·
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Post-market surveillance,
post-market studies or post-market clinical trials;
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·
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Packaging, storage, distribution, safety surveillance, advertising, promotion,
recordkeeping and reporting of safety and other post-market information;
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·
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Monitoring and reporting adverse events and instances of the failure of a product to
meet the specifications in the NDA;
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·
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Compliance with cGMPs;
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·
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Changes to the approved
product, product labeling or manufacturing process;
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·
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Advertising and other promotional material; and
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·
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Disclosure of clinical trial results on publicly available databases.
In
addition, the distribution, sale and marketing of our products are subject to a number of additional requirements, including:
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·
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State wholesale drug distribution laws and the distribution of our product samples to
physicians must comply with the requirements of the Prescription Drug Marketing Act (PDMA);
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·
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Sales, marketing and scientific or educational grant programs must comply
with federal
and state laws; and
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·
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Pricing and rebate programs must comply with the Medicaid rebate requirements, and if
products are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply.
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All
of these activities also may be subject to federal and state consumer protection and unfair competition laws.
If
we fail to comply with applicable regulatory requirements, a regulatory agency may:
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·
-
Issue warning letters or untitled letters asserting that we are in violation of the law;
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·
-
Seek an
injunction or impose civil or criminal penalties or monetary fines;
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·
-
Suspend or withdraw marketing approval;
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·
-
Suspend any ongoing clinical trials;
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·
-
Refuse to approve pending applications or
supplements to applications submitted by us;
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·
-
Suspend or impose restrictions on operations, including costly new manufacturing
requirements;
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·
-
Seize or detain products, refuse to permit the import or export of products, or require
us to initiate a product recall;
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·
-
Refuse to allow us to enter into supply contracts, including government contracts; and/or
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·
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Impose civil monetary penalties or pursue civil or criminal prosecutions and fines
against our company or responsible officers.
Any
government investigation of alleged violations of law could require us to expend significant time and resources in response, and could generate negative publicity. The occurrence of
any event or penalty described above may inhibit our ability to commercialize our product candidates and generate revenues.
The manufacturing facilities of our third party manufacturers are subject to significant government
regulations and approvals, which are often costly and could result in adverse consequences to our business if we and our manufacturing partner fail to comply with the regulations or maintain the
approvals.
Manufacturers
of our product candidates are subject to cGMP and similar standards, and we do not have control over compliance with these regulations by our manufacturers. If one of them
fails to obtain or maintain compliance or experiences problems in the scale-up of commercial production, the production of our product candidates could be interrupted, resulting in delays, additional
costs or restrictions on the marketing or sale of our products. In addition, these manufacturers and their facilities will be subject to continual review and periodic inspections by the FDA and other
regulatory authorities following regulatory approval, if any, of our product candidates. For instance, to monitor compliance with applicable regulations, the FDA routinely conducts inspections of
facilities and may identify potential deficiencies. For example, the FDA issues what are referred to as "FDA Form 483s" that set forth observations and concerns that are identified during its
inspections. Failure to satisfactorily address the concerns or potential deficiencies identified in a Form 483 could result in the issuance of a warning letter, which is a notice of the issues
that the FDA believes to be significant regulatory violations requiring prompt corrective actions. Failure to respond adequately to a warning letter, or to otherwise fail to comply with applicable
regulatory requirements could result in enforcement, remedial and/or punitive actions by the FDA or other regulatory authorities.
Even if we obtain marketing approval for ARIKAYCE or any of our other product candidates, adverse effects
discovered after approval could limit the commercial profile of any approved product.
If
we obtain marketing approval for ARIKAYCE or any other product candidate that we develop, such products will be used by a larger number of patients and for longer periods of time
than
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they
were used in clinical trials. This discovery could have a number of potentially significant negative consequences, including:
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·
-
Regulatory authorities may withdraw their approval of the product and may require recall
of product in distribution;
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·
-
Regulatory authorities may require the addition of labeling statements, such as black
box or other warnings or contraindications, or the issuance of "Dear Doctor Letters" or similar communications to healthcare professionals;
-
·
-
Regulatory authorities may
impose additional restrictions on marketing and distribution
of the products, or other risk management measures, such as a REMS;
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·
-
We may be required to change the way the product is administered, conduct additional
clinical studies or restrict the distribution of the product;
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·
-
We could be sued and held liable for harm caused to subjects; and
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·
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We could be subject to negative publicity, including communications issued by regulatory
authorities.
Any
of these events could prevent us from maintaining market acceptance of the affected product, cause substantial reduction in sales or substantially increase the costs of
commercializing our product candidates, cause significant financial losses or result in significant reputational damage.
If we are unable to obtain adequate reimbursement from governments or third-party payers for ARIKAYCE or any
other products that we may develop or if we are unable to obtain acceptable prices for those products, our prospects for generating revenue and achieving profitability may be materially adversely
affected.
Our
prospects for generating revenue and achieving profitability depend heavily upon the availability of adequate reimbursement for the use of our approved product candidates from
governmental and other third-party payers, both in the US and in other markets. Reimbursement by a third party payer may depend upon a number of factors, including the third party payer's
determination that use of a product is:
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·
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A covered benefit under its health plan;
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·
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Safe, effective and medically necessary;
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·
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Appropriate for the specific patient;
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Cost-effective; and
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Neither experimental nor investigational.
Obtaining
reimbursement approval for a product from each government or other third-party payer is a time consuming and costly process that could require us to provide supporting
scientific, clinical and cost effectiveness data for the use of our products to each payer. We may not be able to provide data sufficient to gain acceptance with respect to reimbursement or we might
need to conduct post-marketing studies in order to demonstrate the cost-effectiveness of any future products to such payers' satisfaction. Such studies might require us to commit a significant amount
of management time and financial and other resources. Even when a payer determines that a product is eligible for reimbursement, the payer may impose coverage limitations that preclude payment for
some uses that are approved by the FDA or non-US regulatory authorities. In addition, there is a risk that full reimbursement may not be available for high priced products. Moreover, eligibility for
coverage does not imply that any product will be reimbursed in all cases or at a rate that allows us to make a profit or even cover our costs. Interim payments for new products, if applicable, also
may not be sufficient to cover our costs and may not be made permanent. Subsequent approvals of competitive products could result in a detrimental change to the reimbursement of our products.
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There
is a significant focus in the US healthcare industry and elsewhere on cost containment and value. We expect changes in the Medicare program and state Medicaid programs, as well as
managed care organizations and other third-party payers, to continue to put pressure on pharmaceutical product pricing in return for near-term cost effectiveness or budget impact. For instance, the
Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) expanded Medicare outpatient prescription drug coverage for the elderly through Part D prescription drug plans
sponsored by private entities and authorized such plans to use formularies where they can limit the number of drugs that will be covered in any therapeutic class. The plans generally negotiate
significant price concessions as a condition of formulary placement. The MMA also introduced a new reimbursement methodology based on average sales prices for physician-administered drugs, which is
generally believed to have resulted in lower Medicare reimbursement for physician-administered drugs. These cost reduction initiatives and other provisions of this legislation provide additional
pressure to contain and reduce drug prices and could decrease the coverage and price that we receive for any approved products and could seriously harm our business. Although the MMA applies only to
drug benefits for Medicare beneficiaries, private payers often follow Medicare coverage policy and payment limitations when setting their own reimbursement rates, and any reimbursement reduction
resulting from the MMA may result in a similar reduction in payments from private payers. Additionally, the Patient Protection and Affordable Care Act (ACA) revised the definition of "average
manufacturer price" for reporting purposes, which could increase the amount of Medicaid drug rebates to states, and has imposed a significant annual fee on companies that manufacture or import branded
prescription drug products. We believe it is likely that the ACA, or any legislation enacted to replace it, will continue the pressure on pharmaceutical pricing, especially under the Medicare program,
and also may increase our regulatory burdens and operating costs. If one or more of our product candidates reaches commercialization, such changes may have a significant impact on our ability to set a
price we believe
is fair for our products and may adversely affect our ability to generate revenue and achieve or maintain profitability. We expect further federal and state proposals and health care reforms to
continue to be proposed by legislators and/or the newly elected US President, which could limit the prices that can be charged for the products we develop and may limit our commercial opportunity.
Moreover,
in markets outside the US, including Japan, Canada and the countries in the EU, pricing of pharmaceutical products is subject to governmental control. Evaluation criteria used
by many EU government agencies for the purposes of pricing and reimbursement typically focus on a product's degree of innovation and its ability to meet a clinical need unfulfilled by currently
available therapies. The ACA created a similar entity, the Patient- Centered Outcomes Research Institute (PCORI) designed to review the effectiveness of treatments and medications in federally-funded
health care programs. The PCORI began its first research initiatives recently, and an adverse result may result in a treatment or product being removed from Medicare or Medicare coverage. The
decisions of such governmental agencies could affect our ability to sell our products profitably.
Government health care reform could increase our costs, and could materially adversely affect our business,
financial condition, results of operations, the value of our common stock and our prospects.
Our
industry is highly regulated and changes in or revisions to laws and regulations that make gaining regulatory approval, reimbursement and pricing more difficult or subject to
different criteria and standards may adversely impact our business, operations or financial results. For example, under the ACA, drug manufacturers are required to report information on payments or
transfers of value to US physicians and teaching hospitals as well as investment interests held by physicians and their immediate family members. Failure to submit required information may result in
civil monetary penalties. The reported data is posted in searchable form on a public website. In addition, some states, as well as other countries, including France, require the disclosure of certain
payments to health care
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professionals.
In the coming years, we expect additional and potentially substantial, changes to governmental programs that could significantly impact the success of our product candidates.
The
new Administration and the majority party in both Houses of Congress have indicated their desire to repeal the ACA. It is unclear whether, when and how that repeal will be
effectuated and what the
effect on the healthcare sector will be. The new US President has indicated an interest in having the federal government negotiate drug prices with pharmaceutical manufacturers. Changes to the ACA, to
the Medicare or Medicaid programs, or to the ability of the federal government to negotiate drug prices, or other federal legislation regarding healthcare access, financing or legislation in
individual states, could affect our business, financial condition, results of operations, the value of our common stock and our prospects.
We will need approval from the FDA and other regulatory authorities in jurisdictions outside the US for our
proposed trade names. Any failure or delay associated with such approvals may delay the commercialization of our products.
Any
trade name we intend to use for our product candidates will require approval from the FDA regardless of whether we have secured a formal trademark registration from the US Patent
and Trademark Office, or PTO. The FDA typically conducts a rigorous review of proposed trade names, including an evaluation of potential for confusion with other trade names and medication error. The
FDA also may object to a trade name if it believes the name is inappropriately promotional. Even after the FDA approves a trade name, the FDA may request that we adopt an alternative name for the
product if adverse event reports indicate a potential for confusion with other trade names and medication error. If we are required to adopt an alternative name, the commercialization of ARIKAYCE
could be delayed or interrupted, which would limit our ability to commercialize ARIKAYCE and generate revenues.
If we are found in violation of federal or state "fraud and abuse" laws, we may be required to pay a penalty
or may be suspended from participation in federal or state health care programs, which may adversely affect our business, financial condition and results of operations.
In
the US, we are subject to various federal and state health care "fraud and abuse" laws, including anti-kickback laws, false claims laws and other laws intended to reduce fraud and
abuse in federal and state health care programs. Although we seek to structure our business arrangements in compliance with all applicable requirements, these laws are broadly written, and it is often
difficult to determine precisely how the law will be applied in specific circumstances. Accordingly, it is possible that our practices may be challenged under these laws. Violations of fraud and abuse
laws may be punishable by criminal and/or civil sanctions, including fines or exclusion or suspension from federal and state health care programs such as Medicare and Medicaid and debarment from
contracting with the US
government, and our business, financial condition, and results of operations and the value of our common stock may be adversely affected. Our reputation could also suffer. In addition, private
individuals have the ability to bring actions on behalf of the government under the federal FCA as well as under the false claims laws of several states.
Several
states also impose other marketing restrictions or require pharmaceutical companies to make marketing or price disclosures to the state. Health record privacy laws may limit
access to information identifying those individuals who may be prospective users or prohibit contact with any persons enrolled in Medicare or Medicaid. There are ambiguities as to what is required to
comply with these state requirements, and we could be subject to penalties if a state determines that we have failed to comply with an applicable state law requirement.
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Risks Related to Our Intellectual Property
If we are unable to protect our intellectual property rights adequately, the value of our product candidates
could be diminished.
The
patent position of biotechnology and pharmaceutical companies generally is highly uncertain and involves complex legal, technical, scientific and factual questions, and our success
depends in large part on our ability to protect our proprietary technology and to obtain patent protection for our products, prevent third parties from infringing on our patents, both domestically and
internationally. We have sought to protect our proprietary position by filing patent applications in the US and abroad related to our novel technologies and products that are important to our
business. This process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is
also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent
protection. Our existing patents and any future patents we obtain may not be sufficiently broad to prevent others from using our technologies or from developing competing products and technologies.
Even
if our owned and licensed patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing
with us or otherwise provide us with any competitive advantage. Any conclusions we may reach regarding non-infringement, inapplicability or invalidity of a third party's intellectual property
vis-à-vis our proprietary rights, or those of a licensor, are based in significant part on a review of publicly available databases and other information. There may be information not
available to us or otherwise not reviewed by us that could render these conclusions inaccurate. Our competitors may also be able to circumvent our owned or licensed patents by developing similar or
alternative technologies or products in a non-infringing manner.
Additionally,
patents issued to us or our licensors may be challenged, narrowed, invalidated, held to be unenforceable or circumvented through litigation, which could limit our ability
to stop competitors from marketing similar products or reduce the term of patent protection we may have for our products. US patents and patent applications may also be subject to interference or
derivation proceedings, and US patents may be subject to re-examination proceedings, reissue, post-grant review and/or inter partes review in the USPTO. Foreign patents may be subject to opposition or
comparable proceedings in the corresponding foreign patent office, which could result in either loss of the patent or denial of the patent application or loss or reduction in the scope of one or more
of the claims of the patent or patent application. See
Intellectual PropertyARIKAYCE Patents and Trade Secrets
for information on our
European Patent that is being opposed by Generics (UK) Ltd.
Changes
in either patent laws or in interpretations of patent laws in the US and other countries may also diminish the value of our intellectual property or narrow the scope of our
patent protection, including making it easier for competitors to challenge our patents. For example, the America Invents Act included a number of changes to established practices, including the
transition to a first-inventor-to-file system and new procedures for challenging patents and implementation of different methods for invalidating patents.
If we are not able to adequately prevent disclosure of trade secrets and other proprietary information, the
value of our product candidates could be significantly diminished.
We
rely on trade secrets to protect our proprietary technologies, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult
to protect. We rely in part on confidentiality agreements with our employees, consultants, advisors, collaborators,
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and
other third parties and partners to protect our trade secrets and other proprietary information. These agreements may not effectively prevent disclosure of confidential information or may not
provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, third parties may independently develop or discover our trade secrets and proprietary
information. For example, the FDA, as part of its Transparency Initiative continues to consider whether to make additional information publicly available on a routine basis, including information that
we may consider to be trade secrets or other proprietary information, and it is not clear at the present time whether and how the FDA's disclosure policies may change in the future.
We may not be able to enforce our intellectual property rights throughout the world.
The
laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the US. Many companies have encountered significant problems in
protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some countries, particularly developing countries, do not favor the enforcement of patents
and other intellectual property protection, especially those relating to life sciences. This could make it difficult for us to stop the infringement of our patents or in-licensed patents or the
misappropriation of our other intellectual property rights. For example, many foreign countries have compulsory licensing laws under which a patent owner may be required to grant licenses to third
parties. In addition, many countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited
or no benefit.
Proceedings
to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business. Our efforts
to protect our intellectual property rights in such countries may be inadequate. In addition, changes in the law and legal decisions by courts in the US and foreign countries may affect our ability to
obtain adequate protection for our technology and to enforce intellectual property rights.
We may infringe the intellectual property rights of others, which may prevent or delay our product
development efforts, prevent us from commercializing our products or increase the costs of commercializing our products.
Third
parties may claim that we have infringed upon or misappropriated their proprietary rights. Any existing third-party patents, or patents that may later issue to third parties,
could negatively affect our commercialization of ARIKAYCE, INS1007, INS1009 or any other product. For instance, PAH is a competitive indication with established products, including other formulations
of treprostinil. Our supply of the active pharmaceutical ingredient for INS1009 is dependent upon a single supplier. The supplier owns patents on its manufacturing process, and we have filed patent
applications for INS1009; however, a competitor in the PAH indication may claim that we or our supplier have infringed upon or misappropriated its proprietary rights. In the event of a successful
claim against us for infringement or misappropriation of a third party's proprietary rights, we may be required to take actions including but not limited to the
following:
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·
-
Pay damages, including up to treble damages, and the other party's attorneys' fees, which
may be substantial;
-
·
-
Cease the development, manufacture, marketing and sale of products or use of processes
that infringe the proprietary rights of others;
-
·
-
Expend significant resources to redesign our products or our processes so that they do
not infringe the proprietary rights of others, which may not be possible;
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·
-
Redesign our products or processes to avoid third-party proprietary rights, which means
we may suffer significant regulatory delays associated with conducting additional clinical trials or other steps to obtain regulatory approval; and/or
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-
·
-
Obtain one or more licenses arising out of a settlement of litigation or otherwise from
third parties which license(s) may not be available to us on acceptable terms or at all.
Such
litigation, and any resulting resolution, could have a material adverse effect on our business, financial condition, results of operations, the value of our common stock and our
prospects.
Any lawsuits or other proceedings relating to infringement by us or third parties of intellectual property
rights may be costly and time consuming.
We
may have to undertake costly litigation or engage in other proceedings, such as interference or inter partes review, to enforce any patents issued or licensed to us, to confirm the
scope and validity of our or a licensor's proprietary rights or to defend against allegations that we have infringed a third party's intellectual property rights. Such proceedings are also likely to
be time consuming and may divert management attention from operation of our business.
If we fail to comply with our obligations in the agreements under which we license rights to technology from
third parties, or if the license agreements are terminated for other reasons, we could lose license rights that are important to our business.
We
are a party to licensing agreements with PARI and AZ, which we view as material to our business. For additional information regarding the terms of these agreements, see
BusinessLicense and Other
Agreements
. If we fail to comply with our obligations under these agreements, our counterparty may have the right
to take action against us, up to and including termination of the relevant license. For instance, under our licensing agreement with PARI, with respect to NTM, CF and bronchiectasis, we have specific
obligations to use commercially reasonable efforts to achieve certain developmental and regulatory milestones by set deadlines. Additionally, for NTM, we are obligated to use commercially reasonable
efforts to achieve certain commercial milestones in the US, Europe and Canada. The consequences of our failing to use commercially reasonable efforts to achieve certain commercial milestones are
context-specific, but include ending PARI's non-compete obligation, making the license non-exclusive and terminating the license, in each case with respect to the applicable indication. Similarly,
under the AZ License Agreement, AstraZeneca may terminate our license to INS1007 if we fail to use commercially reasonable efforts to develop and commercialize a product based on INS1007, or we are
subject to a bankruptcy or insolvency. Reduction or elimination of our licensed rights may result in our having to negotiate new or reinstated licenses with less favorable terms and may materially
harm our business.
Risks Related to Our Industry
We operate in a highly competitive and changing environment, and if we are unable to adapt to our
environment, we may be unable to compete successfully.
Biotechnology
and related pharmaceutical technology have undergone and are likely to continue to experience rapid and significant change. We expect that the technologies associated with
biotechnology research and development will continue to develop rapidly. Our future success will depend in large part on our ability to maintain a competitive position with respect to these
technologies and to obtain and maintain protection for our intellectual property. Any compounds, products or processes that we develop may become obsolete before we recover any expenses incurred in
connection with their development. In each of our potential product areas, we face substantial competition from pharmaceutical, biotechnology and other companies, universities and research
institutions. Relative to us, most of these entities have substantially greater capital resources, research and development staffs, facilities and experience in conducting clinical studies and
obtaining regulatory approvals, as well as in
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manufacturing
and marketing pharmaceutical products. Many of our competitors may achieve product commercialization or patent protection earlier than us. Furthermore, we believe that our competitors
have used, and may continue to use, litigation to gain a competitive advantage. Our competitors may also use different technologies or approaches to the development of products similar to the products
we are seeking to develop.
We
expect that successful competition will depend, among other things, on product efficacy, safety, reliability, availability, timing and scope of regulatory approval and price.
Specifically, we expect crucial factors will include the relative speed with which we can develop products, complete the clinical testing and regulatory approval processes and supply commercial
quantities of the product to the market. We expect competition to increase as technological advances are made and commercial applications broaden. For instance, there are potential competitive
products, both approved and in development,
which include oral, systemic, or inhaled antibiotic products to treat chronic respiratory infections. If any of our competitors develops a product that is more effective, safer, tolerable or,
convenient or less expensive than ARIKAYCE or our other product candidates, it would likely materially adversely affect our ability to generate revenues. We also may face lower priced generic
competitors if third-party payers encourage use of generic or lower-priced versions of our product or if competing products are imported into the US or other countries where we may sell ARIKAYCE.
In
the event there are other amikacin products approved by the FDA or other regulatory agencies for any use, physicians may elect to prescribe those products rather than ARIKAYCE to
treat the indications for which ARIKAYCE may receive approval, which is commonly referred to as off-label use. Although regulations prohibit a drug company from promoting off-label use of its product,
the FDA and other regulatory agencies do not regulate the practice of medicine and cannot direct physicians as to what product to prescribe to their patients. As a result, we would have limited
ability to prevent any off-label use of a competitor's product to treat diseases for which we have received FDA or other regulatory agency approval, even if such use violates our patents or orphan
drug exclusivity for the use of amikacin to treat such diseases. If we are unable to compete successfully, it will materially adversely affect our business, financial condition, results of operations,
the value of our common stock and our prospects.
If another party obtains orphan drug exclusivity for a product that is essentially the same as a product we
are developing for a particular indication, we may be precluded or delayed from commercializing the product in that indication.
Under
the Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition. The company that obtains the first marketing approval from
the FDA for a designated orphan drug for a rare disease receives marketing exclusivity for use of that drug for the designated condition for a period of seven years. Similar laws exist in EU with a
term of ten years. See
BusinessGovernment RegulationOrphan Drugs
for additional information. If a competitor obtains approval
of the same drug for the same indication or disease before us, we would be prohibited from obtaining approval for our product for seven or more years, unless our product can be shown to be clinically
superior.
If we obtain orphan exclusivity for a product, the FDA may approve another product during our orphan
exclusivity period for the same indication under certain circumstances.
The
Orphan Drug Act was created to encourage companies to develop therapies for rare diseases by providing incentives for drug development and commercialization. One of the incentives
provided by the act is seven years of market exclusivity in the US for the first product in a class licensed for the treatment of a rare disease. Orphan exclusivity does not, however, bar approval of
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another
product under certain circumstances. One such circumstance is if a product with the same active ingredient is proven safe and effective for a different indication. Another circumstance is if a
subsequent product with the same active ingredient for the same indication is shown to be clinically superior to the approved product on the basis of greater efficacy or safety, or providing a major
contribution to patient care. The FDA may also approve another product with the same active ingredient and the same indication if the company with orphan drug exclusivity is not able to meet market
demand. Further, the FDA may approve more than one product for the same orphan indication or disease as long as the products contain different active ingredients. As a result, even if one of our
product candidates receives orphan exclusivity, the FDA can still approve other drugs that have a different active ingredient for use in treating the same indication or disease. All of the above
circumstances could create a more competitive market for us and could have a material adverse effect on our business.
Our research, development and manufacturing activities used in the production of ARIKAYCE involve the use of
hazardous materials, which could expose us to damages, fines, penalties and sanctions and materially adversely affect our results of operations and financial condition.
We
are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal
of hazardous materials and wastes. Our research and development program and manufacturing activities for ARIKAYCE and our other product candidates involve the controlled use of hazardous materials and
chemicals. We generally contract with third parties for the disposal of these materials and wastes. Although we strive to comply with all pertinent regulations, we cannot eliminate the risk of
environmental contamination, damage to facilities or injury to personnel from the accidental or improper use or control of these materials. In addition to any liability we could have for any misuse by
us of hazardous materials and chemicals, we could also potentially be liable for activities of our CMOs or other third parties. Any such liability, or even allegations of such liability, could
materially adversely affect our results of operations and financial condition. We also could incur significant costs associated with civil or criminal fines and penalties.
In
addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations
may impair our research, development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.
We may be subject to product liability claims, and we have only limited product liability insurance.
The
manufacture and sale of human therapeutic products involve an inherent risk of product liability claims, which can lead to significant adverse publicity and obligations to pay
damages. We currently have only limited product liability insurance for our products. We do not know if we will be able to maintain existing, or obtain additional, product liability insurance on
acceptable terms or with adequate coverage against potential liabilities. This type of insurance is expensive and may not be available on acceptable terms. If we are unable to obtain or maintain
sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims, we may be unable to commercialize our products. A successful product liability
claim brought against us in excess of our insurance coverage, if any, may require us to pay substantial amounts and may materially adversely affect our business, financial condition, results of
operations or prospects.
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Risks Related to Employee Matters and Managing Growth
We are dependent upon retaining and attracting key personnel, the loss of whose services could materially
adversely affect our business, financial condition, results of operations and prospects.
We
depend highly on the principal members of our scientific and management personnel, the loss of whose services might significantly delay or prevent the achievement of our research,
development or business objectives. Our success depends, in large part, on our ability to attract and retain qualified management, scientific and medical personnel, and on our ability to develop and
maintain important relationships with commercial partners, leading research institutions and key distributors. We will need to hire additional personnel in anticipation of seeking regulatory approval
for and commercial launch of ARIKAYCE.
Competition
for skilled personnel in our industry and market is very intense because of the numerous pharmaceutical and biotechnology companies that seek similar personnel. These
companies may have greater financial and other resources, offer a greater opportunity for career advancement and have a longer history in the industry than we do. We also experience competition for
the hiring of our scientific and clinical personnel from universities, research institutions, and other third parties. We cannot assure that we will attract and retain such persons or maintain such
relationships. Our inability to retain and attract qualified employees would materially harm our business, financial condition, results of operations, the value of our common stock and our prospects.
We expect to expand our development, manufacturing, regulatory and future sales and marketing capabilities,
and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.
We
expect that our potential expansion into areas and activities requiring additional expertise, such as further clinical trials, governmental approvals, manufacturing, sales, marketing
and distribution will place additional requirements on our management, operational and financial resources. Future growth would impose significant added responsibilities on members of management,
including the need to identify, recruit, maintain, motivate and integrate additional employees. Also, our management may need to divert a disproportionate amount of its attention away from our
day-to-day activities and devote a substantial amount of time to managing these growth activities. We may not be able to effectively manage the expansion of our operations, which may result in
weaknesses in our infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees.
The
anticipated commercialization of ARIKAYCE and the development of additional product candidates will require significant expenditures by us and place a strain on our resources. If
our management is unable to effectively manage our activities in anticipation of commercialization, as well as our development efforts, we may incur higher than expected expenditures or other expenses
and our business may otherwise be adversely affected.
Risks Related to our Common Stock and Listing on the Nasdaq Global Select Market
The market price of our stock has been and may continue to be highly volatile.
Our
common stock is listed on the Nasdaq Global Select Market under the ticker symbol INSM. The market price of our stock has been and may continue to be highly volatile, and could be
subject to wide fluctuations in price in response to various factors, including those discussed herein, many of which are beyond our control. In addition, the stock market has from time to time
experienced extreme price and volume fluctuations, which have particularly affected the market prices for emerging biotechnology and pharmaceutical companies like us, and which have often been
unrelated to their
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operating
performance. These broad market fluctuations may adversely affect the market price of our common stock. Historically, when the market price of a stock has been volatile, shareholders are
more likely to institute securities and derivative class action litigation against the issuer of such stock. As described below, a securities class action lawsuit was initiated against us during 2016
following a decline in our stock price.
We and certain of our officers and directors are subject to a securities class action lawsuit, which may
require significant management and board time and attention and significant legal expenses and may result in an unfavorable outcome, which could have a material adverse effect on our business,
financial condition, results of operations and cash flows.
We
and certain of our executive officers and directors have been named as defendants in a securities class action lawsuit initially filed on July 15, 2016. The amended complaint,
filed December 15, 2016, alleges that we and certain of our executive officers and directors violated Sections 11 and 12(a)(2) of the Securities Act of 1933, as amended (Securities Act),
and that we and certain of our executive officers violated Section 10(b) of the Exchange Act, Rule 10b-5 promulgated thereunder of the Exchange Act, by making materially false or
misleading statements and omissions relating to the development of ARIKAYCE and/or related requests for regulatory approval. It also alleges that the defendant officers and directors violated
Section 15 of the Securities Act and that the defendant officers violated Section 20(a) of the Exchange Act. For additional information, see Item 3,
Legal
Proceedings
. While we believe that we have substantial legal and factual defenses to the claims in the class action and intend to vigorously defend the case, this lawsuit could
divert our management's and board's attention from other business matters, the outcome of the pending litigation is difficult to predict and quantify, and the defense against the underlying claims
will likely be costly. The ultimate resolution of this matter could result in payments of monetary damages or other costs, materially and adversely affect our business, financial condition, results of
operations and cash flows, or adversely affect our reputation, and consequently, could negatively impact the price of our common stock.
We
have insurance policies related to the risks associated with our business, including directors' and officers' liability insurance policies. However, there is no assurance that our
insurance coverage will be sufficient or that our insurance carriers will cover all claims in that litigation. If we are not successful in our defense of the claims asserted in the putative action and
those claims are not covered by insurance or exceed our insurance coverage, we may have to pay damage awards, indemnify our officers from damage awards that may be entered against them and pay the
costs and expenses incurred in defense of, or in any settlement of, such claims.
In
addition, there is the potential for additional shareholder litigation against us, and we could be materially and adversely affected by such matters.
Future issuances of our common stock will dilute the ownership interest of our existing shareholders and such
issuances, or the possibility of such issuances, could adversely affect prevailing market prices for our common stock or our future ability to raise capital through an offering of equity securities.
Our
Articles of Incorporation currently authorize us to issue up to 500 million common shares. As of December 31, 2016, we had 62.0 million shares of common stock
outstanding. To the extent that we issue additional common stock in connection with any offerings of securities, strategic transactions, or otherwise, such funding may significantly dilute existing
shareholders. In addition, as of December 31, 2016, 7.2 million shares of our common stock are potentially issuable under outstanding restricted stock units and stock options to our
employees, officers, directors and consultants. The conversion or exercise of some or all of our restricted stock units and options will similarly dilute the ownership interests of existing
shareholders. In addition, sales in the public market of newly issued, or
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even
the possibility of such sales, could adversely affect prevailing market prices of our common stock or our future ability to raise capital through an equity offering.
Certain provisions of Virginia law and our articles of incorporation and amended and restated bylaws could
hamper a third party's acquisition of, or discourage a third party from attempting to acquire control of us.
Certain
provisions of Virginia law and our articles of incorporation and amended and restated bylaws could hamper a third party's acquisition of, or discourage a third party from
attempting to acquire control of us or limit the price that investors might be willing to pay for shares of our common stock. These provisions include:
-
·
-
The ability to issue preferred stock with rights senior to those of the common stock
without any further vote or action by the holders of the common stock. The issuance of preferred stock could decrease the amount of earnings and assets available for distribution to the holders of
common stock or could adversely affect the rights and powers, including voting rights, of the holders of the common stock. In certain circumstances, such issuance could have the effect of decreasing
the market price of the common stock;
-
·
-
The existence of a staggered board of directors in which there are three classes of
directors serving staggered three-year terms, thus expanding the time required to change the composition of a majority of directors and perhaps discouraging someone from making an acquisition proposal
for us;
-
·
-
The requirement that shareholders provide advance notice when nominating director
candidates to serve on our Board of Directors;
-
·
-
The inability of shareholders to convene a shareholders' meeting without the chairman of
the board, the president or a majority of the board of directors first calling the meeting; and
-
·
-
The prohibition against entering into a business combination with the
beneficial owner of
10% or more of our outstanding voting stock for a period of three years after the 10% or greater owner first reached that level of stock ownership, unless we meet certain criteria.
In
addition, we previously had a "poison pill" shareholder rights plan, which expired in May 2011. Under Virginia law, our Board of Directors may implement a new shareholders' rights
plan without shareholder approval. Our Board of Directors intends to regularly consider this matter, even in the absence of specific circumstances or takeover proposals, to facilitate its future
ability to quickly and effectively protect shareholder value.
Other Risks Related to our Business
Corporate governance and public disclosure requirements increase our costs of compliance, and our inability
to satisfy these requirements could materially harm our business.
Laws,
regulations and standards relating to accounting, corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, other SEC regulations, and the Nasdaq
Global Select Market rules have high costs of compliance, and our failure to comply with such laws, regulations and standards may be detrimental to our business. In particular, our efforts to comply
with Section 404 of the Sarbanes-Oxley Act of 2002, to furnish a report by management on, among other things, the effectiveness and the related regulations regarding our required assessment of
our internal controls over financial reporting and our external auditors' audit of our internal control over financial reporting requires the commitment of significant financial and managerial
resources. The inability of management and our independent auditor to provide us with an unqualified report as to the effectiveness of our internal controls over financial reporting for future year
ends could result in adverse consequences to us, including, but not limited to, a loss of investor confidence in the reliability
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of
our financial statements, which could cause the market price of our stock to decline, and substantial costs and resources to rectify any internal control deficiencies. For example, in connection
with our review of internal control over financial reporting as of December 31, 2012, we determined that we did not adequately implement certain controls over the administration, accounting and
oversight of our 2000 Stock Incentive Plan, and we concluded that a material weakness in our internal control over financial reporting existed as of December 31, 2012. Any material weaknesses
may materially adversely affect our ability to report accurately our financial condition and results of operations in a timely and reliable manner. In addition, although we continually review and
evaluate internal control systems to allow management to report on the sufficiency of our internal controls, we cannot assure you that we will not discover weaknesses in our internal control over
financial reporting.
We
are committed to maintaining high standards of corporate governance and public disclosure, and our efforts to comply with evolving laws, regulations and standards in this regard have
resulted in, and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance
activities. In addition, our board members, chief executive officer and chief financial officer could face an increased risk of personal liability in connection with their performance of duties. As a
result, we may face difficulties attracting and retaining qualified board members and executive officers, which could materially harm our business.
Our internal computer systems, or those of our CROs or other contractors or consultants, may fail or suffer
security breaches, which could result in a material disruption of our business operations, including our drug development programs.
Despite
the implementation of security measures, our internal computer systems and those of our CROs and other contractors 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 adverse effect on our business operations, including a material disruption of our drug development programs. Unauthorized disclosure of sensitive or confidential client or employee data,
whether through breach of computer systems, systems failure, employee negligence, fraud or misappropriation, or otherwise, could damage our reputation. Similarly, unauthorized access to or through our
information systems and networks, whether by our employees or third parties, could result in negative publicity, legal liability and damage to our reputation. For example, the loss of clinical trial
data from completed or ongoing clinical trials for any of our drug candidates 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 was to result 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.
Although
we have general liability insurance coverage, including coverage for errors or omissions, our insurance may not cover all claims, continue to be available on reasonable terms
or be sufficient in amount to cover one or more large claims; additionally, the insurer may disclaim coverage as to any future claim. The successful assertion of one or more large claims against us
that exceed or are not covered by our insurance coverage or changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could
have a material adverse effect on our business, results of operations and financial condition.
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We are subject to the US Foreign Corrupt Practices Act, the UK Bribery Act and other anti-corruption laws and
trade control laws, as well as other laws governing our operations. If we fail to comply with these laws, we could be subject to negative publicity, civil or criminal penalties, other remedial
measures, and legal expenses, which could adversely affect our business, financial condition, results of operations and the price of our common stock.
Our
operations are subject to anti-corruption laws, including the US Foreign Corrupt Practices Act (FCPA), the UK Bribery Act and other anti-corruption laws that apply in countries
where we do business. The FCPA, UK Bribery Act and these other laws generally prohibit us, our employees and our intermediaries from making prohibited payments to government officials or other persons
to obtain or retain business or gain some other business advantage. We are conducting the CONVERT study at more than 125 sites in 18 countries around the world, and certain of these jurisdictions in
which we operate pose a risk of potential FCPA violations, and we participate in joint ventures and relationships with third parties whose actions could potentially subject us to liability under the
FCPA or local anti-corruption laws. In addition, we cannot predict the nature, scope or effect of future regulatory requirements to which our international operations might be subject or the manner in
which existing laws might be administered or interpreted.
We
are also subject to other laws and regulations governing our international operations, including regulations administered by the U.S. Department of Commerce's Bureau of Industry and
Security, the U.S. Department of Treasury's Office of Foreign Asset Control, and various non-US government entities, including applicable export control regulations, economic sanctions on countries
and persons, customs requirements, currency exchange regulations and transfer pricing regulations (collectively, Trade Control laws).
We
may not be effective in ensuring our compliance with all applicable anticorruption laws, including the FCPA or other legal requirements, including Trade Control laws. If we are not
in compliance with the FCPA and other anti-corruption laws or Trade Control laws, we may be subject to criminal and civil penalties, disgorgement and other sanctions and remedial measures, and legal
expenses, which could have an adverse impact on our business, financial condition, results of operations, and the price of our common stock. Likewise, even an investigation by US or foreign
authorities of potential violations of the FCPA other anti-corruption laws or Trade Control laws could have an adverse impact on our reputation, business, financial condition, results of operations
and the price of our common stock.