Indicate by check
mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☑
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes ☐ No ☑
Indicate by check mark whether the
registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes ☑ No ☐
Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation
S-K
is not contained herein, and will not be contained, to the best of the registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form
10-K
or any amendment to this
Form 10-K. ☑
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule
12b-2
of the Exchange Act. (Check one):
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act). Yes ☐ No ☑
As of June 30, 2016, the last business day of the registrants most recently completed second fiscal quarter, the aggregate market
value of the registrants common stock held by
non-affiliates
was $53,968,136, based on the last reported sale price of such stock on the NASDAQ Global Market as of such date.
As of January 31, 2017, the registrant had 22,641,651 shares of Common Stock, $0.001 par value per share, outstanding.
Portions of the registrants definitive proxy statement for its 2017 Annual Meeting of Stockholders, which the registrant intends to file
pursuant to Regulation 14A with the Securities and Exchange Commission not later than 120 days after the registrants fiscal year end December 31, 2016, are incorporated by reference into Items 10, 11, 12, 13 and 14 of Part III of this
Annual Report on Form
10-K.
These forward-looking statements
include, among other things, statements about:
We may not actually achieve the plans,
intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed
in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Annual Report on Form
10-K,
particularly in the Risk Factors section,
that could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, collaborations,
joint ventures or investments that we may make or enter into. Any forward-looking statements that we make in this Annual Report on Form
10-K
speak only as of the date of such statement.
PART I
Overview
We are a biopharmaceutical company focused on developing and commercializing innovative therapies for prostate cancer and other hormonally
driven diseases. We have focused substantially all of our research and development efforts on the development of galeterone, an oral small molecule, including clinical trials of galeterone for the treatment of patients with metastatic
castration-resistant prostate cancer, or mCRPC. We also have a drug discovery program, known as ARDA (androgen receptor degradation agents), under which we identified novel compounds for patients with androgen receptor signaling diseases, including
prostate cancer.
In July 2016, we announced our plan to discontinue
ARMOR3-SV,
our pivotal Phase
3 clinical trial comparing galeterone to Xtandi
®
(enzalutamide) in
treatment-naïve
mCRPC
patients whose prostate tumors express the
AR-V7
splice variant, following the recommendation made by the trials independent data monitoring committee, or DMC, in July 2016. Based on a review of all
available safety and efficacy data, the DMC determined that the
ARMOR3-SV
trial would likely not succeed in meeting its primary endpoint of demonstrating an improvement in radiographic progression-free
survival for galeterone versus enzalutamide in men with
AR-V7
positive mCRPC. In making its recommendation, the DMC did not cite any safety concerns with galeterone in the trial. We conducted a review of
unblinded data from the
ARMOR3-SV
clinical trial to evaluate potential paths forward for galeterone and our ARDA program. Based on data reviewed to date, there is a substantial likelihood that we will not
pursue the development of galeterone in
AR-V7
positive mCRPC patients in the future. All patients enrolled in the
ARMOR3-SV
clinical trial have discontinued treatment.
In addition, in August 2016, we determined to discontinue enrollment in our Phase 2 ARMOR2 expansion clinical trial of galeterone in
mCRPC patients with acquired resistance to Xtandi
and not to proceed with our planned study of galeterone in mCRPC patients who rapidly progress on either enzalutamide or Zytiga
®
(abiraterone acetate). Ten patients in the ARMOR2 trial continue treatment as of January 31, 2017.
Following the announcement regarding the discontinuation of the
ARMOR3-SV
trial, in July 2016 we
announced that our board of directors approved a plan to reduce the size of our workforce by approximately 60% to a total of 10 full-time equivalent employees. The workforce reduction, which was completed in September 2016, was designed to reduce
our operating expenses while we conducted a review of development options for galeterone and the ARDA program. As of January 31, 2017, we had eight full-time employees.
In September 2016, we announced that our board of directors had initiated a review of strategic alternatives that could result in changes to
our business strategy and future operations. As part of this process, which was conducted in parallel with a review of development options for galeterone and the ARDA program, our board determined to review alternatives with the goal of maximizing
stockholder value, including potentially a sale of the company, a reverse merger, a business combination or a sale, license or other disposition of company assets.
On December 21, 2016, we entered into a Share Purchase Agreement, or Share Purchase Agreement, with Otic Pharma, Ltd., a private limited
company organized under the laws of the State of Israel, or Otic, and the shareholders of Otic named therein, or the Selling Shareholders, pursuant to which, among other things, subject to the satisfaction or waiver of the conditions set forth in
the Share Purchase Agreement, each Selling Shareholder agreed to sell to us, and we agreed to purchase from each Selling Shareholder, all of the ordinary and preferred shares of Otic, the Otic Shares, owned by such Selling Shareholder. We refer to
our acquisition of all the outstanding equity of Otic as the Otic Transaction. We amended and restated the Share Purchase Agreement on March 2, 2017 to update the allocation of shares of our common stock among the Selling Shareholders and to
extend to May 31, 2017, the date after which we or Otic may terminate the Share Purchase Agreement.
Subject to the terms and conditions
of the Share Purchase Agreement, at the closing of the Otic Transaction, the Selling Shareholders will collectively receive up to 36,911,631 shares of our common stock, assuming that all
2
of Otics outstanding options and warrants are exercised prior to closing. Immediately following the closing of the Otic Transaction, the Selling Shareholders are expected to own
approximately 60% of our outstanding common stock (62% if all of Otics outstanding options and warrants are exercised prior to closing).
We, Otic and the Selling Shareholders have agreed to customary representations, warranties and covenants in the Share Purchase Agreement
including, among others, covenants relating to (1) using commercially reasonable efforts to obtain the requisite approvals of our stockholders to the Tokai Voting Proposal described below,
(2) non-solicitation
of competing acquisition proposals by each of us and Otic, (3) our use of commercially reasonable efforts to maintain the existing listing of our common stock on The NASDAQ Stock
Market, Inc., or NASDAQ, (4) ours and Otics conduct of ours and its respective businesses during the period between the date of signing the Share Purchase Agreement and the closing of the Otic Transaction and (5) restrictions on our
ability to make any capital expenditures or other expenditures, other than those contemplated by our financial model provided to Otic on the date of the Share Purchase Agreement.
Consummation of the Otic Transaction is subject to certain closing conditions, including, among other things, (1) approval by the our
stockholders in accordance with applicable NASDAQ rules of the issuance of the shares of our common stock in the Otic Transaction, which we refer to as the Tokai Voting Proposal, (2) the absence of any order or injunction preventing the
consummation of the Otic Transaction or any legal requirement that makes the consummation of the Otic Transaction illegal, (3) the approval by NASDAQ of the NASDAQ Listing ApplicationFor Companies Conducting a Business Combination that
Results in a Change of Control with respect to the shares of our common stock to be issued in connection with the Otic Transaction and (4) obtaining certain governmental authorizations or consents, including certain Israeli tax rulings. Each
partys obligation to consummate the Otic Transaction is also subject to other specified customary conditions, including (1) the representations and warranties of the other party being true and correct as of the date of the Share Purchase
Agreement and as of the closing date of the Otic Transaction, generally subject to an overall material adverse effect qualification, and (2) the performance in all material respects by the other party of its obligations under the Share Purchase
Agreement. The Share Purchase Agreement contains certain termination rights for both us and Otic, and further provides that, upon termination of the Share Purchase Agreement under specified circumstances, we may be required to pay Otic a termination
fee of $1 million, or Otic may be required to pay us a termination fee of $1.5 million.
Under the Share Purchase Agreement, we
agreed that promptly following the closing of the Otic Transaction, we would take all action necessary to fix the number of members of our board of directors at seven; to cause to be elected to our board of directors four persons identified by Otic,
who are each reasonably acceptable to the Company; and to cause (i) the resignations of three members of our board of directors or (ii) the resignations of four members of our board of directors, and the election of one person identified
by us, who is reasonably acceptable to Otic. In addition, we have agreed to take all action necessary to cause the persons identified by Otic to be appointed as executive officers of Tokai.
Upon consummation of the Otic Transaction, we will change our name to OticPharma, Inc. In addition, we intend to seek stockholder approval to
effect a reverse split of our common stock at a ratio that we will determine, which is intended to ensure that the listing requirements of NASDAQ are satisfied.
Also in connection with the Share Purchase Agreement, our directors and certain entities affiliated with Apple Tree Partners holding in the
aggregate approximately 36.3% of our outstanding common stock as of the date of the Share Purchase Agreement have each entered into a support agreement in favor of Otic, or the Support Agreement. The Support Agreement places certain restrictions on
the transfer of the shares of our common stock held by the respective signatories thereto and covenants on the voting of such shares in favor of approving the Tokai Voting Proposal and against any actions that could adversely affect the consummation
of the Otic Transaction.
In addition, we have entered into a commitment letter with Otic and certain purchasers set forth therein under
which the purchasers have agreed to invest up to $7.0 million of new capital in Otic and/or Tokai prior to
3
or upon the closing of the Otic Transaction. Pursuant to the commitment letter, on January 31, 2017 we entered into a stock purchase agreement with the purchasers under the commitment letter
under which such purchasers agreed to purchase 3,603,601 shares of our common stock at a price of $1.11 per share. The purchase and sale of our common stock pursuant to this stock purchase agreement will occur at the time of the closing of the Otic
Transaction. The remaining $3.0 million will be invested in Otic prior to the closing of the Otic Transaction through the exercise of outstanding warrants.
The Treatment of Prostate Cancer
Prostate Cancer Overview
According to the American Cancer Society, in the United States, prostate cancer is the most frequently diagnosed cancer among men other than
skin cancer. The American Cancer Society estimates that, in the United States, approximately 215,000 new cases of prostate cancer are diagnosed annually, and approximately 28,000 men will die from the disease each year.
Prostate cancer is most frequently diagnosed at an early stage, when it is confined to the prostate gland and its immediate surroundings.
Patients with early-stage disease are typically treated with surgery or radiation therapy, or in limited circumstances, with both. For the majority of men, these procedures are successful in curing the disease. However, for others, these procedures
are not curative and their prostate cancer ultimately recurs. Men with recurrent prostate cancer are considered to have advanced prostate cancer. In addition, about 15% of men diagnosed with prostate cancer have metastatic disease at the time of
diagnosis. Men with metastatic disease are also considered to have advanced prostate cancer.
Treatment of Advanced Prostate Cancer
The growth and survival of prostate cancer tumor cells depend primarily on the functioning of the androgen receptor signaling
pathway. The pathway is ordinarily activated by the binding of androgens, such as testosterone and dihydrotestosterone, or DHT, to the ligand binding domain of androgen receptors in prostate cancer cells. Once binding has occurred, the bound
androgen/androgen receptor complex passes into the nucleus of the tumor cell where it binds to DNA in the cancer cell, triggering abnormal cell growth and tumor progression.
Because testosterone fuels prostate cancer growth, first-line therapy for advanced prostate cancer typically entails androgen deprivation
therapy, or ADT, with luteinizing hormone releasing hormone, or LHRH, analogs such as the drug Lupron
®
(leuprolide). ADT reduces testosterone to levels that are commensurate with the levels of
a male who has had surgical castration to minimize the testosterone that would otherwise fuel prostate cancer growth.
Most advanced
prostate cancer patients initially respond to ADT. However, after initiation of ADT, almost all advanced prostate cancer patients experience a recurrence in tumor growth despite the reduction of testosterone to castrate levels. These patients are
considered to be castration resistant, and cancer that has reached this state is considered to be castration-resistant prostate cancer, or CRPC.
During the course of ADT or following diagnosis of CRPC, most patients are treated with anti-androgens, which block the binding of androgens
to the androgen receptor. An example of an anti-androgen marketed in the United States is the drug Casodex
®
(bicalutamide). Like LHRH analogs, the anti-androgens suppress tumor growth for a
period of time in many CRPC patients. However, almost all CRPC patients develop resistance to anti-androgen therapy.
Prior to 2010, the
next line of treatment for patients who became resistant to treatment with LHRH analogs and anti-androgens was chemotherapy and there were no effective
FDA-approved
treatments for CRPC patients following
chemotherapy. Since 2010, the U.S. Food and Drug Administration, or the FDA has approved five new
4
agents for the treatment of patients with CRPC. Of these new agents, the two with the highest worldwide sales in 2016 were Zytiga and Xtandi. Zytiga and Xtandi are members of a class of new oral
drugs that act by disrupting the androgen receptor signaling pathway. Zytiga disrupts the androgen receptor signaling pathway by inhibiting CYP17 and reducing production of testosterone in the testes, adrenal glands and prostate cancer tumor cells.
Xtandi is an androgen receptor antagonist that disrupts the androgen receptor signaling pathway by blocking the binding of testosterone or the androgen DHT with the androgen receptor. We refer to Zytiga and Xtandi as second-generation androgen
signaling inhibitors.
Despite the new therapies, including Zytiga and Xtandi and additional drug candidates in late-stage clinical
development, we believe that there continues to be an unmet need as there are patient populations that may not be effectively addressed by these therapies, such as mCRPC patients with
C-terminal
loss.
Unmet Need in Prostate Cancer Patients with
C-Terminal
Loss
The growth and survival of prostate cancer tumor cells depend primarily on the functioning of the androgen receptor signaling pathway. The
pathway and tumor cell growth is ordinarily activated by the binding of androgens, such as testosterone and DHT, to the ligand binding domain of androgen receptors in prostate cancer cells. All proteins, including androgen receptors, are made up of
a chain of amino acids that has an
N-terminus
at one end of the chain and a
C-terminus
at the other end of the chain as shown in the full-length androgen receptor
depicted in Figure 1 below. In the case of androgen receptors, the
C-terminus
contains the ligand binding domain. The effectiveness of therapies like Zytiga and Xtandi, which act solely through CYP17
inhibition or androgen receptor antagonism, requires a functional ligand binding domain. As depicted in Figure 1 below, in the case of prostate tumor cells that express truncated androgen receptors with
C-terminal
loss, there is no functional ligand binding domain. This lack of a functional ligand binding domain causes the truncated androgen receptor to be constitutively active, or continuously signaling,
meaning that activation of the androgen receptor pathway and tumor growth occurs even in the absence of androgens and androgen binding. As a result, we believe that patients with truncated androgen receptors with
C-terminal
loss may not be effectively treated by these therapies.
Figure 1: Full-Length
Androgen Receptor and Androgen Receptor with
C-Terminal
Loss
These limitations of CYP17 inhibitors and androgen receptor antagonists have been supported by
investigator-initiated studies conducted at several leading academic medical centers in which the presence of
C-terminal
loss or
AR-V7
in patients was associated with
poor responsiveness of patients prostate tumors to Zytiga and Xtandi. Published data, however, have shown activity of docetaxel, a chemotherapeutic agent, in
AR-V7
positive mCRPC patients.
Galeterone
Overview
Our lead product candidate, galeterone, is an oral small molecule that utilizes the mechanistic pathways of current second-generation androgen
signaling inhibitors, while also introducing a distinct mechanismandrogen receptor degradation. We are developing galeterone for the treatment of patients with mCRPC.
5
In June 2015, we initiated
ARMOR3-SV,
a pivotal Phase 3
clinical trial comparing galeterone to Xtandi in approximately 148 treatment-naive mCRPC patients whose prostate tumors express the
AR-V7
splice variant. We believe that the
AR-V7
splice variant is the most common form of
C-terminal
loss, or the loss of the portion of the androgen receptor that contains the ligand-binding domain.
C-terminal
loss generally, and
AR-V7
specifically, has been clinically associated with poor responsiveness to commonly-used oral therapies for mCRPC.
On July 25, 2016, the independent Data Monitoring Committee, or DMC, for the
ARMOR3-SV
trial met
to review safety and efficacy data from the trial. Based on a review of all available safety and efficacy data, the DMC determined that the
ARMOR3-SV
trial would likely not succeed in meeting its primary
endpoint of demonstrating an improvement in radiographic progression-free survival for galeterone versus enzalutamide in men with
AR-V7
positive mCRPC and recommended that enrollment in the trial be ceased. In
making its recommendation, the DMC did not cite any safety concerns with galeterone in the trial. In July 2016, we announced our plan to discontinue the
ARMOR3-SV
trial. In addition, in August 2016, we
determined to discontinue enrollment in our Phase 2 ARMOR2 expansion clinical trial of galeterone in mCRPC patients with acquired resistance to Xtandi and not to proceed with our planned study of galeterone in mCRPC patients who rapidly progress on
either enzalutamide or Zytiga. Enrollment in the
ARMOR3-SV
and ARMOR2 trials has now been closed, with only ten patients in the ARMOR2 trial continuing treatment as of January 31, 2017.
We conducted a review of unblinded data from the
ARMOR3-SV
clinical trial to evaluate potential paths
forward for galeterone and our ARDA program. Based on data reviewed to date, there is a substantial likelihood that we will not pursue the development of galeterone in
AR-V7
positive mCRPC patients in the
future. Moreover, if the Otic Transaction is consummated, we do not expect Otic to proceed with the development of galeterone. However, we have agreed with Otic that Otic will continue the treatment of the continuing patients in the ARMOR2 trial.
Galeterone Clinical Development
We referred to our clinical development program for galeterone as the Androgen Receptor Modulation Optimized for Response, or ARMOR, program.
We submitted an investigational new drug application, or IND, to the FDA for galeterone for the treatment of CRPC in August 2009 and began clinical trials of galeterone in November 2009. Prior to suspending our
ARMOR3-SV
Phase 3 clinical trial, we had enrolled 213 CRPC patients and 102 healthy volunteers in our ARMOR program.
ARMOR2
In December 2012,
we initiated our ARMOR2 trial, an open label Phase 2 clinical trial of galeterone. The trial was designed as a
two-part
trial. Part 1 of the trial was a dose escalation phase designed to confirm the dose of
galeterone to be evaluated in Part 2 of the trial. Part 2 of the trial was designed to evaluate the efficacy and safety of galeterone at the dose selected in Part 1 in distinct CRPC patient populations. The primary efficacy endpoints of our ARMOR2
trial were based on a decrease in PSA levels. In August 2016, we determined to discontinue enrollment in this clinical trial. As of January 2017, 10 patients were still receiving treatment in the trial.
Part 1 of ARMOR2 Trial.
In Part 1 of the trial, we enrolled 25 CRPC
treatment-naïve
patients with progressive disease and three patients whose disease progressed during treatment with Zytiga, whom we refer to as Zytiga-refractory patients. The CRPC
treatment-naïve
patients were enrolled
in one of three escalating dose cohorts: six patients at 1700 mg/day, 11 patients at 2550 mg/day and eight patients at 3400 mg/day. The Zytiga-refractory patients all received doses of 2550 mg/day. All patients in Part 1 of the trial received
treatment for up to an initial period of 12 weeks followed by optional continued dosing for those patients who tolerated treatment and did not show signs of disease progression. Treatment was continued until disease progression or patient withdrawal
due to adverse events or other reasons.
6
At least 50% of patients at all dose levels achieved a 30% or greater decrease in PSA. Based on
the recommendation of the monitoring committee for the trial following review of safety, efficacy and pharmacokinetic results of the three dose groups, we chose the 2550 mg/day dose for further study in Part 2 of the ARMOR2 trial.
Part 2 of ARMOR2 Trial.
In Part 2 of ARMOR2, we enrolled 98 patients and evaluated galeterone dosed at 2550 mg/day in the following
CRPC populations:
|
|
|
non-metastatic
CRPC and mCRPC
treatment-naïve
patients;
|
|
|
|
Zytiga-refractory patients; and
|
|
|
|
patients whose disease progressed during treatment with Xtandi, whom we refer to as Xtandi-refractory patients.
|
The primary endpoints for Part 2 of ARMOR2 were as follows:
|
|
|
Treatment-naïve
patients: percentage of patients having a maximal reduction in PSA levels of at least 30% from baseline to the end of the primary treatment phase; and
|
|
|
|
Zytiga-refractory and Xtandi-refractory patients: percentage of change in PSA levels from baseline to the end of the primary treatment phase.
|
Additional endpoints included incidence of adverse events, change from baseline in safety parameters, response rate, and CTC enumeration and
characterization, including for the evaluation of
C-terminal
androgen receptor expression in relation to
N-terminal
androgen receptor expression to identify
C-terminal
loss and the lack of a functional ligand binding domain.
Patients enrolled in Part 2 of the
trial received treatment with galeterone at a dose of 2550 mg/day for an initial period of up to 12 weeks, followed by optional continued dosing in an extension phase for those patients who tolerated treatment and did not show signs of disease
progression. Treatment continued until disease progression or patient withdrawal due to adverse events or other reasons.
Phase 2 Data
Presentation.
In November 2014, we presented interim efficacy and safety data from our ARMOR2 trial for patients who received the 2550 mg/day dose of galeterone at the
EORTC-NCI-AACR
Symposium on Molecular Targets and Cancer Therapeutics, or EORTC.
In 60 evaluable
treatment-naïve
CRPC patients in Part 1 and Part 2 of the trial who received the
2550 mg/day dose of galeterone, during the first 12 weeks of dosing, 83% had a maximal reduction in PSA levels of at least 30%, and 70% had a maximal reduction in PSA levels of at least 50%. In 38
treatment-naïve
mCRPC patients who received the 2550 mg/day dose, during the first 12 weeks of dosing, 84% had a maximal reduction in PSA levels of at least 30%, and 76% had a maximal reduction in PSA
levels of at least 50%.
We also reported
12-week
data for 37 Zytiga-refractory patients, 13 of
whom showed a reduction in PSA levels, and nine Xtandi-refractory patients, five of whom showed a reduction in PSA levels.
Of the 16
treatment-naïve
patients evaluable by Response Evaluation Criteria in Solid Tumors, or RECIST, three patients had a partial response and 11 patients had stable disease. Fifteen of the Zytiga-refractory patients
and three of the Xtandi-refractory patients were evaluable by RECIST. Of these patients, five Zytiga-refractory patients had stable disease, and one Xtandi-refractory patient had stable disease. As measured by RECIST criteria, stable disease is
achieved when the tumor has not increased in size by 20% and has not decreased by 30%, a partial response occurs when the tumor has decreased in size by at least 30%, and progressive disease occurs when the tumor has increased in size by at least
20% or new tumor lesions are identified.
7
Our ARMOR2 trial included CTC enumeration and characterization. At EORTC, we presented data from
a retrospective subset analysis in which seven
treatment-naïve
CRPC patients in ARMOR2 were identified as having
C-terminal
loss as determined by the evaluation of
C-terminal
androgen receptor expression in relation to
N-terminal
androgen receptor expression. Six of these patients had maximal reductions in PSA levels of at least 50%. The
seventh patient, who did not show any PSA reduction, discontinued therapy due to an adverse event unrelated to galeterone after approximately six weeks in the trial and did not receive the full treatment regimen.
At EORTC, we also presented interim safety results from all 107 patients treated in the 2550 mg/day dose cohort as of October 14, 2014 in
ARMOR2. In these patients, galeterone was well tolerated. Approximately 90% of all treatment-emergent related adverse events reported were grade 1 or 2 in severity and were generally manageable and reversible. The majority of these events were
assessed as not related or unlikely related to galeterone. In addition, there were no reported cases of seizure or mineralocorticoid excess. The most common treatment-emergent related adverse events were nausea, fatigue, pruritus, decreased
appetite, diarrhea, hypokalemia and vomiting.
As of January 31, 2017, nine of the 126 patients enrolled in ARMOR2 had experienced a
serious adverse event that was assessed by the investigator as related or possibly related to the administration of galeterone. No single treatment-related serious adverse event occurred in more than one patient and no adverse events had resulted in
interruptions or delays of the clinical trial.
ARMOR3-SV
In June 2015, we initiated
ARMOR3-SV,
our pivotal Phase 3 clinical trial of galeterone. The
ARMOR3-SV
trial was designed to compare galeterone to Xtandi in approximately 148
treatment-naïve
mCRPC patients whose prostate tumors express the
AR-V7
splice variant. Under the trial protocol, patients were randomized on a
one-to-one
basis to receive either galeterone or the
control arm treatment, Xtandi. Patients in the galeterone arm received a dose of 2550 mg/day, and patients in the Xtandi arm received a dose of 160 mg/day. Treatment was continued until radiographic evidence of disease progression as determined by a
blinded, independent central imaging assessment or patient withdrawal due to adverse events or other reasons.
Only patients with the
AR-V7
splice variant were enrolled in the trial. These patients were identified by analysis of a blood sample at a central laboratory using an
AR-V7
specific clinical trial
assay developed under our collaboration with Qiagen Manchester Limited, or Qiagen, which we terminated effective September 2016 following our discontinuation of the trial.
The primary endpoint of the trial was rPFS as determined by a blinded, independent central imaging assessment measured from the time of
patient randomization to the time of radiographic evidence of disease progression or time of death from any cause. In order to achieve the primary endpoint, results from the trial needed to demonstrate an 82% increase in median rPFS in the
galeterone arm as compared to the Xtandi arm. Such a result would be statistically significant and would likely have been considered a clinically relevant outcome. The secondary endpoints included overall survival, safety, and time to next
anti-cancer intervention or time to next cytotoxic therapy.
ARMOR3-SV
was conducted at over 100
clinical sites in several countries in North America, Western Europe and Australia.
On July 25, 2016, the independent data
monitoring committee, or DMC, for the
ARMOR3-SV
trial met to review safety and efficacy data from the trial. Based on a review of all available safety and efficacy data, the DMC determined that the
ARMOR3-SV
trial would likely not succeed in meeting its primary endpoint of demonstrating an improvement in radiographic progression-free survival for galeterone versus enzalutamide in men with
AR-V7
positive mCRPC and recommended that enrollment in the trial be ceased. In making its recommendation, the DMC did not cite any safety concerns with galeterone in the trial. On July 26, 2016, we
8
publicly disclosed our plans to discontinue the
ARMOR3-SV
trial. We conducted a review of unblinded data from the
ARMOR3-SV
clinical trial to evaluate potential paths forward for galeterone and our ARDA program. Based on data reviewed to date, there is a substantial likelihood that we will not pursue the development of
galeterone in
AR-V7
positive mCRPC in the future.
Androgen Receptor Degradation Compounds
In conjunction with a license from the University of Maryland, Baltimore, or UMB, we have a drug discovery program, known as ARDA (androgen
receptor degradation agents), under which we identified novel compounds designed to have potent androgen receptor degradation activity. Our most advanced series of compounds from this program is currently in preclinical development. We planned to
target compounds developed under our ARDA program for patients with androgen receptor signaling diseases, including prostate cancer, either alone or in combination with other products. We are evaluating potential paths forward for our ARDA program
in connection with our review of galeterone.
Manufacturing
Galeterone is a small molecule drug candidate that is manufactured through a reproducible synthetic process from readily available raw
materials. Galeterone is manufactured in a proprietary formulation based on spray dried dispersion technology that is designed to produce a product that provides consistent drug exposure.
We do not have our own manufacturing facilities. We currently rely, and expect to continue to rely, on a limited number of third-party
contract manufacturers for all of our required raw materials, drug substance and finished product for our preclinical research and clinical trials. We do not have long-term agreements with any of these third parties.
Competition
The development and
commercialization of new drug products is highly competitive. Research and discoveries by others may result in breakthroughs which may render our products obsolete even before they generate any revenue. We face competition with respect to our lead
product candidate, and will face competition with respect to any products that we may seek to develop or commercialize in the future, from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide.
There are a number of large pharmaceutical and biotechnology companies that currently market and sell products or are pursuing the development of products for the treatment of the disease indications for which we were developing galeterone.
Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development,
manufacturing and commercialization.
Some of these competitive products and therapies are based on scientific approaches that are the
same as or similar to our approach, and others are based on entirely different approaches. Many marketed therapies for the indications that we were pursuing, or indications that we may in the future seek to address, are widely accepted by
physicians, patients and payors, which may make it difficult for us to replace them with any products that we successfully develop and are permitted to market.
We were developing galeterone for multiple prostate cancer patient populations. If galeterone were approved for any of these indications, it
would compete with commonly-used oral hormonal treatments being marketed, such as Zytiga and Xtandi, chemotherapeutic agents, or with drug candidates currently in development. Galeterone could compete in the future with products, either hormonal or
non-hormonal,
marketed by several of the worlds largest and most experienced pharmaceutical companies. These companies have substantially more financial resources than we do and greater flexibility to engage
in aggressive price competition to gain revenues and market share. Approved second-generation hormonal treatments in the United
9
States for CRPC include Zytiga, marketed by Janssen Biotech, Inc. and Xtandi, marketed by Astellas Pharma US, Inc. and Medivation, Inc. Approved
non-hormonal
agents for CRPC include Taxotere
®
(docetaxel) and Jevtana
®
(cabazitaxel), marketed
by sanofi-aventis U.S. LLC; Provenge
®
(sipuleucel-T),
marketed by Valeant Pharmaceuticals International Inc.; and Xofigo
®
(radium-223),
marketed by Bayer HealthCare Pharmaceuticals, Inc. It is uncertain whether we could compete with such products, and our failure to compete or
decision to reduce the price of galeterone or other future products we may develop in order to compete could severely impact our business. In addition, there are numerous prostate cancer products in clinical development by many public and private
biotechnology and pharmaceutical companies targeting numerous different cancer types.
Our competitors may develop products that are more
effective, safer, more convenient or less costly than any that we are developing or that would render galeterone or any future product candidates obsolete or
non-competitive.
Our competitors may also obtain
FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours.
Many of our competitors have
significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Smaller and other
early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific, medical
and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.
We believe the key competitive factors that will affect the development and commercial success of any of our product candidates, if approved,
will be efficacy, safety and tolerability profile, probability of drug resistance, convenience of dosage regimen, price, the level of generic competition and the availability of reimbursement from government and other third-party payors.
Intellectual Property
Our success will
depend significantly on our ability to obtain and maintain patent and other proprietary protection for commercially important technology, inventions and
know-how
related to our business, defend and enforce our
patents, maintain our licenses to use intellectual property owned by third parties, preserve the confidentiality of our trade secrets and operate without infringing the valid and enforceable patents and other proprietary rights of third parties. We
strive to protect the proprietary technologies that we believe are important to our business, including seeking and maintaining patent protection intended to cover the composition of matter of our product candidates, their methods of use, related
technology and other inventions that are important to our business. In addition to patent protection, we also rely on trade secrets and careful monitoring of our proprietary information to protect aspects of our business that are not amenable to, or
that we do not consider appropriate for, patent protection.
A third party may hold intellectual property, including patent rights that is
important or necessary to commercialize our products. It may be necessary for us to use the patented or proprietary technology of third parties to commercialize our products, in which case we would be required to obtain a license from these third
parties on commercially reasonable terms. We may not be able to obtain such licenses on commercially reasonable terms, or at all, in which case our business could be harmed, possibly materially.
We plan to continue to expand our intellectual property estate by filing patent applications directed to dosage forms, methods of treatment
and additional compounds and their derivatives. Specifically, we seek patent protection in the United States and internationally for novel compositions of matter covering the compounds, the chemistries and processes for manufacturing these compounds
and the use of these compounds in a variety of therapies.
10
The patent positions of biopharmaceutical companies like us are generally uncertain and involve
complex legal, scientific and factual questions. In addition, the coverage claimed in a patent application can be significantly reduced before the patent is issued, and its scope can be reinterpreted after issuance. Consequently, we do not know
whether any of our product candidates will be protectable or remain protected by enforceable patents. We cannot predict whether the patent applications we are currently pursuing will issue as patents in any particular jurisdiction or whether the
claims of any issued patents will provide sufficient proprietary protection from competitors. Any patents that we hold may be challenged, circumvented or invalidated by third parties.
Because patent applications in the United States and certain other jurisdictions can be maintained in secrecy for 18 months, and since
publication of discoveries in the scientific or patent literature often lags behind actual discoveries, we cannot be certain of the priority of inventions covered by pending patent applications. Moreover, we may have to participate in interference
proceedings declared by the United States Patent and Trademark Office, or USPTO, to determine priority of invention or in post-grant challenge proceedings at the USPTO or at a foreign patent office, such as
inter partes
review and post grant
review proceedings at the USPTO and opposition proceedings at the European Patent Office, that challenge priority of invention or other features of patentability. Such proceedings could result in substantial cost, even if the eventual outcome is
favorable to us.
We generally file a provisional patent application with the USPTO first and then subsequently file a corresponding
non-provisional
patent application, which enables us to establish an earlier effective filing date in the subsequently filed
non-provisional
patent application. In order to
benefit from the earlier effective filing date, we must file a corresponding
non-provisional
patent application, such as a utility application in the United States or an international application under the
Patent Cooperation Treaty, or PCT, within 12 months of the date of the provisional patent application filing. Based on the PCT filing, we may file national and regional patent applications in the United States, the European Union, China, Japan,
Australia, Canada, Brazil, India, Indonesia, Israel, Mexico, New Zealand, South Korea, Singapore, South Africa or the Eurasian Patent Organization. To date, we have not filed for patent protection in all national and regional jurisdictions where
such protection may be available, and we may decide to abandon national and regional patent applications before a patent is granted. In addition, the patent grant proceeding for each national or regional patent application that we file is an
independent proceeding. As a result, it is possible for a patent application to be granted in one jurisdiction and denied in another jurisdiction, and depending on the jurisdiction, the scope of patent protection may vary.
Galeterone Patent Portfolio
Our success will depend, in part, on our ability to obtain and maintain patent protection for product candidates, preserve our trade secrets,
prevent third parties from infringing upon our proprietary rights and operate without infringing upon the proprietary rights of others. As of January 31, 2017, we owned and/or licensed 18 issued U.S. patents, seven pending U.S.
non-provisional
patent applications, three pending international patent applications, 88 granted foreign patents and 67 pending foreign applications in our galeterone patent portfolio. Our owned and/or licensed
patent and patent applications, if issued, are expected to expire on various dates from 2017 through 2036, without taking into account any possible patent term extensions. Upon the expiration of these patents, we will lose the right to exclude
others from practicing the inventions claimed by such patents. As a result, the expiration of these patents could have a material adverse effect on our business, results of operations, financial condition and prospects.
We have no patent protection specifically covering the chemical structure of galeterone. As a result, a third party that obtains regulatory
approval of a product with the same active ingredient as galeterone may be able to market such product so long as the third party does not infringe any other patents owned or licensed by us with respect to galeterone. For this reason, we have filed
for or licensed patents and patent applications relating to galeterone covering methods of use, pharmaceutical compositions, combination treatments, prodrugs, metabolites, and analogs of galeterone and their use.
Method of Use
. We have licensed from UMB a U.S. patent covering a method of treating prostate cancer in a human subject by
administering galeterone, which is expected to expire in 2027. The license also includes
11
granted patents in the European Patent Convention and Japan covering the use of galeterone to treat prostate disease, including prostate cancer and prostatic hyperplasia. Similar patents have
been granted or allowed in Australia, Canada, Hong Kong, South Korea, Mexico, New Zealand, Singapore, South Africa, and the Eurasian Patent Organization. These patents are expected to expire in 2026. In addition, we have pending applications in
Brazil, China, India, Israel and Indonesia. We have also licensed from UMB a PCT patent application covering the use of galeterone to inhibit proliferation of a cell having a specific splice variant form of the androgen receptor. The term of a
patent derived from this PCT application, if issued, would be expected to expire in 2034.
We have also filed a PCT patent application
covering the use of galeterone in treating prostate cancer mediated by androgen receptor variants, including splice variants such as
AR-V7,
as well as the use of biomarkers in identifying patients who are
expected to respond to treatment with galeterone. This application is jointly owned with UMB and the University of Washington, and we have exclusively licensed those institutions undivided interest in such application and any resulting
patents. The term of a patent derived from this PCT application, if issued, would be expected to expire in 2034.
Pharmaceutical
Compositions
. We have filed U.S. and international patent applications relating to a galeterone formulation and its use where the galeterone is present in a spray dried dispersion. We have pending applications in the United States, the European
Union, Australia, Brazil, Canada, China, India and Japan. The term of any patent in this family, if issued, would be expected to expire in 2032. In addition, we have licensed from UMB a U.S. patent application covering a pharmaceutical composition
of galeterone. The term of any patent, if issued, claiming priority to this application would be expected to expire in 2026.
Prodrugs,
Metabolites and Analogs
. We have filed patent applications or licensed from UMB patent applications directed to prodrugs, metabolites or analogs of galeterone. For example, we have licensed a U.S. patent application from UMB directed to certain
prodrugs of galeterone. If issued, the term of the resulting patent, if issued, would be expected to expire in 2029. We have also filed patent applications in the United States and certain other countries including Australia, Brazil, Canada, China,
the European Union, India and Japan directed to other prodrugs of galeterone. If issued, the term of the resulting patents would be expected to expire in 2030. Further, we have filed patent applications in the United States and certain other
countries including Australia, Brazil, Canada, China, the European Union, India and Japan directed to compounds which have been identified as metabolites of galeterone and which may be biologically active. If issued, the term of the resulting
patents would be expected to expire in 2030. We have also obtained a license to a UMB PCT patent application directed to analogs of galeterone that disrupt androgen receptor signaling by degrading the androgen receptor. The term of any patent, if
issued, claiming priority to this PCT patent application would be expected to extend to 2034.
AR-V7
Specific Assay and Companion Diagnostic Test.
We have an exclusive license from The Johns
Hopkins University, or Johns Hopkins, for patent applications in the United States, Europe, and Canada covering methods of determining whether a subject may respond to androgen therapy, and methods of determining a subjects risk of recurrence
of hormone-refractory or
hormone-naïve
prostate cancer. If issued, the term of the resulting patents would be expected to expire in 2029. These patent applications may provide protection for an
AR-V7
specific assay or companion diagnostic test using this assay that we may develop and commercialize. However, these patent applications do not provide any protection for galeterone or for galeterones
pharmaceutical formulations or uses.
The term of individual patents depends upon the legal term of the patents in the countries in which
they are obtained. In most countries in which we file, the patent term is 20 years from the earliest date of filing a
non-provisional
patent application. In the United States, the patent term of a patent that
covers an
FDA-approved
drug may also be eligible for patent term extension, which permits patent term restoration as compensation for the patent term lost during the FDA regulatory review process. The
Hatch-Waxman Act permits a patent term extension of up to five years beyond the expiration of the patent. The length of the patent term extension is related to the length of time the drug is under regulatory review. Patent extension cannot extend
the remaining
12
term of a patent beyond a total of 14 years from the date of product approval and only one patent applicable to an approved drug may be extended. Similar provisions are available in Europe and
other
non-United
States jurisdictions to extend the term of a patent that covers an approved drug. In the future, if and when our pharmaceutical products receive FDA approval, we expect to apply for patent
term extensions on patents covering those products. We intend to seek patent term extensions to any of our issued patents in any jurisdiction where these are available, however there is no guarantee that the applicable authorities, including the FDA
in the United States, will agree with our assessment of whether such extensions should be granted, and even if granted, the length of such extensions.
We also rely on trade secret protection for our confidential and proprietary information. Although we take steps to protect our proprietary
information and trade secrets, including through contractual means with our employees and consultants, third parties may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade
secrets or disclose our technology. Thus, we may not be able to meaningfully protect our trade secrets. It is our policy to require our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to execute
confidentiality agreements upon the commencement of employment or consulting relationships with us. These agreements provide that all confidential information concerning our business or financial affairs developed or made known to the individual
during the course of the individuals relationship with us is to be kept confidential and not disclosed to third parties except in specific circumstances. In the case of employees, the agreements provide that all inventions conceived by the
individual, and which are related to our current or planned business or research and development or made during normal working hours, on our premises or using our equipment or proprietary information, are our exclusive property.
License Agreement with University of Maryland, Baltimore
In May 2006, we entered into a master license agreement with UMB. Pursuant to the license agreement, UMB granted us an exclusive worldwide
license, with the right to sublicense, under certain patents and patent applications to make, have made, use, sell, offer to sell and import certain anti-androgen steroids including galeterone, which we refer to as licensed products, and to
otherwise practice the patent rights in any manner, for the prevention, diagnosis, treatment or control of any human or animal disease. In addition, UMB granted us a first option to receive an exclusive license to UMBs rights in certain
improvements to the licensed products, which improvements we refer to as licensed improvements. We have exercised our option and acquired exclusive rights to licensed improvements under four amendments to the license agreement. In March 2009, the
license agreement was amended to grant us an exclusive license to oral prodrugs of the licensed products. In April 2012, the license agreement was amended to grant us an exclusive license to compositions and methods of inducing endoplasmic reticulum
stress. In October 2013, the license agreement was amended to grant us an exclusive license to a patent application directed to analogs of galeterone that disrupt androgen receptor signaling by degrading the androgen receptor. In March 2016, the
license agreement was amended to grant us an exclusive license for the use of galeterone and other compounds previously licensed from UMB for the treatment of pancreatic cancer.
Under the terms of the license agreement, as amended, we are obligated to use commercially reasonable efforts to develop and commercialize one
or more licensed products. We must also achieve specified milestone events by specified dates. UMB may terminate the agreement if we fail to achieve such milestone events and do not cure such failure within a specified termination notice period. UMB
may also terminate the agreement upon our breach of our payment obligations or our other material breaches under the agreement if we do not cure such breach within a specified notice period or upon our bankruptcy or insolvency. We may terminate the
agreement at any time, on a
country-by-country
basis, if we determine that a license under the licensed patent rights in an applicable country is not advantageous to our
commercial success, provided that our payment obligations with respect to licensed products in such country would survive termination if we continued to develop and commercialize licensed products in such country following such a termination. Unless
our license agreement with UMB is terminated earlier as provided above, our exclusive license from UMB expires on a
13
country-by-country
basis as of the later of the expiration date of the last to expire of the claims of the patent
rights licensed to us under the agreement in such country or ten years after the first commercial sale of a licensed product in such country.
In consideration for the rights granted to us, we made an upfront payment to UMB of $20,000 following the execution of the license agreement
and a payment of $10,000 following the execution of each of the March 2009, April 2012, October 2013 and March 2016 amendments. We are obligated to pay UMB an annual maintenance fee of $10,000 each year until the first commercial sale. In
addition, we paid UMB a $50,000 milestone payment in 2009 upon the submission of our investigational new drug application, or IND, for galeterone and a $40,000 milestone payment in 2013 upon the issuance of the first patent related to UMBs
prodrug patent application. We are obligated to make an additional $50,000 milestone payment to UMB for each additional IND we file for a licensed product and a $100,000 milestone payment upon the approval of each NDA for a licensed product by the
FDA. In addition, under the March 2016 amendment to the license agreement, we are obligated to make milestone payments of $50,000 upon the
first-in-human
dosing of a
patient with a pancreatic cancer licensed product and $100,000 upon dosing of the first patient in the first Phase 3 clinical trial of a pancreatic cancer licensed product. We must also pay UMB a
low-single
digit percentage royalty on aggregate worldwide net sales of licensed products, including sales by our sublicensees, on a licensed
product-by-licensed
product and
country-by-country
basis until the later of the expiration of the
last-to-expire
applicable
licensed patent or ten years after first commercial sale of the applicable licensed product, in each case in the applicable country. Our royalty obligations are subject to specified reductions in the event that we are required to obtain additional
licenses from third parties or in the event of specified competition from third-party products licensed by UMB. Our minimum annual royalty payment to UMB is $50,000 beginning in the year following the year in which the first commercial sale occurs.
We must also pay UMB 10% of all
non-royalty
sublicense income received from sublicensees. Finally, as of April 10, 2012, we assumed responsibility for all patent expenses related to the prosecution and
maintenance of the licensed patents.
License Agreement with The Johns Hopkins University
In January 2015, we entered into an exclusive license agreement with Johns Hopkins. Pursuant to the license agreement, Johns Hopkins granted us
an exclusive worldwide license under certain patent applications and a
non-exclusive
license under certain
know-how,
with the right to sublicense, to make, have made,
use, sell, offer to sell and import certain assays to identify androgen receptor variants for use as a companion diagnostic with galeterone. In addition, Johns Hopkins granted us an option to negotiate an exclusive license to Johns Hopkinss
rights in certain improvements to the licensed products.
Under the terms of the license agreement, we are obligated to diligently
develop, manufacture and sell licensed products. We are also obligated to use commercially reasonable efforts to achieve specified milestone events by specified dates. Unless the license agreement with Johns Hopkins is terminated earlier as provided
below, the license from Johns Hopkins expires on a
country-by-country
basis as of the later of the expiration date of the last to expire of the claims of the patent
rights licensed under the agreement in such country or ten years after the first commercial sale of a licensed product in such country. Johns Hopkins may terminate the agreement if we fail to achieve such milestone events and do not cure such
failure within a specified termination notice period. Johns Hopkins may also terminate the agreement upon a material breach by us under the agreement if we do not cure such breach within a specified notice period or upon bankruptcy or insolvency. We
may terminate the agreement at any time upon 90 days notice.
In consideration for the rights granted to us under the license
agreement, we made an upfront payment to Johns Hopkins of $75,000 following the execution of the license agreement. We are obligated to pay Johns Hopkins an annual minimum royalty of up to $30,000. We are also obligated to make milestone payments to
Johns Hopkins upon the achievement of specified technical and commercial milestones. We paid $50,000 during 2015 related to the achievement of two of these milestones. If all such milestones are achieved, the total milestone payments owed to Johns
Hopkins would equal in the aggregate $700,000. We must also pay Johns
14
Hopkins single digit percentage royalties on aggregate worldwide net sales of licensed products (and not galeterone), including sales by sublicensees, on a licensed
product-by-licensed
product and
country-by-country
basis until the later of the
expiration of the
last-to-expire
applicable licensed patent or ten years after first commercial sale of the applicable licensed product, in each case in the applicable
country. These royalty obligations are subject to specified reductions in the event that additional licenses from third parties are required. We must also pay Johns Hopkins 20% of all
non-royalty
sublicense
income received from sublicensees and reimburse them for patent costs.
Government Regulation and Product Approvals
Government authorities in the United States, at the federal, state and local level, and in other countries and jurisdictions, including the
European Union, extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, post-approval
monitoring and reporting, and import and export of pharmaceutical products. The processes for obtaining regulatory approvals in the United States and in foreign countries and jurisdictions, along with subsequent compliance with applicable statutes
and regulations and other regulatory authorities, require the expenditure of substantial time and financial resources.
Review and
Approval of Drugs in the United States
In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic
Act, or FDCA, and associated implementing regulations. The failure to comply with the FDCA and other applicable U.S. requirements at any time during the product development process, approval process or after approval may subject an applicant and/or
sponsor to a variety of administrative or judicial sanctions, including refusal by the FDA to approve pending applications, withdrawal of an approval, imposition of a clinical hold, issuance of warning letters and other types of letters, product
recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement of profits, or civil or criminal investigations and penalties brought by the FDA
and the Department of Justice, or DOJ, or other governmental entities.
An applicant seeking approval to market and distribute a new drug
product in the United States must typically undertake the following:
|
|
|
completion of preclinical laboratory tests, animal studies and formulation studies in compliance with the FDAs good laboratory practice, or GLP, regulations;
|
|
|
|
submission to the FDA of an IND, which must take effect before human clinical trials may begin in the United States;
|
|
|
|
approval by an independent institutional review board, or IRB, representing each clinical site before each clinical trial may be initiated;
|
|
|
|
performance of adequate and well-controlled human clinical trials in accordance with good clinical practices, or GCP, to establish the safety and efficacy of the proposed drug product for each indication;
|
|
|
|
preparation and submission to the FDA of a new drug application, or NDA;
|
|
|
|
review of the product candidate by an FDA advisory committee, where appropriate or if applicable;
|
|
|
|
satisfactory completion of one or more FDA inspections of the manufacturing facility or facilities at which the product, or components thereof, are produced to assess compliance with current good manufacturing process,
or cGMP, requirements and to assure that the facilities, methods and controls are adequate to preserve the products identity, strength, quality and purity;
|
|
|
|
satisfactory completion of FDA audits of clinical trial sites to assure compliance with GCPs and the integrity of the clinical data;
|
15
|
|
|
payment of user fees and securing FDA approval of the NDA; and
|
|
|
|
compliance with any post-approval requirements, including Risk Evaluation and Mitigation Strategies, or REMS, as applicable, and post-approval studies required by the FDA.
|
Preclinical Studies
Preclinical studies include laboratory evaluation of the purity and stability of the manufactured drug substance or active pharmaceutical
ingredient and the formulated drug or drug product, as well as
in vitro
and animal studies to assess the safety and activity of the drug for initial testing in humans and to establish a rationale for therapeutic use. The conduct of
preclinical studies is subject to federal regulations and requirements, including GLP regulations. The results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and plans
for clinical studies, among other things, are submitted to the FDA as part of an IND. Additional preclinical testing, such as animal tests of reproductive adverse events and carcinogenicity, may continue after the IND is submitted.
Human Clinical Studies in Support of an NDA
Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators in
accordance with GCP requirements, which include, among other things, the requirement that all research subjects provide their informed consent in writing before their participation in any clinical trial. Clinical trials are conducted under written
study protocols detailing, among other things, the objectives of the study, inclusion and exclusion criteria, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. A protocol for each clinical trial and any
subsequent protocol amendments must be submitted to the FDA as part of the IND. An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions related to a proposed clinical
trial and places the trial on clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. Accordingly, submission of an IND may or may not result in the FDA allowing clinical
trials to commence.
Typically, the FDA will require one IND for early development studies where the sponsor is uncertain of the
indication or dosage form of the proposed product, where the drug is being developed for closely related indications within a single review division at FDA, or where there are multiple closely-related routes of administration using the same dosage
formulation. On the other hand, multiple INDs may be required where there are two or more unrelated conditions being developed or where multiple dosage forms are being extensively investigated or where multiple routes of administration are being
evaluated.
In addition to the foregoing IND requirements, an IRB representing each institution participating in the clinical trial must
review and approve the plan for any clinical trial before it commences at that institution, and the IRB must conduct continuing review and reapprove the study at least annually. The IRB must review and approve, among other things, the study protocol
and informed consent information to be provided to study subjects. An IRB must operate in compliance with FDA regulations. Information about certain clinical trials must be submitted within specific timeframes to the National Institutes of Health
for public dissemination on their ClinicalTrials.gov website.
Human clinical trials are typically conducted in three sequential phases,
which may overlap or be combined:
Phase 1:
The drug is initially introduced into a small number of healthy human subjects or
patients with the target disease such as cancer or condition and tested for safety, dosage tolerance, absorption, metabolism, distribution, excretion and, if possible, to gain an early indication of its effectiveness and to determine optimal dosage.
Phase 2:
The drug is administered to a limited patient population to identify possible adverse effects and safety risks, to
preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage.
16
Phase 3:
Phase 3 clinical trials are commonly referred to as pivotal trials,
which typically denotes a trial which generates the principal data that the FDA or other relevant regulatory agency will use to determine whether or not to approve a drug. In Phase 3 trials, the drug is administered to an expanded patient
population, generally at geographically dispersed clinical trial sites, in well-controlled clinical trials to generate enough data to statistically evaluate the efficacy and safety of the product for approval, to establish the overall risk-benefit
profile of the product, and to provide adequate information for the labeling of the product.
Progress reports detailing the results of
the clinical trials must be submitted at least annually to the FDA and more frequently if serious adverse events occur. In addition, IND safety reports must be submitted to the FDA for any of the following: serious and unexpected suspected adverse
reactions; findings from other studies or animal or in vitro testing that suggest a significant risk in humans exposed to the drug; and any clinically important increase in the case of a serious suspected adverse reaction over that listed in the
protocol or investigator brochure. Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified period, or at all. Furthermore, the FDA or the sponsor may suspend or terminate the clinical trial, or the data
monitoring committee for a clinical trial may recommend suspension or termination, at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or
terminate approval of a clinical trial at its institution, or an institution it represents, if the clinical trial is not being conducted in accordance with the IRBs requirements or if the drug has been associated with unexpected serious harm
to patients. The FDA will typically inspect one or more clinical sites to assure compliance with GCP and the integrity of the clinical data submitted.
Section 505(b)(2) NDAs
NDAs for most new drug products are based on two full clinical trials which must contain substantial evidence of the safety and efficacy of the
proposed new product. These applications are submitted under Section 505(b)(1) of the FDCA. The FDA is, however, authorized to approve an alternative type of NDA under Section 505(b)(2) of the FDCA. This type of application allows the
applicant to rely, in part, on the FDAs previous findings of safety and efficacy for a similar product, or published literature. Specifically, Section 505(b)(2) applies to NDAs for a drug for which the investigations made to show whether
or not the drug is safe for use and effective in use and relied upon by the applicant for approval of the application were not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use from the
person by or for whom the investigations were conducted.
Thus, Section 505(b)(2) authorizes the FDA to approve an NDA based on
safety and effectiveness data that were not developed by the applicant. NDAs filed under Section 505(b)(2) may provide an alternate and potentially more expeditious pathway to FDA approval for new or improved formulations or new uses of
previously approved products. If the Section 505(b)(2) applicant can establish that reliance on the FDAs previous approval is scientifically appropriate, the applicant may eliminate the need to conduct certain preclinical or clinical
trials of the new product. The FDA may also require companies to perform additional studies, trials or measurements to support the change from the approved product. The FDA may then approve the new drug candidate for all or some of the label
indications for which the referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2) applicant.
Submission of an NDA to the FDA
Assuming successful completion of required clinical testing and other requirements, the results of the preclinical and clinical studies,
together with detailed information relating to the products chemistry, manufacture, controls and proposed labeling, among other things, are submitted to the FDA as part of an NDA requesting approval to market the drug product for one or more
indications. Under federal law, the submission of most NDAs is additionally subject to an application user fee, which for federal fiscal year 2017 is $2,038,100. The sponsor of an approved NDA is also subject to annual product and establishment user
fees, which for 2017 are $97,750 per product and $512,200 per establishment.
17
The FDA conducts a preliminary review of an NDA within 60 calendar days of its receipt and
strives to inform the sponsor by the 74
th
day after the FDAs receipt of the submission to determine whether the application is sufficiently complete to permit substantive review. The FDA may
request additional information rather than accept an NDA for filing. In this event, the application must be resubmitted with the additional information. The resubmitted application is also subject to review before the FDA accepts it for filing. Once
the submission is accepted for filing, the FDA begins an
in-depth
substantive review.
The FDA has
agreed to specified performance goals in the review process of NDAs. Under the agreement, 90% of applications seeking approval of New Molecular Entities, or NMEs, are meant to be reviewed within ten months from the date on which the FDA accepts the
NDA for filing, and 90% of applications for NMEs that have been designated for priority review are meant to be reviewed within six months of the filing date. For applications seeking approval of drugs that are not NMEs, the
ten-month
and
six-month
review periods run from the date that the FDA receives the application. The review process may be extended by the FDA for three additional months to
consider new information or clarification provided by the applicant to address an outstanding deficiency identified by the FDA following the original submission.
Before approving an NDA, the FDA typically will inspect the facility or facilities where the product is or will be manufactured. These
pre-approval
inspections cover all facilities associated with an NDA submission, including drug component manufacturing (such as active pharmaceutical ingredients), finished drug product manufacturing, and control
testing laboratories. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required
specifications. Additionally, before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP.
In addition, as a condition of approval, the FDA may require an applicant to develop a REMS. REMS use risk minimization strategies beyond
the professional labeling to ensure that the benefits of the product outweigh the potential risks. To determine whether a REMS is needed, the FDA will consider the size of the population likely to use the product, seriousness of the disease,
expected benefit of the product, expected duration of treatment, seriousness of known or potential adverse events, and whether the product is a new molecular entity. REMS can include medication guides, physician communication plans for
healthcare professionals, and elements to assure safe use, or ETASU. ETASU may include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring, and the
use of patient registries. The FDA may require a REMS before approval or post-approval if it becomes aware of a serious risk associated with use of the product. The requirement for a REMS can materially affect the potential market and
profitability of a product.
The FDA may refer an application for a novel drug to an advisory committee or explain why such referral was
not made. Typically, an advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides a recommendation as to whether the application should be approved and under what
conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.
Fast Track, Breakthrough Therapy and Priority Review Designations
The FDA is authorized to designate certain products for expedited review if they are intended to address an unmet medical need in the treatment
of a serious or life-threatening disease or condition. These programs are fast track designation, breakthrough therapy designation and priority review designation.
Specifically, the FDA may designate a product for fast track review if it is intended, whether alone or in combination with one or more other
drugs, for the treatment of a serious or life-threatening disease or condition, and it demonstrates the potential to address unmet medical needs for such a disease or condition. For fast track products, sponsors may have greater interactions with
the FDA and the FDA may initiate review of sections of a
18
fast track products NDA before the application is complete. This rolling review may be available if the FDA determines, after preliminary evaluation of clinical data submitted by the
sponsor, that a fast track product may be effective. The sponsor must also provide, and the FDA must approve, a schedule for the submission of the remaining information and the sponsor must pay applicable user fees. However, the FDAs time
period goal for reviewing a fast track application does not begin until the last section of the NDA is submitted. In addition, the fast track designation may be withdrawn by the FDA if the FDA believes that the designation is no longer supported by
data emerging in the clinical trial process.
Second, in 2012, Congress enacted the Food and Drug Administration Safety and Innovation
Act, or FDASIA. This law established a new regulatory scheme allowing for expedited review of products designated as breakthrough therapies. A product may be designated as a breakthrough therapy if it is intended, either alone or in
combination with one or more other drugs, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over existing therapies on one or more
clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The FDA may take certain actions with respect to breakthrough therapies, including holding meetings with the sponsor throughout the
development process; providing timely advice to the product sponsor regarding development and approval; involving more senior staff in the review process; assigning a cross-disciplinary project lead for the review team; and taking other steps to
design the clinical trials in an efficient manner.
Third, the FDA may designate a product for priority review if it is a drug that treats
a serious condition and, if approved, would provide a significant improvement in safety or effectiveness. The FDA determines, on a
case-by-case
basis, whether the
proposed drug represents a significant improvement when compared with other available therapies. Significant improvement may be illustrated by evidence of increased effectiveness in the treatment of a condition, elimination or substantial reduction
of a treatment-limiting drug reaction, documented enhancement of patient compliance that may lead to improvement in serious outcomes, and evidence of safety and effectiveness in a new subpopulation. A priority designation is intended to direct
overall attention and resources to the evaluation of such applications, and to shorten the FDAs goal for taking action on a marketing application from ten months to six months. Most products that are eligible for fast track designation are
also likely to be considered appropriate to receive a priority review.
Accelerated Approval Pathway
The FDA may grant accelerated approval to a drug for a serious or life-threatening condition that provides meaningful therapeutic advantage to
patients over existing treatments based upon a determination that the drug has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit. The FDA may also grant accelerated approval for such a condition when the product
has an effect on an intermediate clinical endpoint that can be measured earlier than an effect on irreversible morbidity or mortality, or IMM, and that is reasonably likely to predict an effect on irreversible morbidity or mortality or other
clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. Drugs granted accelerated approval must meet the same statutory standards for safety and effectiveness
as those granted traditional approval.
For the purposes of accelerated approval, a surrogate endpoint is a marker, such as a laboratory
measurement, radiographic image, physical sign, or other measure that is thought to predict clinical benefit, but is not itself a measure of clinical benefit. Surrogate endpoints can often be measured more easily or more rapidly than clinical
endpoints. An intermediate clinical endpoint is a measurement of a therapeutic effect that is considered reasonably likely to predict the clinical benefit of a drug, such as an effect on IMM. The FDA has limited experience with accelerated approvals
based on intermediate clinical endpoints, but has indicated that such endpoints generally may support accelerated approval where the therapeutic effect measured by the endpoint is not itself a clinical benefit and basis for traditional approval, if
there is a basis for concluding that the therapeutic effect is reasonably likely to predict the ultimate clinical benefit of a drug.
19
The accelerated approval pathway is most often used in settings in which the course of a disease
is long and an extended period of time is required to measure the intended clinical benefit of a drug, even if the effect on the surrogate or intermediate clinical endpoint occurs rapidly. Thus, accelerated approval has been used extensively in the
development and approval of drugs for treatment of a variety of cancers in which the goal of therapy is generally to improve survival or decrease morbidity and the duration of the typical disease course requires lengthy and sometimes large trials to
demonstrate a clinical or survival benefit.
The accelerated approval pathway is usually contingent on a sponsors agreement to
conduct, in a diligent manner, additional post-approval confirmatory studies to verify and describe the drugs clinical benefit. As a result, a drug candidate approved on this basis is subject to rigorous post-marketing compliance
requirements, including the completion of Phase 4 or post-approval clinical trials to confirm the effect on the clinical endpoint. Failure to conduct required post-approval studies, or confirm a clinical benefit during post-marketing studies, would
allow the FDA to withdraw the drug from the market on an expedited basis. All promotional materials for drug candidates approved under accelerated regulations are subject to prior review by the FDA.
The FDAs Decision on an NDA
On the basis of the FDAs evaluation of the NDA and accompanying information, including the results of the inspection of the manufacturing
facilities, the FDA may issue an approval letter or a complete response letter. An approval letter authorizes commercial marketing of the product with specific prescribing information for specific indications. A complete response letter generally
outlines the deficiencies in the submission and may require substantial additional testing or information in order for the FDA to reconsider the application. If and when those deficiencies have been addressed to the FDAs satisfaction in a
resubmission of the NDA, the FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included. Even with submission of this additional information, the FDA
ultimately may decide that the application does not satisfy the regulatory criteria for approval.
If the FDA approves a product, it may
limit the approved indications for use for the product, require that contraindications, warnings or precautions be included in the product labeling, require that post-approval studies, including Phase 4 clinical trials, be conducted to further
assess the drugs safety after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution restrictions or other risk management mechanisms, including
REMS, which can materially affect the potential market and profitability of the product. The FDA may prevent or limit further marketing of a product based on the results of post-market studies or surveillance programs. After approval, many types of
changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further testing requirements and FDA review and approval.
Post-Approval Requirements
Drugs manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among
other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting of adverse experiences with the product. After approval, most changes to the approved product, such
as adding new indications or other labeling claims, are subject to prior FDA review and approval. There also are continuing, annual user fee requirements for any marketed products and the establishments at which such products are manufactured, as
well as new application fees for supplemental applications with clinical data.
In addition, drug manufacturers and other entities
involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and state agencies, and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with
cGMP requirements. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and
20
impose reporting and documentation requirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time,
money, and effort in the area of production and quality control to maintain cGMP compliance.
Once an approval is granted, the FDA may
withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of
unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical
trials to assess new safety risks; or imposition of distribution or other restrictions under a REMS program. Other potential consequences include, among other things:
|
|
|
restrictions on the marketing or manufacturing of the product, suspension of the approval, complete withdrawal of the product from the market or product recalls;
|
|
|
|
fines, warning letters or holds on post-approval clinical trials;
|
|
|
|
refusal of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or revocation of product license approvals;
|
|
|
|
product seizure or detention, or refusal to permit the import or export of products; or
|
|
|
|
injunctions or the imposition of civil or criminal penalties.
|
The FDA strictly regulates
marketing, labeling, advertising and promotion of products that are placed on the market. Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively
enforce the laws and regulations prohibiting the promotion of
off-label
uses, and a company that is found to have improperly promoted
off-label
uses may be subject to
significant liability.
In addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug
Marketing Act, or PDMA, as well as the Drug Supply Chain Security Act, or DSCA, which regulate the distribution and tracing of prescription drugs and prescription drug samples at the federal level, and set 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. The DSCA imposes requires to ensure
accountability in distribution and to identify and remove counterfeit and other illegitimate products from the market.
Abbreviated New
Drug Applications for Generic Drugs
In 1984, with passage of the Hatch-Waxman Amendments to the FDCA, Congress authorized the FDA to
approve generic drugs that are the same as drugs previously approved by the FDA under the NDA provisions of the statute. To obtain approval of a generic drug, an applicant must submit an abbreviated new drug application, or ANDA, to the agency. In
support of such applications, a generic manufacturer may rely on the preclinical and clinical testing previously conducted for a drug product previously approved under an NDA, known as the reference listed drug, or RLD.
Specifically, in order for an ANDA to be approved, the FDA must find that the generic version is identical to the RLD with respect to the
active ingredients, the route of administration, the dosage form, and the strength of the drug. At the same time, the FDA must also determine that the generic drug is bioequivalent to the innovator drug. Under the statute, a generic drug
is bioequivalent to a RLD if the rate and extent of absorption of the drug do not show a significant difference from the rate and extent of absorption of the listed drug
Upon approval of an ANDA, the FDA indicates whether the generic product is therapeutically equivalent to the RLD in its
publication Approved Drug Products with Therapeutic Equivalence Evaluations, also referred
21
to as the Orange Book. Physicians and pharmacists consider a therapeutic equivalent generic drug to be fully substitutable for the RLD. In addition, by operation of certain state laws
and numerous health insurance programs, the FDAs designation of therapeutic equivalence often results in substitution of the generic drug without the knowledge or consent of either the prescribing physician or patient.
Under the Hatch-Waxman Amendments, the FDA may not approve an ANDA until any applicable period of
non-patent
exclusivity for the RLD has expired. The FDCA provides a period of five years of
non-patent
data exclusivity for a new drug containing a new chemical entity.
In cases where such exclusivity has been granted, an ANDA may not be filed with the FDA until the expiration of five years unless the submission is accompanied by a Paragraph IV certification, in which case the applicant may submit its application
four years following the original product approval. The FDCA also provides for a period of three years of exclusivity if the NDA includes reports of one or more new clinical investigations, other than bioavailability or bioequivalence studies, that
were conducted by or for the applicant and are essential to the approval of the application. This three-year exclusivity period often protects changes to a previously approved drug product, such as a new dosage form, route of administration,
combination or indication.
Hatch-Waxman Patent Certification and the
30-Month
Stay
Upon approval of an NDA or a supplement thereto, NDA sponsors are required to list with the FDA each patent with claims that cover the
applicants product or an approved method of using the product. Each of the patents listed by the NDA sponsor is published in the Orange Book. When an ANDA or 505(b)(2) applicant files its application with the FDA, the applicant is required to
certify to the FDA concerning any patents listed for the reference product in the Orange Book, except for patents covering methods of use for which the ANDA applicant is not seeking approval.
Specifically, the applicant must certify with respect to each patent that:
|
|
|
the required patent information has not been filed;
|
|
|
|
the listed patent has expired;
|
|
|
|
the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or
|
|
|
|
the listed patent is invalid, unenforceable or will not be infringed by the new product.
|
A
certification that the new product will not infringe the already approved products listed patents or that such patents are invalid or unenforceable is called a Paragraph IV certification. If the applicant does not challenge the listed patents
or indicates that it is not seeking approval of a patented method of use, the application will not be approved until all the listed patents claiming the referenced product have expired (other than method of use patents involving indications for
which the ANDA applicant is not seeking approval).
If the ANDA or 505(b)(2) applicant has provided a Paragraph IV certification to the
FDA, the applicant must also send notice of the Paragraph IV certification to the NDA and patent holders once the ANDA or 505(b)(2) application has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent
infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days after the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA or
505(b)(2) application until the earlier of 30 months after the receipt of the Paragraph IV notice, expiration of the patent, or a decision in the infringement case that is favorable to the ANDA applicant. To the extent that the Section 505(b)(2)
applicant is relying on studies conducted for an already approved product, the applicant is required to certify to the FDA concerning any patents listed for the approved product in the Orange Book to the same extent that an ANDA applicant would.
22
Pediatric Studies and Exclusivity
Under the Pediatric Research Equity Act of 2003, an NDA or supplement thereto must contain data that are adequate to assess the safety and
effectiveness of the drug product for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. With enactment of the
FDASIA in 2012, sponsors must also submit pediatric study plans prior to the assessment data. Those plans must contain an outline of the proposed pediatric study or studies the applicant plans to conduct, including study objectives and design, any
deferral or waiver requests, and other information required by regulation. The applicant, the FDA, and the FDAs internal review committee must then review the information submitted, consult with each other, and agree upon a final plan. The FDA
or the applicant may request an amendment to the plan at any time.
The FDA may, on its own initiative or at the request of the applicant,
grant deferrals for submission of some or all pediatric data until after approval of the product for use in adults, or full or partial waivers from the pediatric data requirements. Additional requirements and procedures relating to deferral requests
and requests for extension of deferrals are contained in the FDASIA. Unless otherwise required by regulation, the pediatric data requirements do not apply to products with orphan designation.
Pediatric exclusivity is another type of
non-patent
marketing exclusivity in the United States and, if
granted, provides for the attachment of an additional six months of marketing protection to the term of any existing regulatory exclusivity, including the
non-patent
and orphan exclusivity. This
six-month
exclusivity may be granted if an NDA sponsor submits pediatric data that fairly respond to a written request from the FDA for such data. The data do not need to show the product to be effective in the
pediatric population studied; rather, if the clinical trial is deemed to fairly respond to the FDAs request, the additional protection is granted. If reports of requested pediatric studies are submitted to and accepted by the FDA within the
statutory time limits, whatever statutory or regulatory periods of exclusivity or patent protection cover the product are extended by six months. This is not a patent term extension, but it effectively extends the regulatory period during which the
FDA cannot approve another application.
Orphan Drug Designation and Exclusivity
Under the Orphan Drug Act, the FDA may designate a drug product as an orphan drug if it is intended to treat a rare disease or
condition (generally meaning that it affects fewer than 200,000 individuals in the United States, or more in cases in which there is no reasonable expectation that the cost of developing and making a drug product available in the United States for
treatment of the disease or condition will be recovered from sales of the product). A company must request orphan product designation before submitting an NDA. If the request is granted, the FDA will disclose the identity of the therapeutic agent
and its potential use. Orphan product designation does not convey any advantage in or shorten the duration of the regulatory review and approval process.
If a product with orphan status receives the first FDA approval for the disease or condition for which it has such designation or for a select
indication or use within the rare disease or condition for which it was designated, the product generally will receive orphan product exclusivity. Orphan product exclusivity means that the FDA may not approve any other applications for the same
product for the same indication for seven years, except in certain limited circumstances. Competitors may receive approval of different products for the indication for which the orphan product has exclusivity and may obtain approval for the same
product but for a different indication. If a drug or drug product designated as an orphan product ultimately receives marketing approval for an indication broader than what was designated in its orphan product application, it may not be entitled to
exclusivity.
Patent Term Restoration and Extension
A patent claiming a new drug product may be eligible for a limited patent term extension under the Drug Price Competition and Patent Term
Restoration Act of 1984, which permits a patent restoration of up to five
23
years for patent term lost during product development and the FDA regulatory review. The restoration period granted is typically
one-half
the time between
the effective date of an IND and the submission date of an NDA, plus the time between the submission date of an NDA and the ultimate approval date. Patent term restoration cannot be used to extend the remaining term of a patent past a total of 14
years from the products approval date. Only one patent applicable to an approved drug product is eligible for the extension, and the application for the extension must be submitted prior to the expiration of the patent in question. A patent
that covers multiple drugs for which approval is sought can only be extended in connection with one of the approvals. The USPTO reviews and approves the application for any patent term extension or restoration in consultation with the FDA.
The 21
st
Century Cures Act
On December 13, 2016, President Obama signed the 21st Century Cures Act (Cures Act) into law. The Cures Act is designed to
modernize and personalize healthcare, spur innovation and research, and streamline the discovery and development of new therapies through increased federal funding of particular programs. It authorizes increasing funding for FDA to spend on
innovation projects. The new law also amends the Public Health Service Act to reauthorize and expand funding for the National Institutes of Health. The Act establishes the NIH Innovation Fund to pay for the cost of development and implementation of
a strategic plan, early stage investigators and research. It also charges NIH with leading and coordinating expanded pediatric research. Further, the Cures Act directs the Centers for Disease Control and Prevention to expand surveillance of
neurological diseases.
With amendments to the FDCA and the Public Health Service Act (PHSA), Title III of the Cures Act seeks
to accelerate the discovery, development, and delivery of new medicines and medical technologies. To that end, and among other provisions, the Cures Act reauthorizes the priority review voucher program for certain drugs intended to treat rare
pediatric diseases; creates a new priority review voucher program for drug applications determined to be material threat medical countermeasure applications; revises the FDCA to streamline review of combination product applications; requires FDA to
evaluate the potential use of real world evidence to help support approval of new indications for approved drugs; provides a new limited population approval pathway for antibiotic and antifungal drugs intended to treat
serious or life-threatening infections; and authorizes FDA to designate a drug as a regenerative advanced therapy, thereby making it eligible for certain expedited review and approval designations.
Review and Approval of Drug Products in the European Union
In order to market any product outside of the United States, a company must also comply with numerous and varying regulatory requirements of
other countries and jurisdictions regarding quality, safety and efficacy and governing, among other things, clinical trials, marketing authorization, commercial sales and distribution of drug products. Whether or not it obtains FDA approval for a
product, the company would need to obtain the necessary approvals by the comparable foreign regulatory authorities before it can commence clinical trials or marketing of the product in those countries or jurisdictions. The approval process
ultimately varies between countries and jurisdictions and can involve additional product testing and additional administrative review periods. The time required to obtain approval in other countries and jurisdictions might differ from and be longer
than that required to obtain FDA approval. Regulatory approval in one country or jurisdiction does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country or jurisdiction may negatively
impact the regulatory process in others.
Clinical Trial Approval in the EU
Pursuant to the European Clinical Trials Directive, a system for the approval of clinical trials in the European Union has been implemented
through national legislation of the member states. Under this system, an applicant must obtain approval from the competent national authority of a European Union member state in which the clinical trial is to be conducted. Furthermore, the applicant
may only start a clinical trial after a
24
competent ethics committee has issued a favorable opinion. Clinical trial application must be accompanied by an investigational medicinal product dossier with supporting information prescribed by
the European Clinical Trials Directive and corresponding national laws of the member states and further detailed in applicable guidance documents. In April 2014, the EU adopted a new Clinical Trials Regulation, which will be directly applicable to
and binding without the need for any national implementing legislation. Under the new coordinated procedure for the approval of clinical trials, the sponsor of a clinical trial will be required to submit a single application for approval of a
clinical trial to a reporting EU Member State (RMS) through an EU Portal. The submission procedure will be the same irrespective of whether the clinical trial is to be conducted in a single EU Member State or in more than one EU Member State. The
Clinical Trials Regulation also aims to streamline and simplify the rules on safety reporting for clinical trials.
Approval of Drug
Products in the EU
To obtain marketing approval of a drug under European Union regulatory systems, an applicant must submit a
marketing authorization application, or MAA, either under a centralized or decentralized procedure.
The centralized procedure provides
for the grant of a single marketing authorization by the European Commission that is valid for all European Union member states. The centralized procedure is compulsory for specific products, including for medicines produced by certain
biotechnological processes, products designated as orphan medicinal products, advanced therapy products and products with a new active substance indicated for the treatment of certain diseases. For products with a new active substance indicated for
the treatment of other diseases and products that are highly innovative or for which a centralized process is in the interest of patients, the centralized procedure may be optional.
Under the centralized procedure, the Committee for Medicinal Products for Human Use, or the CHMP, established at the European Medicines
Agency, or the EMA, is responsible for conducting the initial assessment of a drug. The CHMP is also responsible for several post-authorization and maintenance activities, such as the assessment of modifications or extensions to an existing
marketing authorization. Under the centralized procedure in the European Union, the maximum timeframe for the evaluation of an MAA is 210 days, excluding clock stops, when additional information or written or oral explanation is to be provided by
the applicant in response to questions of the CHMP. Accelerated evaluation might be granted by the CHMP in exceptional cases, when a medicinal product is of major interest from the point of view of public health and in particular from the viewpoint
of therapeutic innovation. In this circumstance, the EMA ensures that the opinion of the CHMP is given within 150 days.
The decentralized
procedure is available to applicants who wish to market a product in various European Union member states where such product has not received marketing approval in any European Union member states before. The decentralized procedure provides for
approval by one or more other, or concerned, member states of an assessment of an application performed by one member state designated by the applicant, known as the reference member state. Under this procedure, an applicant submits an application
based on identical dossiers and related materials, including a draft summary of product characteristics, and draft labeling and package leaflet, to the reference member state and concerned member states. The reference member state prepares a draft
assessment report and drafts of the related materials within 210 days after receipt of a valid application. Within 90 days of receiving the reference member states assessment report and related materials, each concerned member state must
decide whether to approve the assessment report and related materials.
If a member state cannot approve the assessment report and related
materials on the grounds of potential serious risk to public health, the disputed points are subject to a dispute resolution mechanism and may eventually be referred to the European Commission, whose decision is binding on all member states.
Orphan Drug Designation and Exclusivity
Regulation 141/2000 provides that a drug shall be designated as an orphan drug if its sponsor can establish: that the product is intended for
the diagnosis, prevention or treatment of a life-threatening or chronically
25
debilitating condition affecting not more than five in ten thousand persons in the European Community when the application is made, or that the product is intended for the diagnosis, prevention
or treatment of a life-threatening, seriously debilitating or serious and chronic condition in the European Community and that without incentives it is unlikely that the marketing of the drug in the European Community would generate sufficient
return to justify the necessary investment. For either of these conditions, the applicant must demonstrate that there exists no satisfactory method of diagnosis, prevention or treatment of the condition in question that has been authorized in the
European Community or, if such method exists, the drug will be of significant benefit to those affected by that condition.
Regulation
847/2000 sets out criteria and procedures governing designation of orphan drugs in the EU. Specifically, an application for designation as an orphan product can be made any time prior to the filing of an application for approval to market the
product. Marketing authorization for an orphan drug leads to a
ten-year
period of market exclusivity. This period may, however, be reduced to six years if, at the end of the fifth year, it is established that
the product no longer meets the criteria for orphan drug designation, for example because the product is sufficiently profitable not to justify market exclusivity. Market exclusivity can be revoked only in very selected cases, such as consent from
the marketing authorization holder, inability to supply sufficient quantities of the product, demonstration of clinically relevant superiority by a similar medicinal product, or, after a review by the Committee for Orphan Medicinal
Products, requested by a member state in the fifth year of the marketing exclusivity period (if the designation criteria are believed to no longer apply). Medicinal products designated as orphan drugs pursuant to Regulation 141/2000 shall be
eligible for incentives made available by the European Community and by the member states to support research into, and the development and availability of, orphan drugs.
Pharmaceutical Coverage, Pricing and Reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of products approved by the FDA and other government authorities.
Sales of products will depend, in part, on the extent to which the costs of the products will be covered by third-party payors, including government health programs in the United States such as Medicare and Medicaid, commercial health insurers and
managed care organizations. The process for determining whether a payor will provide coverage for a product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the product once coverage is
approved. Third-party payors are increasingly challenging the prices charged, examining the medical necessity, and reviewing the cost-effectiveness of medical products and services and imposing controls to manage costs. Third-party payors may also
limit coverage to specific products on an approved list, or formulary, which might not include all of the approved products for a particular indication.
In order to secure coverage and reimbursement for any product that might be approved for sale, a company may need to conduct expensive
pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of the product, in addition to the costs required to obtain FDA or other comparable regulatory approvals. A payors decision to provide coverage for a
drug product does not imply that an adequate reimbursement rate will be approved. Third-party reimbursement may not be sufficient to maintain price levels high enough to realize an appropriate return on investment in product development.
The containment of healthcare costs also has become a priority of federal, state and foreign governments and the prices of drugs have been a
focus in this effort. Governments have shown significant interest in implementing cost-containment programs, including price controls, restrictions on reimbursement and requirements for substitution of generic products. Adoption of price controls
and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit a companys revenue generated from the sale of any approved products. Coverage policies and
third-party reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which a company or its collaborators receive marketing approval, less favorable coverage policies
and reimbursement rates may be implemented in the future. In the European Union, pricing and
26
reimbursement schemes vary widely from country to country. Some countries provide that drug products may be marketed only after a reimbursement price has been agreed. Some countries may require
the completion of additional studies that compare the cost-effectiveness of a particular drug candidate to currently available therapies, or so called health technology assessments, in order to obtain reimbursement or pricing approval. For example,
the European Union provides options for its member states to restrict the range of drug products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union
member states may approve a specific price for a drug product or may instead adopt a system of direct or indirect controls on the profitability of the company placing the drug product on the market. Other member states allow companies to fix their
own prices for drug products, but monitor and control company profits. The downward pressure on health care costs in general, particularly prescription drugs, has become intense. As a result, increasingly high barriers are being erected to the entry
of new products. In addition, in some countries, cross-border imports from
low-priced
markets exert competitive pressure that may reduce pricing within a country. Any country that has price controls or
reimbursement limitations for drug products may not allow favorable reimbursement and pricing arrangements.
Healthcare Law and
Regulation
Healthcare providers, physicians and third-party payors play a primary role in the recommendation and prescription of drug
products that are granted marketing approval. Arrangements with providers, consultants, third-party payors and customers are subject to broadly applicable fraud and abuse and other healthcare laws and regulations. Such restrictions under applicable
federal and state healthcare laws and regulations, include the following:
|
|
|
the federal Anti-Kickback Statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or
reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made, in whole or in part, under a federal healthcare program such as Medicare and Medicaid;
|
|
|
|
the federal False Claims Act imposes civil penalties, and provides for civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal
government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government, with potential liability including mandatory treble damages and significant
per-claim
penalties, currently set at $5,500 to $11,000 per false claim;
|
|
|
|
the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program or making false statements
relating to healthcare matters;
|
|
|
|
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and their respective implementing regulations, including the Final Omnibus Rule published in January 2013, also imposes
obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;
|
|
|
|
the federal false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for
healthcare benefits, items or services;
|
|
|
|
the federal transparency requirements under the Health Care Reform Law, known as the federal Physician Payments Sunshine Act, require manufacturers of drugs, devices, biologics and medical supplies to report to the
Centers for Medicare & Medicaid Services, or CMS, within the Department of Health and Human Services information related to payments and other transfers of value to physicians and teaching hospitals and physician ownership and investment
interests held by physicians and their immediate family members; and
|
27
|
|
|
analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by
non-governmental
third-party payors, including private insurers.
|
Some state laws require
pharmaceutical companies to comply with the pharmaceutical industrys voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring drug manufacturers to report information
related to payments to physicians and other health care providers or marketing expenditures. State and foreign laws also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant
ways and often are not preempted by HIPAA, thus complicating compliance efforts.
Healthcare Reform in the United States
A primary trend in the United States healthcare industry and elsewhere is cost containment. There have been a number of federal and state
proposals during the last several years regarding the pricing of pharmaceutical and biopharmaceutical products, limiting coverage and reimbursement for drugs and other medical products, government control and other changes to the healthcare system
in the United States.
By way of example, the United States and state governments continue to propose and pass legislation designed to
reduce the cost of healthcare. In March 2010, the United States Congress enacted the Affordable Care Act, which, among other things, includes changes to the coverage and payment for products under government health care programs. Among the
provisions of the Affordable Care Act of importance to potential drug candidates are:
|
|
|
an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs and biologic agents, apportioned among these entities according to their market share in certain government
healthcare programs, although this fee would not apply to sales of certain products approved exclusively for orphan indications;
|
|
|
|
expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to certain individuals with income at or below 133% of the federal poverty level, thereby
potentially increasing a manufacturers Medicaid rebate liability;
|
|
|
|
expanded manufacturers rebate liability under the Medicaid Drug Rebate Program by increasing the minimum rebate for both branded and generic drugs and revising the definition of average manufacturer
price, or AMP, for calculating and reporting Medicaid drug rebates on outpatient prescription drug prices and extending rebate liability to prescriptions for individuals enrolled in Medicare Advantage plans;
|
|
|
|
addressed a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected;
|
|
|
|
expanded the types of entities eligible for the 340B drug discount program;
|
|
|
|
established the Medicare Part D coverage gap discount program by requiring manufacturers to provide a 50%
point-of-sale-discount
off the negotiated price of applicable brand drugs to eligible beneficiaries during their coverage gap
period as a condition for the manufacturers outpatient drugs to be covered under Medicare Part D;
|
|
|
|
established a new
Patient-Centered
Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for
such research;
|
|
|
|
established the Independent Payment Advisory Board, or IPAB, which has authority to recommend certain changes to the Medicare program to reduce expenditures by the program that could result in reduced payments for
prescription drugs. However, the IPAB implementation has been not been clearly defined. The Affordable Care Act provided that under certain circumstances, IPAB recommendations will become law unless Congress enacts legislation that will achieve the
same or greater Medicare cost savings; and
|
28
|
|
|
established the Center for Medicare and Medicaid Innovation within CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending.
Funding has been allocated to support the mission of the Center for Medicare and Medicaid Innovation from 2011 to 2019.
|
Other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was enacted. For example, in
August 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for
the years 2012 through 2021, was unable to reach required goals, thereby triggering the legislations automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers of up to 2% per
fiscal year, which went into effect in April 2013 and will remain in effect through 2024 unless additional Congressional action is taken. In January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other
things, further reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to
five years.
With the new Administration and Congress, there will likely be additional legislative changes, including repeal and
replacement of certain provisions of the Affordable Care Act. To that end, on January 20, 2017, the President issued an Executive Order Minimizing the Economic Burden of the Patient Protection and Affordable Care Act Pending Repeal. The
Executive Order declares that, pending repeal of the Affordable Care Act, it is imperative for the executive branch to ensure that the law is being efficiently implemented, take all actions consistent with law to minimize the unwarranted economic
and regulatory burdens of the Act, and prepare to afford the States more flexibility and control to create a more free and open healthcare market. The Order directs the Secretary of Health and Human Services and the heads of all other executive
departments and agencies with authorities and responsibilities under the Affordable Care Act to exercise their authority and discretion to waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the
Affordable Care Act that would impose a fiscal burden on any State or a cost, fee, tax, penalty, or regulatory burden on individuals, families, healthcare providers, health insurers, patients, recipients of healthcare services, purchasers of health
insurance, or makers of medical devices, products, or medications.
With respect to repeal of the Affordable Care Act and its replacement
with new legislation, it is unclear when such legislation will be enacted, what it will provide and what impact it will have on the availability of healthcare and containing or lowering the costs of healthcare.
Employees
In July 2016,
we implemented a reduction in force that reduced the number of our employees by approximately 60 percent. As of January 31, 2017, we had eight full-time employees, two of whom were primarily engaged in research and development activities.
Corporate Information
We were incorporated under the laws of the State of Delaware on March 26, 2004 under the name Tokai Pharmaceuticals, Inc. Our principal
executive office is located at 255 State Street, 6
th
Floor, Boston, Massachusetts 02109, and our telephone number is
(617) 225-4305.
Information Available on the Internet
Our Internet website address is
www.tokaipharmaceuticals.com
. The information contained on, or that can be accessed through, our website
is not a part of or incorporated by reference in this Annual Report on Form
29
10-K.
We have included our website address in this in this Annual Report on Form
10-K
solely as an inactive textual
reference. We make available free of charge through our website our Annual Report 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 Sections 13(a) and 15(d) of the Exchange Act. We make these reports available through the SEC Filings section of our website as soon as
reasonably practicable after we electronically file such reports with, or furnish such reports to, the Securities and Exchange Commission, or the SEC. We also make available, free of charge on our website, the reports filed with the SEC by our
executive officers, directors and 10% stockholders pursuant to Section 16 under the Exchange Act as soon as reasonably practicable after copies of those filings are provided to us by those persons. You can find, copy and inspect information we
file at the SECs public reference room, which is located at 100 F Street, N.E., Room 1580, Washington, DC 20549. Please call the SEC at
1-800-SEC-0330
for more information about the operation of the SECs public reference room. You can review our
electronically filed reports and other information that we file with the SEC on the SECs website at
http://www.sec.gov
.
30
Investing in our common stock involves a high
degree of risk. You should consider carefully the risks described below, together with the other information included or incorporated by reference in this Annual Report on Form
10-K.
If any of the following
risks occur, our business, financial condition, results of operations and future growth prospects could be materially and adversely affected. In these circumstances, the market price of our common stock could decline.
The following sets forth certain risks and uncertainties related to us, including risks and uncertainties related to the Otic Transaction
and risks and uncertainties to which Tokai, as an independent company, is subject, and will continue to be subject, to if the Otic Transaction is not consummated.
Risks Related to our Proposed Transaction with Otic
Our strategic transaction with Otic may not be consummated or may not deliver the anticipated benefits we expect.
In September 2016, we announced that our board of directors had initiated a review of strategic alternatives that could result in changes to
our business strategy and future operations. As part of this process, which was conducted in parallel with our review of development options for galeterone and our drug discovery program, known as ARDA (Androgen Receptor Degradation Agents), our
board determined to review alternatives with the goal of maximizing stockholder value, including potentially a sale of the company, a reverse merger, a business combination or a sale, license or other disposition of company assets. As part of this
process, in December 2016, we entered into a share purchase agreement, or the Share Purchase Agreement, with Otic Pharma, Ltd., or Otic, and the shareholders of Otic named therein, pursuant to which, among other things, each Otic shareholder agreed
to sell to us, and we agreed to purchase from each Otic shareholder, all of the ordinary and preferred shares of Otic in exchange for shares of our common stock. We refer to this transaction as the Otic Transaction. As a result of the Otic
Transaction, Otic will become our wholly owned subsidiary and the Otic shareholders are expected to own approximately 60% of our common stock (62% if all of Otics outstanding options and warrants are exercised prior to closing). We are
devoting substantially all of our time and resources to consummating this transaction, however, there can be no assurance that such activities will result in the consummation of this transaction or that such transaction will deliver the anticipated
benefits or enhance stockholder value.
During the pendency of the Otic Transaction, we may not be able to enter into a business combination with
another party under certain circumstances because of restrictions in the Share Purchase Agreement, which could adversely affect our business.
Covenants in the Share Purchase Agreement impede our ability to make acquisitions or complete other transactions that are not in the ordinary
course of business pending completion of the Otic Transaction. As a result, if the Otic Transaction is not completed, we may be at a disadvantage to our competitors during that period.
Certain provisions of the Share Purchase Agreement may discourage third parties from submitting alternative acquisition proposals, including proposals
that may be superior to the arrangements contemplated by the Share Purchase Agreement.
The terms of the Share Purchase Agreement
prohibit each of us and Otic from soliciting alternative takeover proposals or cooperating with persons making unsolicited takeover proposals, except in limited circumstances when such partys board of directors determines in good faith that an
unsolicited alternative takeover proposal is or is reasonably likely to lead to a superior takeover proposal and is reasonably capable of being consummated. In addition, if the Share Purchase Agreement is terminated by us or Otic under certain
circumstances, including because of a decision of our board of directors to recommend a superior proposal, we would be required to pay a termination fee of $1.0 million to Otic. This termination fee may discourage third parties from submitting
alternative takeover proposals to us or our stockholders, and may cause our board of directors to be less inclined to recommend an alternative proposal.
31
The announcement and pendency of the Otic Transaction, whether or not consummated, may adversely affect the
trading price of our common stock and our business prospects.
The announcement and pendency of the Otic Transaction, whether or
not consummated, may adversely affect the trading price of our common stock and our business prospects. In the event that the Otic Transaction is not completed, the announcement of the termination of the Share Purchase Agreement may also
adversely affect the trading price of our common stock and our business prospects.
Failure to consummate the Otic Transaction may result in us
paying a termination fee to Otic and could harm our common stock price and our future business and operations.
The Otic
Transaction will not be consummated if the conditions precedent to the consummation of the transaction are not satisfied or waived, or if the Share Purchase Agreement is terminated in accordance with its terms. If the Otic Transaction is not
consummated, we are subject to the following risks:
|
|
|
if the Share Purchase Agreement is terminated under certain circumstances, we will be required to pay Otic a termination fee of $1.0 million; and
|
|
|
|
the price of our common stock may decline and remain volatile.
|
If the Otic Transaction does
not close for any reason, our board of directors may elect to, among other things, attempt to complete another strategic transaction, attempt to sell or otherwise dispose of our various assets, dissolve or liquidate our assets or seek to continue to
operate our business. If we seek another strategic transaction or attempt to sell or otherwise dispose of our various assets, there is no assurance that we will be able to do so, that the terms would be equal to or superior to the terms of the Otic
Transaction or as to the timing of such transaction. If we decide to dissolve and liquidate our assets, we would be required to pay all of our debts and contractual obligations, and to set aside certain reserves for potential future claims, and
there can be no assurance as to the amount or timing of available cash left to distribute to stockholders after paying our debts and other obligations and setting aside funds for reserves.
If we were to seek to continue our business, we would need to complete our assessment of our galeterone and ARDA programs to determine whether
and how to continue one or both of these development programs or acquire one or more other product candidates. We would also need to raise funds to support continued operations and
re-assess
our workforce
requirements in consideration of our reduced workforce.
If we do not successfully consummate the transaction with Otic, our board of directors may
dissolve or liquidate our assets to pursue a dissolution and liquidation. In such an event, the amount of cash available for distribution to our stockholders will depend heavily on the timing of such transaction or liquidation.
If the Otic Transaction does not close for any reason, our board of directors may elect to, among other things, dissolve or liquidate our
assets. If we decide to dissolve and liquidate our assets, we would be required to pay all of our debts and contractual obligations, and to set aside certain reserves for potential future claims, and there can be no assurances as to the amount or
timing of available cash left to distribute to stockholders after paying our debts and other obligations and setting aside funds for reserves.
In the event of a dissolution and liquidation, the amount of cash available for distribution to our stockholders will depend heavily on the
timing of such decision and, ultimately, such liquidation, since the amount of cash available for distribution continues to decrease as we fund our operations in preparation for the consummation of the Otic Transaction. Further, the Share Purchase
Agreement contains certain termination rights for each party, and provides that, upon termination under specified circumstances, we may be required to pay Otic a termination fee of $1.0 million, which would further decrease our available cash
resources. If our board of directors were to approve and recommend, and our stockholders were to approve, a dissolution and liquidation, we would be required under Delaware corporate law to pay our outstanding obligations, as well as to
32
make reasonable provision for contingent and unknown obligations, prior to making any distributions in liquidation to our stockholders. Our commitments and contingent liabilities may include
(i) regulatory and clinical obligations remaining under our clinical trials; (ii) obligations under our employment and separation agreements with certain employees that provide for severance and other payments following a termination of
employment occurring for various reasons, including a change in control of us; and (iii) potential litigation against us, and other various claims and legal actions arising in the ordinary course of business. As a result of this requirement, a
portion of our assets may need to be reserved pending the resolution of such obligations. In addition, we may be subject to litigation or other claims related to a dissolution and liquidation of us. If a dissolution and liquidation were pursued, our
board of directors, in consultation with our advisors, would need to evaluate these matters and make a determination about a reasonable amount to reserve. Accordingly, holders of our common stock could lose all or a significant portion of their
investment in the event of our liquidation, dissolution or winding up.
Risks Related to Our Financial Position and Need for Additional Capital
We have incurred significant losses since our inception. We expect to continue to incur losses and may never achieve or maintain profitability.
Since inception, we have incurred significant operating losses. Our net loss was $38.0 million for the year ended
December 31, 2016, $45.1 million for the year ended December 31, 2015 and $23.3 million for the year ended December 31, 2014. As of December 31, 2016, we had an accumulated deficit of $169.4 million. To date, we
have financed our operations primarily through our initial public offering of our common stock, and prior to our initial public offering, through private placements of our redeemable convertible preferred stock and convertible promissory notes. We
have devoted substantially all of our efforts to research and development, including clinical trials. We have not completed development of any product candidate and it may be several years, if ever, before we have a product candidate ready for
commercialization.
We have devoted a significant portion of our financial resources to the development of galeterone. However, in July
2016, we announced our plan to discontinue the
ARMOR3-SV
clinical trial, our pivotal Phase 3 study comparing galeterone to Xtandi in
treatment-naïve
metastatic
castration-resistant prostate cancer, or mCRPC, patients whose prostate tumors express the
AR-V7
splice variant, following the recommendation of the trials independent Data Monitoring Committee, or DMC,
and ceased enrollment in this trial. In addition, in August 2016, we determined to discontinue enrollment in our ongoing Phase 2 ARMOR2 expansion clinical trial of galeterone in mCRPC patients with acquired resistance to Xtandi and not to proceed
with our planned study of galeterone in mCRPC patients who rapidly progress on either enzalutamide or Zytiga. We conducted a review of unblinded data from the
ARMOR3-SV
clinical trial to evaluate potential
paths forward for galeterone and our ARDA program. Based on data reviewed to date, there is a substantial likelihood that we will not pursue the development of galeterone in
AR-V7
positive mCRPC patients in
the future, however, we may still determine to proceed with the clinical development of galeterone and our ARDA program, terminate the galeterone clinical development program and focus on our ARDA program or proceed in other strategic directions.
Our determination as to our next steps will necessarily impact the amount of expenses we incur and the size of our operating losses for the foreseeable future.
In September 2016, we announced that our board of directors had initiated a review of strategic alternatives that could result in changes to
our business strategy and future operations. As part of this process, which was conducted in parallel with our review of development options for galeterone and our ARDA program, our board of directors determined to review alternatives with the goal
of maximizing stockholder value. Potential strategic alternatives that we explored and evaluated during this review process included, among others, a sale of the company, a reverse merger, a business combination or a sale, license or other
disposition of corporate assets of the company. This review process culminated in us entering into the Share Purchase Agreement with Otic and the Otic shareholders. If the Otic Transaction is not consummated, we will need to continue our review of
strategic alternatives including evaluating potential paths forward for galeterone and our ARDA program. If the
33
Otic Transaction is consummated or if we determine to pursue an alternate strategy, our future business, prospects, financial positon and operating results could be significantly different than
those in historical periods or projected by our management. Because of the significant uncertainty regarding our future plans, we are not able to accurately predict the impact of a potential change on our business strategy and future funding
requirements.
If we determine to further develop galeterone, proceed with our ARDA program, or both, we anticipate that we will continue
to incur significant expenses if and as we:
|
|
|
conduct clinical trials with galeterone or any other product candidates in the future;
|
|
|
|
identify compounds that are designed to disrupt androgen receptor signaling through enhanced androgen receptor degradation under our ARDA program;
|
|
|
|
enter into agreements with third parties to manufacture galeterone or other product candidates;
|
|
|
|
establish a sales, marketing and distribution infrastructure to support the commercialization of our product candidates;
|
|
|
|
maintain, expand and protect our intellectual property portfolio;
|
|
|
|
continue our other research and development efforts;
|
|
|
|
acquire or
in-license
additional compounds or technologies; and
|
|
|
|
operate as a public company.
|
We have never generated any revenue from product sales and may
never be profitable. To become and remain profitable, we must develop and eventually commercialize a product or products with significant market potential and market acceptance. This development and commercialization will require us to be successful
in a range of challenging activities, including successfully completing preclinical testing and clinical trials of galeterone and any of our future product candidates, obtaining marketing and regulatory approval for these product candidates,
partnering with third parties to manufacture our product candidates in commercial quantities, marketing and selling those products for which we may obtain regulatory approval, and obtaining reimbursement from third-party payors. We may never succeed
in these activities and may never generate revenues that are significant or large enough to achieve profitability.
Even if we do achieve
profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. The net losses we incur may fluctuate significantly from
quarter-to-quarter
and
year-to-year,
such that a
period-to-period
comparison of our results of operations may not be a good indication of our future performance. In any particular quarter or quarters, our operating results could be below the expectations of
securities analysts or investors, which could cause our share price to decline. Our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise capital, expand our business, maintain our
research and development efforts or continue our operations. A decline in the value of our company could also cause our stockholders to lose all or part of their investment.
If we do not successfully consummate the Otic Transaction, our board of directors may attempt to continue our business. We will need substantial
additional funding to continue our development of, and to commercialize, galeterone or any future product candidate, which funding may not be available on acceptable terms, or at all. If we are unable to raise capital when needed, we may be forced
to delay, reduce, terminate or eliminate product development programs.
As of December 31, 2016, we had cash and investments
of $27.4 million. In light of the discontinuation of the
ARMOR3-SV
trial and the reduction in workforce that occurred in the third quarter of 2016 and assuming no new clinical efforts for galeterone or
any other product candidate, if we do not successfully consummate the Otic Transaction, we expect our cash and investments as of December 31, 2016 to be sufficient to fund operations
34
through at least the first quarter of 2018. We have devoted a significant portion of our cash resources to the development of galeterone and
ARMOR3-SV
trial. However, in July 2016, we announced our plan to discontinue the
ARMOR3-SV
clinical trial. While we have entered into the Share Purchase Agreement, our operating plan may change or the consummation of
the Otic Transaction may be delayed or may not occur at all. If the Otic Transaction is not consummated and we determine to further develop galeterone, proceed with our ARDA program or both, we will need to obtain substantial additional funding. If
the Otic Transaction is not consummated, we will need to continue our review of strategic alternatives including evaluating potential paths forward for galeterone and our ARDA program. If the Otic Transaction is consummated or if we determine to
pursue an alternate strategy, our future business, prospects, financial positon and operating results could be significantly different than those in historical periods or projected by our management. If we determine to further develop
galeterone, proceed with our ARDA program, or both, we will need to obtain substantial additional funding. Because of the significant uncertainty regarding our future plans, we are not able to accurately predict the impact of a potential change on
our business strategy and future funding requirements. If our cash and investments are not sufficient to fund our approved strategy and we are unable to raise capital when needed or on acceptable terms, we may be forced to delay, reduce, terminate
or eliminate our product development programs and our commercialization efforts.
If the Otic Transaction is not consummated, and we
decide to continue our historical business operations, our future capital requirements will depend on many factors, including:
|
|
|
our determination regarding potential paths forward for galeterone and our ARDA program;
|
|
|
|
our analysis of the available unblinded data from
ARMOR3-SV
clinical trial;
|
|
|
|
the scope, progress and results of any additional clinical trials of galeterone that we decide to conduct;
|
|
|
|
the timing and outcome of regulatory review of galeterone and of any other future product candidates;
|
|
|
|
the cost of commercialization activities, including product sales, marketing, manufacturing and distribution, for galeterone and our future product candidates for which we receive regulatory approval;
|
|
|
|
the development of future product candidates, including our plans to seek to acquire or
in-license
additional compounds or technologies;
|
|
|
|
revenue, if any, received from commercial sales of galeterone and any future product candidates, should any of our product candidates be approved by the FDA or a similar regulatory authority outside the United States;
|
|
|
|
our ability to establish collaborations on favorable terms, if at all, particularly arrangements to develop, market and distribute galeterone and any future product candidates outside the United States; and
|
|
|
|
the cost of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims.
|
Conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we
may never generate the necessary data or results required to obtain regulatory approval and achieve product sales. In addition, galeterone and any future product candidates, if approved, may not achieve commercial success. Our commercial revenues,
if any, will be derived from sales of products that we do not expect to be commercially available for several years, if at all. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Additional
financing may not be available to us on acceptable terms, or at all. If adequate funds are not available to us on a timely basis, we may be required to curtail our operations.
35
Raising additional capital may cause dilution to our existing stockholders, restrict our operations,
require us to relinquish rights to our technologies or product candidates or divert our managements attention from our operating activities.
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity
offerings, debt financings, and collaborations, strategic alliances and licensing arrangements with third parties. To the extent that we raise additional capital through the sale of equity or convertible debt securities, our stockholders
ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing, if available, may involve agreements that require liens
to be placed on our property and include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through
collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or current or future product candidates or to grant licenses
on terms that may not be favorable to us. Additional fundraising efforts may also divert our management from their
day-to-day
activities, which may compromise our
ability to develop and commercialize our product candidates.
If the Otic Transaction is not consummated, we will need to continue our review of
strategic alternatives for the company, including evaluating potential paths forward for galeterone and our ARDA program that could significantly impact our future operations and financial position.
In July 2016, we announced our plan to discontinue the
ARMOR3-SV
clinical trial. In September 2016, we
announced that our board of directors had initiated a review of strategic alternatives that could result in changes to our business strategy and future operations. As part of this process, which was conducted in parallel with our review of
development options for galeterone and our ARDA drug program, our board of directors determined to review alternatives with the goal of maximizing stockholder value. Potential strategic alternatives that we explored and evaluated during this review
process included, among others, a sale of the company, a reverse merger, a business combination or a sale, license or other disposition of corporate assets of the company. We entered into the Share Purchase Agreement with Otic and the Otic
shareholders as a result of this process. If the Otic Transaction is not consummated, our board of directors will need to resume this review of strategic alternatives. If we determine to pursue an alternate strategy or engage in a strategic
transaction, our future business, prospects, financial positon and operating results could be significantly different than those in historical periods or projected by our management. Pending any decision to further change strategic direction, we
have limited our research and development activities to manage our cash position. In such event, we cannot provide any commitment as to the timing of our determination or the strategy we may adopt. If we determine to change our business strategy or
to seek to engage in a strategic transaction, our future business, prospects, financial position and operating results could be significantly different than those in historical periods or projected by our management. If we determine to further
develop galeterone, proceed with our ARDA program, or both, we will need to obtain substantial additional funding. Because of the significant uncertainty regarding our future plans, we are not able to accurately predict the impact of a potential
change in our business strategy and future funding requirements.
Risks Related to the Development and Regulatory Approval of Galeterone and Our Future
Product Candidates
We have depended heavily on the success of our lead product candidate, galeterone, which was in clinical development for the
treatment of
AR-V7
positive mCRPC patients. Any failure to successfully develop galeterone or any future product candidates, or significant delays in doing so, would compromise our ability to generate revenue
and become profitable.
We currently have no products approved for sale and have only one product candidate, galeterone, in
clinical development. We have invested substantially all of our efforts and financial resources in the development
36
of galeterone. In July 2016, we announced our plan to discontinue the
ARMOR3-SV
clinical trial following the recommendation made by the DMC. Based on a
review of all safety and efficacy data, the DMC determined that the
ARMOR3-SV
trial would likely not succeed in meeting its primary endpoint of demonstrating an improvement in radiographic progression-free
survival, or rPFS, for galeterone versus Xtandi in
AR-V7
positive mCRPC. We also closed enrollment of our ARMOR2 expansion trial in mCRPC patients with acquired resistance to Xtandi, and announced our
intention not to proceed with our planned study in patients who rapidly progress on either Xtandi or Zytiga. If the Otic Transaction is consummated, we do not expect Otic to proceed with the development of galeterone or our ARDA program. If the Otic
Transaction is not consummated, we expect to continue to evaluate potential paths forward for galeterone and our ARDA program. We conducted a review of unblinded data from the
ARMOR3-SV
clinical trial to
evaluate potential paths forward for galeterone and our ARDA program. Based on data reviewed to date, there is a substantial likelihood that we will not pursue the development of galeterone in
AR-V7
positive
mCRPC patients in the future.
If we determine to proceed with the development of galeterone, our ability to generate product revenues,
which we do not expect will occur for at least the next several years, if ever, will depend heavily on the successful development and commercialization of galeterone for mCRPC patients or for other indications or patient populations. In light of our
discontinuance of
ARMOR3-SV,
there is a significant risk that we will be unable to successfully develop galeterone.
The success of galeterone or other future product candidates, under our ARDA program or otherwise, will depend on several factors, including
the following:
|
|
|
successfully completing clinical trials, including obtaining clinical results that are statistically significant as well as clinically meaningful in the context of the indications for which we may develop galeterone and
our future product candidates;
|
|
|
|
receiving marketing approvals for our products from the FDA and similar regulatory authorities outside the United States;
|
|
|
|
making arrangements with third-party manufacturers for, or establishing, commercial manufacturing capabilities;
|
|
|
|
obtaining and maintaining patent and trade secret protection and regulatory exclusivity for galeterone or other product candidates under our ARDA program, both in the United States and internationally;
|
|
|
|
establishing successful sales and marketing arrangements and launching commercial sales of our products, if and when approved, whether alone or in collaboration with others;
|
|
|
|
obtaining commercial acceptance of our products, if and when approved, by patients, the medical community and third-party payors;
|
|
|
|
obtaining and maintaining adequate reimbursement;
|
|
|
|
effectively competing with other therapies;
|
|
|
|
protecting our rights in our intellectual property portfolio; and
|
|
|
|
maintaining a continued acceptable safety profile of our products following regulatory approval.
|
If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to
successfully commercialize galeterone and our future product candidates, which would materially harm our business.
37
If clinical trials of galeterone and our future product candidates, under our ARDA program or otherwise,
fail to demonstrate safety and efficacy to the satisfaction of the FDA or similar regulatory authorities outside the United States or are not otherwise successful, we may incur additional costs or experience delays in completing, or ultimately be
unable to complete, the development and commercialization of galeterone and our future product candidates.
Before obtaining
regulatory approval for the sale of galeterone and our future product candidates, we must conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates in humans. Clinical testing is expensive, difficult to
design and implement, can take many years to complete and is uncertain as to outcome. A failure of one or more of our clinical trials can occur at any stage of testing. The outcome of preclinical testing and early clinical trials may not be
predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many
companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval for their product candidates. For instance, in July 2016, we announced our
plan to discontinue our
ARMOR3-SV
clinical trial, following the recommendation made by the DMC. Based on a review of all safety and efficacy data at the time, the DMC determined that our
ARMOR3-SV
trial would likely not succeed in meeting its primary endpoint of demonstrating an improvement in rPFS for galeterone versus Xtandi in
AR-V7
positive mCRPC. We have
also closed enrollment in our ARMOR2 expansion trial in mCRPC patients with acquired resistance to enzalutamide and announced our intention not to proceed with our planned study in patients who rapidly progress on either Xtandi or Zytiga. If the
Otic Transaction is consummated, we do not expect Otic to proceed with the development of galeterone or our ARDA program. If the Otic Transaction is not consummated, we will continue to evaluate potential paths forward for galeterone and our ARDA
program. Based on data reviewed to date, however, there is a substantial likelihood that we will not pursue the development of galeterone in
AR-V7
positive mCRPC in the future. If we are unable to successfully
complete clinical trials or other testing of galeterone or our future product candidates, if the results of these trials or tests are not positive or are only modestly positive or if there are safety or efficacy concerns, we may:
|
|
|
be delayed in obtaining marketing approval for galeterone or our future product candidates;
|
|
|
|
not obtain marketing approval at all;
|
|
|
|
obtain approval for indications or patient populations that are not as broad as intended or desired;
|
|
|
|
obtain approval with labeling that includes significant use restrictions or safety warnings, including boxed warnings;
|
|
|
|
be subject to additional post-marketing testing requirements;
|
|
|
|
be subject to restrictions on how the product is distributed or used; or
|
|
|
|
have the product removed from the market after obtaining marketing approval.
|
If we experience any of a
number of possible unforeseen events in connection with our preclinical studies or clinical trials, our ability to conduct further clinical trials of, obtain regulatory approval of or commercialize galeterone or our future product candidates, under
our ARDA program or otherwise, could be delayed or prevented.
We may experience numerous unforeseen events during, or as a result
of, preclinical studies or clinical trials that could delay or prevent our ability to conduct further clinical trials, obtain regulatory approval or commercialization of galeterone or our future product candidates, under our ARDA program or
otherwise. For instance, in July 2016, we announced our plan to discontinue our
ARMOR3-SV
clinical trial following the recommendation of the DMC. Unforeseen events that could delay or prevent our ability to
conduct clinical trials, obtain regulatory approval or commercialize galeterone and our future product candidates include the following:
|
|
|
regulators or institutional review boards may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;
|
38
|
|
|
we may have delays in reaching or fail to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites;
|
|
|
|
preclinical studies and clinical trials of galeterone or our future product candidates may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional preclinical or
clinical trials or abandon product development programs;
|
|
|
|
the number of patients required for clinical trials of galeterone or our future product candidates may be larger than we anticipate, patient enrollment in these clinical trials may be slower than we anticipate or
participants may drop out of these clinical trials at a higher rate than we anticipate;
|
|
|
|
our failure to conduct our clinical trials in accordance with the FDAs good clinical practices or applicable regulatory requirements in other countries;
|
|
|
|
we may decide, or regulators or institutional review boards may require us or our investigators to, suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements, a
finding that the participants are being exposed to unacceptable health risks or the occurrence of serious adverse events associated with galeterone or our future product candidates;
|
|
|
|
the cost of clinical trials of galeterone and our future product candidates may be greater than we anticipate; and
|
|
|
|
the supply or quality of galeterone or our future product candidates or other materials necessary to conduct clinical trials of such product candidates may be insufficient or inadequate.
|
In addition, the patients recruited for clinical trials of our product candidates may have characteristics that are different than we expect
and different than the clinical trials were designed for, which could adversely impact the results of the clinical trials. For example, our patients could develop genetic mutations that are not responsive or are otherwise resistant to galeterone.
Our product development costs will also increase if we experience delays in testing or obtaining marketing approvals. We do not know
whether any of our planned clinical trials will begin as planned, or whether our ongoing or planned clinical trials will need to be restructured or will be completed on schedule, or completed at all. In addition to additional costs, significant
clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do and impair our ability to commercialize our
product candidates.
Galeterone could ultimately prove to be ineffective or unsafe.
Galeterone has been administered to several hundred prostate cancer patients and healthy volunteers in clinical trials. Despite this
experience, we have yet to fully explore the safety and efficacy of galeterone. In our clinical trials prior to
ARMOR3-SV,
galeterone had been well tolerated and had showed clinically meaningful reductions in
levels of prostate specific antigen, or PSA, a biochemical marker used to evaluate prostate cancer patients for signs of response to therapy. In July 2016, we announced our plan to discontinue our
ARMOR3-SV
trial, following the recommendation by the DMC. Based on a review of all available safety and efficacy data, the DMC determined that our
ARMOR3-SV
trial would likely not succeed in meeting its primary endpoint
of demonstrating an improvement in rPFS for galeterone versus Xtandi in
AR-V7
positive mCRPC. We are evaluating potential paths forward for galeterone and our ARDA program. We conducted a review of unblinded
data from the
ARMOR3-SV
clinical trial to evaluate potential paths forward for galeterone and our ARDA program. Based on data reviewed to date, there is a substantial likelihood that we will not pursue the
development of galeterone in
AR-V7
positive mCRPC patients in the future.
No assessment of the
efficacy, safety or side effects of a product candidate can be considered complete until all clinical trials needed to support a submission for marketing approval are complete, and success in early-stage clinical trials does not mean that subsequent
trials will confirm the earlier findings, or that experience with use of
39
a product in large-scale commercial distribution will not identify additional safety or efficacy issues. If we find from our analysis of the available data from
ARMOR3-SV
or otherwise that galeterone is not safe, or if its efficacy cannot be consistently demonstrated, we may not be able to commercialize, or may be required to cease distribution of, the product.
Galeterone may also prove to be substantially identical or inferior to drugs already available, in which case the market for galeterone would be reduced or eliminated.
If we experience delays or difficulties in the enrollment of patients in our clinical trials, or patients discontinue their participation in our
clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.
We may not be able to complete any
clinical trials we may conduct in the future if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or similar regulatory authorities outside the United States. In
particular, if the Otic Transaction is not consummated and we determine to proceed with the development of galeterone after analyzing the available unblinded data from
ARMOR3-SV,
our recent set back with
ARMOR3-SV
will likely negatively impact our ability to enroll patients in ongoing and future trials of galeterone.
Our competitors may have ongoing clinical trials for product candidates that could be competitive with galeterone and our future product
candidates, and patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors product candidates.
We may not be able to identify, recruit and enroll a sufficient number of patients, or those with required or desired characteristics to
achieve diversity in a trial, to complete our clinical trials in a timely manner. Patient enrollment is affected by other factors including:
|
|
|
severity of the disease under investigation;
|
|
|
|
design of the trial protocol;
|
|
|
|
eligibility criteria for the study in question;
|
|
|
|
perceived risks and benefits of the product candidate under study;
|
|
|
|
trials of other products for similar indications;
|
|
|
|
efforts to facilitate timely patient enrollment in clinical trials;
|
|
|
|
patient referral practices of physicians;
|
|
|
|
alternative products for similar indications;
|
|
|
|
the ability to monitor patients adequately during and after treatment; and
|
|
|
|
proximity and availability of clinical trial sites for prospective patients.
|
If serious adverse or
unforeseen side effects are identified during the development of galeterone or our future product candidates, we may need to abandon or limit our development of some or all of our product candidates.
If galeterone or our future product candidates are associated with undesirable side effects or have characteristics that are unexpected, we may
need to abandon their development or limit development to certain indications or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective.
Adverse or unexpected side effects or characteristics of galeterone, whether discovered by us or independently publicized by third parties during clinical trials, could cause an institutional review board or regulatory authorities to interrupt,
delay or halt clinical trials of galeterone or our future product candidates, require us to conduct additional clinical trials or other tests or studies, and could result in a more restrictive label, or the delay or denial of marketing approval by
the FDA or comparable foreign regulatory authorities.
40
As of January 31, 2017, nine of the 126 patients enrolled in ARMOR2 had experienced a
serious adverse event that was assessed by the investigator as related or possibly related to the administration of galeterone. No single treatment-related serious adverse event occurred in more than one patient and no adverse events had resulted in
interruptions or delays of the clinical trial. In addition, in making its recommendation with respect to
ARMOR3-SV,
the DMC did not cite any safety concerns with galeterone in the trial.
If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals, we will not be able to commercialize galeterone, and
our ability to generate revenue will be materially impaired.
Failure to obtain regulatory approval for galeterone for mCRPC
patients or for other indications and patient populations, will prevent us from commercializing galeterone for those indications. Although our management team has experience filing and supporting applications necessary to gain regulatory approvals,
we have yet to file for or obtain regulatory approval to market galeterone or any other product candidate in any jurisdiction. Securing FDA approval requires the submission of extensive preclinical and clinical data and supporting information to the
FDA for each therapeutic indication to establish the product candidates safety and efficacy. Securing FDA approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing
facilities by, the FDA. Our product candidates may not be effective, may be only moderately effective or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining regulatory
approval or prevent or limit commercial use.
The process of obtaining regulatory approvals, both in the United States and abroad, is
expensive, may take many years if additional clinical trials are required, if approval is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the product candidate involved.
Changes in regulatory approval policies during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for each submitted product application, may cause delays in the approval or
rejection of an application. The FDA has substantial discretion in the approval process and may refuse to accept any application or may decide that our data is insufficient for approval and require additional preclinical, clinical or other studies.
In addition, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit or prevent regulatory approval of galeterone. Any regulatory approval we ultimately obtain may be limited or subject to restrictions
or post-approval commitments that render galeterone commercially unviable.
If we experience delays in obtaining approval or if we fail to
obtain approval of galeterone, the commercial prospects for galeterone may be harmed and our ability to generate revenues will be materially impaired.
Even if we complete the necessary clinical trials, we cannot predict when or if we will obtain regulatory approval to commercialize galeterone or our
future product candidates or the approval may be for a more narrow indication than we expect.
Even if galeterone or any of our
future product candidates demonstrate safety and efficacy in clinical trials, regulatory agencies may not complete their review processes in a timely manner or grant regulatory approval at all. Additional delays may result if a regulatory authority
recommends
non-approval
or restrictions on approval. In addition, we may experience delays or rejections based upon additional government regulation from future legislation or administrative action, or changes
in regulatory agency policy during the period of product development, clinical trials and the review process. Regulatory agencies also may approve a product candidate for fewer or more limited indications than requested or may grant approval subject
to the performance of post-marketing studies. In addition, regulatory agencies may not approve the labeling claims that are necessary or desirable for the successful commercialization of galeterone or our future product candidates.
We have obtained fast track designation from the FDA for galeterone for the treatment of mCRPC. However, fast track designation may not actually lead to
a faster development, regulatory review or approval process.
If a product is intended for the treatment of a serious or
life-threatening condition and the product candidate demonstrates the potential to address unmet needs for this condition, the treatment sponsor may apply for FDA
41
fast track designation. If the fast track designation is obtained, the FDA may initiate review of sections of an NDA, before the application is complete. This rolling review is
available if the applicant provides, and the FDA approves, a schedule for submission of the individual sections of the application. In June 2012, the FDA notified us that we had obtained fast track designation for galeterone for the treatment of
mCRPC. Fast track designation does not ensure that we will experience a faster development, regulatory review or approval process compared to conventional FDA procedures or that we will ultimately obtain regulatory approval of galeterone.
Additionally, the FDA may withdraw fast track designation if it believes that the designation is no longer supported by data from our clinical development program.
In the event we receive FDA approval for galeterone or any future product candidates, we will not be able to expand the indications for which such
product is approved unless we receive FDA approval for each additional indication. Failure to expand these indications will limit the size of the commercial market for the product.
We focused our development of galeterone on the treatment of
AR-V7
positive mCRPC patients and planned
to seek marketing and regulatory approvals for galeterone for this patient population. Even if the Otic Transaction is not consummated, based on our review of unblinded data from the
ARMOR3-SV
clinical trial
reviewed to date, there is a substantial likelihood that we will not pursue the development of galeterone in
AR-V7
positive mCRPC patients in the future. We are also evaluating our plan to develop galeterone
for the treatment of other indications and patient populations in prostate cancer in light of the discontinuation of the
ARMOR3-SV
study. In order to market and sell galeterone in the United States for any
additional indications or any future products or additional indications, we will need to conduct additional clinical trials and obtain FDA approval for each proposed indication. There can be no assurance that we will be successful in obtaining FDA
approval for additional indications for the use of galeterone. If we are unsuccessful in expanding the approved indications for the use of galeterone or any future products, the size of the commercial market for the product will be limited.
Failure to obtain regulatory approval in international jurisdictions would prevent galeterone or our future product candidates from being marketed
abroad.
In order to market and sell our products in jurisdictions outside the United States, we or third parties must obtain
separate regulatory approvals and comply with numerous and varying regulatory requirements. The approval process varies among countries and can involve additional testing. The time required to obtain foreign approval may differ substantially from
that required to obtain FDA approval. The regulatory approval process outside the United States generally includes all of the risks associated with obtaining FDA approval. In addition, in many countries outside the United States, it is required that
the product be separately approved for reimbursement before the product can be approved for sale in that country. We intend to enter into arrangements with third parties under which they would market our products outside the United States. We or
these third parties may not obtain approvals from regulatory authorities outside the United States on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval
by one regulatory authority outside the United States does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA. We may not be able to file for regulatory approvals and may not receive necessary approvals
to commercialize our products in any market.
Risks Related to the Commercialization of Our Product Candidates
We have no history of commercializing pharmaceutical products, which may make it difficult to evaluate the prospects for our future viability.
We have never commercialized a product candidate. Our operations to date have been limited to financing and staffing our company,
developing our product candidates and conducting our preclinical studies and clinical trials. We have not completed a pivotal clinical trial, obtained marketing approvals or conducted sales and
42
marketing activities necessary for successful product commercialization. Consequently, predictions about our future success or viability may not be as accurate as they could be if we had a
history of successfully developing and commercializing pharmaceutical products.
We may also encounter unforeseen expenses, difficulties,
complications, delays and other known and unknown factors. In the future, we will need to transition from a company with a preclinical and clinical development focus to a company capable of supporting commercial activities. We may not be successful
in such a transition.
Even if galeterone or any future product candidate receives regulatory approval, it may fail to achieve the degree of market
acceptance by physicians, patients, healthcare payors and others in the medical community necessary for commercial success.
Even
if galeterone or any future product candidate receives marketing approval, it may nonetheless fail to gain sufficient market acceptance by physicians, patients, healthcare payors and others in the medical community. If such product does not achieve
an adequate level of acceptance, we may not generate significant product revenues and we may not become profitable. The degree of market acceptance of galeterone or any of our future product candidates, if approved for commercial sale, will depend
on a number of factors, including:
|
|
|
efficacy and potential advantages compared to alternative treatments;
|
|
|
|
the ability to offer galeterone and our future product candidates for sale at competitive prices;
|
|
|
|
convenience and ease of administration compared to alternative treatments;
|
|
|
|
our understanding of the market and development of an effective commercial strategy;
|
|
|
|
the strength of sales, marketing, medical affairs and distribution support;
|
|
|
|
the approval of other products for the same indications;
|
|
|
|
combinations of existing or newly approved products that alter the standard of care;
|
|
|
|
availability and amount of reimbursement from government payors, managed care plans and other third-party payors;
|
|
|
|
adverse publicity about the product or favorable publicity about competitive products;
|
|
|
|
clinical indications for which the product is approved; and
|
|
|
|
the prevalence and severity of any side effects.
|
Even if a potential product candidate
displays a favorable efficacy and safety profile in preclinical studies and clinical trials, market acceptance of the product will not be known until after it is launched. Our efforts to educate the medical community, patients and third-party payors
on the benefits of galeterone or our other future product candidates may require significant resources and may never be successful.
If galeterone
or any of our future product candidates receives marketing approval and we, or others, later discover that the product is less effective than previously believed or causes undesirable side effects that were not previously identified, our ability to
market the product could be compromised.
Clinical trials are conducted in carefully defined subsets of patients who have agreed to
enter into clinical trials. Consequently, it is possible that our clinical trials may indicate an apparent positive effect of a product candidate that is greater than the actual positive effect in a broader patient population or alternatively fail
to identify undesirable side effects. If, following approval of a product candidate, we, or others, discover that the product is less effective than previously believed or causes undesirable side effects that were not previously identified, any of
the following adverse events could occur:
|
|
|
regulatory authorities may withdraw their approval of the product or seize the product;
|
43
|
|
|
we may be required to recall the product or change the way the product is administered;
|
|
|
|
additional restrictions may be imposed on the marketing of, or the manufacturing processes for, the particular product;
|
|
|
|
regulatory authorities may require the addition of labeling statements, such as a black box warning or a contraindication;
|
|
|
|
we may be required to create a Medication Guide outlining the risks of the previously unidentified side effects for distribution to patients;
|
|
|
|
additional restrictions may be imposed on the distribution or use of the product via a Risk Evaluation and Mitigation Strategy;
|
|
|
|
we could be sued and held liable for harm caused to patients;
|
|
|
|
the product may become less competitive; and
|
|
|
|
our reputation may suffer.
|
Any of these events could have a material and adverse effect on
our operations and business and could adversely impact our stock price.
If we are unable to establish sales and marketing capabilities or enter
into agreements with third parties to sell and market our product candidates, we may not be successful in commercializing galeterone or any of our future product candidates if they are approved.
We do not have a sales or marketing infrastructure and have limited experience in the sale, marketing or distribution of pharmaceutical
products. To achieve commercial success for any approved product, we must either outsource these functions to third parties or develop an internal sales and marketing organization. Reliance on third parties to market our products, if approved, is
risky as these parties may not perform satisfactorily or at all.
There are risks involved with both entering into arrangements with third
parties to perform these services and establishing our own sales and marketing capabilities, neither of which we have pursued previously. For example, recruiting and training a sales force is expensive and time-consuming and could delay any product
launch. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization
expenses. This may be costly, and our investment would be lost if we cannot retrain or reposition our sales and marketing personnel.
Factors that may inhibit our efforts to commercialize our products on our own include:
|
|
|
our inability to recruit and retain an adequate number of effective sales and marketing personnel;
|
|
|
|
the inability of sales personnel to obtain access to or persuade adequate numbers of physicians to prescribe any future products;
|
|
|
|
the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and
|
|
|
|
unforeseen costs and expenses associated with creating an independent sales and marketing organization.
|
If we enter into arrangements with third parties to perform sales, marketing and distribution services, our product revenues or the
profitability of these products are likely to be lower than if we were to market and sell any products that we develop ourselves. In addition, we may not be successful in entering into arrangements with
44
third parties to sell and market galeterone or our future product candidates or doing so on terms that are favorable to us. We likely will have little control over such third parties, and any of
them may fail to devote the necessary resources and attention to sell and market our products effectively. If we do not establish sales and marketing capabilities successfully, either on our own or in collaboration with third parties, we will not be
successful in commercializing galeterone or our future product candidates.
We face substantial competition, which may result in others discovering,
developing or commercializing products before or more successfully than we do.
The development and commercialization of new drug
products is highly competitive. Research and discoveries by others may result in breakthroughs which may render our products obsolete even before they generate any revenue. We face competition with respect to our lead product candidate, and will
face competition with respect to any products that we may seek to develop or commercialize in the future, from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. There are a number of large
pharmaceutical and biotechnology companies that currently market and sell products or are pursuing the development of products for the treatment of the disease indications for which we were developing galeterone. Potential competitors also include
academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization.
Some of these competitive products and therapies are based on scientific approaches that are the same as or similar to our approach, and
others are based on entirely different approaches. Many marketed therapies for the indications that we are currently pursuing, or indications that we may in the future seek to address, are widely accepted by physicians, patients and payors, which
may make it difficult for us to replace them with any products that we successfully develop and are permitted to market.
If galeterone is
approved for the treatment of mCRPC, it may compete with other commonly-used oral hormonal treatments being marketed, such as Zytiga and Xtandi, chemotherapeutic agents, or with drug candidates currently in development. Galeterone could compete in
the future with products, marketed by several of the worlds largest and most experienced pharmaceutical companies. These companies have substantially more financial resources than we do and greater flexibility to engage in aggressive price
competition to gain revenues and market share. Approved second-generation hormonal treatments in the United States for mCRPC include Zytiga, marketed by Janssen Biotech, Inc. and Xtandi, marketed by Astellas Pharma US, Inc. and Medivation, Inc.
Approved
non-hormonal
agents for mCRPC include Taxotere
®
(docetaxel) and Jevtana
®
(cabazitaxel), marketed by sanofi-aventis U.S. LLC; Provenge
®
(sipuleucel-T),
marketed by Valeant Pharmaceuticals International Inc.; and Xofigo
®
(radium-223),
marketed by Bayer HealthCare Pharmaceuticals, Inc. It is uncertain whether we could compete with such products, and our failure to compete or
decision to reduce the price of galeterone or other future products we may develop in order to compete could severely impact our business. In addition, there are numerous prostate cancer products in clinical development by many public and private
biotechnology and pharmaceutical companies targeting numerous different cancer types.
Our competitors may develop products that are more
effective, safer, more convenient or less costly than any that we are developing or that would render galeterone or any future product candidates obsolete or
non-competitive.
Our competitors may also obtain
FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours.
Many of our competitors have
significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Smaller and other
early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific, medical
and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.
45
Even if we are able to commercialize galeterone or any other future product candidates, the products may
become subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives.
The
regulations that govern marketing approvals, pricing and reimbursement for new drug products vary widely from country to country. In the United States, recently passed legislation may significantly change the approval requirements in ways that could
involve additional costs and cause delays in obtaining approvals. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing
approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain regulatory approval for a product in a
particular country, but then be subject to price regulations that delay our commercial launch of the product, possibly for lengthy time periods, and negatively impact the revenues we are able to generate from the sale of the product in that country.
Adverse pricing limitations may hinder our ability to recoup our investment in galeterone or our future product candidates, even if our product candidates obtain regulatory approval.
Our ability to commercialize any products successfully will also depend in part on the extent to which reimbursement for these products and
related treatments will be available from government health administration authorities, private health insurers and other organizations. Government authorities and third-party payors, such as private health insurers and health maintenance
organizations, decide which medications they will pay for and establish reimbursement levels. A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and third-party payors have attempted to control
costs by limiting coverage and the amount of reimbursement for particular medications. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices
charged for medical products. We cannot be sure that reimbursement will be available for any product that we commercialize and, if reimbursement is available, the level of reimbursement. Reimbursement may impact the demand for, or the price of, any
product candidate for which we receive marketing approval. If reimbursement is not available or is available only to limited levels, we may not be able to successfully commercialize any product candidate for which we receive marketing approval.
There may be significant delays in obtaining reimbursement for newly approved drugs, and coverage may be more limited than the purposes for
which the drug is approved by the FDA or similar regulatory authorities outside the United States. Moreover, eligibility for reimbursement does not imply that any drug will be paid for in all cases or at a rate that covers our costs, including
research, development, manufacture, sale and distribution. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement rates may vary according to the use of
the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs, and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory
discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States.
Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. Our inability to promptly obtain coverage and profitable payment rates from both government-funded and private payors
for any approved products that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.
Product liability lawsuits against us could cause us to incur substantial liabilities and to limit commercialization of any products that we may
develop.
We face an inherent risk of product liability exposure related to the testing of galeterone and our future product
candidates in human clinical trials and will face an even greater risk if we commercially sell any products that we may develop. Galeterone has not been widely used over an extended period of time, and therefore our safety data are limited.
46
If we cannot successfully defend ourselves against claims that galeterone or future product
candidates or products we may develop caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:
|
|
|
decreased demand for any product candidates or products that we may develop;
|
|
|
|
injury to our reputation and significant negative media attention;
|
|
|
|
withdrawal of clinical trial participants;
|
|
|
|
significant costs to defend the related litigation;
|
|
|
|
substantial monetary awards to trial participants or patients;
|
|
|
|
the inability to commercialize any products that we may develop.
|
We currently hold
$10 million in product liability insurance coverage, which may not be adequate to cover all liabilities that we may incur. We will need to increase our insurance coverage when we begin commercializing galeterone and our future product
candidates, if ever. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.
Risks Related to Our Dependence on Third Parties
We rely on third parties to conduct our clinical trials, and those third parties may not perform satisfactorily, including failing to meet deadlines for
the completion of such trials.
We do not independently conduct clinical trials of our product candidates. We rely on third
parties, such as contract research organizations, clinical data management organizations, medical institutions and clinical investigators, to perform this function. Our reliance on these third parties for clinical development activities reduces our
control over these activities but does not relieve us of our responsibilities. We remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial.
Moreover, the FDA requires us to comply with standards, commonly referred to as good clinical practices, for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and
that the rights, integrity and confidentiality of trial participants are protected. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with regulatory
requirements or our stated protocols, we will not be able to obtain, or may be delayed in obtaining, regulatory approvals for galeterone or other product candidates we may develop in the future and will not be able to, or may be delayed in our
efforts to, successfully commercialize our product candidates.
We may enter into collaborations with third parties for the development and
commercialization of galeterone and future product candidates we may develop. If those collaborations are not successful, we may not be able to capitalize on the market potential of these product candidates.
We may enter into collaborations with third parties for the development and commercialization of galeterone and future product candidates we
may develop. Collaboration agreements may not lead to development or commercialization of product candidates in the most efficient manner, or at all. We will likely have limited control under any additional arrangements we may enter into with third
parties over the amount and timing of resources that our collaborators dedicate to the development or commercialization of our product candidates. Our ability to generate revenues from these arrangements will depend on our collaborators
abilities to successfully perform the functions assigned to them in these arrangements.
47
Collaborations involving our product candidates would pose the following risks to us:
|
|
|
collaborators may have significant discretion in determining the efforts and resources that they will apply to these collaborations;
|
|
|
|
collaborators may not pursue development and commercialization of our product candidates or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the
collaborators strategic focus or available funding, or external factors such as an acquisition that diverts resources or creates competing priorities;
|
|
|
|
collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new
formulation of a product candidate for clinical testing;
|
|
|
|
collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our products or product candidates if the collaborators believe that competitive products;
|
|
|
|
are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours;
|
|
|
|
collaborators with marketing and distribution rights to one or more products may not commit sufficient resources to the marketing and distribution of such product or products;
|
|
|
|
collaborators may have the right to conduct clinical trials of our product candidates without our consent and could conduct trials with flawed designs that result in data that adversely affect our clinical trials, our
ability to obtain marketing approval for our product candidates or market acceptance of our product candidates;
|
|
|
|
collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our proprietary
information or expose us to potential litigation;
|
|
|
|
disputes may arise between the collaborators and us that result in the delay or termination of the research, development or commercialization of our products or product candidates or that result in costly litigation or
arbitration that diverts management attention and resources; and
|
|
|
|
collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable product candidates.
|
In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a
reduced number of potential future collaborators. If a present or future collaborator of ours were to be involved in a business combination, the continued pursuit and emphasis on our product development or commercialization program could be delayed,
diminished or terminated.
If we are not able to establish collaborations, we may have to alter our development and commercialization plans.
We will face significant competition in seeking appropriate collaborators if we determine to do so. Whether we reach a definitive
agreement for a collaboration will depend upon, among other things, our assessment of the collaborators resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborators evaluation of a number
of factors. Such factors may include the design or results of clinical trials, the likelihood of approval by the FDA or similar regulatory authorities outside the United States, the potential market for the subject product candidate, the costs and
complexities of manufacturing and delivering such product candidate to patients, the potential of competing products, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership
without regard to the merits of the challenge, and industry and market conditions generally. The collaborator may also consider alternative
48
product candidates or technologies for similar indications that may be available for collaboration and whether such a collaboration could be more attractive than the one with us for galeterone.
We may also be restricted under existing license agreements from entering into agreements on certain terms with potential collaborators. Collaborations are complex and time-consuming to negotiate and document. We may not be able to negotiate
collaborations on a timely basis, on acceptable terms, or at all.
If we are not able to enter into collaborations for galeterone, we may
have to curtail the development of galeterone, reduce or delay our development program or one or more of our other development programs, delay our potential commercialization or reduce the scope of any sales or marketing activities, or increase our
expenditures and undertake development or commercialization activities at our own expense. If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital, which may
not be available to us on acceptable terms, or at all. If we do not have sufficient funds, we may not be able to further develop galeterone or other future candidates or bring these product candidates to market and generate product revenue.
Risks Related to the Manufacturing of Galeterone and Our Future Product Candidates
We contract with third parties for the manufacture of galeterone for clinical trials and expect to continue to do so in connection with the
commercialization of galeterone and for clinical trials and commercialization of any other product candidates that we develop. This reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates or
such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.
We do
not currently have nor do we plan to build the internal infrastructure or capability to manufacture galeterone. We currently rely on and expect to continue to rely on third-party contract manufacturers to manufacture clinical supplies of galeterone
and any other product candidates we may develop. We expect to continue to rely upon third-party contract manufacturers to manufacture commercial quantities of galeterone and any other product candidates that we commercialize following approval for
marketing by applicable regulatory authorities. Reliance on third-party manufacturers entails risks, including:
|
|
|
manufacturing delays if our third-party manufacturers give greater priority to the supply of other products over our product candidates or otherwise do not satisfactorily perform according to the terms of the agreement
between us;
|
|
|
|
the possible termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us;
|
|
|
|
the possible breach of the manufacturing agreement by the third party;
|
|
|
|
the failure of the third-party manufacturer to comply with applicable regulatory requirements; and
|
|
|
|
the possible misappropriation of our proprietary information, including our trade secrets and
know-how.
|
We currently rely on a small number of third-party contract manufacturers for all of our required raw materials, drug substance and finished
product for our clinical trials. We do not have long-term agreements with any of these third parties. If any of our existing manufacturers should become unavailable to us for any reason, we may incur some delay in our clinical trials as we identify
or qualify replacements.
We currently rely on a single third-party contract manufacturer, with which we do not have a long-term
agreement, to supply us with the spray dried dispersion formulation of galeterone. If this third-party manufacturer fails to fulfill orders or should become unavailable to us for any reason, we likely would incur some delay in our clinical trials
for galeterone and added costs and delays in identifying or qualifying such replacements. In addition, we may be unable to establish any agreements with such replacement manufacturers or to do so on acceptable terms or at all. Even if we could
transfer manufacturing to a different third party, the shift would likely be expensive and time-consuming.
49
If galeterone or any other product candidate that we may develop in the future is approved by any
regulatory agency, we intend to enter into agreements with third-party contract manufacturers for the commercial production of those products. This process is difficult and time-consuming and we may face competition for access to manufacturing
facilities as there are a limited number of contract manufacturers operating under current good manufacturing processes, or cGMPs that are capable of manufacturing our product candidates. As a result, we may be unable to reach agreement with
third-party manufacturers on satisfactory terms or at all, which could delay our commercialization.
Our current and anticipated future
dependence upon others for the manufacture of galeterone and any other product candidate that we develop may adversely affect our future profit margins and our ability to commercialize any products that receive marketing approval on a timely and
competitive basis.
If our third-party manufacturers facilities are damaged or destroyed, or production at one of these facilities is
otherwise interrupted, our business and prospects would be negatively affected.
If any manufacturing facilities owned by third
parties who manufacture galeterone or any of our future product candidates are damaged or destroyed, we likely would not be able to quickly or inexpensively replace our manufacturing capacity and possibly would not be able to replace it at all. Any
new facility needed to replace these facilities would need to comply with the necessary regulatory requirements and need to be tailored to our specialized manufacturing requirements. We would need FDA approval before selling any products
manufactured at a new facility. Such an event could delay our clinical trials or, if any of our product candidates are approved by the FDA, reduce or eliminate our product sales.
While we maintain insurance coverage to cover damage to our property and equipment and to cover business interruption and research and
development restoration expenses, if we have underestimated our insurance needs with respect to an interruption in our clinical manufacturing of our product candidates, we may not be able to adequately cover our losses.
We rely on our third-party manufacturers for compliance with applicable regulatory requirements. This may increase the risk of sanctions being imposed
on us or on a manufacturer of our products or product candidates, which could result in our inability to obtain sufficient quantities of these products or product candidates.
Our manufacturers may not be able to comply with cGMPs, regulations or other regulatory requirements or similar regulatory requirements outside
the United States. Our failure, or the failure of our third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including:
|
|
|
failure of regulatory authorities to grant marketing approval of our product candidates;
|
|
|
|
delays, suspension or withdrawal of approvals;
|
|
|
|
suspension of manufacturing operations;
|
|
|
|
seizures or recalls of products or product candidates;
|
|
|
|
operating restrictions; and
|
Any of these sanctions could significantly and adversely affect
supplies of our products and product candidates.
50
Risks Related to Our Intellectual Property
If we fail to comply with our obligations under our intellectual property licenses with third parties, we could lose license rights that are important to
our business.
We are a party to a master license agreement with the University of Maryland, Baltimore, or UMB, under which we
license certain patents and patent applications to make, have made, use, sell, offer to sell and import certain anti-androgen compounds, including galeterone, and an exclusive, worldwide license with Johns Hopkins under which we license patents,
patent applications and
know-how
covering certain assays to identify androgen receptor variants for use as a companion diagnostic with galeterone. We may enter into additional license agreements in the future.
Our license agreements with UMB and Johns Hopkins impose, and we expect that future license agreements will impose, various diligence, milestone payment, royalty, insurance and other obligations on us. If we fail to comply with our obligations under
these licenses, our licensors may have the right to terminate these license agreements, in which event we might not be able to market any product that is covered by these agreements, or our licensors may convert the license to a
non-exclusive
license, which could materially adversely affect the value of the product candidate being developed under the license agreement. Termination of these license agreements or reduction or elimination of
our licensed rights may result in our having to negotiate new or reinstated licenses with less favorable terms.
Restrictions on our patent rights
relating to our drug candidates may limit our ability to prevent third parties from competing against us.
Our success will depend,
in part, on our ability to obtain and maintain patent protection for product candidates, preserve our trade secrets, prevent third parties from infringing upon our proprietary rights and operate without infringing upon the proprietary rights of
others. As of January 31, 2017, we owned and/or licensed 18 issued U.S. patents, seven pending U.S.
non-provisional
patent applications, three pending international patent applications, 88 granted foreign
patents and 67 pending foreign applications in our galeterone patent portfolio. Our owned and/or licensed patents and patent applications, if issued, are expected to expire on various dates from 2017 through 2036, without taking into account any
possible patent term extensions. Upon the expiration of these patents, we will lose the right to exclude others from practicing the inventions claimed by such patents. As a result, the expiration of these patents could have a material adverse effect
on our business, results of operations, financial condition and prospects. Patent applications in the United States and most other countries are confidential for a period of time until they are published, and publication of discoveries in scientific
or patent literature typically lags actual discoveries by several months or more. As a result, we cannot be certain that we and the inventors of the intellectual property for which we have submitted patent applications or
in-license
issued patents and applications, were the first to conceive of the inventions covered by such patents and pending patent applications or that we and those inventors were the first to file patent
applications covering such inventions. Also, the patent protection of our numerous issued and pending patent applications may lapse before we manage to obtain commercial value from them, which might result in increased competition and materially
affect our position in the market.
We have no patent protection specifically covering the chemical structure of galeterone. As a result,
a third party that obtains regulatory approval of a product with the same active ingredient as galeterone may be able to market such product so long as the third party does not infringe any other patents owned or licensed by us with respect to
galeterone. A U.S. patent we have exclusively licensed from UMB covering galeterone-related compounds and their use expires in 2017. For this reason, we have filed for or licensed additional patents and patent applications relating to galeterone
covering methods of use, pharmaceutical compositions, combination treatments, prodrugs, metabolites and analogs of galeterone and their use.
We also have an exclusive license from Johns Hopkins for patents and patent applications in the United States, Europe, and Canada covering
methods of determining whether a subject may respond to androgen therapy, and methods of determining a subjects risk of recurrence of hormone-refractory or
hormone-naïve
prostate cancer that are
expected to expire in 2029. These patents applications may provide protection for an
51
AR-V7
specific assay or a companion diagnostic test using this assay that we may develop and commercialize. However, these patent applications do not
provide any protection for galeterone or for galeterones pharmaceutical formulations or uses.
If we are unable to obtain and maintain patent
protection for our technology and products, or if our licensors are unable to obtain and maintain patent protection for the technology or products that we license from them, or if the scope of the patent protection obtained is not sufficiently
broad, our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully commercialize our technology and products may be adversely affected.
Our success depends in large part on our and our licensors ability to obtain and maintain patent protection in the United States and
other countries with respect to our proprietary technology and products. We and our licensors have sought to protect our proprietary position by filing patent applications in the United States and abroad related to our novel technologies and
products that are important to our business. This process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible
that we will fail to identify patentable aspects of our research and development efforts before it is too late to obtain patent protection. Moreover, prior to April 10, 2012, we did not have the right to control the preparation, filing and
prosecution of patent applications, or to maintain the patents, covering technology or products that we license from UMB, and we were and still are reliant on UMB. Therefore, we cannot be certain that these patents and applications were prosecuted
in a manner consistent with the best interests of our business. If we or our licensors fail to maintain such patents, or lose rights to those patents, the rights we have licensed may be reduced or eliminated.
The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions
and has in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our and our licensors patent rights are highly uncertain. Our and our licensors pending and
future patent applications may not result in patents being issued that protect our technology or products or which effectively prevent others from commercializing competitive technologies and products. Changes in either the patent laws or
interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection.
Third parties could practice our inventions in territories where we do not have patent protection. Furthermore, the laws of foreign countries
may not protect our rights to the same extent as the laws of the United States. A U.S. patent may be infringed by anyone who, without authorization, practices a patented process in the United States or imports a product made by a process covered by
the U.S. patent. In foreign countries, however, importation of a product made by a process patented in that country may not constitute an infringing activity, which would limit our ability to enforce process patents against importers in that
country. Furthermore, the legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection. This could make it difficult for us to stop the infringement
or misappropriation of our intellectual property rights. If competitors are able to use our technologies, our ability to compete effectively could be harmed.
Assuming the other requirements for patentability are met, in the United States, the first to invent the claimed invention is entitled to the
patent, while outside the United States, the first to file a patent application is generally entitled to the patent. Under the America Invents Act, or AIA, enacted in September 2011, the United States moved to a first inventor to file system in
March 2013. The U.S. Patent and Trademark Office recently finalized the rules relating to these changes and courts have yet to address the new provisions. These changes could increase the costs and uncertainties surrounding the prosecution of patent
applications and the enforcement or defense of patent rights. Furthermore, we may become involved in interference proceedings, opposition proceedings, or other post-grant proceedings, such as reexamination or inter partes review proceedings,
challenging our patent rights or the patent rights of others. An adverse determination in any such proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our
52
technology or products and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third-party patent rights.
Even if our owned and licensed patent applications issue as patents, they may not issue in a form that will provide us with any meaningful
protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our owned or licensed patents by developing similar or alternative technologies or products in a
non-infringing
manner. The issuance of a patent is not conclusive as to its scope, validity or enforceability, and our owned and licensed patents may be challenged in the courts or patent offices in the United
States and abroad. Such challenges, including through opposition or other post-grant proceedings, may result in patent claims being narrowed, invalidated or held unenforceable, which could limit our ability to or stop or prevent us from stopping
others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and products. Given the amount of time required for the development, testing and regulatory review of
new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from
commercializing products similar or identical to ours.
The degree of future protection for our proprietary rights is uncertain because
legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage. For example:
|
|
|
others may be able to make or use compounds that are similar to galeterone but that are not covered by the claims of our patents;
|
|
|
|
the galeterone compound may become generic, and no patent protection will be available without regard to formulation or method of use;
|
|
|
|
we or our licensors, as the case may be, may not be able to detect infringement against our owned or
in-licensed
patents, which may be especially difficult for manufacturing
processes or formulations;
|
|
|
|
we or our licensors, as the case may be, might not have been the first to make the inventions covered by our owned or
in-licensed
issued patents or pending patent applications;
|
|
|
|
we or our licensors, as the case may be, might not have been the first to file patent applications for these inventions or the first to conceive or reduce to practice these inventions;
|
|
|
|
others may independently develop similar or alternative technologies or duplicate any of our technologies;
|
|
|
|
this may be especially likely for manufacturing processes or formulations;
|
|
|
|
it is possible that our pending patent applications will not result in issued patents;
|
|
|
|
it is possible that our owned or
in-licensed
issued patents or pending patent applications are not Orange Book eligible;
|
|
|
|
it is possible that there are dominating patents to galeterone of which we are not aware;
|
|
|
|
it is possible that there are prior public disclosures that could invalidate our or our licensors inventions, as the case may be, or parts of our or their inventions of which we or they are not aware;
|
|
|
|
it is possible that others may circumvent our owned or
in-licensed
patents;
|
|
|
|
it is possible that there are unpublished applications or patent applications maintained in secrecy that may later issue with claims covering our products or technology similar to ours;
|
|
|
|
it is possible that the U.S. government may exercise any of its statutory rights to our owned or
in-licensed
patents or patent applications that was developed with government
funding;
|
53
|
|
|
the laws of foreign countries may not protect our or our licensors, as the case may be, proprietary rights to the same extent as the laws of the United States;
|
|
|
|
the claims of our owned or
in-licensed
issued patents or patent applications, if and when issued, may not cover our product candidates;
|
|
|
|
our owned or
in-licensed
issued patents may not provide us with any competitive advantages, or may be narrowed in scope, be held invalid or unenforceable as a result of legal
challenges by third parties; or
|
|
|
|
we may not develop additional proprietary technologies for which we can obtain patent protection.
|
We
may become involved in lawsuits to protect or enforce our patents, which could be expensive, time-consuming and unsuccessful.
Competitors may infringe our patents. To counter such infringement or unauthorized use, we may be required to file infringement claims against
third parties, which can be expensive and time-consuming. In addition, during an infringement proceeding, a court may decide that the patent rights we are asserting are invalid or unenforceable, or may refuse to stop the other party from using the
technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated or interpreted narrowly. Furthermore,
because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition,
our licensors may have rights to file and prosecute such claims, and we are reliant on them.
Claims that galeterone or any future product candidate
or the manufacture, use or sale of galeterone or any future product candidate infringe the patent rights of third parties could result in costly litigation or could require substantial time and money to resolve, even if litigation is avoided.
We cannot guarantee that the manufacture, use or sale of galeterone or any future product candidate, does not and will not
infringe third-party patents. Third parties might allege that we are infringing their patent rights or that we have misappropriated their trade secrets. Such third parties might resort to litigation against us. The basis of such litigation could be
existing patents or patents that issue in the future.
It is also possible that we failed to identify relevant third-party patents or
applications. For example, certain U.S. patent applications that will not be filed outside the United States may remain confidential until patents issue. Furthermore, patent applications in the United States and elsewhere are published approximately
18 months after the earliest filing, which is referred to as the priority date. Therefore, patent applications covering galeterone, its manufacture, use or sale, could have been filed by others without our knowledge. Additionally, pending patent
applications that have been published can, subject to certain limitations, be later amended in a manner that could cover galeterone or its use.
We are aware of two issued U.S. patents having broad claims relating to a composition of matter or its use in regulating cellular
differentiation or proliferation. We are also aware of certain third-party pending U.S. patent applications that have broad generic disclosures and disclosure of certain compounds possessing structural similarities to galeterone. Although we believe
that it is unlikely that such applications will lead to issued claims that would cover galeterone and its use and still be valid, patent prosecution is inherently unpredictable and an application could be allowed. Based on our analyses, we do not
believe our proposed products or activities would be found to infringe any valid claims of these patents if any of the above third-party patents or patent applications, if issued, were asserted against us. If we were to challenge the validity of an
issued U.S. patent in court, however, we would need to overcome a statutory presumption of validity that attaches to every U.S. patent. This means that, in order to prevail, we would have to present clear and convincing evidence as to the invalidity
of the patents claims. There is no assurance that a court would find in our favor on questions of infringement or validity.
54
In order to avoid or settle potential claims with respect to any patent rights of third parties,
we may choose or be required to seek a license from a third party and be required to pay license fees or royalties or both. These licenses may not be available on acceptable terms, or at all. Even if we were able to obtain a license, the rights may
be
non-exclusive,
which could result in our competitors gaining access to the same intellectual property. Ultimately, we could be prevented from commercializing galeterone, or be forced to cease some aspect of
our business operations, if, as a result of actual or threatened patent infringement claims, we are unable to enter into licenses on acceptable terms. This could harm our business significantly.
Defending against claims of patent infringement or misappropriation of trade secrets could be costly and time-consuming, regardless of the
outcome. Most of our competitors are larger than we are and have substantially greater resources. They are, therefore, likely to be able to sustain the costs of complex patent or trade secret litigation longer than we could. Thus, even if we were to
ultimately prevail, or to settle at an early stage, such litigation could burden us with substantial unanticipated costs. In addition, litigation or threatened litigation could result in significant demands on the time and attention of our
management team, distracting them from the pursuit of other company business. In addition, the uncertainties associated with litigation could have a material adverse effect on our ability to raise the funds necessary to continue our clinical trials,
continue our internal research programs,
in-license
needed technology, or enter into strategic partnerships that would help us bring our product candidates to market.
We may be subject to claims that our employees or directors have wrongfully used or disclosed alleged trade secrets of their former employers.
Many of our employees and certain of our directors were previously employed at universities or other biotechnology or
pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees and directors do not use the proprietary information or
know-how
of others in their
work for us, we may be subject to claims that we or these employees or directors have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employees or directors former employer.
Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending
against such claims, litigation could result in substantial costs and be a distraction to management.
Intellectual property litigation could cause
us to spend substantial resources and distract our personnel from their normal responsibilities.
Even if resolved in our favor,
litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses, and could distract our technical and management personnel from their normal responsibilities. In addition, there could be
public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our
common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities. We may not have sufficient financial or other resources to adequately conduct such
litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources. Uncertainties resulting from the initiation and
continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.
Our
reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed.
Because we rely on third parties in the discovery, development and manufacture of our product candidates, and because we collaborate with
various organizations and academic institutions on the advancement of our
55
technology, we must, at times, share trade secrets with them. We seek to protect our proprietary technology in part by entering into confidentiality agreements and, if applicable, material
transfer agreements, collaborative research agreements, consulting agreements or other similar agreements with our collaborators, advisors, employees and consultants prior to beginning research or disclosing proprietary information. These agreements
typically limit the rights of the third parties to use or disclose our confidential information, such as trade secrets. Despite these contractual provisions, the need to share trade secrets and other confidential information increases the risk that
such trade secrets become known by potential competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our
know-how
and trade secrets, discovery by a third party of our trade secrets or other unauthorized use or disclosure would impair our intellectual property rights and protections in our product candidates.
Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the
outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. Moreover, our competitors may independently develop equivalent knowledge, methods and
know-how.
If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them from using that technology or information to compete with us. If
any of our trade secrets were to be disclosed to or independently developed by a competitor, our competitive position would be harmed.
In
addition, our third-party agreements typically restrict the ability of our collaborators, advisors, employees and consultants to publish data potentially relating to our trade secrets. Our academic collaborators typically have rights to publish
data, provided that we are notified in advance and may delay publication for a specified time in order to secure our intellectual property rights arising from the collaboration. In other cases, publication rights are controlled exclusively by us,
although in some cases we may share these rights with other parties. Despite our efforts to protect our trade secrets, our competitors may discover our trade secrets, either through breach of these agreements, independent development or publication
of information including our trade secrets in cases where we do not have proprietary or otherwise protected rights at the time of publication.
Risks
Related to Compliance Matters
Any product candidate for which we receive marketing approval could be subject to restrictions or withdrawal from
the market and we may be subject to penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with our products, if any of them are approved.
Any product candidate for which we receive marketing approval, along with the manufacturing processes, post-approval clinical data, labeling,
advertising and promotional activities for such product, will be subject to continual requirements of and review by the FDA and other regulatory authorities. These requirements include submissions of safety and other post-marketing information and
reports, registration and listing requirements, cGMP requirements relating to quality control, quality assurance and corresponding maintenance of records and documents. Even if regulatory approval of a product candidate is granted, the approval may
be subject to limitations on the indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the product. The
FDA closely regulates the post-approval marketing and promotion of drugs to ensure drugs are marketed only for the approved indications and in accordance with the provisions of the approved label. The FDA imposes stringent restrictions on
manufacturers communications regarding
off-label
use and if we do not market our products for their approved indications, we may be subject to enforcement action for
off-label
marketing.
In addition, later discovery of previously unknown problems with our
products, manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may have adverse consequences, including:
|
|
|
restrictions on such products, manufacturers or manufacturing processes;
|
56
|
|
|
restrictions on the marketing of a product;
|
|
|
|
restrictions on product distribution;
|
|
|
|
requirements to conduct post-marketing clinical trials;
|
|
|
|
warning or untitled letters;
|
|
|
|
withdrawal of the products from the market;
|
|
|
|
refusal to approve pending applications or supplements to approved applications that we submit;
|
|
|
|
fines, restitution or disgorgement of profits or revenue;
|
|
|
|
suspension or withdrawal of regulatory approvals;
|
|
|
|
refusal to permit the import or export of our products;
|
|
|
|
injunctions or the imposition of civil or criminal penalties.
|
Our relationships with customers and
third-party payors will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, program exclusion, contractual damages, reputational harm and
diminished profits and future earnings.
Healthcare providers, physicians and third-party payors play a primary role in the
recommendation and prescription of any product candidates for which we receive marketing approval. Our future arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and
regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute our products for which we receive marketing approval.
Restrictions under applicable federal and state healthcare laws and regulations, include the following:
|
|
|
the federal healthcare anti-kickback statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to
induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under federal and state healthcare programs such as Medicare and Medicaid;
|
|
|
|
the federal False Claims Act imposes civil penalties, including civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government,
claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;
|
|
|
|
the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, imposes criminal and civil liability for executing
a scheme to defraud any healthcare benefit program and also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;
|
|
|
|
the federal false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for
healthcare benefits, items or services;
|
|
|
|
the federal transparency requirements under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, require manufacturers of covered drugs, devices,
biologics and medical supplies to report to the Department of Health and Human Services information related to physician payments and other transfers of value and physician ownership and investment interests; and
|
57
|
|
|
analogous state laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by
non-governmental
third-party payors, including private insurers, and some state laws require pharmaceutical companies to comply with the pharmaceutical industrys voluntary compliance guidelines and the
relevant compliance guidance promulgated by the federal government in addition to requiring drug manufacturers to report information related to payments to physicians and other health care providers or marketing expenditures.
|
Some state laws require pharmaceutical companies to comply with the pharmaceutical industrys voluntary compliance guidelines and the
relevant compliance guidance promulgated by the federal government and may require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures.
State and foreign laws also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve
substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and
regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, exclusion
from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians or other providers or entities with whom we expect to do business are found to be not in
compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.
Recently enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize galeterone or
other future products candidates and affect the prices we may obtain.
In the United States and some foreign jurisdictions, there
have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of galeterone or other future products candidates, restrict or regulate post-approval
activities and affect our ability to profitably sell any product candidates for which we receive marketing approval.
In the United
States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or Medicare Modernization Act, changed the way Medicare covers and pays for pharmaceutical products. The legislation expanded Medicare coverage for drug purchases by
the elderly and introduced a new reimbursement methodology based on average sales prices for physician administered drugs. In addition, this legislation provided authority for limiting the number of drugs that will be covered in any therapeutic
class in certain cases. Cost reduction initiatives and other provisions of this and other more recent legislation could decrease the coverage and reimbursement that is provided for any approved products. While the Medicare Modernization Act applies
only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from the Medicare
Modernization Act or other more recent legislation may result in a similar reduction in payments from private payors.
In March 2010,
President Obama signed into law the Health Care Reform Law, a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency
requirements for health care and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. Effective October 1, 2010, the Health Care Reform Law revises the definition of
average manufacturer price for
58
reporting purposes, which could increase the amount of Medicaid drug rebates to states. Further, the new law imposes a significant annual fee on companies that manufacture or import branded
prescription drug products. Substantial new provisions affecting compliance have also been enacted, which may affect our business practices with health care practitioners. We will not know the full effects of the Health Care Reform Law until
applicable federal and state agencies issue regulations or guidance under the new law. Although it is too early to determine the effect of the Health Care Reform Law, the new law appears likely to continue the pressure on pharmaceutical pricing,
especially under the Medicare program, and may also increase our regulatory burdens and operating costs. In addition, there have been recent public announcements by members of the U.S. Congress and the new presidential administration regarding their
plans to repeal and replace the Health Care Reform Law. However, it remains unclear how a repeal or replacements of these programs might affect the prices we may obtain for any of our product candidates for which regulatory approval is obtained.
Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities
for pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of
galeterone or our other future products candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDAs approval process may significantly delay or prevent marketing approval, as well as subject us to more
stringent product labeling and post-marketing testing and other requirements.
If we fail to comply with environmental, health and safety laws and
regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.
We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the
handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and radioactive and biological materials. Our operations also produce
hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from
our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties.
Although we maintain workers compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees
resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in
connection with our storage or disposal of biological, hazardous or radioactive materials.
In addition, we may incur substantial costs in
order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Failure to comply with these laws and regulations
also may result in substantial fines, penalties or other sanctions.
Risks Related to Employee Matters and Managing Growth
Our future success depends on our ability to retain our chief executive officer and other key executives and to attract, retain and motivate qualified
personnel.
We are highly dependent on Jodie Morrison, our President and Chief Executive Officer, as well as the other members of
our executive and scientific teams. Although we have formal employment agreements with each of our executive officers, these agreements do not prevent our executives from terminating their employment with us at any time. We do not maintain key
person insurance for any of our executives or other employees. The loss of the services of any of these persons could impede the achievement of our research, development and commercialization objectives.
59
In July 2016, we implemented a reduction in force, which impacted virtually all of our functions.
As part of the reduction in force, Lee Kalowski, our former Chief Financial Officer, and Gerald Quirk, our former Executive Vice President, Business Operations and General Counsel, ceased their employment with us at the end of August 2016. In
addition, Karen Ferrante, our former Chief Medical Officer, retired at the end of August 2016. With any change in leadership and reduction in force, there is a risk to retention of employees, as well as the potential for disruption to business
operations, initiatives, plans and strategies.
Recruiting and retaining qualified personnel will be critical to our success. We may not
be able to attract and retain these personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical
personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our
consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us.
We have recently reduced the size of our organization, and we may encounter difficulties in managing our business as a result of this reduction, or the
attrition that may occur following this reduction, which could disrupt our operations. In addition, we may not achieve anticipated benefits and savings from the reduction.
In July 2016, we implemented a reduction in force that reduced the number of our employees by approximately 60 percent to a total of 10
full-time equivalent employees, and as of January 31, 2017, we had eight full-time employees. The reduction in force, and the attrition thereafter, resulted in the loss of longer-term employees, the loss of institutional knowledge and expertise
and the reallocation and combination of certain of roles and responsibilities across the organization, all of which could adversely affect our operations. Given the complexity and nature of our business, we must continue to implement and improve our
managerial, operational and financial systems, manage our facilities and continue to recruit and retain qualified personnel. This will be made more challenging given the reduction in force described above and additional measures we may take to
reduce costs. As a result, our management may need to divert a disproportionate amount of its attention away from our
day-to-day
strategic and operational activities,
and devote a substantial amount of time to managing these organizational changes. Further, the restructuring and possible additional cost containment measures may yield unintended consequences, such as attrition beyond our intended reduction in
force and reduced employee morale. In addition, employees who were not affected by the reduction in force may seek alternate employment which would result in us seeking contract support at unplanned additional expense. In addition, we may not
achieve anticipated benefits from the reduction in force. Due to our limited resources, we may not be able to effectively manage our operations or recruit and retain qualified personnel, which may result in weaknesses in our infrastructure and
operations, risks that we may not be able to comply with legal and regulatory requirements, loss of business opportunities, loss of employees and reduced productivity among remaining employees. If our management is unable to effectively manage this
transition and reduction in force and additional cost containment measures, our expenses may be more than expected, and we may not be able to implement our business strategy.
Risks Related to Our Common Stock
Our executive
officers, directors and principal stockholders maintain the ability to control all matters submitted to stockholders for approval.
Our executive officers, directors and stockholders who own more than 5% of our outstanding common stock, together with their affiliates and
related persons, in the aggregate, beneficially own shares representing approximately 65% of our common stock, based on the number of shares of our common stock outstanding as of December 31, 2016. As a result, if these stockholders were to
choose to act together, they would be able to control all matters submitted to our stockholders for approval, as well as our management and affairs. For
60
example, these persons, if they choose to act together, would control the election of directors and approval of any merger, consolidation or sale of all or substantially all of our assets. This
concentration of voting power could delay or prevent an acquisition of our company on terms that other stockholders may desire.
We
believe our two largest stockholders, Apple Tree Partners and Novartis BioVentures, Ltd., in the aggregate, beneficially own shares representing approximately 55% of our common stock in the aggregate, based on the number of shares of our common
stock outstanding as of December 31, 2016. As a result, each of these stockholders acting individually, as well as together, may exercise significant control over our management and affairs. In particular, each of our directors and certain
entities affiliated with Apple Tree Partners holding in the aggregate approximately 36.3% of our outstanding common stock have each entered into a support agreement in favor of Otic in connection with the Otic Transaction.
Provisions in our corporate charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more
difficult and may prevent attempts by our stockholders to replace or remove our current management.
Provisions in our corporate
charter and our bylaws may discourage, delay or prevent a merger, acquisition or other change in control of us that stockholders may consider favorable, including transactions in which our stockholders might otherwise receive a premium for their
shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, because our board of directors is
responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of
our board of directors. Among other things, these provisions:
|
|
|
establish a classified board of directors such that not all members of the board are elected at one time;
|
|
|
|
allow the authorized number of our directors to be changed only by resolution of our board of directors;
|
|
|
|
limit the manner in which stockholders can remove directors from the board;
|
|
|
|
establish advance notice requirements for stockholder proposals that can be acted on at stockholder meetings and nominations to our board of directors;
|
|
|
|
require that stockholder actions must be effected at a duly called stockholder meeting and prohibit actions by our stockholders by written consent;
|
|
|
|
limit who may call stockholder meetings;
|
|
|
|
authorize our board of directors to issue preferred stock without stockholder approval, which could be used to institute a poison pill that would work to dilute the stock ownership of a potential hostile
acquirer, effectively preventing acquisitions that have not been approved by our board of directors; and
|
|
|
|
require the approval of the holders of at least 75% of the votes that all our stockholders would be entitled to cast to amend or repeal certain provisions of our charter or bylaws.
|
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation
Law, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding
voting stock, unless the merger or combination is approved in a prescribed manner.
An active trading market for our common stock may not be
sustained, and investors may not be able to resell their shares at or above the price they paid.
Although we have listed our
common stock on The NASDAQ Global Market, an active trading market for our shares may not be sustained. In the absence of an active trading market for our common stock, investors may
61
not be able to sell their common stock at or above the prices at which they acquired their shares or at the time that they would like to sell. An inactive trading market may also impair our
ability to raise capital to continue to fund operations by selling shares and may impair our ability to acquire other companies or technologies by using our shares as consideration.
Our stock price has been and may in the future be volatile, which could cause purchasers of our common stock to incur substantial losses.
Our stock price has been and in the future may be subject to substantial volatility. The stock market in general and the market for
biotechnology companies in particular has experienced extreme volatility that has often been unrelated to the operating performance of particular companies. For example, our stock traded within a range of a high price of $30.00 per share and a low
price of $0.73 per share for the period beginning September 17, 2014, our first day of trading on The NASDAQ Global Market, through January 31, 2017. Our stock price experienced significant volatility in July 2016 after we announced our
plan to discontinue our
ARMOR3-SV
clinical trial. As a result of this volatility, our stockholders could incur substantial losses. The market price for our common stock may be influenced by many factors,
including:
|
|
|
the outcome of our proposed Otic Transaction;
|
|
|
|
our analysis of available unblinded data from our
ARMOR3-SV
trial and our determination as to the potential paths forward in the development of galeterone and our ARDA program;
|
|
|
|
results of clinical trials of galeterone and our future product candidates or those of our competitors;
|
|
|
|
the success of competitive products or technologies;
|
|
|
|
potential approvals of galeterone or other future product candidates for marketing by the FDA or equivalent foreign regulatory authorities or our failure to obtain such approvals;
|
|
|
|
regulatory or legal developments in the United States and other countries;
|
|
|
|
the results of our efforts to commercialize galeterone or other future product candidates;
|
|
|
|
developments or disputes concerning patents or other proprietary rights;
|
|
|
|
the recruitment or departure of key personnel;
|
|
|
|
the level of expenses related to galeterone or any of our future product candidates or clinical development programs;
|
|
|
|
the results of our efforts to discover, develop, acquire or
in-license
additional product candidates or products;
|
|
|
|
actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;
|
|
|
|
variations in our financial results or those of companies that are perceived to be similar to us;
|
|
|
|
changes in the structure of healthcare payment systems;
|
|
|
|
market conditions in the pharmaceutical and biotechnology sectors and issuance of new or changed securities analysts reports or recommendations;
|
|
|
|
general economic, industry and market conditions; and
|
|
|
|
the other factors described in this Risk Factors section.
|
In addition,
pharmaceutical companies have experienced significant share price volatility in recent years, and securities class action litigation often follows a decline in the market price of a companys securities. If we face such litigation, it could
result in substantial costs and a diversion of managements attention and resources.
62
On August 1, 2016, a purported stockholder filed a putative class action lawsuit in the U.S.
District Court for the Southern District of New York against us, Jodie P. Morrison, and Lee H. Kalowski, entitled Doshi v. Tokai Pharmaceuticals, Inc., et al., No.
1:16-cv-06106
(Doshi Action). The plaintiff seeks to represent a class of purchasers of our securities between June 24, 2015, and July 25,
2016, and alleges that, in violation of the Securities Exchange Act of 1934 (Exchange Act) and Rule
10b-5
promulgated thereunder, defendants made false and misleading statements and omissions about
our clinical trials for our drug candidate, galeterone. The lawsuit seeks, among other things, unspecified compensatory damages, interest, costs, and attorneys fees. On October 3, 2016, the case was transferred to the U.S. District
Court for the District of Massachusetts. A lead plaintiff has yet to be appointed.
On August 19, 2016, a purported stockholder filed
a putative class action lawsuit in the Superior Court of the State of California, County of San Francisco, against us, Jodie P. Morrison, Lee H. Kalowski, Seth L. Harrison, Timothy J. Barberich, David A. Kessler, Joseph A. Yanchik, III, and the
underwriters of our initial public offering (IPO), entitled Jackie888, Inc. v. Tokai Pharmaceuticals, Inc., et al., No.
CGC-16-553796.
The lawsuit alleges
that, in violation of the Securities Act of 1933 (Securities Act), our registration statement for our IPO made false and misleading statements and omissions about our clinical trials for galeterone. The plaintiff seeks to represent
a class of purchasers of our common stock in and/or traceable to our IPO. The lawsuit seeks, among other things, unspecified compensatory damages, interest, costs, and attorneys fees. On October 19, 2016, the defendants moved to
dismiss or stay the action on grounds of forum non conveniens, and certain individual defendants moved to quash the plaintiffs summons for lack of personal jurisdiction. On February 27, 2017, the Superior Court entered an order granting
defendants motion to stay the lawsuit.
On September 29, 2016, two purported stockholders filed a putative class action lawsuit
in the U.S. District Court for the District of Massachusetts against us, Jodie Pope Morrison, Lee H. Kalowski, Seth L. Harrison, Timothy J. Barberich, David A. Kessler, Joseph A. Yanchik, III, and the underwriters of our IPO, entitled Garbowski, et
al. v. Tokai Pharmaceuticals, Inc., et al., No.
1:16-cv-11963
(Garbowski Action). The lawsuit alleges that the defendants and our registration statement for
our IPO made false and misleading statements and omissions about our clinical trials for galeterone, in violation of the Securities Act, the Exchange Act, and Rule
10b-5. The
plaintiffs seek to represent
a class of purchasers of our common stock in or traceable to our IPO as well as a class of purchasers of our common stock between September 17, 2014, and July 25, 2016. The lawsuit seeks, among other things, unspecified compensatory
damages, interest, costs, and attorneys fees. The plaintiff in the Doshi Action has filed a motion to consolidate the Doshi and Garbowski Actions for all purposes. A prospective lead plaintiff has filed a motion to consolidate the
Doshi and Garbowski Actions for all purposes. A lead plaintiff has yet to be appointed.
On December 5, 2016, a putative securities
class action was filed in the Business Litigation Session of the Superior Court Department of the Suffolk County Trial Court, Massachusetts (Massachusetts State Court) against us, Jodie P. Morrison, Lee H. Kalowski, Seth L. Harrison,
Timothy J. Barberich, David A. Kessler, Joseph A. Yanchik, III, and the underwriters of our IPO, entitled Wu v. Tokai Pharmaceuticals, Inc., et al.,
16-3725
BLS (Wu Action). The lawsuit alleges
that our IPO registration statement made false and misleading statements and omissions about our clinical trials for galeterone, in violation of the Securities Act. The plaintiff seeks to represent a class of purchasers of our common stock in or
traceable to our IPO. The lawsuit seeks, among other things, unspecified compensatory damages, interest, costs, and attorneys fees. On December 19, 2016, defendants removed the Wu Action to the U.S. District Court for the District of
Massachusetts, where it was captioned Wu v. Tokai Pharmaceuticals, Inc., et al.,
16-cv-12550,
and assigned to the same judge presiding over the Doshi and Garbowski
Actions. On December 22, 2016, defendants filed a motion to consolidate the Wu Action with the Doshi and Garbowski Actions. On January 6, 2017, plaintiff filed a motion to remand the Wu Action to Massachusetts State Court.
An unfavorable resolution of any of these matters may have a material adverse effect on our results of operations and cash flows.
63
We must maintain effective internal control over financial reporting, and if we are unable to do so, the
accuracy and timeliness of our financial reporting may be adversely affected, which could have a material adverse effect on our business and stock price.
We must maintain effective internal control over financial reporting in order to accurately and timely report our results of operations and
financial condition. In addition, as a public company, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, requires, among other things, that we assess the effectiveness of our disclosure controls and procedures quarterly and the
effectiveness of our internal control over financial reporting at the end of each fiscal year.
The rules governing the standards that
must be met for our management to assess our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act are complex and require significant documentation, testing and possible remediation. These standards
require that our audit committee be advised and regularly updated on managements review of internal control over financial reporting. Our management may not be able to effectively and timely implement controls and procedures that adequately
respond to the increased regulatory compliance and reporting requirements that are applicable to us as a public company. If we fail to staff our accounting and finance function adequately or maintain internal control over financial reporting
adequate to meet the demands that are placed upon us as a public company, including the requirements of the Sarbanes-Oxley Act, our business and reputation may be harmed and our stock price may decline. Furthermore, investor perceptions of us may be
adversely affected, which could cause a decline in the market price of our common stock.
We are an emerging growth company, and the
reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors.
We
are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and may remain an emerging growth company for up to five years from the date of our initial public offering, although
circumstances could cause us to lose that status earlier. For so long as we remain an emerging growth company, we are permitted and plan to rely on exemptions from certain disclosure requirements that are applicable to other public companies that
are not emerging growth companies. These exemptions include not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, not being required to comply with any requirement that may be adopted
by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditors report providing additional information about the audit and the financial statements, reduced disclosure obligations
regarding executive compensation and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict whether
investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more
volatile.
In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for
complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to
avail ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation, if any, will be the sole
source of gain for our stockholders.
We have never declared or paid cash dividends on our capital stock. We currently intend to
retain all of our future earnings, if any, to finance the growth and development of our business. In addition, the terms of existing or any future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of
our common stock will be the sole source of gain for our stockholders for the foreseeable future.
64
If equity research analysts do not publish research reports about our business or if they issue
unfavorable commentary or downgrade our common stock, the price of our common stock could decline.
The trading market for our common
stock will rely in part on the research and reports that equity research analysts publish about us and our business. We do not have any control over these analysts. The price of our common stock could decline if we do not obtain research analyst
coverage, or one or more securities analysts downgrade our common stock or if those analysts issue other unfavorable commentary or cease publishing reports about us or our business.