ITEM 1A. RISK FACTORS
You should consider carefully the following risk factors, together with all the other information in this Annual Report
on Form 10-K, including our consolidated financial statements and notes thereto, and in our other public filings with the SEC. The occurrence of any of the following risks could harm our
business, financial condition, results of operations and/or growth prospects or cause our actual results to differ materially from those contained in forward-looking statements we have made in this
report and those we may make from time to time. You should consider all of the risk factors described when evaluating our business.
Risks Related to Our Financial Position and Need for Additional Capital
We have a limited operating history and have incurred significant losses since our inception, and we
anticipate that we will continue to incur losses for the foreseeable future.
We do not expect to generate revenue or profitability that is necessary to finance our operations in the short term. We incurred net losses of
$28.9 million and $13.9 million for the years ended December 31, 2016 and 2015, respectively. As of December 31, 2016, we had an accumulated deficit of
$68.8 million. We do not expect to generate any product revenues in the foreseeable future. We do not know whether or when we will generate revenue or become profitable.
We
have devoted substantially all of our financial resources and efforts to research and development, including preclinical studies and our clinical trials. Our net losses may fluctuate
significantly from quarter to quarter and year to year. Net losses and negative cash flows have had, and will continue to have, an adverse effect on our stockholders' equity and working capital.
We
expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. We anticipate that our expenses will increase substantially if and as
we:
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continue to develop and conduct clinical trials with respect to our lead product candidate, RA101495;
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initiate and continue research, preclinical and clinical development efforts for any future product candidates;
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seek to identify additional product candidates;
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seek regulatory and marketing approvals for our product candidates that successfully complete clinical trials, if any;
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establish sales, marketing, distribution and other commercial infrastructure in the future to commercialize various products for which we may
obtain marketing approval, if any;
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require the manufacture of larger quantities of product candidates for clinical development and, potentially, commercialization;
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maintain, expand and protect our intellectual property portfolio;
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hire and retain additional personnel, such as clinical, quality control and scientific personnel;
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add operational, financial and management information systems and personnel, including personnel to support our product development and help us
comply with our obligations as a public company; and
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add equipment and physical infrastructure to support our research and development.
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
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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 stock price to decline.
We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary
capital when needed on acceptable terms, or at all, could force us to delay, reduce or eliminate our product discovery and development programs or commercialization efforts.
Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is a very time-consuming, expensive and
uncertain process that takes years to complete. Our operations have consumed substantial amounts of cash since inception. As of December 31, 2016, our cash, cash equivalents were
$117.8 million. Our research and development expenses were $27.9 million and $15.2 million for the years ended December 31, 2016 and 2015, respectively. We expect our
expenses to increase in connection with our ongoing activities, particularly as we initiate new clinical trials of, initiate new research and preclinical development efforts for and seek marketing
approval for, our current product candidates or any product candidates that we acquire, if any. In addition, if we obtain marketing approval for any of our product candidates, we may incur significant
commercialization expenses related to product sales, marketing, manufacturing and distribution to the extent that such sales, marketing, manufacturing and distribution are not the responsibility of a
future collaborator. Furthermore, as a public company, we will incur significant additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial
additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we may be forced to delay, reduce or eliminate our research and
development programs or any future commercialization efforts.
We
will be required to expend significant funds in order to advance the development of RA101495, as well as other product candidates we may seek to develop. In addition, while we may
seek one or more collaborators for future development of our product candidates for one or more indications, we may not be able to enter into a collaboration for any of our product candidates for such
indications on suitable terms, on a timely basis or at all. In any event, our existing cash and cash equivalents will not be sufficient to fund all of the efforts that we plan to undertake or to fund
the completion of development of any of our product candidates. Accordingly, we will be required to obtain further funding through public or private equity offerings, debt financings, collaborations
and licensing arrangements or other sources. We do not have any committed external source of funds. Adequate additional financing may not be available to us on acceptable terms, or at all. Our failure
to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy.
Our
future funding requirements, both short-term and long-term, will depend on many factors, including:
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the scope, progress, timing, costs and results of clinical trials of, and research and preclinical development efforts for, our current and
future product candidates;
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our ability to enter into, and the terms and timing of, any collaborations, licensing or other arrangements;
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the number of future product candidates that we pursue and their development requirements;
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the outcome, timing and costs of seeking regulatory approvals;
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the costs of commercialization activities for any of our product candidates that receive marketing approval to the extent such costs are not
the responsibility of any future collaborators, including the costs and timing of establishing product sales, marketing, distribution and manufacturing capabilities;
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subject to receipt of marketing approval, revenue, if any, received from commercial sales of our current and future product candidates;
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our headcount growth and associated costs as we expand our research and development and establish a commercial infrastructure;
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the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights including
enforcing and defending intellectual property related claims; and
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the costs of operating as a public company.
We may never achieve or maintain profitability and investors may lose their entire investment.
Our ability to become and remain profitable depends on our ability to generate revenue. We do not expect to generate significant revenue unless
and until we are, or any future collaborator is, able to obtain marketing approval for, and successfully commercialize, one or more of our product candidates. Successful commercialization will require
achievement of key milestones, including completing clinical trials of our product candidates, obtaining marketing approval for these product candidates, manufacturing, marketing and selling those
products for which we, or any of our future collaborators, may obtain marketing approval, satisfying any post-marketing requirements and obtaining reimbursement for our products from private insurance
or government payors. Because of the uncertainties and risks associated with these activities, we are unable to accurately predict the timing and amount of revenues, and if or when we might achieve
profitability. We and any future collaborators may never succeed in these activities and, even if we do, or any future collaborators do, we may never generate revenues that are large enough for us 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.
Because
our only source of revenue to date, our research collaboration with Merck & Co., or Merck, has reached the end of its research term and identified a product
candidate, to the extent we continue to receive revenue from this collaboration, we must rely on Merck's efforts to develop and commercialize that target candidate, which we do not control.
Our
failure to become and remain profitable would depress the market price of our common stock and could impair our ability to raise capital, expand our business, diversify our product
offerings or continue our operations. If we continue to suffer losses as we have in the past, investors may not receive any return on their investment and may lose their entire investment.
Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to
relinquish rights to our technologies or product candidates.
We expect our expenses to increase in connection with our planned operations. To the extent that we raise additional capital through the sale of
common stock, convertible securities or other equity securities, the ownership interest of our existing stockholders may be diluted, and the terms of these securities could include liquidation or
other preferences and anti-dilution protections that could adversely affect the rights of our common stockholders. In addition, debt financing, if available, may result in fixed payment obligations
and may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures, creating liens, redeeming
stock or declaring dividends, that could adversely impact our ability to conduct our business. In addition, securing financing could require a substantial amount of time and attention from our
management and may divert a disproportionate amount of their attention away from day-to-day activities, which may adversely affect our management's ability to oversee the development of our product
candidates.
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If
we raise additional funds through collaborations or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our
technologies, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds when needed, we may be required to
delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and
market ourselves.
We have a limited operating history and no history of commercializing pharmaceutical products, which may make
it difficult to evaluate the prospects for our future viability.
We commenced operations in 2008. Our operations to date have been limited to financing and staffing our company, developing our technology and
conducting preclinical research and early-stage clinical trials for our product candidates. We have not yet demonstrated an ability to successfully conduct late-stage clinical trials, obtain marketing
approvals, manufacture a commercial-scale product, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful product commercialization.
Accordingly, you should consider our prospects in light of the costs, uncertainties, delays and difficulties frequently encountered by companies in the early stages of development, especially
clinical-stage biopharmaceutical companies such as ours. Any predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history or
a history of successfully developing and commercializing pharmaceutical products.
We
may encounter unforeseen expenses, difficulties, complications, delays and other known or unknown factors in achieving our business objectives. We will eventually need to transition
from a company with a development focus to a company capable of supporting commercial activities. We may not be successful in such a transition.
We
expect our financial condition and operating results to continue to fluctuate significantly from quarter to quarter and year to year due to a variety of factors, many of which are
beyond our control. Accordingly, you should not rely upon the results of any quarterly or annual periods as indications of future operating performance.
Risks Related to the Discovery, Development and Commercialization of Our Product Candidates
We are at a very early stage in our development efforts, our approach is unproven and we may not be able to
successfully develop and commercialize any product candidates.
RA101495 is a novel therapeutic compound and its potential therapeutic benefit is unproven. There is only one approved therapy inhibiting C5.
Our product candidates may not
demonstrate in patients any or all of the pharmacological benefits we believe they may possess or compare favorably to the approved C5 inhibitor therapy. We have not yet succeeded and may never
succeed in demonstrating efficacy and safety for these or any other product candidates in clinical trials or in obtaining marketing approval thereafter. For example, although we have evaluated
RA101495 in preclinical studies and have evaluated RA101495 in an early-stage clinical trial, we have not yet advanced RA101495 into Phase 2 or Phase 3 clinical development, nor have we
obtained regulatory approval to sell any product based on our therapeutic approaches.
Our
development plans include exploring the potential of complement inhibition, including C5 inhibition, to treat complement-mediated diseases for which complement inhibition has not
been fully validated. This is an unproven approach to the treatment of diseases such as refractory generalized myasthenia gravis, or rMG, and lupus nephritis, or LN. The scientific evidence to support
the feasibility of developing products to treat such disease by C5 inhibition is both preliminary and limited. Accordingly, our focus on treating these diseases may not result in the discovery and
development of commercially viable products.
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If
we are unsuccessful in our development efforts, we may not be able to advance the development of our product candidates, commercialize products, raise capital, expand our business or
continue our operations.
Our business depends heavily upon the success of RA101495, which is still under development. If we are unable
to obtain regulatory approval for or successfully commercialize RA101495, our business will be materially harmed.
We currently have no products approved for sale and are investing a significant portion of our efforts and financial resources in the
development of our lead product candidate, RA101495. Successful continued development and ultimate regulatory approval of RA101495 for paroxysmal nocturnal hemoglobinuria, or PNH, and, in the future,
a range of debilitating autoimmune diseases including rMG and LN is critical to the future success of our business. We will need to raise sufficient funds for, and successfully enroll and complete,
our clinical development program for RA101495 in PNH. The future regulatory and commercial success of this product candidate is subject to a number of risks, including the
following:
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we may not have sufficient financial and other resources to initiate or complete the necessary clinical trials for RA101495;
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we may not be able to obtain adequate evidence of clinical efficacy and safety for RA101495 in PNH;
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we do not know the degree to which RA101495 will be accepted as a therapy, if approved;
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in our clinical programs, we may experience variability in patients, adjustments to clinical trial procedures and the need for additional
clinical trial sites, which could delay our clinical trial progress;
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the results of our clinical trials may not meet the level of statistical or clinical significance required by the FDA, the European Medicines
Agency, or EMA, or comparable foreign regulatory bodies for marketing approval;
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we may have difficulty enrolling patients in trials if, for instance, a current or future effective standard of care limits the desire of
patients, physicians, or regulatory agencies to participate in or support clinical trials;
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patients in our clinical trials may die or suffer other adverse effects for reasons that may or may not be related to RA101495, which could
delay or prevent further clinical development;
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the standards implemented by regulatory agencies may change at any time;
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the FDA, EMA or foreign regulatory agencies may require endpoints for a clinical trial for the treatment of PNH, rMG and LN that differ from
the endpoints of our planned current or future trials, which may require us to conduct additional clinical trials;
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the mechanism of action of RA101495 is complex and we cannot guarantee the degree to which it will translate into a medical benefit in any
indications;
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if approved for PNH, rMG and LN, RA101495 will likely compete with the off-label use of currently marketed products and other therapies in
development;
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our intellectual property rights may not be patentable, valid or enforceable; and
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we may not be able to obtain, maintain, defend or enforce our patents and other intellectual property rights.
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Of
the large number of drugs in development in the pharmaceutical industry, only a small percentage result in the submission of a new drug application, or NDA, to the FDA and even fewer
are approved for commercialization. Furthermore, even if we do receive regulatory approval to market RA101495,
any such approval may be subject to limitations on the indicated uses or patient populations for which we may market the product. Accordingly, even if we are able to obtain the requisite financing to
continue to fund our development programs, we cannot assure you that RA101495 will be successfully developed or commercialized. If we or any of our future development partners are unable to develop,
or obtain regulatory approval for, or, if approved, successfully commercialize RA101495, we may not be able to generate sufficient revenue to continue our business.
We face substantial competition, which may result in others discovering, developing or commercializing
products before or more successfully than we do, and reducing or eliminating our commercial opportunity.
The development and commercialization of new products is highly competitive. We expect that we, and any future collaborators, will face
significant competition from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide with respect to any of our product candidates that we, or any
future collaborators, may seek to develop or commercialize in the future, including from drugs that act through the complement system and drugs that use different approaches. The principal competitor
for our program in PNH is eculizumab, a C5 inhibitor, which is marketed as Soliris by Alexion Pharmaceuticals and is the only drug approved for the treatment of PNH. Alexion Pharmaceuticals is also
developing a next-generation C5 inhibitor named ALXN 1210 that is designed to use a less frequent intravenous dosing schedule. We are also aware that there are a number of other companies that are
actively developing product candidates for the treatment of PNH, including a product candidate directed at complement component 3, or C3, inhibition that is currently in preclinical development by
Amyndas Pharmaceuticals, a product candidate directed at C3 inhibition such as APL-2 that is currently in clinical development by Apellis Pharmaceuticals, product candidates directed at C5 inhibition
such as ALN-CC5, an RNAi therapeutic targeting the production of C5 being developed by Alnylam that is in early clinical trials, Coversin, a small protein inhibitor of C5 being developed by Akari
Pharmaceuticals that is in early clinical trials, LFG316, a monoclonal antibody inhibitor of C5 being developed by Novartis Pharma, a biosimilar product candidate ABP595 being developed by Amgen that
is in early clinical trials, RO7112689, a monoclonal antibody inhibitor of C5 being developed by F. Hoffman-La Roche, and other product candidates directed at other mechanisms of complement inhibition
such as TNT009, an antibody against C1s, being developed by True North Therapeutics in early clinical trials, and ACH-4471, an orally available small molecule inhibitor of complement Factor D, that is
currently in development by Achillion Pharmaceuticals. In addition, we are aware that there are a number of companies that are actively developing product candidates that are in clinical development
for the treatment of geographic atrophy, or GA, a more severe form of AMD to which dry AMD progresses, including lampalizumab, a Factor D complement inhibitor for the treatment of GA being developed
by Roche that is in Phase 3 clinical trials, LFG316, an anti-C5 monoclonal antibody being developed by Novartis Pharma that has recently completed a 12 month Phase 2 study and
failed to demonstrate efficacy (effectiveness) against the development of geographic atrophy, the end stage of dry age-related macular degeneration, Zimura, a C5 inhibitor being developed by
Ophthotech that is entering Phase 2/3 clinical trials, APL-2, a C3 inhibitor developed by Apellis Pharmaceuticals in phase 2 clinical trial, and other product candidates that do not target the
complement system that are in Phase 2 or Phase 3 clinical trials, including compounds being developed by Acucela, Allergan, GlaxoSmithKline and Novartis Pharma.
Our
competitors may succeed in developing, acquiring or licensing technologies and products that are more effective, have fewer side effects or more tolerable side effects or are less
costly than any product
candidates that we are currently developing or that we may develop, which could render our product candidates obsolete and noncompetitive.
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Our
commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects,
are more convenient or are less expensive than any products that we, or any future collaborators, may develop. Our competitors also may obtain FDA or other marketing approval for their products before
we, or any future collaborators, are able to obtain approval for ours, which could result in our competitors establishing a strong market position before we, or any future collaborators, are able to
enter the market.
Many
of our existing and potential future competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing,
conducting clinical trials, obtaining marketing approvals and marketing approved products than we do, and may be able to reduce the price at which they sell their products. Mergers and acquisitions in
the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early stage companies may also prove to be
significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific
and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, the development of
our product candidates.
If clinical trials of our product candidates fail to satisfactorily demonstrate safety and efficacy to the
FDA and other regulators, we, or any future collaborators, may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of
these product candidates.
We, and any future collaborators, are not permitted to commercialize, market, promote or sell any product candidate in the United States without
obtaining marketing approval from the FDA. Foreign regulatory authorities, such as the EMA, impose similar requirements. We have not previously submitted a NDA to the FDA or similar drug approval
filings to comparable foreign regulatory authorities for any of our product candidates. We, and any future collaborators, must complete extensive preclinical development and clinical trials to
demonstrate the safety and efficacy of our product candidates in humans before we will be able to obtain these approvals.
Clinical
testing is expensive, is difficult to design and implement, can take many years to complete and is inherently uncertain as to outcome. We cannot guarantee that any clinical
trials will be conducted as planned or completed on schedule, if at all. The clinical development of our product candidates is susceptible to the risk of failure inherent at any stage of product
development, including failure to demonstrate efficacy in a clinical trial or across a broad population of patients, the occurrence of adverse events that are severe or medically or commercially
unacceptable, failure to comply with protocols or applicable regulatory requirements and determination by the FDA or any comparable foreign regulatory authority that a product candidate may not
continue development or is not approvable. It is possible that even if one or more of our product candidates has a beneficial effect, that effect will not be detected during clinical evaluation as a
result of one or more of a variety of factors, including the size, duration, design, measurements, conduct or analysis of our clinical trials. Conversely, as a result of the same factors, our clinical
trials may indicate an apparent positive effect of a product candidate that is greater than the actual positive effect, if any. Similarly, in our clinical trials we may fail to detect toxicity of or
intolerability caused by our product candidates, or mistakenly believe that our product candidates are toxic or not well tolerated when that is not in fact the case.
Any
inability to successfully complete preclinical and clinical development could result in additional costs to us, or any future collaborators, and impair our ability to generate
revenues from product sales, regulatory and commercialization milestones and royalties. Moreover, if we, or any future collaborators, are required to conduct additional clinical trials or other
testing of our product candidates beyond the trials and testing that we or they contemplate, if we or they are unable to
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successfully
complete clinical trials of our product candidates or other testing or the results of these trials or tests are unfavorable, uncertain or are only modestly favorable, or there are
unacceptable safety concerns associated with our product candidates, we, or any future collaborators may:
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incur additional unplanned costs;
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be delayed in obtaining marketing approval for our product candidates;
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not obtain marketing approval at all;
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obtain approval for indications or patient populations that are not as broad as intended or desired;
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obtain approval with labeling that includes significant use or distribution restrictions or significant safety warnings, including boxed
warnings;
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be subject to additional post-marketing testing or other requirements; or
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be required to remove the product from the market after obtaining marketing approval.
Our
failure to successfully complete clinical trials of our product candidates and to demonstrate the efficacy and safety necessary to obtain regulatory approval to market any of our
product candidates would significantly harm our business.
Our product candidates may cause undesirable side effects or have other properties that could delay or
prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any.
Undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials
and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or comparable foreign regulatory authorities. Results of our clinical trials could reveal a high
and unacceptable severity and prevalence of side effects or unexpected characteristics. To date, subjects exposed to our product candidate RA101495 in our Phase 1 clinical trial have
experienced drug-related side effects including injection site erythema,
which was reported in patients receiving the highest dose, fatigue, headache, dizziness, rash and upper respiratory tract infection.
If
unacceptable side effects arise in the development of our product candidates, we, the FDA or comparable foreign regulatory authorities, the Institutional Review Boards, or IRBs, or
independent ethics committees at the institutions in which our studies are conducted, or the Data Safety Monitoring Board, or DSMB, could suspend or terminate our clinical trials or the FDA or
comparable foreign regulatory authorities could order us to cease clinical trials or deny approval of our product candidates for any or all targeted indications. Treatment-related side effects could
also affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. In addition, these side effects may not be appropriately
recognized or managed by the treating medical staff. We expect to have to train medical personnel using our product candidates to understand the side effect profiles for our clinical trials and upon
any commercialization of any of our product candidates. Inadequate training in recognizing or managing the potential side effects of our product candidates could result in patient injury or death. Any
of these occurrences may harm our business, financial condition and prospects significantly.
Moreover,
clinical trials of our product candidates are conducted in carefully defined sets of patients who have agreed to enter into clinical trials. Consequently, it is possible that
our clinical trials, or those of any future collaborator, may indicate an apparent positive effect of a product candidate that is greater than the actual positive effect, if any, 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
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than
previously believed or causes undesirable side effects that were not previously identified, any of the following adverse events could occur:
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regulatory authorities may withdraw their approval of the product or seize the product;
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we, or any future collaborators, may need to recall the product, or be required to change the way the product is administered or conduct
additional clinical trials;
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additional restrictions may be imposed on the marketing of, or the manufacturing processes for, the particular product;
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we may be subject to fines, injunctions or the imposition of civil or criminal penalties;
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regulatory authorities may require the addition of labeling statements, such as a "black box" warning or a contraindication;
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we, or any future collaborators, may be required to create a Medication Guide outlining the risks of the previously unidentified side effects
for distribution to patients;
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we, or any future collaborators, could be sued and held liable for harm caused to patients;
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the product may become less competitive; and
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our reputation may suffer.
Any
of these events could harm our business and operations, and could negatively impact our stock price.
If we fail to develop and commercialize other product candidates, we may be unable to grow our business.
Although the development and commercialization of RA101495 is our primary focus, as part of our longer-term growth strategy, we plan to evaluate
the development and commercialization of other therapies for complement-mediated diseases, including rare blood, neurologic, ophthalmologic, renal and inflammatory diseases. We will evaluate internal
opportunities from our current product candidates, and also may choose to in-license or acquire other product candidates as well as commercial products to treat patients suffering from immune-mediated
or orphan or other disorders with high unmet medical needs and limited treatment options. These other product candidates will require additional, time-consuming development efforts prior to commercial
sale, including preclinical studies, clinical trials and approval by the FDA and/or applicable foreign regulatory authorities. All product candidates are prone to the risks of failure that are
inherent in pharmaceutical product development, including the possibility that the product candidate will not be shown to be sufficiently safe and effective for approval by regulatory authorities. In
addition, we cannot assure you that any such products that are approved will be manufactured or produced economically, successfully commercialized or widely accepted in the marketplace or be more
effective than other commercially available alternatives.
Our preclinical programs may not produce product candidates that are suitable for clinical trials or that can
be successfully commercialized or generate revenue through partnerships.
We must successfully complete preclinical testing for RA101495 and our other programs, which may include demonstrating activity and
comprehensive studies to show the lack of toxicity and other adverse effects in established animal models, before commencing clinical trials for any product candidate. Many pharmaceutical and
biological products do not successfully complete preclinical testing and, even if preclinical testing is successfully completed, may fail in clinical trials. In addition, there can be no assurance
that positive results from preclinical studies will be predictive of results obtained from subsequent preclinical studies or clinical trials. We also cannot be certain that any product candidates that
do advance into clinical trials will successfully demonstrate safety and efficacy in clinical trials.
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Even
if we achieve positive results in early clinical trials, they may not be predictive of the results in later trials.
We may expend our limited resources to pursue a particular product candidate or indication and fail to
capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.
Because we have limited financial and managerial resources, we intend to focus on developing product candidates for specific indications that we
identify as most likely to succeed, in terms of both their potential for marketing approval and commercialization. As a result, we may forego or delay pursuit of opportunities with other product
candidates or for other indications that may prove to have greater commercial potential.
Our
resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and
development programs and product candidates for specific indications may not yield any commercially viable product candidates. If we do not accurately evaluate the commercial potential or target
market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have
been more advantageous for us to retain sole development and commercialization rights to the product candidate.
If the FDA or comparable foreign regulatory authorities approve generic versions of any of our product
candidates that receive marketing approval, or such authorities do not grant such products appropriate periods of data exclusivity before approving generic versions of such products, the sales of such
products could be adversely affected.
Once a NDA is approved, the product covered thereby becomes a "reference-listed drug" in the FDA's publication, "Approved Drug Products with
Therapeutic Equivalence Evaluations," or the Orange Book. Manufacturers may seek approval of generic versions of reference-listed drugs through submission of abbreviated new drug applications, or
ANDAs, in the United States. In support of an ANDA, a generic manufacturer generally must show that its product has the same active ingredient(s), dosage form, strength, route of administration and
conditions of use or labeling as the reference-listed drug and that the generic version is bioequivalent to the reference-listed drug, meaning, in part, that it is absorbed in the body at the same
rate and to the same extent. Generic products may be significantly less costly to bring to market than the reference-listed drug and companies that produce generic products are generally able to offer
them at lower prices. Thus, following the introduction of a generic drug, a significant percentage of the sales of any branded product or reference-listed drug may be typically lost to the generic
product.
The
FDA may not approve an ANDA for a generic product until any applicable period of non-patent exclusivity for the reference-listed drug has expired. The Federal Food, Drug, and
Cosmetic Act, or FDCA, provides a period of five years of non-patent exclusivity for a new drug containing a new
chemical entity, or NCE. Specifically, 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 that a patent covering the reference-listed drug is either invalid or will not be infringed by the generic product, in which case the applicant may submit its
application four years following approval of the reference-listed drug. It is unclear whether the FDA will treat the active ingredients in our product candidates as NCEs and, therefore, afford them
five years of NCE data exclusivity if they are approved. If any product we develop does not receive five years of NCE exclusivity, the FDA may approve generic versions of such product three years
after its date of approval, subject to the requirement that the ANDA applicant certifies to any patents listed for our products in the Orange Book. Three year exclusivity is given to a drug if the NDA
includes reports of one or more new clinical investigations, other than bioavailability or bioequivalence studies, that were
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conducted
by or for the applicant and are essential to the approval of the NDA. Manufacturers may seek to launch these generic products following the expiration of the applicable marketing exclusivity
period, even if we still have patent protection for our product.
Competition
that our products may face from generic versions of our products could negatively impact our future revenue, profitability and cash flows and substantially limit our ability
to obtain a return on our investments in those product candidates.
Even if we complete the necessary preclinical studies and clinical trials, the marketing approval process is
expensive, time consuming and uncertain and may prevent us or any future collaborators from obtaining approvals for the commercialization of some or all of our product candidates. As a result, we
cannot predict when or if, and in which territories, we, or any future collaborators, will obtain marketing approval to commercialize a product candidate.
The research, testing, manufacturing, labeling, approval, selling, marketing, promotion and distribution of products are subject to extensive
regulation by the FDA and comparable foreign regulatory authorities. We, and any future collaborators, are not permitted to market our product candidates in the United States or in other countries
until we, or they, receive approval of a NDA from the FDA or marketing approval from applicable regulatory authorities outside the United States. Our product candidates are in various stages of
development and are subject to the risks of failure inherent in drug development. We have not submitted an application for or received marketing approval for any of our product candidates in the
United States or in any other jurisdiction. We have limited experience in conducting and managing the clinical trials necessary to obtain marketing approvals, including FDA approval of a NDA.
The
process of obtaining marketing approvals, both in the United States and abroad, is lengthy, expensive and uncertain. It may take many years, 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 candidates involved. Securing marketing approval requires the submission of extensive
preclinical and clinical data and supporting information to regulatory authorities for each therapeutic indication to establish the product candidate's safety and efficacy. Securing marketing approval
also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities by, the regulatory authorities. The FDA or other regulatory
authorities may determine that our product candidates are not safe and effective, only moderately effective or have undesirable or unintended side effects, toxicities or other characteristics that
preclude our obtaining marketing approval or prevent or limit commercial use. Any marketing approval we ultimately obtain may be limited or subject to restrictions or post-approval commitments that
render the approved product not commercially viable.
In
addition, changes in marketing approval policies during the development period, changes in or the enactment or promulgation of additional statutes, regulations or guidance or changes
in regulatory review for each submitted product application, may cause delays in the approval or rejection of an application. Regulatory authorities have substantial discretion in the approval process
and may refuse to accept any application or may decide that our data are 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 marketing approval of a product candidate. Any marketing approval we, or any future collaborators, ultimately
obtain may be limited or subject to restrictions or post-approval commitments that render the approved product not commercially viable.
Moreover,
principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and receive compensation in connection with such
services. Under certain circumstances, we may be required to report some of these relationships to the FDA or other regulatory authority. The FDA or other regulatory authority may conclude that a
financial relationship
55
between
us and a principal investigator has created a conflict of interest or otherwise affected interpretation of the study. The FDA or other regulatory authority may therefore question the integrity
of the data generated at the applicable clinical trial site and the utility of the clinical trial itself may be jeopardized. This could result in a delay in approval, or rejection, of our marketing
applications by the FDA or other regulatory authority, as the case may be, and may ultimately lead to the denial of marketing approval of one or more of our product candidates.
Any
delay in obtaining or failure to obtain required approvals could negatively impact our ability or that of any future collaborators to generate revenue from the particular product
candidate, which likely would result in significant harm to our financial position and adversely impact our stock price.
If we encounter difficulties enrolling patients in our clinical trials, our clinical development activities
could be delayed or otherwise adversely affected.
We may not be able to initiate or continue clinical trials required by the FDA, EMA or other foreign regulatory agencies for RA101495 if we are
unable to locate and enroll a sufficient number of eligible patients to participate in these clinical trials. We will be required to identify and enroll a sufficient number of patients with PNH, rMG
and LN for each of our planned clinical trials of RA101495 in these indications. Each of these is a rare disease or indication with relatively small patient populations, which could result in slow
enrollment of clinical trial participants. For example, we estimate that there are approximately 16,000 PNH patients worldwide, approximately 9,000 rMG patients in the United States and approximately
63,000 LN patients in the United States.
Patient
enrollment is affected by other factors, including:
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severity of the disease under investigation;
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design of the clinical trial protocol;
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size and nature of the patient population;
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eligibility criteria for the trial in question;
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perceived risks and benefits of the product candidate under trial;
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proximity and availability of clinical trial sites for prospective patients;
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availability of competing therapies and clinical trials;
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clinicians' and patients' perceptions as to the potential advantages of the drug being studied in relation to other available therapies,
including standard-of-care and any new drugs that may be approved for the indications we are investigating;
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efforts to facilitate timely enrollment in clinical trials;
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patient referral practices of physicians; and
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our ability to monitor patients adequately during and after treatment.
Further,
there are only a limited number of specialist physicians who treat patients with these diseases, and major clinical centers are concentrated in a few geographic regions. We also
may encounter difficulties in identifying and enrolling such patients with a stage of disease appropriate for our ongoing or future clinical trials. For example, while we currently expect to initiate
our Phase 2 clinical program for RA101495 in PNH patients in the first quarter of 2017 and release data in the second half of 2017, some or all of the above factors, as well as other
unanticipated causes, may result in delays to our ability to initiate or report data from these trials. In addition, the process of finding and diagnosing patients may prove costly. Our inability to
enroll a sufficient number of patients for any of our clinical trials would result in significant delays or may require us to abandon one or more clinical trials.
56
Ingredients, excipients and other materials necessary to manufacture RA101495 may not be available on
commercially reasonable terms, or at all, which may adversely affect the development and commercialization of RA101495.
We and our third-party manufacturers must obtain from third-party suppliers the active pharmaceutical ingredients, excipients and primary and
secondary packaging materials necessary for our contract manufacturers to produce RA101495 for our clinical trials and, to the extent approved or commercialized, for commercial distribution. There is
no guarantee that we would be able to enter into all the necessary agreements with third-party suppliers that we require for the supply of such materials on commercially reasonable terms or at all.
Even if we were able to secure such agreements or guarantees, our suppliers may be unable or choose not to provide us the ingredients, excipients or materials in a timely manner or in the quantities
required. If we or our third-party manufacturers are unable to obtain the quantities of these ingredients, excipients or materials that are necessary for the manufacture of commercial supplies of
RA101495, our ability to generate revenue from the sale of RA101495 would be materially and adversely affected. Further, if we or our third-party manufacturers are unable to obtain active
pharmaceutical ingredients, excipients and materials as necessary for our clinical trials or for the manufacture of commercial supplies of our product candidates, if approved, potential regulatory
approval or commercialization would be delayed, which would materially and adversely affect our ability to generate revenue from the sale of our product candidates.
Even if one of our product candidates receives marketing approval, it may fail to achieve the degree of
market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success, in which case we may not generate significant revenues or become
profitable.
We have never commercialized a product, and even if one of our product candidates is approved by the appropriate regulatory authorities for
marketing and sale, it may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical community. Physicians are often reluctant to
switch their patients from existing therapies even when new and potentially more effective or convenient treatments enter the market. Further, patients often acclimate to the therapy that they are
currently taking and do not want to switch unless their physicians recommend switching products or they are required to switch therapies due to lack of reimbursement for existing therapies. Eculizumab
is the only drug approved for the treatment of PNH, and even if we are able to obtain marketing approval of RA101495 for the treatment of PNH, we may not be able to successfully convince physicians or
patients to switch from eculizumab to RA101495. In addition, even if we are able to demonstrate our product candidates' safety and efficacy to the FDA and other regulators, safety concerns in the
medical community may hinder market acceptance.
Efforts
to educate the medical community and third-party payors on the benefits of our product candidates may require significant resources, including management time and financial
resources, and may not be successful. If any of our product candidates is approved but does not achieve an adequate level of market acceptance, we may not generate significant revenues and we may not
become profitable. The degree of market acceptance of our product candidates, if approved for commercial sale, will depend on a number of factors, including:
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the efficacy and safety of the product;
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the potential advantages of the product compared to competitive therapies;
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the prevalence and severity of any side effects;
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whether the product is designated under physician treatment guidelines as a first-, second- or third-line therapy;
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our ability, or the ability of any future collaborators, to offer the product for sale at competitive prices;
57
-
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the product's convenience and ease of administration compared to alternative treatments;
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the willingness of the target patient population to try, and of physicians to prescribe, the product;
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limitations or warnings, including distribution or use restrictions contained in the product's approved labeling;
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the strength of sales, marketing and distribution support;
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changes in the standard of care for the targeted indications for the product; and
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availability and amount of coverage and reimbursement from government payors, managed care plans and other third-party payors.
Even if we, or any future collaborators, are able to commercialize any product candidate that we, or they,
develop, the product may become subject to unfavorable pricing regulations or third-party payor coverage and reimbursement policies, any of which could harm our business.
Patients who are provided medical treatment for their conditions generally rely on third party payors to reimburse all or part of the costs
associated with their treatment. Therefore, our ability, and the ability of any future collaborators to commercialize any of our product candidates will depend in part on the extent to which coverage
and reimbursement for these products and related treatments will be available from third party payors including government health administration authorities and private health coverage insurers.
Third-party payors decide which medications they will cover and establish reimbursement levels. We cannot be certain that reimbursement will be available for RA101495 or any of our product candidates.
Also, we cannot be certain that reimbursement policies will not reduce the demand for, or the price paid for, our products. The insurance coverage and reimbursement status of newly-approved products
for orphan diseases is particularly uncertain, and failure to obtain or maintain adequate coverage and reimbursement for RA101495 or any other product candidates could limit our ability to generate
revenue.
If
coverage and reimbursement are not available, or reimbursement is available only to limited levels, we, or any future collaborators, may not be able to successfully commercialize our
product candidates. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us, or any future collaborators, to establish or maintain pricing sufficient to
realize a sufficient return on our or their investments. In the United States, no uniform policy of coverage and reimbursement for products exists among third-party payors and coverage and
reimbursement for products can differ significantly from payor to payor. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide
scientific and clinical support for the use of our products to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first
instance.
There
is significant uncertainty related to third-party payor coverage and reimbursement of newly approved drugs. Marketing approvals, pricing and reimbursement for new drug products
vary widely from country to country. 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, or any future collaborators, might obtain marketing approval for a product in a particular country, but then be subject to price regulations that delay commercial launch of the product,
possibly for lengthy time periods, which may 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 or the ability of any future collaborators to recoup our or their investment in one or more product candidates, even if our product
candidates obtain marketing approval.
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The
healthcare industry is acutely focused on cost containment, both in the United States and elsewhere. Government authorities and other third-party payors have attempted to control
costs by limiting coverage and the amount of reimbursement for particular medications, which could affect our ability or that of any future collaborators to sell our product candidates profitably.
These payors may not view our products, if any, as cost-effective, and coverage and reimbursement may not be available to our customers, or those of any future collaborators, or may not be sufficient
to allow our products, if any, to be marketed on a competitive basis. Cost-control initiatives could cause us, or any future collaborators, to decrease the price we, or they, might establish for
products, which could result in lower than anticipated product revenues. If the prices for our products, if any, decrease or if governmental and other third-party payors do not provide coverage or
adequate reimbursement, our prospects for revenue and profitability will suffer.
There
may also be delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than the indications for which the drug is approved by the FDA
or comparable foreign regulatory authorities. Moreover, eligibility for reimbursement does not imply that any drug will be paid for in all cases or at a rate that covers our costs, including research,
development, manufacture, sale and distribution. Reimbursement rates may vary, by way of example, according to the use of the product and the clinical setting in which it is used. Reimbursement rates
may also be based on reimbursement levels already set for lower cost drugs or may be incorporated into existing payments for other services.
In
addition, increasingly, third-party payors are requiring higher levels of evidence of the benefits and clinical outcomes of new technologies and are challenging the prices charged. We
cannot be sure that coverage will be available for any product candidate that we, or any future collaborator, commercialize and, if available, that the reimbursement rates will be adequate. Further,
the net reimbursement for drug products may be subject to additional reductions if there are changes to laws that presently restrict imports of drugs from countries where they may be sold at lower
prices than in the United States. An inability to promptly obtain coverage and adequate payment rates from both government-funded and private payors for any of our product candidates for which we, or
any future collaborator, obtain marketing approval could significantly harm our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.
If any product liability lawsuits are successfully brought against us or any of our collaborative partners,
we may incur substantial liabilities and may be required to limit commercialization of our product candidates.
We face an inherent risk of product liability lawsuits related to the testing of our product candidates in seriously ill patients and will face
an even greater risk if product candidates are approved by regulatory authorities and introduced commercially. Product liability claims may be brought against us or our partners by participants
enrolled in our clinical trials, patients, health care providers or others using, administering or selling any of our future approved products. If we cannot successfully defend ourselves against any
such claims, we may incur substantial liabilities, which may result in:
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decreased demand for any of our future approved products;
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injury to our reputation;
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withdrawal of clinical trial participants;
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termination of clinical trial sites or entire trial programs;
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significant litigation costs;
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substantial monetary awards to or costly settlements with patients or other claimants;
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product recalls or a change in the indications for which they may be used;
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-
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loss of revenue;
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diversion of management and scientific resources from our business operations; and
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the inability to commercialize our product candidates.
If
any of our product candidates are approved for commercial sale, we will be highly dependent upon consumer perceptions of us and the safety and quality of our products. We could be
adversely affected if we are subject to negative publicity associated with illness or other adverse effects resulting from patients' use or misuse of our products or any similar products distributed
by other companies.
Although
we maintain product liability insurance coverage in the amount of up to $5.0 million in the aggregate and clinical trial liability insurance of $5.0 million in the
aggregate, this insurance may not fully cover potential liabilities that we may incur. The cost of any product liability litigation or other proceeding, even if resolved in our favor, could be
substantial. We will need to increase our insurance coverage if we commercialize any product that receives marketing approval. In addition, insurance coverage is becoming increasingly expensive. If we
are unable to maintain sufficient insurance coverage at an acceptable cost or to otherwise protect against potential product liability claims, it could prevent or inhibit the development and
commercial production and sale of our product candidates, which could harm our business, financial condition, results of operations and prospects.
We currently have no marketing, sales or distribution infrastructure with respect to our product candidates.
If we are unable to develop our sales, marketing and distribution capability on our own or through collaborations with marketing partners, we will not be successful in commercializing our product
candidates.
We currently have no marketing, sales or distribution capabilities and have limited sales or marketing experience within our organization. If
our product candidate RA101495 is approved, we intend either to establish a sales and marketing organization with technical expertise and supporting distribution capabilities to commercialize
RA101495, or to outsource this function to a third party. Either of these options would be expensive and time consuming. Some or all of these costs may be incurred in advance of any approval of
RA101495. In addition, we may not be able to hire a sales force in the United States or other target market that is sufficient in size or has adequate expertise in the medical markets that we intend
to target. These risks may be particularly pronounced due to our focus on our lead indications of PNH, rMG and LN, each of which is a rare disease with relatively small patient populations. Any
failure or delay in the development of our or third parties' internal sales, marketing and distribution capabilities would adversely impact the commercialization of RA101495 and other future product
candidates.
With
respect to our existing and future product candidates, we may choose to collaborate with third parties that have direct sales forces and established distribution systems, either to
augment or to serve as an alternative to our own sales force and distribution systems. Our product revenue may be lower than if it directly marketed or sold any approved products. In addition, any
revenue we receive will depend in whole or in part upon the efforts of these third parties, which may not be successful and are generally not within our control. If we are unable to enter into these
arrangements on acceptable terms or at all, we may not be able to successfully commercialize any approved products. If we are not successful in commercializing any approved products, our future
product revenue will suffer and we may incur significant additional losses.
The route of administration, formulation or dose for RA101495, which we are currently developing for SC
self-administration, may be inadequate.
We are currently developing RA101495 for SC self-administration. Unsatisfactory drug availability due to problems relating to this route of
administration or the ability of the drug to bind to its target is another potential cause of lack of efficacy of RA101495 if and when it is commercialized. C5, the target
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of
RA101495 is predominantly found in blood. For PNH, RA101495 will be administered subcutaneously. In our recently completed Phase 1 study of RA101495 in single-ascending dose cohorts and a
multiple-dose cohort, single and repeat SC doses of RA101495 were safe and well tolerated in healthy volunteers. However, if daily SC administration proves to be unfeasible, then we may need to
research additional doses, formulations or routes of administration, which could delay commercialization of RA101495 and result in significant additional costs to us. Additionally, while we may offer
training in SC injections, reliance on patient self-administration may lead to higher rates of user error due to poor administration procedure by patients and reduced patient compliance as compared
with administration by healthcare professionals.
If we, or any future collaborators, experience any of a number of possible unforeseen events in connection
with clinical trials of our product candidates, potential clinical development, marketing approval or commercialization of our product candidates could be delayed or prevented.
We, or any future collaborators, may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or
prevent clinical development, marketing approval or commercialization of our product candidates, including:
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our product candidates may produce unfavorable or inconclusive results;
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regulators may require us or any future collaborators, to conduct additional clinical trials or abandon product development programs;
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the number of patients required for clinical trials of our product candidates may be larger than we, or any future collaborators, anticipate,
patient enrollment in these clinical trials may be slower than we, or any future collaborators, may anticipate or participants may drop out of these clinical trials at a higher rate than we, or any
future collaborators, anticipate;
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the cost of planned clinical trials of our product candidates may be greater than we anticipate;
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our third-party contractors or those of any future collaborators, including those manufacturing our product candidates or components or
ingredients thereof or conducting clinical trials on our behalf or on behalf of any future collaborators, may fail to comply with regulatory requirements or meet their contractual obligations to us or
any future collaborators in a timely manner or at all;
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regulators, IRBs or independent ethics committees may not authorize us, any future collaborators or our or their investigators to commence a
clinical trial or conduct a clinical trial at a prospective trial site;
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delays in reaching or fail to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites;
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patients who enroll in a clinical trial may misrepresent their eligibility to do so or may otherwise not comply with the clinical trial
protocol, resulting in the need to drop the patients from the clinical trial, increase the needed enrollment size for the clinical trial or extend the clinical trial's duration;
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delay, suspension or termination of clinical trials of our product candidates for various reasons, including a finding that the participants
are being exposed to unacceptable health risks, undesirable side effects or other unexpected characteristics of the product candidate;
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regulators, IRBs or independent ethics committees may require that we, or any future collaborators, or our or their investigators suspend or
terminate clinical research for various reasons, including noncompliance with regulatory requirements or their standards of conduct, a finding that the participants are being exposed to unacceptable
health risks, undesirable side
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We
or any future collaborators could also encounter delays if a clinical trial is suspended or terminated by us or our collaborators, by the IRBs or independent ethics committees of the
institutions in which such trials are being conducted, by the DSMB for such trial or by the FDA or other regulatory authorities. Such authorities may suspend or terminate a clinical trial due to a
number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by
the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in
governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial.
Further,
conducting clinical trials in foreign countries, as we plan to do for our product candidates, presents additional risks that may delay completion of our clinical trials. These
risks include the failure of enrolled patients in foreign countries to adhere to clinical protocol as a result of differences in healthcare services or cultural customs, managing additional
administrative burdens associated with foreign regulatory schemes, as well as political and economic risks relevant to such foreign countries.
Product
development costs for us, or any future collaborators, will increase if we, or they, experience delays in testing or pursuing marketing approvals and we, or they, may be required
to obtain additional funds to complete clinical trials and prepare for possible commercialization of our product candidates. We do not know whether any preclinical tests or clinical trials will begin
as planned, will need to be restructured, or will be completed on schedule or at all. Significant preclinical study or clinical trial delays also could shorten any periods during which we, or any
future collaborators, may have the exclusive right to commercialize our product candidates or allow our competitors, or the competitors of any future collaborators, to bring products to market before
we, or any future collaborators, do and impair our ability, or the ability of any future collaborators, to successfully commercialize our product candidates and may harm our business and results of
operations. In addition, many of the factors that lead to clinical trial delays may ultimately lead to the denial of marketing approval of any of our product candidates.
Results of preclinical studies and early clinical trials may not be predictive of results of future clinical
trials.
The outcome of preclinical studies and early clinical trials may not be predictive of the success of later clinical trials, and interim results
of clinical trials do not necessarily predict success in the results of completed clinical trials. Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks
in late-stage clinical trials after achieving positive results in earlier development, and we could face similar setbacks. The design of a clinical trial can determine whether
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its
results will support approval of a product and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced. We have limited experience in designing
clinical trials and may be unable to design and execute a clinical trial to support marketing approval. In addition, preclinical and clinical data are often susceptible to varying interpretations and
analyses. Many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval for the product
candidates. Even if we, or any future collaborators, believe that the results of clinical trials for our product candidates warrant marketing approval, the FDA or comparable foreign regulatory
authorities may disagree and may not grant marketing approval of our product candidates.
In
some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same product candidate due to numerous factors, including
changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, changes in and adherence to the dosing regimen and other clinical trial protocols and
the rate of dropout among clinical trial participants. If we fail to receive positive results in clinical trials of our product candidates, the development timeline and regulatory approval and
commercialization prospects for our most advanced product candidates, and, correspondingly, our business and financial prospects would be negatively impacted.
Chronic dosing of patients with RA101495 could lead to an immune response that causes adverse reactions or
impairs the activity and/or efficacy of the drug, or causes other side effects.
There is a risk that chronic dosing of patients with RA101495 may lead to an immune response that causes adverse reactions or impairs the
activity and/or efficacy of the drug. Patients may develop an allergic reaction to the drug and/or develop antibodies directed at the drug. Impaired drug activity could be caused by neutralization of
the drug's inhibitory activity or by an increased rate of clearance of the drug from circulation. For example, one potential side effect of RA101495 that has occurred in patients receiving eculizumab,
a humanized antibody against C5, is an increased incidence of meningococcal infections as a result of inhibition of the terminal complement system in a manner similar to RA101495. As a result,
patients receiving RA101495 may also require immunization with a meningococcal vaccine and prophylactic antibiotics.
Any
immune response that causes adverse reactions or impairs the activity of the drug could cause a delay in or termination of our development of RA101495, which would have a material
adverse effect on our financial condition and results of operation.
Risks Related to Regulatory Approval and Marketing of Our Product Candidates and Other Legal Compliance
Matters
We plan to seek orphan drug designation for RA101495, but we may be unable to obtain such designation or to
maintain the benefits associated with orphan drug status, including market exclusivity, even if that designation is granted.
We plan to seek orphan drug designation for RA101495 in specific orphan indications in which there is a medically plausible basis for its use
and may seek orphan drug designation for other preclinical product candidates in our pipeline or that we may develop. In the United States, orphan drug designation entitles a party to financial
incentives such as opportunities for grant funding towards clinical trial costs, tax advantages, and user-fee waivers. After the FDA grants orphan drug designation, the generic identity of the drug
and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process.
Although we intend to seek orphan drug designation for RA101495, we may never receive such designation. Moreover, obtaining orphan drug designation for one indication for RA101495 does not mean we
will be able to obtain such designation for another indication.
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If
a product that has orphan drug designation subsequently receives the first FDA approval for a particular active ingredient for the disease for which it has such designation, the
product is entitled to orphan drug exclusivity, which means that the FDA may not approve any other applications, including a NDA, to market the same drug for the same indication for seven years,
except in limited circumstances such as if the FDA finds that the holder of the orphan drug exclusivity has not shown that it can assure the availability of sufficient quantities of the orphan drug to
meet the needs of patients with the disease or condition for which the drug was designated. Similarly, the FDA can subsequently approve a drug with the same active moiety for the same condition during
the exclusivity period if the FDA concludes that the later drug is clinically superior, meaning the later drug is safer, more effective, or makes a major contribution to patient care. Even if we were
to obtain orphan drug designation for RA101495, we may not be the first to obtain marketing approval for any particular orphan indication due to the uncertainties associated with developing
pharmaceutical products, and thus approval of RA101495 could be blocked for seven years if another company previously obtained approval and orphan drug exclusivity for the same drug and same
condition. If we do obtain exclusive marketing rights in the
United States, they may be limited if we seek approval for an indication broader than the orphan designated indication and may be lost if the FDA later determines that the request for designation was
materially defective or if we are unable to assure sufficient quantities of the product to meet the needs of the relevant patients. Further, exclusivity may not effectively protect the product from
competition because different drugs with different active moieties can be approved for the same condition, the same drugs can be approved for different indications and might then be used off-label in
our approved indication, and different drugs for the same condition may already be approved and commercially available.
In
Europe, the period of orphan drug exclusivity is ten years, although it may be reduced to six years if, at the end of the fifth year, it is established that the criteria for orphan
drug designation are no longer met, in other words, when it is shown on the basis of available evidence that the product is sufficiently profitable not to justify maintenance of market exclusivity. In
September 2016, the EMA's Committee for Orphan Medicinal Products adopted a positive opinion recommending RA101495 for the treatment of PNH for designation as an orphan medicinal product to the
European Commission, which granted us orphan designation for RA101495 for the treatment of PNH in October 2016.
Laws and regulations governing any international operations we may have in the future may preclude us from
developing, manufacturing and selling certain products outside of the United States and require us to develop and implement costly compliance programs.
If we further expand our operations outside of the United States, we must dedicate additional resources to comply with numerous laws and
regulations in each jurisdiction in which we plan to operate. The Foreign Corrupt Practices Act, or FCPA, prohibits any U.S. individual or business from paying, offering, authorizing payment or
offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist
the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to comply with certain accounting provisions requiring
the company to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of
internal accounting controls for international operations.
Compliance
with the FCPA is expensive and difficult, particularly in countries in which corruption is a recognized problem. In addition, the FCPA presents particular challenges in the
pharmaceutical industry, because, in many countries, hospitals are operated by the government, and doctors and other hospital employees are considered foreign officials. Certain payments to hospitals
in connection with clinical trials and other work have been deemed to be improper payments to government officials and have led to FCPA enforcement actions.
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Various
laws, regulations and executive orders also restrict the use and dissemination outside of the United States, or the sharing with certain non-U.S. nationals, of information
classified for national security purposes, as well as certain products and technical data relating to those products. If we expand our presence outside of the United States, it will require us to
dedicate additional resources to comply with these laws, and these laws may preclude us from developing, manufacturing, or selling certain products and product candidates outside of the United States,
which could limit our growth potential and increase our development costs.
The
failure to comply with laws governing international business practices may result in substantial civil and criminal penalties and suspension or debarment from government contracting.
The Securities and Exchange Commission, or SEC, also may suspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA's accounting provisions.
Governments outside the United States tend to impose strict price controls, which may adversely affect our
revenues, if any.
In some countries, such as the countries of the European Union, the pricing of prescription pharmaceuticals is subject to governmental control.
In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in
some countries, we, or any future collaborators, may be required to conduct a clinical trial that compares the cost-effectiveness of our product to other available therapies. If reimbursement of our
products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be harmed.
We are subject to extensive government regulation and the failure to comply with these regulations may have a
material adverse effect on our operations and business.
Both before and after approval of any product, we and our suppliers, contract manufacturers and clinical investigators are subject to extensive
regulation by governmental authorities in the United States and other countries, covering, among other things, testing, manufacturing, quality control, clinical trials, post-marketing studies,
labeling, advertising, promotion, distribution, import and export, governmental pricing, price reporting and rebate requirements. Failure to comply with applicable requirements could result in one or
more of the following actions: warning letters;
unanticipated expenditures; delays in approval or refusal to approve a product candidate; product recall or seizure; interruption of manufacturing or clinical trials; operating or marketing
restrictions; injunctions; criminal prosecution and civil or criminal penalties including fines and other monetary penalties; adverse publicity; and disruptions to our business. Further, government
investigations into potential violations of these laws would require us to expend considerable resources and face adverse publicity and the potential disruption of our business even if we are
ultimately found not to have committed a violation.
Obtaining
FDA approval of our product candidates requires substantial time, effort and financial resources and may be subject to both expected and unforeseen delays, and there can be no
assurance that any approval will be granted on any of our product candidates on a timely basis, if at all. The FDA may decide that our data are insufficient for approval of our product candidates and
require additional preclinical, clinical or other studies or additional work related to chemistry, manufacturing and controls. In addition, we, the FDA, IRBs or independent ethics committees may
suspend or terminate human clinical trials at any time on various grounds, including a finding that the patients are or would be exposed to an unacceptable health risk or because of the way in which
the investigators on which we rely carry out the trials. If we are required to conduct additional trials or to conduct other testing of our product candidates beyond that which we currently
contemplate for regulatory approval, if we are unable to complete successfully our clinical trials or other testing, or if the results of these and other trials or tests fail to demonstrate efficacy
or raise safety concerns, we may face substantial
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additional
expenses, be delayed in obtaining marketing approval for our product candidates or may never obtain marketing approval.
We
are also required to comply with extensive governmental regulatory requirements after a product has received marketing authorization. Governing regulatory authorities may require
post-marketing studies that may negatively impact the commercial viability of a product. Once on the market, a product may become associated with previously undetected adverse effects and/or may
develop manufacturing difficulties. As a result of any of these or other problems, a product's regulatory approval could be withdrawn, which could harm our business and operating results.
Even if we obtain FDA approval of RA101495 or any of our other product candidates, we or our partners may
never obtain approval or commercialize our products outside of the United States.
In order to market any products outside of the United States, we must establish and comply with numerous and varying regulatory requirements of
other countries regarding clinical
trial design, safety and efficacy. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not mean that
regulatory approval will be obtained in any other country. Approval procedures vary among countries and can involve additional product testing and validation and additional administrative review
periods. Seeking foreign regulatory approvals could result in significant delays, difficulties and costs for us and may require additional preclinical studies or clinical trials which would be costly
and time consuming and could delay or prevent introduction of RA101495 or any of our other product candidates in those countries. We do not have experience in obtaining regulatory approval in
international markets. If we or our partners fail to comply with regulatory requirements or to obtain and maintain required approvals, our target market will be reduced and our ability to realize the
full market potential of our product candidates will be harmed.
Current and future legislation may increase the difficulty and cost for us and any future collaborators to
obtain marketing approval of and commercialize our product candidates and affect the prices we, or they, 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, among other things, prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability, or
the ability of any future collaborators, to profitably sell any products for which we, or they, obtain marketing approval. We expect that current laws, as well as other healthcare reform measures that
may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we, or any future collaborators, may receive for any approved
products.
In
March 2010 for example, President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively
the Affordable Care Act, or ACA. Among the provisions of the ACA of potential importance to our business and our product candidates are the following:
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an annual, non-deductible fee on any entity that manufactures or imports specified branded prescription drugs and biologic products;
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an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program;
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expansion of healthcare fraud and abuse laws, including the civil False Claims Act and the federal Anti-Kickback Statute, new government
investigative powers and enhanced penalties for noncompliance;
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a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off
negotiated prices;
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extension of manufacturers' Medicaid rebate liability;
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expansion of eligibility criteria for Medicaid programs;
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expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program;
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new requirements to report certain financial arrangements with physicians and teaching hospitals;
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a new requirement to annually report drug samples that manufacturers and distributors provide to physicians; and
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a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research,
along with funding for such research.
The
new presidential administration has indicated that enacting changes to the ACA is a legislative priority, and has alternatively discussed repealing and replacing the ACA, and
amending the ACA. We do not know at this time what implications such changes, if enacted, would have on the ACA's current requirements or on our future business. Changes to the ACA or other existing
health care regulations could significantly impact our business and the pharmaceutical industry.
In
addition, other legislative changes have been proposed and adopted since the ACA was enacted. These changes include the Budget Control Act of 2011, which, among other things, led to
aggregate reductions to Medicare payments to providers of 2% per fiscal year, which went into effect on April 1, 2013 and will remain in effect through 2025 unless additional Congressional
action is taken. On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several providers and
increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These new laws may result in additional reductions in Medicare and other
healthcare funding. We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will
pay for healthcare products and services, which could result in reduced demand for our product candidates or additional pricing pressures.
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
our product candidates, if any, may be. In addition, increased scrutiny by the United States Congress of the FDA's approval process may significantly delay or prevent marketing approval, as well as
subject us and any future collaborators to more stringent product labeling and post-marketing testing and other requirements.
Our
relationships with customers and third-party payors, among others, will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could
expose us to penalties, including criminal sanctions, civil penalties, contractual damages, reputational harm, fines, disgorgement, exclusion from participation in government healthcare programs,
curtailment or restricting of our operations, and diminished profits and future earnings.
Healthcare
providers, physicians and third party-payors will play a primary role in the recommendation and prescription of any products for which we obtain marketing approval. Our future
arrangements with third-party payors and customers, if any, will subject us to broadly applicable fraud
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and
abuse and other healthcare laws and regulations. The laws and regulations may constrain the business or financial arrangements and relationships through which we market, sell and distribute any
products for which we obtain marketing approval. These include the following:
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Anti-kickback statute
. The federal Anti-Kickback Statute prohibits, among
other things, persons and entities from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return
for, either the referral of an individual for, or the purchase, order or recommendation or arranging of, any good or service, for which payment may be made under a federal healthcare program such as
Medicare and Medicaid. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers and formulary managers on the other.
Although there are several statutory exceptions and regulatory safe harbors protecting certain common activities from prosecution, they are drawn narrowly, and practices that involve remuneration
intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exception or safe harbor. A person or entity can be found guilty of violating the
federal Anti-Kickback Statute without actual knowledge of the statute or specific intent to violate it. In addition, the government may assert that a claim including items or services resulting from a
violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act or federal civil money penalties statute;
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False claims laws
. The federal false claims and civil monetary penalties
laws, including the federal civil False Claims Act, impose criminal and civil penalties, including through civil whistleblower or
qui tam
actions
against individuals or entities for, among other things, knowingly presenting, or causing to be presented false or fraudulent claims for payment by a federal healthcare program or making a false
statement or record material to payment of a false claim or avoiding, decreasing or concealing an obligation to pay money to the federal government, with potential liability including mandatory treble
damages and significant per-claim penalties, currently set at $10,781 to $21,563 per false claim;
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HIPAA
. The federal Health Insurance Portability and Accountability Act of
1996, or HIPAA, imposes criminal and civil liability for, among other things, executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters.
Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.
Additionally, HIPAA as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations, also imposes obligations on covered entities and their
business associates, including mandatory contractual terms and technical safeguards, with respect to maintaining the privacy, security and transmission of individually identifiable health information;
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Transparency requirements
. The provision within the ACA commonly referred
to as the federal Physician Payments Sunshine Act requires certain manufacturers of drugs, devices, biologics, and medical supplies for which payment is available under Medicare, Medicaid, or the
Children's Health Insurance Program, with specific exceptions, to report annually to the Centers for Medicare & Medicaid Services, or CMS, information related to payments or transfers of value
made to physicians and teaching hospitals, as well as information regarding ownership and investment interests held by physicians and their immediate family members; and
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Analogous state and foreign laws
. Analogous state and foreign fraud and
abuse laws and regulations, such as state anti-kickback and false claims laws, can apply to sales or marketing arrangements, and claims involving healthcare items or services reimbursed by
non-governmental third party payors, and are generally broad and are enforced by many different foreign and state
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agencies
as well as through private actions. Some state laws require pharmaceutical companies to comply with the pharmaceutical industry's voluntary compliance guidelines and the relevant compliance
guidance promulgated by the federal government and 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 pre-empted by HIPAA, thus complicating compliance efforts.
Efforts
to ensure that our business arrangements with third parties, and our business generally, 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, imprisonment, exclusion of products from government funded healthcare programs, such as Medicare and Medicaid, disgorgement,
contractual damages, reputational harm, and the curtailment or restructuring of our operations. Defending against any such actions can be costly, time-consuming and may require significant financial
and personnel resources. Therefore, even if we are successful in defending against any such actions that may be brought against us, our business may be impaired. Further, if any of the physicians or
other healthcare providers or entities with whom we expect to do business is 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.
Even if we, or any future collaborators, obtain marketing approvals for our product candidates, the terms of
approvals and ongoing regulation of our products may limit how we manufacture and market our products, which could impair our ability to generate revenue.
Once marketing approval has been granted, an approved product and its manufacturer and marketer are subject to ongoing review and extensive
regulation. We, and any future collaborators, must therefore comply with requirements concerning advertising and promotion for any of our product candidates for which we or they obtain marketing
approval. Promotional communications with respect to prescription drugs are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product's
approved labeling. Thus, we and any future collaborators will not be able to promote any products we develop for indications or uses for which they are not approved.
In
addition, manufacturers of approved products and those manufacturers' facilities are required to comply with extensive FDA requirements, including ensuring that quality control and
manufacturing procedures conform to current Good Manufacturing Practices, or cGMPs, which include requirements relating to quality control and quality assurance as well as the corresponding
maintenance of records and documentation and reporting requirements. We, our contract manufacturers, any future collaborators and their contract manufacturers could be subject to periodic unannounced
inspections by the FDA to monitor and ensure compliance with cGMPs.
Accordingly,
assuming we, or any future collaborators, receive marketing approval for one or more of our product candidates, we, and any future collaborators, and our and their contract
manufacturers will continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production, product surveillance and quality control.
If
we, and any future collaborators, are not able to comply with post-approval regulatory requirements, we, and any future collaborators, could have the marketing approvals for our
products withdrawn by regulatory authorities and our, or any future collaborators', ability to market any future products could be limited, which could adversely affect our ability to achieve or
sustain profitability. Further, the cost of compliance with post-approval regulations may have a negative effect on our operating results and financial condition.
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Any of our product candidates for which we, or any future collaborators, obtain marketing approval in the
future could be subject to post-marketing restrictions or withdrawal from the market and we, or any future collaborators, may be subject to substantial penalties if we, or they, fail to comply with
regulatory requirements or if we, or they, experience unanticipated problems with our products following approval.
Any of our product candidates for which we, or any future collaborators, obtain marketing approval, as well as the manufacturing processes,
post-approval studies and measures, labeling, advertising and promotional activities for such product, among other things, will be subject to ongoing requirements of and review by the FDA, the EMA and
other regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, registration and listing requirements, requirements relating to
manufacturing, quality control, quality assurance and corresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians and recordkeeping. Even if
marketing 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, including
the requirement to implement a Risk Evaluation and Mitigation Strategy.
The
FDA, the EMA and other regulatory authorities may also impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of
a product. The FDA and other agencies, including the Department of Justice, closely regulate and monitor the post-approval marketing and promotion of products to ensure that they are manufactured,
marketed and distributed only for the approved indications and in accordance with the provisions of the approved labeling. The FDA imposes stringent restrictions on manufacturers' communications
regarding off-label use and if we, or any future collaborators, do not market any of our product candidates for which we, or they, receive marketing approval for only their approved indications, we,
or they, may be subject to
warnings or enforcement action for off-label marketing. Violation of the FDCA and other statutes relating to the promotion and advertising of prescription drugs may lead to investigations or
allegations of violations of federal and state health care fraud and abuse laws and state consumer protection laws, including the False Claims Act.
In
addition, later discovery of previously unknown adverse events or other problems with our products or their manufacturers or manufacturing processes, or failure to comply with
regulatory requirements, may yield various results, including:
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restrictions on the manufacturing of such products;
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restrictions on the labeling or marketing of such products;
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restrictions on product distribution or use;
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requirements to conduct post-marketing studies or clinical trials;
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warning letters or untitled letters;
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withdrawal of the products from the market;
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refusal to approve pending applications or supplements to approved applications that we submit;
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recall of products;
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restrictions on coverage by third-party payors;
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fines, restitution or disgorgement of profits or revenues;
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suspension or withdrawal of marketing approvals;
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refusal to permit the import or export of products;
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product seizure; or
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injunctions or the imposition of civil or criminal penalties.
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Additional time may be required to obtain regulatory approval for our product candidates because they are
combination products.
Because certain of our product candidates are designed to be self-administered SC by patients and may be packaged as pre-filled cartridges or
pens, they may be regulated as drug/device combination products that require coordination within the FDA and similar foreign regulatory agencies for review of their device and drug components.
Although the FDA and similar foreign regulatory agencies have systems in place for the review and approval of combination products such as ours, we may experience delays in the development and
commercialization of our product candidates due to regulatory timing constraints and uncertainties in the product development and approval process.
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 harm 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. From time to time and in the future, our operations may involve the use of hazardous and flammable materials,
including chemicals and biological materials, and may also produce hazardous waste products. Even if we contract with third parties for the disposal of these materials and waste products, we cannot
completely eliminate the risk of contamination or injury resulting from these materials. In the event of contamination or injury resulting from the use or disposal of our 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 for failure to
comply with such laws and regulations.
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, but this
insurance may not
provide adequate coverage against potential liabilities. However, we do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us.
In
addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. Current or future environmental laws and
regulations may impair our research, development or production efforts. In addition, failure to comply with these laws and regulations may result in substantial fines, penalties or other sanctions.
Risks Related to Our Dependence on Third Parties
We rely on third parties to conduct our clinical trials. If they do not perform satisfactorily, our business
could be harmed.
We do not independently conduct clinical trials of any of our product candidates. We rely on third parties, such as contract research
organizations, or CROs, clinical data management organizations, medical institutions and clinical investigators, to conduct these clinical trials and expect to rely on these third parties to conduct
clinical trials of any other product candidate that we develop. Any of these third parties may terminate their engagements with us under certain circumstances. We may not be able to enter into
alternative arrangements or do so on commercially reasonable terms. In addition, there is a natural transition period when a new contract research organization begins work. As a result, delays would
likely occur, which could negatively impact our ability to meet our expected clinical development timelines and harm our business, financial condition and prospects.
Further,
although our reliance on these third parties for clinical development activities limits our control over these activities, we remain responsible for ensuring that each of our
trials is conducted in accordance with the applicable protocol, legal and regulatory requirements and scientific standards. For example, notwithstanding the obligations of a CRO for a trial of one of
our product candidates, we
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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 requirements, commonly referred to as Good Clinical Practices, or GCPs, 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. The FDA enforces these GCPs through periodic inspections of trial sponsors, principal
investigators, clinical trial sites and IRBs. If we or our third-party contractors fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and
the FDA may require us to perform additional clinical trials before approving our product candidates, which would delay the marketing approval process. We cannot be certain that, upon inspection, the
FDA will determine that any of our clinical trials comply with GCPs. We are also required to register clinical trials and post the results of completed clinical trials on a government-sponsored
database, ClinicalTrials.gov, within certain timeframes. Failure to do so can result in fines, adverse publicity and civil and criminal sanctions.
Furthermore,
the third parties conducting clinical trials on our behalf are not our employees, and except for remedies available to us under our agreements with such contractors, we
cannot control whether or not they devote sufficient time, skill and resources to our ongoing development programs. These contractors may also have relationships with other commercial entities,
including our competitors, for whom they may also be conducting clinical trials or other drug development activities, which could impede their ability to devote appropriate time to our clinical
programs. If these third parties, including clinical investigators, 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 may not be able to obtain, or may be delayed in obtaining, marketing approvals for our product candidates. If that occurs, we will not be able to,
or may be delayed in our efforts to, successfully commercialize our product candidates. In such an event, our financial results and the commercial prospects for any product candidates that we seek to
develop could be harmed, our costs could increase and our ability to generate revenues could be delayed, impaired or foreclosed.
Use of third parties to manufacture our product candidates may increase the risk that we will not have
sufficient quantities of our product candidates, products, or necessary quantities at an acceptable cost.
We do not own or operate manufacturing facilities for the production of clinical or commercial quantities of our product candidates, and we lack
the resources and the capabilities to do so. As a result, we currently rely on third parties for supply of the active pharmaceutical ingredients, or API, in our product candidates. Our current
strategy is to outsource all manufacturing of our product candidates and products to third parties.
We
currently engage third-party manufacturers to provide the API, and other third parties to provide services for the final drug product formulation of RA101495 that is being used in our
clinical trials.
Although we believe that there are several potential alternative manufacturers who could manufacture RA101495, we may incur added costs and delays in identifying and qualifying any such replacement.
In addition, we have not yet concluded a commercial supply contract with any commercial manufacturer. There is no assurance that we will be able to timely secure needed supply arrangements on
satisfactory terms, or at all. Our failure to secure these arrangements as needed could have a material adverse effect on our ability to complete the development of our product candidates or, to
commercialize them, if approved. We may be unable to conclude agreements for commercial supply with third-party manufacturers, or may be unable to do so on acceptable terms. There may be difficulties
in scaling up to commercial quantities and formulation of RA101495 and the costs of manufacturing could be prohibitive.
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Even
if we are able to establish and maintain arrangements with third-party manufacturers, reliance on third-party manufacturers entails additional risks,
including:
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reliance on third-parties for manufacturing process development, regulatory compliance and quality assurance;
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limitations on supply availability resulting from capacity and scheduling constraints of third-parties;
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the possible breach of manufacturing agreements by third-parties because of factors beyond our control; and
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the possible termination or non-renewal of the manufacturing agreements by the third-party, at a time that is costly or inconvenient to us.
If
we do not maintain our key manufacturing relationships, we may fail to find replacement manufacturers or develop our own manufacturing capabilities, which could delay or impair our
ability to obtain regulatory approval for our products. If we do find replacement manufacturers, we may not be able to enter into agreements with them on terms and conditions favorable to us and there
could be a substantial delay before new facilities could be qualified and registered with the FDA and other foreign regulatory authorities.
Our
lead product candidate may ultimately be regulated as a drug/device combination product. Third-party manufacturers may not be able to comply with the cGMP regulatory requirements
applicable to drugs and drug/device combination products, including applicable provisions of the FDA's drug cGMP regulations, device cGMP requirements embodied in the Quality System Regulation, or
QSR, 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 clinical holds, fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, seizures or voluntary recalls of product candidates, operating restrictions
and criminal prosecutions, any of which could significantly affect supplies of our product candidates. The facilities used by our contract manufacturers to manufacture our product candidates must be
evaluated by the FDA pursuant to inspections that will be conducted after we submit our NDA to the FDA. We do not control the manufacturing process of, and are completely dependent on, our contract
manufacturing partners for compliance with cGMPs. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of
the FDA or others, we may not be able to secure and/or maintain regulatory approval for our product manufactured at these facilities. In addition, we have no control over the ability of our contract
manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA finds deficiencies or a comparable foreign regulatory authority does not approve these
facilities for the manufacture of our product candidates or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact
our ability to develop, obtain regulatory approval for or market our product candidates, if approved. Contract manufacturers may face manufacturing or quality control problems causing drug substance
production and shipment delays or a situation where the contractor may not be able to maintain compliance with the applicable cGMP requirements. Any failure to comply with cGMP requirements or other
FDA, EMA and comparable foreign regulatory requirements could adversely affect our clinical research activities and our ability to develop our product candidates and market our products following
approval.
The
FDA and other foreign regulatory authorities require manufacturers to register manufacturing facilities. The FDA and corresponding foreign regulators also inspect these facilities to
confirm compliance with cGMPs. Contract manufacturers may face manufacturing or quality control problems causing drug substance production and shipment delays or a situation where the contractor may
not be
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able
to maintain compliance with the applicable cGMP requirements. Any failure to comply with cGMP requirements or other FDA, EMA and comparable foreign regulatory requirements could adversely affect
our clinical research activities and our ability to develop our product candidates and market our products following approval.
If our third-party manufacturer of our product candidates is unable to increase the scale of its production
of our product candidates, and/or increase the product yield of its manufacturing, then our costs to manufacture the product may increase and commercialization may be delayed.
In order to produce sufficient quantities to meet the demand for clinical trials and, if approved, subsequent commercialization of RA101495 or
any of our other product candidates in our pipeline or that we may develop, our third party manufacturer will be required to increase its production and optimize its manufacturing processes while
maintaining the quality of the product. The transition to larger scale production could prove difficult. In addition, if our third party manufacturer is not able to optimize its manufacturing process
to increase the product yield for our product candidates, or if it is unable to produce increased amounts of our product candidates while maintaining the quality of the product, then we may not be
able to meet the demands of clinical trials or market demands, which could decrease our ability to generate profits and have a material adverse impact on our business and results of operation.
We may need to maintain licenses for active ingredients from third parties to develop and commercialize some
of our product candidates, which could increase our development costs and delay our ability to commercialize those product candidates.
Should we decide to use active pharmaceutical ingredients in any of our product candidates that are proprietary to one or more third parties, we
would need to maintain licenses to those active ingredients from those third parties. If we are unable to gain or continue to access rights to these active ingredients prior to conducting preclinical
toxicology studies intended to support clinical trials, we may need to develop alternate product candidates from these programs by either accessing or developing alternate active ingredients,
resulting in increased development costs and delays in commercialization of these product candidates. If we are unable to gain or maintain continued access rights to the desired active ingredients on
commercially reasonable terms or develop suitable alternate active ingredients, we may not be able to commercialize product candidates from these programs.
We enter into various contracts in the normal course of our business in which we indemnify the other party to
the contract. In the event we have to perform under these indemnification provisions, it could have a material adverse effect on our business, financial condition and results of operations.
In the normal course of business, we periodically enter into academic, commercial, service, collaboration, licensing, consulting and other
agreements that contain indemnification provisions. With respect to our academic and other research agreements, we typically indemnify the institution and related parties from losses arising from
claims relating to the products, processes or services made, used, sold or performed pursuant to the agreements for which we have secured licenses, and from claims arising from our or our
sublicensees' exercise of rights under the agreement. With respect to our commercial agreements, we indemnify our vendors from any third-party product liability claims that could result from the
production, use or consumption of the product, as well as for alleged infringements of any patent or other intellectual property right by a third party.
Should
our obligation under an indemnification provision exceed applicable insurance coverage or if we were denied insurance coverage, our business, financial condition and results of
operations could be adversely affected. Similarly, if we are relying on a collaborator to indemnify us and the collaborator is denied insurance coverage or the indemnification obligation exceeds the
applicable insurance
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coverage
and does not have other assets available to indemnify us, our business, financial condition and results of operations could be adversely affected.
We expect to seek to establish collaborations and, if we are not able to establish them on commercially
reasonable terms, we may have to alter our development and commercialization plans.
We expect to seek one or more collaborators for the development and commercialization of one or more of our product candidates. For example, we
started collaborating with Merck in 2013. Likely collaborators may include large and mid-size pharmaceutical companies, regional and national pharmaceutical companies and biotechnology companies. In
addition, if we are able to obtain marketing approval for product candidates from foreign regulatory authorities, we intend to enter into strategic relationships with international biotechnology or
pharmaceutical companies for the commercialization of such product candidates outside of the United States.
We
face significant competition in seeking appropriate collaborators. Whether we reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of
the collaborator's resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator's evaluation of a number of factors. Those factors may include the
potential differentiation of our product candidate from competing product candidates, design or results of clinical trials, the likelihood of approval by the FDA, the EMA or comparable foreign
regulatory authorities and the regulatory pathway for any such approval, the potential market for the product candidate, the costs and complexities of manufacturing and delivering the product to
patients and the potential of competing products. The collaborator may also consider alternative product candidates or technologies for similar indications that may be available for collaboration and
whether such a collaboration could be more attractive than the one with us for our product candidate. 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 our product
candidates or bring them to market and generate product revenue.
Collaborations
are complex and time-consuming to negotiate and document. Further, 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. Any collaboration agreements that we enter into in the future may contain restrictions on our ability to enter into
potential collaborations or to otherwise develop specified product candidates. We may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do
so, we may have to curtail the development of the product candidate for which we are seeking to collaborate, reduce or delay its development program or one or more of our other development programs,
delay its 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 enter into collaborations with third parties for the development and commercialization of our product
candidates, our prospects with respect to those product candidates will depend in significant part on the success of those collaborations.
We expect to enter into additional collaborations for the development and commercialization of certain of our product candidates. If we enter
into such collaborations, we will have limited control over the amount and timing of resources that our collaborators will dedicate to the development or commercialization of our product candidates.
Our ability to generate revenues from these arrangements will depend on any future collaborators' abilities to successfully perform the functions assigned to them in these arrangements. In addition,
any future collaborators may have the right to abandon research or development projects and terminate applicable agreements, including funding obligations, prior to or upon the expiration of the
agreed upon terms.
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Collaborations
involving our product candidates pose a number of risks, including the following:
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collaborators have significant discretion in determining the efforts and resources that they will apply to these collaborations;
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collaborators may not perform their obligations as expected;
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collaborators may not pursue development and commercialization of our product candidates or may elect not to continue or renew development or
commercialization programs, based on clinical trial results, changes in the collaborators' strategic focus or available funding or external factors, such as an acquisition, that divert resources or
create competing priorities;
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collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product
candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;
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collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our product
candidates;
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a collaborator with marketing and distribution rights to one or more products may not commit sufficient resources to the marketing and
distribution of such product or products;
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disagreements with collaborators, including disagreements over proprietary rights, including trade secrets and intellectual property rights,
contract interpretation, or the preferred course of development might cause delays or termination of the research, development or commercialization of product candidates, might lead to additional
responsibilities for us with respect to product candidates, or might result in litigation or arbitration, any of which would be time-consuming and expensive;
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collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to
invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation;
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collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability; and
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collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development or
commercialization of the applicable product candidates.
Collaboration
agreements may not lead to development or commercialization of product candidates in the most efficient manner or at all. If any future collaborator of ours is involved in
a business combination, it could decide to delay, diminish or terminate the development or commercialization of any product candidate licensed to it by us.
Risks Related to Our Intellectual Property
Our success depends on our ability to protect our intellectual property and proprietary technology.
Our success depends in large part on our ability to obtain and maintain patent protection and trade secret protection in the United States and
other countries with respect to our proprietary product candidates. If we do not adequately protect our intellectual property rights, competitors may be able to erode, negate or preempt any
competitive advantage we may have, which could harm our business and ability to achieve profitability. To protect our proprietary position, we file patent applications in the United States and abroad
related to our novel product candidates that are important to our business; we also license or purchase patent applications filed by others. The patent application and approval
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process
is expensive and time-consuming. We may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner.
Agreements
through which we license patent rights may not give us control over patent prosecution or maintenance, so that we may not be able to control which claims or arguments are
presented and may not be able to secure, maintain, or successfully enforce necessary or desirable patent protection from those patent rights. We have not had and do not have primary control over
patent prosecution and maintenance for certain of the patents and patent applications we license, and therefore cannot guarantee that these patents and applications will be prosecuted or maintained in
a manner consistent with the best interests of our business. We cannot be certain that patent prosecution and maintenance activities by our licensors have been or will be conducted in compliance with
applicable laws and regulations or will result in valid and enforceable patents.
If
the scope of the patent protection we or our licensors obtain is not sufficiently broad, we may not be able to prevent others from developing and commercialize technology and products
similar or identical to ours. The degree of patent protection we require to successfully compete in the marketplace may be unavailable or severely limited in some cases and may not adequately protect
our rights or permit us to
gain or keep any competitive advantage. We cannot provide any assurances that any of our licensed patents have, or that any of our pending licensed patent applications that mature into issued patents
will include, claims with a scope sufficient to protect our proprietary platform or otherwise provide any competitive advantage, nor can we assure you that our licenses are or will remain in force. In
addition, the laws of foreign countries may not protect our rights to the same extent as the laws of the United States. Furthermore, patents have a limited lifespan. In the United States, the natural
expiration of a patent is generally twenty years after it is filed. Various extensions may be available; however, the life of a patent, and the protection it affords, is limited. 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 licensed patent portfolio may not provide us with adequate and continuing patent protection sufficient to exclude others from commercializing products similar to our product
candidates. In addition, the patent portfolio licensed to us is, or may be, licensed to third parties, such as outside our field, and such third parties may have certain enforcement rights. Thus,
patents licensed to us could be put at risk of being invalidated or interpreted narrowly in litigation filed by or against another licensee or in administrative proceedings brought by or against
another licensee in response to such litigation or for other reasons.
Even
if they are unchallenged, our licensed patents and pending patent applications, if issued, may not provide us with any meaningful protection or prevent competitors from designing
around our patent claims to circumvent our licensed patents by developing similar or alternative technologies or therapeutics in a non-infringing manner. For example, a third party may develop a
competitive therapy that provides benefits similar to one or more of our product candidates but that uses a vector or an expression construct that falls outside the scope of our patent protection or
license rights. If the patent protection provided by the patents and patent applications we hold or pursue with respect to our product candidates is not sufficiently broad to impede such competition,
our ability to successfully commercialize our product candidates could be negatively affected, which would harm our business. Although currently all of our patents and patent applications are
in-licensed, similar risks would apply to any patents or patent applications that we may own or in-license in the future.
We,
or any future partners, collaborators, or licensees, may fail to identify patentable aspects of inventions made in the course of development and commercialization activities before
it is too late to obtain patent protection on them. Therefore, we may miss potential opportunities to strengthen our patent position.
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It
is possible that defects of form in the preparation or filing of our patents or patent applications may exist, or may arise in the future, for example with respect to proper priority
claims, inventorship, claim scope, or requests for patent term adjustments. If we or our partners, collaborators, licensees, or licensors, whether current or future, fail to establish, maintain or
protect such patents and other intellectual property rights, such rights may be reduced or eliminated. If our partners, collaborators, licensees, or licensors, are not fully cooperative or disagree
with us as to the prosecution, maintenance
or enforcement of any patent rights, such patent rights could be compromised. If there are material defects in the form, preparation, prosecution, or enforcement of our patents or patent applications,
such patents may be invalid and/or unenforceable, and such applications may never result in valid, enforceable patents. Any of these outcomes could impair our ability to prevent competition from third
parties, which may have an adverse impact on our business.
The
patent position of biotechnology and pharmaceutical companies generally is highly uncertain. No consistent policy regarding the breadth of claims allowed in biotechnology and
pharmaceutical patents has emerged to date in the United States or in many foreign jurisdictions. In addition, the determination of patent rights with respect to pharmaceutical compounds commonly
involves complex legal and factual questions, which has in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our
patent rights are highly uncertain.
Pending
patent applications cannot be enforced against third parties practicing the technology claimed in such applications unless and until a patent issues from such applications.
Assuming the other requirements for patentability are met, currently, the first to file a patent application is generally entitled to the patent. However, prior to March 16, 2013, in the
United States, the first to invent was entitled to the patent. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United
States and other jurisdictions are not published until 18 months after filing, or in some cases not at all. Therefore, we cannot be certain that we were the first to make the inventions claimed
in our patents or pending patent applications, or that we were the first to file for patent protection of such inventions. Similarly, we cannot be certain that parties from whom we do or may license
or purchase patent rights were the first to make relevant claimed inventions, or were the first to file for patent protection for them. If third parties have filed patent applications on inventions
claimed in our patents or applications on or before March 15, 2013, an interference proceeding in the United States can be initiated by such third parties to determine who was the first to
invent any of the subject matter covered by the patent claims of our applications. If third parties have filed such applications after March 15, 2013, a derivation proceeding in the United
States can be initiated by such third parties to determine whether our invention was derived from theirs.
Moreover,
because the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, our patents or pending patent applications may be challenged in
the courts or patent offices in the United States and abroad. There is no assurance that all of the potentially relevant prior art relating to our patents and patent applications has been found. If
such prior art exists, it may be used to invalidate a patent, or may prevent a patent from issuing from a pending patent application. For example, such patent filings may be subject to a third-party
preissuance submission of prior art to the U.S. Patent and Trademark Office, or USPTO, to other patent offices around the world. Alternately or additionally, we may become involved in post-grant
review procedures, oppositions, derivations, proceedings, reexaminations,
inter partes
review or interference proceedings, in the United States or
elsewhere, challenging patents or patent applications in which we have rights, including patents on which we rely to protect our business. An adverse determination in any such challenges may result in
loss of exclusivity or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or
identical technology and products, or limit the duration of the patent protection of our technology and
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products.
In addition, 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.
Pending
and future patent applications may not result in patents being issued that protect our business, in whole or in part, or which effectively prevent others from commercializing
competitive 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. In addition, the laws of foreign countries may not protect our rights to the same extent or in the same manner as the laws of the United States. For example, patent laws in various
jurisdictions, including significant commercial markets such as Europe, restrict the patentability of methods of treatment of the human body more than United States law does.
The
patent application process is subject to numerous risks and uncertainties, and there can be no assurance that we or any of our future development partners will be successful in
protecting our product candidates by obtaining and defending patents. These risks and uncertainties include the following:
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the USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other
provisions during the patent process. There are situations in which noncompliance can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent
rights in the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than would otherwise have been the case;
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patent applications may not result in any patents being issued;
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patents that may be issued or in-licensed may be challenged, invalidated, modified, revoked, circumvented, found to be unenforceable or
otherwise may not provide any competitive advantage;
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our competitors, many of whom have substantially greater resources and many of whom have made significant investments in competing
technologies, may seek or may have already obtained patents that will limit, interfere with or eliminate our ability to make, use, and sell our potential product candidates;
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there may be significant pressure on the U.S. government and international governmental bodies to limit the scope of patent protection both
inside and outside the United States for disease treatments that prove successful, as a matter of public policy regarding worldwide health concerns; and
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countries other than the United States may have patent laws less favorable to patentees than those upheld by U.S. courts, allowing foreign
competitors a better opportunity to create, develop and market competing product candidates.
Issued
patents that we have or may obtain or license may not 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 patents by developing similar or alternative technologies or products in a non-infringing manner. Our competitors may also seek
approval to market their own products similar to or otherwise competitive with our products. Alternatively, our competitors may seek to market generic versions of any approved products by submitting
ANDAs to the FDA in which they claim that patents owned or licensed by us are invalid, unenforceable or not infringed. In these circumstances, we may need to defend or assert our patents, or both,
including by filing lawsuits alleging patent infringement. In any of these types of proceedings, a court or other agency with jurisdiction may find our patents invalid or unenforceable, or that our
competitors are
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competing
in a non-infringing manner. Thus, even if we have valid and enforceable patents, these patents still may not provide protection against competing products or processes sufficient to achieve
our business objectives.
Pursuant
to the terms of some of our license agreements with third parties, some of our third party licensors have the right, but not the obligation in certain circumstances to control
enforcement of our licensed patents or defense of any claims asserting the invalidity of these patents. Even if we are permitted to pursue such enforcement or defense, we will require the cooperation
of our licensors, and cannot guarantee that we would receive it and on what terms. We cannot be certain that our licensors will allocate sufficient resources or prioritize their or our enforcement of
such patents or defense of such claims to protect our interests in the licensed patents. If we cannot obtain patent protection, or enforce existing or future patents against third parties, our
competitive position and our financial condition could suffer.
In
addition, we rely on the protection of our trade secrets and proprietary know-how. Although we have taken steps to protect our trade secrets and unpatented know-how, including
entering into confidentiality agreements with third parties, and confidential information and inventions agreements with employees, consultants and advisors, we cannot provide any assurances that all
such agreements have been duly executed, and third parties may still obtain this information or may come upon this or similar information independently. Additionally, if the steps taken to maintain
our trade secrets are deemed inadequate, we may have insufficient recourse against third parties for misappropriating its trade secrets. If any of these events occurs or if we otherwise lose
protection for our trade secrets or proprietary know-how, our business may be harmed.
It is difficult and costly to protect our intellectual property and our proprietary technologies, and we may
not be able to ensure their protection.
Our commercial success will depend in part on obtaining and maintaining patent protection and trade secret protection for the use, formulation
and structure of our products and product candidates, the methods used to manufacture them, the related therapeutic targets and associated methods of treatment as well as on successfully defending
these patents against potential third-party challenges. Our ability to protect our products and product candidates from unauthorized making, using, selling, offering to sell or importing by third
parties is dependent on the extent to which we have rights under valid and enforceable patents that cover these activities.
The
patent positions of pharmaceutical, biotechnology and other life sciences companies can be highly uncertain and involve complex legal and factual questions for which important legal
principles remain unresolved. Changes in either the patent laws or in interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property.
Further, the determination that a patent application or patent claim meets all of the requirements for patentability is a subjective determination based on the application of law and jurisprudence.
The ultimate determination by the USPTO or by a court or other trier of fact in the United States, or corresponding foreign national patent offices or courts, on whether a claim meets all requirements
of patentability cannot be assured. For example, our lead C5 inhibitor portfolio consists of four families of patent applications that we own directed to our lead C5 inhibitor and related methods of
use. Although we have conducted searches for third-party publications, patents and other information that may affect the patentability of claims in our various patent applications and patents, we
cannot be certain that all relevant information has been
identified. Accordingly, we cannot predict the breadth of claims that may be allowed or enforced in our patents or patent applications, in our licensed patents or patent applications or in third-party
patents.
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We
cannot provide assurances that any of our patent applications will be found to be patentable, including over our own prior art patents, or will issue as patents. Neither can we make
assurances as to the scope of any claims that may issue from our pending and future patent applications nor to the outcome of any proceedings by any potential third parties that could challenge the
patentability, validity or enforceability of our patents and patent applications in the United States or foreign jurisdictions. Any such challenge, if successful, could limit patent protection for our
products and product candidates and/or materially harm our business.
The
degree of future protection for our proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to gain
or keep our competitive advantage. For example:
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we may not be able to generate sufficient data to support full patent applications that protect the entire breadth of developments in one or
more of our programs, including our PNH program;
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it is possible that one or more of our pending patent applications will not become an issued patent or, if issued, that the patent(s) will be
sufficient to protect our technology, provide us with a basis for commercially viable products or provide us with any competitive advantages;
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if our pending applications issue as patents, they may be challenged by third parties as not infringed, invalid or unenforceable under United
States or foreign laws; or
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if issued, the patents under which we hold rights may not be valid or enforceable.
In
addition, to the extent that we are unable to obtain and maintain patent protection for one of our products or product candidates or in the event that such patent protection expires,
it may no longer be cost-effective to extend our portfolio by pursuing additional development of a product or product candidate for follow-on indications.
We
also may rely on trade secrets to protect our technologies or products, especially where we do not believe patent protection is appropriate or obtainable. For example, the patents
underlying our proprietary peptide chemistry technology, which we license from third parties on a non-exclusive basis in some cases, expire by 2022. As a result, we anticipate that trade secrets will
serve as the primary protection for the know-how behind our proprietary platform. Also, we cannot provide any assurances that any of our licensed patents have claims with a scope sufficient to protect
our proprietary platform or otherwise provide any competitive advantage, nor can we assure you that our licenses are or will remain in full force or effect, in which case we would similarly rely on
trade secrets. However, trade secrets are difficult to protect. Although we use reasonable efforts to protect our trade secrets, our employees, consultants, contractors, outside scientific
collaborators and other advisers may unintentionally or willfully disclose our information to competitors. Enforcing a claim that a third-party entity illegally obtained and is using any of our trade
secrets is expensive and time-consuming, and the outcome is unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets. Moreover, our competitors
may independently develop equivalent knowledge, methods and know-how. Notably, proprietary technology protected by a trade secret does not preempt the patent of independently developed equivalent
technology, even if such equivalent technology is invented subsequent to the technology protected by a trade secret.
Obtaining and maintaining patent protection depends on compliance with various procedural, document
submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and applications are required to be paid to
the USPTO and various
governmental patent agencies outside of the United States in several stages over the lifetime of the patents and applications.
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The
USPTO and various non-U.S. governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process
and after a patent has issued. There are situations in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent
rights in the relevant jurisdiction. Under the terms of some of our licenses, we do not have the ability to maintain or prosecute patents in the portfolio, and must therefore rely on third parties to
comply with these requirements.
Patent terms may be inadequate to protect our competitive position on our products for an adequate amount of
time.
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. We expect to seek extensions of patent terms in the United States and, if available, in other countries where we are
prosecuting patents. In the United States, the Drug Price Competition and Patent Term Restoration Act of 1984 permits a patent term extension of up to five years beyond the normal expiration of the
patent, which is limited to the approved indication (or any additional indications approved during the period of extension). However, the applicable authorities, including the FDA and the USPTO in the
United States, and any equivalent regulatory authority in other countries, may not agree with our assessment of whether such extensions are available, and may refuse to grant extensions to our
patents, or may grant more limited extensions than we request. If this occurs, our competitors may be able to take advantage of our investment in development and clinical trials by referencing our
clinical and preclinical data and launch their product earlier than might otherwise be the case.
Changes to the patent law in the United States and other jurisdictions could diminish the value of patents in
general, thereby impairing our ability to protect our products.
As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents.
Obtaining and enforcing patents in the biopharmaceutical industry involves both technological and legal complexity and is therefore costly, time consuming and inherently uncertain. Recent patent
reform legislation in the United States,
including the Leahy-Smith America Invents Act, or the America Invents Act, could increase those uncertainties and costs. The America Invents Act was signed into law on September 16, 2011, and
many of the substantive changes became effective on March 16, 2013. The America Invents Act reforms United States patent law in part by changing the U.S. patent system from a "first to invent"
system to a "first inventor to file" system , expanding the definition of prior art, and developing a post-grant review system. This legislation changes United States patent law in a way that may
weaken our ability to obtain patent protection in the United States for those applications filed after March 16, 2013.
Further,
the America Invents Act created new procedures to challenge the validity of issued patents in the United States, including post-grant review and
inter
partes
review proceedings, which some third parties have been using to cause the cancellation of selected or all claims of issued patents of competitors. For a patent with an
effective filing date of March 16, 2013 or later, a petition for post-grant review can be filed by a third party in a nine month window from issuance of the patent. A petition for
inter partes
review can be filed immediately following the issuance of a patent if the patent has an effective filing date prior to March 16,
2013. A petition for
inter partes
review can be filed after the nine month period for filing a post-grant review petition has expired for a patent with
an effective filing date of March 16, 2013 or later. Post-grant review proceedings can be brought on any ground of invalidity, whereas
inter
partes
review proceedings can only raise an invalidity challenge based on published prior art and patents. These adversarial actions at the USPTO review patent claims without
the presumption of validity afforded to U.S. patents in lawsuits in U.S. federal courts, and use a lower
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burden
of proof than used in litigation in U.S. federal courts. Therefore, it is generally considered easier for a competitor or third party to have a U.S. patent invalidated in a USPTO post-grant
review or
inter partes
review proceeding than invalidated in a litigation in a U.S. federal court. If any of our patents are challenged by a third party
in such a USPTO proceeding, there is no guarantee that we or our licensors or collaborators will be successful in defending the patent, which would result in a loss of the challenged patent right to
us.
In
addition, recent court rulings in cases such as
Association for Molecular Pathology v. Myriad Genetics, Inc., BRCA1- & BRCA2-Based Hereditary
Cancer Test Patent Litigation, and Promega Corp. v. Life Technologies Corp.
have narrowed the scope of patent protection available in certain circumstances and weakened the
rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with
respect to the value of patents once obtained. Depending on future actions by the U.S. Congress, the U.S. courts, the USPTO and the relevant law-making bodies in other countries, the laws and
regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.
We may not be able to enforce our intellectual property rights throughout the world.
Filing, prosecuting, enforcing and defending patents on our product candidates in all countries throughout the world would be prohibitively
expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. The requirements for patentability may differ in
certain countries, particularly in developing countries; thus, even in countries where we do pursue patent protection, there can be no assurance that any patents will issue with claims that cover our
products.
Moreover,
our ability to protect and enforce our intellectual property rights may be adversely affected by unforeseen changes in foreign intellectual property laws. Additionally, laws of
some countries outside of the United States and Europe do not afford intellectual property protection to the same extent as the laws of the United States and Europe. Many companies have encountered
significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some countries, including India, China and other developing
countries, do not favor the enforcement of patents and other intellectual property rights. This could make it difficult for us to stop the infringement of our patents or the misappropriation of our
other intellectual property rights. For example, many foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. Consequently, we may not be able
to prevent third parties from practicing our inventions in certain countries outside the United States and Europe. Competitors may use our technologies in jurisdictions where we have not obtained
patent protection to develop and market their own products and, further, may export otherwise infringing products to territories where we have patent protection, if our ability to enforce our patents
to stop infringing activities is inadequate. These products may compete with our products, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from
competing.
Agreements
through which we license patent rights may not give us sufficient rights to permit us to pursue enforcement of our licensed patents or defense of any claims asserting the
invalidity of these patents (or control of enforcement or defense) of such patent rights in all relevant jurisdictions as requirements may vary.
Proceedings
to enforce our patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert our efforts and resources from other aspects of
our business. Moreover, such proceedings could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties
to assert claims
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against
us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Furthermore, while we intend to protect our
intellectual property rights in major markets for our products, we cannot ensure that we will be able to initiate or maintain similar efforts in all jurisdictions in which we may wish to market our
products. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate.
Others may claim an ownership interest in our intellectual property which could expose it to litigation and
have a significant adverse effect on its prospects.
A third party may claim an ownership interest in one or more of our or our licensors' patents or other proprietary or intellectual property
rights. A third party could bring legal actions against us and seek monetary damages and/or enjoin clinical testing, manufacturing and marketing of the affected product or products. While we are
presently unaware of any claims or assertions by third-parties with respect to our patents or other intellectual property, we cannot guarantee that a third-party will not assert a claim or an interest
in any of such patents or intellectual property. If we become involved in any litigation, it could consume a substantial portion of our resources, and cause a significant diversion of effort by our
technical and management personnel. If any of these actions are successful, in addition to any potential liability for damages, we could be required to obtain a license to continue to manufacture or
market the affected product, in which case we may be required to pay substantial royalties or grant cross-licenses to our patents. We cannot, however, assure you that any such license will be
available on acceptable terms, if at all. Ultimately, we could be prevented from commercializing a product, or be forced to cease some aspect of our business operations as a result of claims of patent
infringement or violation of other intellectual property rights, Further, the outcome of intellectual property litigation is subject to uncertainties that cannot be adequately quantified in advance,
including the demeanor and credibility of witnesses and the identity of any adverse party. This is especially true in intellectual property cases that may turn on the testimony of experts as to
technical facts upon which experts may reasonably disagree.
If we are sued for infringing intellectual property rights of third parties, such litigation could be costly
and time consuming and could prevent or delay us from developing or commercializing our product candidates.
Our commercial success depends, in part, on our ability to develop, manufacture, market and sell our product candidates without infringing the
intellectual property and other proprietary rights of third parties. Third parties may have U.S. and non-U.S. issued patents and pending patent applications relating to compounds, methods of
manufacturing compounds and/or methods of use for the treatment of the disease indications for which we are developing our product candidates or relating to the use of complement inhibition that may
cover our product candidates or
approach to complement inhibition. If any third-party patents or patent applications are found to cover our product candidates or their methods of use or manufacture or our approach to complement
inhibition, we may not be free to manufacture or market our product candidates as planned without obtaining a license, which may not be available on commercially reasonable terms, or at all.
There
is a substantial amount of intellectual property litigation in the biotechnology and pharmaceutical industries, and we may become party to, or threatened with, litigation or other
adversarial proceedings regarding intellectual property rights with respect to our products candidates, including interference and post-grant proceedings before the USPTO. There may be third-party
patents or patent applications with claims to materials, formulations, methods of manufacture or methods for treatment related to the composition, use or manufacture of our product candidates. We
cannot guarantee that any of our patent searches or analyses including, but not limited to, the identification of relevant patents, the scope of patent claims or the expiration of relevant patents are
complete or thorough, nor can we be certain that we have identified each and every patent and pending application in the United States and abroad that is relevant to or necessary for the
commercialization of our
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product
candidates in any jurisdiction. Because patent applications can take many years to issue, there may be currently pending patent applications which may later result in issued patents that our
product candidates may be accused of infringing. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents. Accordingly, third
parties may assert infringement claims against us based intellectual property rights that exist now or arise in the future. The outcome of intellectual property litigation is subject to uncertainties
that cannot be adequately quantified in advance. The pharmaceutical and biotechnology industries have produced a significant number of patents, and it may not always be clear to industry participants,
including us, which patents cover various types of products or methods of use or manufacture. The scope of protection afforded by a patent is subject to interpretation by the courts, and the
interpretation is not always uniform. If we were sued for patent infringement, we would need to demonstrate that our product candidates, products or methods either do not infringe the patent claims of
the relevant patent or that the patent claims are invalid or unenforceable, and we may not be able to do this. Proving invalidity is difficult. For example, in the United States, proving invalidity
requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. Even if we are successful in these proceedings, we may incur substantial costs
and the time and attention of our management and scientific personnel could be diverted in pursuing these proceedings, which could significantly harm our business and operating results. In addition,
we may not have sufficient resources to bring these actions to a successful conclusion.
If
we are found to infringe a third party's intellectual property rights, we could be forced, including by court order, to cease developing, manufacturing or commercializing the
infringing product candidate or product. Alternatively, we may be required to obtain a license from such third party in order to use the infringing technology and continue developing, manufacturing or
marketing the infringing product candidate or product. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license,
it could be non-exclusive, thereby
giving our competitors access to the same technologies licensed to us; alternatively or additionally it could include terms that impede or destroy our ability to compete successfully in the commercial
marketplace. In addition, we could be found liable for monetary damages, including treble damages and attorneys' fees if we are found to have willfully infringed a patent. A finding of infringement
could prevent us from commercializing our product candidates or force us to cease some of our business operations, which could harm our business. Claims that we have misappropriated the confidential
information or trade secrets of third parties could have a similar negative impact on our business.
We may be subject to claims by third parties asserting that our employees or we have misappropriated their
intellectual property, or claiming ownership of what we regard as our own intellectual property.
Many of our current and former employees and our licensors' current and former employees, including our senior management, were previously
employed at universities or at other biotechnology or pharmaceutical companies, including some which may be competitors or potential competitors. Some of these employees, including each member of our
senior management, executed proprietary rights, non-disclosure and non-competition agreements, or similar agreements, in connection with such previous employment. Although we try to ensure that our
employees 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 have used or disclosed intellectual property,
including trade secrets or other proprietary information, of any such third party. Litigation may be necessary to defend against such claims. If we fail in defending any such claims, in addition to
paying monetary damages, we may lose valuable intellectual property rights or personnel or sustain damages. Such intellectual property rights could be awarded to a third party, and we could be
required to obtain a license from such third party to commercialize our technology or products. Such a license may not be available on commercially reasonable terms or at all. Even if we are
successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.
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In
addition, while we typically require our employees, consultants and contractors who may be involved in the development of intellectual property to execute agreements assigning such
intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact develops intellectual property that we regard as our own, which may result in claims by
or against us related to the ownership of such intellectual property. If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual
property rights. Even if we are successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to our senior management and scientific
personnel.
We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which
could be expensive, time consuming and unsuccessful.
Competitors may infringe our patents, trademarks, copyrights or other intellectual property. To counter infringement or unauthorized use, we may
be required to file infringement claims, which can be expensive and time consuming and divert the time and attention of our management and scientific personnel. Any claims we assert against perceived
infringers could provoke these parties to assert counterclaims against us alleging that we infringe their patents, in addition to counterclaims asserting that our patents are invalid or unenforceable,
or both. In any patent infringement proceeding, there is a risk that a court will decide that a patent of ours is invalid or unenforceable, in whole or in part, and that we do not have the right to
stop the other party from using the invention at issue. There is also a risk that, even if the validity of such patents is upheld, the court will construe the patent's claims narrowly or decide that
we do not have the right to stop the other party from using the invention at issue on the grounds that our patent claims do not cover the invention. An adverse outcome in a litigation or proceeding
involving one or more of our patents could limit our ability to assert those patents against those parties or other competitors, and may curtail or preclude our ability to exclude third parties from
making and selling similar or competitive products. Similarly, if we assert trademark infringement claims, a court may determine that the marks we have asserted are invalid or unenforceable, or that
the party against whom we have asserted trademark infringement has superior rights to the marks in question. In this case, we could ultimately be forced to cease use of such trademarks.
Even
if we establish infringement, the court may decide not to grant an injunction against further infringing activity and instead award only monetary damages, which may or may not be an
adequate remedy. 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 litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts
or investors perceive these results to be negative, it could adversely affect the price of shares of our common stock. Moreover, there can be no assurance that we will have sufficient financial or
other resources to file and pursue such infringement claims, which typically last for years before they are concluded. Even if we ultimately prevail in such claims, the monetary cost of such
litigation and the diversion of the attention of our management and scientific personnel could outweigh any benefit we receive as a result of the proceedings.
Additionally,
for certain of our in-licensed patent rights, we do not have the right to bring suit for infringement and must rely on third parties to enforce these rights for us. If we
cannot or choose not to take action against those we believe infringe our intellectual property rights, we may have difficulty competing in certain markets where such potential infringers conduct
their business, and our commercialization efforts may suffer as a result.
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If we fail to comply with our obligations under our existing and any future intellectual property licenses
with third parties, we could lose license rights that are important to our business.
We are a party to a collaboration and license agreement with Merck Sharp & Dohme Corp., under which we license patent rights relating to
peptides that modulate the activity of a Merck-designated non-complement cardiovascular product candidate. We are party to several other license agreements, under which we license patent rights
related to our proprietary technology and other product candidates. We may enter into additional license agreements in the future. Our license agreement with Merck imposes, 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 negatively impact 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 also result in our having to negotiate new or reinstated licenses with less favorable terms.
If we are unable to protect the confidentiality of our trade secrets, the value of our technology could be
negatively impacted and our business would be harmed.
In addition to the protection afforded by patents, we also rely on trade secret protection for certain aspects of our intellectual property. For
example, the patents underlying our proprietary peptide chemistry technology expire by 2022. As a result, we anticipate that we will rely on trade secrets as the primary protection for the know-how
behind our proprietary platform. We seek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our
employees, consultants, independent contractors, advisors, contract manufacturers, suppliers and other third parties. We also enter into confidentiality and invention or patent assignment agreements
with employees and certain consultants. Any party with whom we have executed such an agreement may breach that agreement and disclose our proprietary information, including our trade secrets, and we
may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the
outcome is unpredictable. Additionally, if the steps taken to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third parties for misappropriating the trade
secret. Further, if any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent such third party, or those to whom they
communicate such technology or information, 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 business and competitive position could be harmed.
If our trademarks and trade names are not adequately protected, then we may not be able to build name
recognition in our marks of interest and our business may be adversely affected.
Our trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. We
rely on both registration and common law protection for our trademarks. We may not be able to protect our rights to these trademarks and trade names or may be forced to stop using these names, which
we need for name recognition by potential partners or customers in our markets of interest. During trademark registration proceedings, we may receive rejections. Although we would be given an
opportunity to respond to those rejections, we may be unable to overcome such rejections. In addition, in the USPTO and in comparable agencies in many foreign jurisdictions, third parties are given an
opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our trademarks, and our trademarks may not
survive such proceedings. If we are unable to
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establish
name recognition based on our trademarks and trade names, we may not be able to compete effectively and our business may be adversely affected.
Risks Related to Employee Matters and Managing Growth
We only have a limited number of employees to manage and operate our business.
As of December 31, 2016, we had 46 full-time or part-time employees. Our focus on the development of RA101495 requires us to optimize
cash utilization and to manage and operate our business in a highly efficient manner. We cannot assure you that we will be able to hire and/or retain adequate staffing levels to develop RA101495 or
run our operations and/or to accomplish all of the objectives that we otherwise would seek to accomplish.
Cyber-attacks or other failures in telecommunications or information technology systems could result in
information theft, data corruption and significant disruption of our business operations.
We utilize information technology, or IT, systems and networks to process, transmit and store electronic information in connection with our
business activities. As use of digital technologies has increased, cyber incidents, including deliberate attacks and attempts to gain unauthorized access to computer systems and networks, have
increased in frequency and sophistication. These threats pose a risk to the security of our systems and networks, the confidentiality and the availability and integrity of our data. There can be no
assurance that we will be successful in preventing cyber-attacks or successfully mitigating their effects. Similarly, there can be no assurance that our collaborators, CROs, third-party logistics
providers, distributors and other contractors and consultants will be successful in protecting our clinical and other data that is stored on their systems. Any cyber-attack or destruction or loss of
data could have a material adverse effect on our business and prospects. In addition, we may suffer reputational harm or face litigation or adverse regulatory action as a result of cyber-attacks or
other data security breaches and may incur significant additional expense to implement further data protection measures.
We depend heavily on our executive officers, directors, and principal consultants and the loss of their
services would materially harm our business.
Our success depends, and will likely continue to depend, upon our ability to hire, retain the services of our current executive officers,
directors, principal consultants and others. In addition, we have established relationships with universities and research institutions which have historically provided, and continue to provide, us
with access to research laboratories, clinical trials, facilities and patients. Our ability to compete in the biotechnology and pharmaceuticals industries depends upon our ability to attract and
retain highly qualified managerial, scientific and medical personnel.
Our
industry has experienced a high rate of turnover of management personnel in recent years. Any of our personnel may terminate their employment at will. If we lose one or more of our
executive officers or other key employees, our ability to implement our business strategy successfully could be seriously harmed. Furthermore, replacing executive officers or other key employees may
be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to develop, gain marketing approval
of and commercialize products successfully.
Competition
to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate these additional key employees 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.
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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 other entities and may have commitments under consulting or advisory contracts with those entities that may limit their availability to us. If we are unable to continue
to attract and retain highly qualified personnel, our ability to develop and commercialize our product candidates will be limited.
Our employees, independent contractors, consultants, collaborators and contract research organizations may
engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements, which could cause significant liability for us and harm our reputation.
We are exposed to the risk that our employees, independent contractors, consultants, collaborators and contract research organizations may
engage in fraudulent conduct or other illegal activity. Misconduct by those parties could include intentional, reckless and/or negligent conduct or disclosure of unauthorized activities to us that
violates: (1) FDA regulations or similar regulations of comparable non-U.S. regulatory authorities, including those laws requiring the reporting of true, complete and accurate information to
such authorities, (2) manufacturing standards, (3) federal and state healthcare fraud and abuse laws and regulations and similar laws and regulations established and enforced by
comparable non-U.S. regulatory authorities, and (4) laws that require the reporting of financial information or data accurately. Activities subject to these laws also involve the improper use
of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter misconduct, and
the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other
actions or
lawsuits stemming from a failure to be in compliance with such laws, standards or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or
asserting our rights, those actions could have a significant impact on our business and results of operations, including the imposition of civil, criminal and administrative penalties, damages,
monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and
curtailment of our operations, any of which could have a material adverse effect on our ability to operate our business and our results of operations.
We expect to expand our organization, and as a result, we may encounter difficulties in managing our growth,
which could disrupt our operations.
We expect to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of drug
manufacturing, regulatory affairs and sales, marketing and distribution, as well as to support our public company operations. To manage these growth activities, we must continue to implement and
improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Our management may need to devote a significant
amount of its attention to managing these growth activities. Moreover, our expected growth could require us to relocate to a different geographic area of the country. Due to our limited financial
resources and the limited experience of our management team in managing a company with such anticipated growth, we may not be able to effectively manage the expansion or relocation of our operations,
retain key employees, or identify, recruit and train additional qualified personnel. Our inability to manage the expansion or relocation of our operations effectively may result in weaknesses in our
infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Our expected growth could also require
significant capital expenditures and may divert financial resources from other projects, such as the development of additional product candidates. If we are unable to effectively manage our expected
growth, our expenses may increase more than expected, our ability to generate revenues could be
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reduced
and we may not be able to implement our business strategy, including the successful commercialization of our product candidates.
Risks Related to Our Common Stock
An active trading market for our common stock may not be sustained.
In October 2016, we closed our initial public offering. Prior to this offering, there had been no public market for our common stock. Although
we have completed our initial public offering and shares of our common stock are listed and trading on The NASDAQ Global Market, an active trading market for our shares may not continue to be
sustained. If an active market for our common stock does not continue, it may be difficult for our stockholders to sell their shares without depressing the market price for the shares or sell their
shares at or above the prices at which they acquired their shares or sell their shares at the time they would like to sell. Any inactive trading market for our common stock may also impair our ability
to raise capital to continue to fund our operations by selling shares and may impair our ability to acquire other companies or technologies by using our shares as consideration.
The price of our common stock may be volatile and fluctuate substantially.
Our stock price is likely to be highly volatile. The stock market in general and the market for smaller pharmaceutical and biotechnology
companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. The market price for our common stock may be influenced
by many factors, including:
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the success of existing or new competitive products or technologies;
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regulatory actions with respect to our product candidates or our competitors' products and product candidates;
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announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures, collaborations or capital
commitments;
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the timing and results of clinical trials of RA101495 and any other product candidates;
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commencement or termination of collaborations for our development programs;
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failure or discontinuation of any of our development programs;
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results of clinical trials of product candidates of our competitors;
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regulatory or legal developments in the United States and other countries;
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developments or disputes concerning patent applications, issued patents or other proprietary rights;
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the recruitment or departure of key personnel;
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the level of expenses related to any of our product candidates or clinical development programs;
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the results of our efforts to develop additional product candidates or products;
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actual or anticipated changes in estimates as to financial results or development timelines;
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announcement or expectation of additional financing efforts;
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sales of our common stock by us, our insiders or other stockholders;
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variations in our financial results or those of companies that are perceived to be similar to us;
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changes in estimates or recommendations by securities analysts, if any, that cover our stock;
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changes in the structure of healthcare payment systems;
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market conditions in the pharmaceutical and biotechnology sectors;
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general economic, industry and market conditions; and
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the other factors described in this "Risk Factors" section.
In
the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for
biopharmaceutical
companies, which have experienced significant stock price volatility in recent years. The results of of any legal proceedings are inherently uncertain and, regardless of the ultimate outcome or the
merits, require substantial time and other resources to defend. Accordingly, any litigation that we could face may result in substantial costs to us, divert management's attention and resources from
our company as well as harm our reputation with analysts and investors, which could substantially harm our business, financial condition and results of operations.
We have broad discretion in the use of our cash and cash equivalents and may not use them effectively.
Our management has broad discretion to use our cash and cash equivalents to fund our operations and could spend these funds in ways that do not
improve our results of operations or enhance the value of our common stock. The failure by our management to apply these funds effectively could result in financial losses that could have a material
adverse effect on our business, cause the price of our common stock to decline and delay the development of our product candidates. Pending our use to fund operations, we may invest our cash and cash
equivalents in a manner that does not produce income or that loses value.
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 JOBS Act, and may remain an emerging growth company for up to five years following our
initial public offering. 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 of
2002, or SOX Section 404, 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 auditor's 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.
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We will incur increased costs as a result of operating as a public company, and our management will be
required to devote substantial time to new compliance initiatives and corporate governance practices.
As a public company, and particularly after we are no longer an "emerging growth company," we will incur significant legal, accounting and other
expenses that we did not incur as a private company, which we anticipate could amount to between $1.0 million and $2.0 million annually. The Sarbanes-Oxley Act of 2002, the Dodd-Frank
Wall Street Reform and Consumer Protection Act, the listing requirements of the NASDAQ Global Market and other applicable securities rules and regulations impose various requirements on public
companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. We expect that we will need to hire additional accounting, finance
and other personnel in connection with our becoming, and our efforts to comply with the requirements of being, a public company and our management and other personnel will need to devote a substantial
amount of time towards maintaining compliance with these requirements. These requirements will increase our legal and financial compliance costs and will make some activities more time-consuming and
costly. For example, we expect that the rules and regulations applicable to us as a public company may make it more difficult and more expensive for us to obtain director and officer liability
insurance, which could make it more difficult for us to attract and retain qualified members of our board of directors. We are currently evaluating these rules and regulations, and cannot predict or
estimate the amount of additional costs we may incur or the timing of such costs. These rules and regulations are often subject to varying interpretations, in many cases due to their lack of
specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding
compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.
We
are evaluating these rules and regulations, and cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. These rules and regulations are
often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory
and governing bodies which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.
Pursuant
to SOX Section 404 we will be required to furnish a report by our management on our internal control over financial reporting beginning with our second filing of an
Annual Report on
Form 10-K with the SEC after we become a public company. However, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over
financial reporting issued by our independent registered public accounting firm. To achieve compliance with SOX Section 404 within the prescribed period, we will be engaged in a process to
document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage
outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate,
validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts,
there is a risk that we will not be able to conclude, within the prescribed timeframe or at all, that our internal control over financial reporting is effective. If we identify one or more material
weaknesses, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.
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A significant portion of our total outstanding shares is restricted from immediate resale but may be sold
into the market in the near future, which could cause the market price of our common stock to decline significantly, even if our business is doing well.
Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the
market that the holders of a large number of shares of common stock intend to sell shares, could reduce the market price of our common stock. As of December 31, 2016, we have outstanding
22,546,165 shares of common stock, of which 14,439,550 shares are subject to restrictions on transfer under 180-day lock-up arrangements with the underwriters of our initial public offering. These
restrictions are due to expire on April 23, 2017, resulting in the majority of these shares becoming eligible for public sale on April 24, 2017 if they are registered under the
Securities Act or if they qualify for an exemption from registration under the Securities Act including under Rules 144 or 701.
Moreover,
holders of an aggregate of 13,862,596 shares of our common stock have rights, subject to conditions, to require us to file registration statements covering their shares or to
include their shares in registration statements that we may file for ourselves or other stockholders. We have also registered shares of our common stock issued and available for issuance under our
equity compensation plans, which can be freely sold in the public market, subject to vesting requirements, volume limitations applicable to affiliates and lock-up agreements. If these additional
shares are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline.
We might not be able to utilize a significant portion of our net operating loss carryforwards and research
and development tax credit carryforwards.
As of December 31, 2016, we had federal and state net operating loss carryforwards of $45.1 million and $41.0 million,
respectively, and federal research and development tax credit carryforwards of $2.5 million and state research and development tax credit carryforwards of $1.5 million. If not utilized,
the net operating loss carryforwards will begin to expire in 2031. If not utilized, the research and development credits will begin to expire in 2031. These net operating loss and tax credit
carryforwards could expire unused and be unavailable to offset future income tax liabilities. In addition, under Section 382 of the Internal Revenue Code of 1986, as amended, and corresponding
provisions of state law, if a corporation undergoes an "ownership change," which is generally defined as a greater than 50% change, by value, in its equity ownership over a three-year period, the
corporation's ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change income may be limited. We have not determined if we have
experienced Section 382 ownership changes in the past and if a portion of our net operating loss and tax credit carryforwards are subject to an annual limitation under Section 382. In
addition, we may experience ownership changes in the future as a result of subsequent shifts in our stock ownership, some of which may be outside of our control. We have not conducted a detailed study
to document whether our historical activities qualify to support the research and development credit carryforwards. A detailed study could result in adjustment to our research and development credit
carryforwards. If we determine that an ownership change has occurred and our ability to use our historical net operating loss and tax credit carryforwards is materially limited, or if our research and
development carryforwards are adjusted, it would harm our future operating results by effectively increasing our future tax obligations.
We do not anticipate paying any cash dividends on our capital stock in the foreseeable future. Accordingly,
stockholders must rely on capital appreciation, if any, for any return on their investment.
We have never declared nor paid cash dividends on our capital stock. We currently plan to retain all of our future earnings, if any, to finance
the operation, development and growth of our business. In addition, the terms of any future debt or credit agreements may preclude us from paying dividends. As
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a
result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.
Concentration of ownership of our common stock among our existing executive officers, directors and principal
stockholders may prevent new investors from influencing significant corporate decisions.
As of December 31, 2016, our executive officers and directors, combined with our stockholders who owned more than 5% of our outstanding
common stock and their affiliates in the aggregate, beneficially own shares representing approximately 59.8% of our common stock. As a result, if these stockholders were to choose to act together,
they would be able to control all matters submitted to our stockholders for approval, as well as our management and affairs. For example, these persons, if they choose to act together, would control
the election of directors and approval of any merger, consolidation or sale of all or substantially all of our assets. This concentration of ownership control
may:
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delay, defer or prevent a change in control;
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entrench our management or the board of directors; or
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impede a merger, consolidation, takeover or other business combination involving us that other stockholders may desire.
Some
of these persons or entities may have interests different than yours. For example, because many of these stockholders purchased their shares at prices substantially below the current market price
and have held their shares for a longer period, they may be more interested in selling our company to an acquirer than other investors or they may want us to pursue strategies that deviate from the
interests of other stockholders
Provisions in our corporate charter documents and under Delaware law may prevent or frustrate attempts by our
stockholders to change our management or hinder efforts to acquire a controlling interest in us.
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 you might otherwise receive a premium for your 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 all members of the board are not 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 nominations for election to the board of directors or for proposing matters that can be acted on at
stockholder meetings;
-
-
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 a special meeting of stockholders;
94
-
-
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 General Corporation Law of the State of Delaware, 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. This could discourage, delay or prevent someone from acquiring us or merging with us,
whether or not it is desired by, or beneficial to, our stockholders. This could also have the effect of discouraging others from making tender offers for our common stock, including transactions that
may be in your best interests. These provisions may also prevent changes in our management or limit the price that investors are willing to pay for our stock.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research
about our business, our share price and trading volume could decline.
The trading market for our common stock may be influenced, in part, by the research and reports that industry or securities analysts publish
about us or our business. If no or few securities or industry analysts maintain coverage of us, or one or more of the analysts who cover us issues an adverse opinion about our company, our stock price
would likely decline. If one or more of these analysts ceases research coverage of us or fails to regularly publish reports on us, we could lose visibility in the financial markets, which in turn
could cause our stock price or trading volume to decline.
95
RA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(28,864
|
)
|
$
|
(13,943
|
)
|
$
|
(5,476
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,274
|
|
|
897
|
|
|
714
|
|
Accretion of discount and debt issuance costs of convertible notes with shareholders
|
|
|
|
|
|
50
|
|
|
|
|
Non-cash interest expense with shareholders
|
|
|
|
|
|
109
|
|
|
|
|
Loss on debt extinguishment with shareholders
|
|
|
|
|
|
602
|
|
|
|
|
Stock-based compensation
|
|
|
1,026
|
|
|
152
|
|
|
88
|
|
Change in fair value of preferred stock tranche rights
|
|
|
960
|
|
|
(74
|
)
|
|
(1,635
|
)
|
Change in fair value of derivative liability
|
|
|
|
|
|
(98
|
)
|
|
|
|
Other non-cash operating activities
|
|
|
84
|
|
|
3
|
|
|
34
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
(890
|
)
|
|
(392
|
)
|
|
(179
|
)
|
Other non-current assets
|
|
|
40
|
|
|
(40
|
)
|
|
|
|
Accounts payable and accrued expenses
|
|
|
4,018
|
|
|
1,102
|
|
|
525
|
|
Deferred rent and other non current liabilities
|
|
|
2,371
|
|
|
498
|
|
|
(93
|
)
|
Deferred revenue
|
|
|
(1,862
|
)
|
|
(883
|
)
|
|
(1,529
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(21,843
|
)
|
|
(12,017
|
)
|
|
(7,551
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(5,105
|
)
|
|
(331
|
)
|
|
(834
|
)
|
Proceeds from sale of property and equipment
|
|
|
9
|
|
|
1
|
|
|
9
|
|
Decrease (increase) in restricted cash
|
|
|
129
|
|
|
(1,334
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(4,967
|
)
|
|
(1,664
|
)
|
|
(825
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Proceeds from common stock offering, net of underwriter discounts
|
|
|
98,009
|
|
|
|
|
|
|
|
Payment of common stock offering costs
|
|
|
(2,110
|
)
|
|
|
|
|
|
|
Proceeds from issuance of preferred stock
|
|
|
29,250
|
|
|
24,142
|
|
|
8,640
|
|
Payment of preferred stock issuance costs
|
|
|
(22
|
)
|
|
(193
|
)
|
|
(9
|
)
|
Proceeds from issuance of convertible notes with shareholders
|
|
|
|
|
|
5,000
|
|
|
|
|
Payment of debt issuance costs
|
|
|
|
|
|
(6
|
)
|
|
|
|
Proceeds from exercise of common stock warrants
|
|
|
|
|
|
1
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
109
|
|
|
84
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
125,236
|
|
|
29,028
|
|
|
8,644
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
98,426
|
|
|
15,347
|
|
|
268
|
|
Cash and cash equivalents, beginning of period
|
|
|
19,386
|
|
|
4,039
|
|
|
3,771
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
117,812
|
|
$
|
19,386
|
|
$
|
4,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of noncash investing and financing activity:
|
|
|
|
|
|
|
|
|
|
|
Conversion of redeemable convertible preferred stock into common stock
|
|
$
|
86,483
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of Series B-2 tranche right liability to the balance of Series B-2 redeemable convertible preferred stock
|
|
$
|
3,580
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of convertible notes with shareholders into Series B-1 redeemable convertible preferred stock
|
|
$
|
|
|
$
|
5,109
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on extinguishment of Series A redeemable convertible preferred stock redeemable convertible preferred stock
|
|
$
|
|
|
$
|
1,673
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of Series A tranche right liability to the balance of Series A redeemable convertible preferred stock
|
|
$
|
|
|
$
|
|
|
$
|
3,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IPO costs incurred but unpaid at period end
|
|
$
|
232
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in accounts payable and accrued expenses related to fixed asset additions
|
|
$
|
127
|
|
$
|
484
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to these consolidated financial statements
F-6
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Operations
Ra Pharmaceuticals, Inc. (the "Company") is a clinical-stage biopharmaceutical company using its proprietary peptide chemistry platform to create novel therapeutics to treat
life-threatening diseases that are caused by excessive or uncontrolled activation of the complement system, an essential component of the body's innate immune system. The Company's lead product
candidate, RA101495, is being developed as a convenient self-administered subcutaneous, or SC, injection, which is an injection into the tissue under the skin for the treatment of paroxysmal nocturnal
hemoglobinuria, or PNH, a rare, chronic, life-threatening, blood disorder where red blood cells are mistakenly attacked and destroyed by the complement system. The Company is also developing RA101495,
administered SC, to treat other debilitating complement-mediated diseases such as myasthenia gravis, or MG, and lupus nephritis, or LN. The Company is also pursuing discovery and preclinical programs
targeting selective inhibition of other uncontrolled complement pathway factors to treat a variety of ophthalmologic, renal and inflammatory diseases. In addition to its focus on developing novel
therapeutics to treat complement-mediated diseases, the Company has a collaboration with Merck & Co., Inc., or Merck, for a non-complement cardiovascular target.
The
Company was incorporated in Delaware on June 27, 2008 and is located in Cambridge, Massachusetts. During 2011, the Company acquired Cosmix Verwaltungs GmbH ("Cosmix"),
organized in Germany. The consolidated financial statements include the assets and liabilities and operating results of the Company and its wholly-owned subsidiary, Cosmix. In January 2016, the
Company formed a wholly-owned subsidiary organized in the United Kingdom ("UK"), Ra Europe Limited for the purpose of conducting clinical trials in Europe and the UK. Since inception, the Company has
devoted substantially all of its efforts to research and development, business planning, acquiring operating assets, seeking protection for its technology and product candidates, and raising capital.
The
Company is subject to risks common to other life science companies in the development stage including, but not limited to, uncertainty of product development and commercialization,
lack of marketing and sales history, development by its competitors of new technological innovations, dependence on key personnel, market acceptance of products, product liability, protection of
proprietary technology, ability to raise additional financing, and compliance with FDA and other government regulations. If the Company does not successfully commercialize any of its product
candidates, it will be unable to generate recurring product revenue or achieve profitability. If the
Company is unable to raise capital when needed or on attractive terms, it would be forced to delay, reduce, eliminate or out-license certain of its research and development programs or future
commercialization efforts.
Since
inception, the Company has incurred net losses and negative cash flows from operations, and has an accumulated deficit of $68.8 million and $39.9 million as of
December 31, 2016 and 2015, respectively. The Company has financed its operations to date through the public offering and the private placement of its securities and funding from its
collaboration and license agreement (the "Merck Agreement") with Merck.
2. Summary of Significant Accounting Policies
On October 31, 2016, the Company completed an initial public offering ("IPO"), in which the Company issued and sold 7,049,230 shares of
common stock ("Common Stock") at a public offering price of $13.00 per share, resulting in net proceeds of $82.9 million after deducting $6.4 million of
F-7
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
underwriting
discounts and commissions and offering costs of $2.3 million. On November 29, 2016, the Company completed the sale of an additional 1,057,385 shares of Common Stock to the
underwriters under the underwriters' option in the IPO to purchase additional shares of Common Stock at the public offering price of $13.00 per share, resulting in net proceeds of $12.8 million
after deducting underwriting discounts and commissions of $1.0 million. The shares began trading on the NASDAQ Global Market on October 26, 2016. Upon the closing of the IPO, all of the
outstanding shares of convertible preferred stock automatically converted into 13,623,933 shares of Common Stock at the applicable conversion ratio then in effect and the outstanding warrants to
purchase 222,775 shares of Common Stock net exercised, in accordance with their terms, into 221,573 shares of Common Stock.
On October 14, 2016, the Company effected a one-for-seven reverse stock split of the Company's Common Stock. The par value and authorized
shares of Common Stock and convertible preferred stock were not adjusted as a result of the reverse stock split. All share and per share amounts within the financial statements and notes thereto have
been retroactively adjusted for all periods presented to give effect to this reverse stock split, including reclassifying an amount equal to the reduction in par value of Common Stock to additional
paid-in capital.
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United
States of America ("GAAP"). Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted accounting principles as found in the Accounting
Standards Codification ("ASC") and Accounting Standards Update ("ASU") of the Financial Accounting Standards Board ("FASB"). The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, the Company's management evaluates its estimates
related to, but not limited to, estimates related to convertible notes ("Convertible Notes"), bifurcated features embedded in the Convertible Notes, preferred stock tranche rights, stock-based
compensation expense, clinical and pre-clinical trial accruals, and reported amounts of revenues and expenses during the period. The Company bases its estimates on historical experience and other
market-specific or other relevant assumptions that it believes to be reasonable under the circumstances. Actual results may differ from those estimates or assumptions.
The
Company utilizes significant estimates and assumptions in determining the fair value of its Common Stock. The Company utilized various valuation methodologies in accordance with the
framework of the 2004 and 2013 American Institute of Certified Public Accountants Technical Practice Aids,
Valuation of Privately-Held Company Equity Securities Issued as
Compensation
, to estimate the fair value of its Common Stock prior to its IPO. Each valuation methodology includes estimates and assumptions that require the Company's
judgment. These estimates and assumptions include a number of objective and subjective factors, including external market conditions affecting the biotechnology industry sector, the prices at which
the Company sold shares of preferred stock, the superior rights and preferences of securities senior to the Company's Common Stock at the time and the likelihood of achieving a liquidity event, such
as an initial public offering or a sale of the Company. Significant
F-8
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
changes
to the key assumptions used in the valuations could result in different fair values of Common Stock at each valuation date and materially affect the financial statements.
All
intercompany accounts and transactions with consolidated subsidiaries have been eliminated in the periods presented.
Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief
operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company operates and manages its business in one operating segment, which is
the business of developing peptide-based drugs for a variety of therapeutic uses.
The functional currency of the Company's wholly-owned subsidiaries, Cosmix, (based in Germany) and Ra Europe Limited (based in the UK), is the
United States Dollar. Accordingly, historical exchange rates are used to remeasure nonmonetary assets and liabilities and current exchange rates are used to remeasure monetary assets and liabilities
at each reporting date. For transactions not denominated in the United States Dollar, costs and expenses are recorded at exchange rates that approximate the rates in effect on the transaction date.
Transaction gains and losses generated from the remeasurement of monetary assets and liabilities denominated in currencies other than the functional currency of the subsidiary are included in "other
income (expense)" in the consolidated statements of operations.
Cash equivalents consist primarily of money market funds and are reported at fair value. The Company considers all highly liquid investment
instruments with a maturity when purchased of three months or less to be cash equivalents.
The Company's financial instruments consist of cash equivalents, billed and unbilled accounts receivable, accounts payable, accrued expenses,
Preferred Stock Tranche Rights, Convertible Notes and features embedded in the Convertible Notes (Note 7). The carrying amount of billed and unbilled accounts receivable, accounts payable and
accrued expenses are considered a reasonable estimate of their fair value, due to the short-term duration of these instruments.
The
Company is required to disclose information regarding all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair
values. FASB ASC Topic 820,
Fair Value Measurement and Disclosures
("ASC 820"), established a hierarchy of inputs used in measuring fair value that
maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be used when available. Observable inputs are inputs that market
participants would use in pricing the financial instrument based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the
F-9
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
Company's
assumptions about the inputs that market participants would use in pricing the financial instrument and are developed based on the best information available in the circumstances.
The
accounting standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to
measure fair value, which are the following:
-
-
Level 1
Quoted prices in active markets that are accessible at the market
date for identical unrestricted assets or liabilities.
-
-
Level 2
Inputs other than Level 1 that are observable, either
directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs for which all significant inputs are observable or can be
corroborated by observable market data for substantially the full term of the assets or liabilities.
-
-
Level 3
Unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the assets or liabilities.
To
the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the
degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument's level within the fair value hierarchy is based
on the lowest level of any input that is significant to the fair value measurement.
Financial
instruments measured at fair value on a recurring basis include cash equivalents, Preferred Stock Tranche Rights and bifurcated features embedded in the Convertible Notes
(Note 7). The fair
value of Preferred Stock Tranche Rights and bifurcated features embedded in the Convertible Notes were determined based on Level 3 inputs as described in Note 3 and Note 7. An
entity may elect to measure many financial instruments and certain other items at fair value at specified election dates. The Company did not elect to measure any additional financial instruments or
other items at fair value.
There
have been no changes to the valuation methods utilized by the Company during the years ended December 31, 2016 and 2015. The Company evaluates transfers between levels at
the end of each reporting period. There were no transfers of financial instruments between levels during the years ended December 31, 2016 and 2015.
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of money market funds. The
Company places these investments in highly rated financial institutions, and, by policy, limits the amounts of credit exposure to any one financial institution. These amounts at times may exceed
federally insured limits. The Company has not experienced any credit losses in such accounts, and does not believe it is exposed to any significant credit risk on these funds.
During
the years ended December 31, 2016 and 2015, the Company had one counterparty account for all of the Company's revenue and billed and unbilled receivables.
F-10
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
Accounts receivable as of December 31, 2015 represent amounts due from Merck under the terms of the Merck Agreement (Note 11).
There were no accounts receivable outstanding as of December 31, 2016.
Prepaid expenses are valued at cost, and written down to net realizable value, when applicable.
Property and equipment is stated at cost, less accumulated depreciation. Major additions and betterments are capitalized; maintenance and
repairs, which do not improve or extend the life of the respective assets, are charged to operations as incurred. Depreciation is recorded using the straight line method over the estimated useful
lives of the respective assets, which are as follows:
|
|
|
Asset
|
|
Estimated useful life
|
Computer equipment and software
|
|
3 years
|
Furniture, fixtures, and other
|
|
5 years
|
Laboratory equipment
|
|
5 years
|
Leasehold improvements
|
|
Shorter of useful life or term of lease
|
Deferred financing costs related to the issuance of Convertible Notes were amortized over the life of the related debt using the effective
interest method. Unamortized deferred financing costs of $6,000 were recorded as a component of the loss upon extinguishment in the consolidated statement of operations when the Convertible Notes were
settled in connection with the issuance of the Series B-1 Redeemable Convertible Preferred Stock ("Series B-1 Preferred Stock") in July 2015.
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset
may not be recoverable. When such events occur, the Company compares the carrying amounts of the assets to their undiscounted expected future cash flows the assets are expected to generate and
recognize an impairment loss equal to the excess of the carrying value over the fair value of the related asset. For the years ended December 31, 2016, 2015 and 2014, no impairments have been
recorded.
Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not
individually identified and separately recognized. The Company allocates the cost of an acquired entity to the assets acquired and liabilities assumed based on their estimated fair values at the date
of acquisition. The excess of the purchase price for acquisitions over the fair value of the net assets acquired, including other intangible assets, is recorded as goodwill. Goodwill is not amortized
but is tested for impairment at least annually or more frequently when
F-11
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
events
or circumstances occur that indicate that it is more likely than not that an impairment has occurred.
In
February 2011, the Company recorded goodwill of $0.2 million upon the acquisition of Cosmix. The Company's annual impairment testing date is December 31. The Company
performed an assessment of the impairment of goodwill as of December 31, 2016 and 2015. In accordance with FASB ASU 2011-08,
IntangiblesGoodwill and
Other (Topic 350): Testing Goodwill for Impairment
("ASU 2011-08"), the Company assessed qualitative factors to determine whether it is more likely than not that the
fair value of a reporting unit is less than its carrying amount which includes goodwill. There has been no impairment of goodwill for any periods presented.
Other
intangible assets acquired in a business combination were recognized at fair value using generally accepted valuation methods appropriate for the type of intangible asset and
reported separately from goodwill. Intangible assets with definite lives are amortized over the estimated useful lives and are tested for impairment when events or circumstances occur that indicate
that it is more likely than not that an impairment has occurred. The Company tests other intangible assets with definite lives for impairment by comparing the carrying amount to the sum of the net
undiscounted cash flows expected to be generated by the asset whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the carrying amount
of the asset exceeds its net undiscounted cash flows, then an impairment loss is recognized for the amount by which the carrying amount exceeds its fair value. There has been no impairment of other
intangible assets for any periods presented.
The Company leases office facilities under various non-cancelable operating lease agreements. Certain lease agreements contain free or
escalating rent payment provisions. The Company recognizes rent expense under such leases on a straight-line basis over the term of the lease with the difference between the expense and the payments
recorded as deferred rent on the consolidated balance sheets. Any reimbursements by the landlord for tenant improvements are considered lease incentives, the balance of which is recorded as a lease
incentive obligation within deferred rent on the consolidated balance sheets, and amortized over the life of the lease. Lease renewal periods are considered on a lease-by-lease basis in determining
the lease term.
Upon issuing financial instruments, the Company assesses whether the economic characteristics of embedded derivatives are clearly and closely
related to the economic characteristics of the remaining component of the financial instruments (i.e., the host contracts) and whether a separate, non-embedded instrument with the same terms as
the embedded instruments would meet the definition of a derivative instrument. When it is determined that (1) the embedded derivative possesses economic characteristics that are not clearly and
closely related to the economic characteristics of the host contract and (2) a separate, stand-alone instrument with the same terms would qualify as a derivative instrument, the embedded
derivative is separated from the host contract and carried at fair value with any changes in fair value recorded in current period earnings. In connection with the issuance of the Convertible Notes in
April 2015, the Company identified certain embedded features which required separation under
F-12
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
FASB
ASC Topic 815,
Derivatives and Hedging
("ASC 815"). See Note 7 for further discussion of these features embedded in the Convertible Notes.
In general, the Company recognizes revenue when all of the following criteria are met: persuasive evidence of an arrangement exists; delivery
has occurred or services have been rendered; the Company's price to the customer is fixed or determinable and collectability is reasonably assured.
In
April 2013, the Company has entered into a collaboration and license agreement with Merck (Note 11), the Merck Agreement, to use its proprietary drug discovery technology
platform to identify certain compounds/drug candidates for targets nominated by Merck. The terms of this agreement contain multiple elements, including licenses and research and development services.
Payments to the Company under these agreements include nonrefundable license fees, payments for research activities, payments based upon the achievement of certain milestones and royalties on any
resulting net product sales. There are no performance, cancellation, termination or refund provisions in the arrangement that contain material financial consequences to the Company.
In
order to account for this agreement, the Company identifies the deliverables included within the arrangement and evaluates which deliverables represent separate units of accounting
based on whether certain criteria are met, including whether the delivered element has stand-alone value to the counterparty. The consideration received is then allocated among the separate units of
accounting based on each unit's relative selling price. The identification of individual elements in a multiple-element arrangement and the estimation of the selling price of each element involve
significant judgment, including consideration as to whether each delivered element has stand-alone value.
Arrangement
consideration allocated to license deliverables that represent separate units of accounting are recognized as revenue at the outset of the agreement assuming the general
criteria for revenue recognition noted above have been met. Arrangement consideration allocated to license deliverables that do not represent separate units of accounting are deferred. Arrangement
consideration allocated to research and development services that represent separate units of accounting are recognized as the services are performed, assuming the general criteria for revenue
recognition noted above have been met. The Company has determined that its research and developments services deliverables and license deliverables, as applicable, represent a single unit of
accounting.
The
Merck Agreement includes contingent milestone payments related to specified pre-clinical and clinical development milestones and regulatory and commercialization/sales milestones.
The Company generally considers non-refundable development, regulatory and commercialization/sales milestones that the Company expects to be achieved as a result of the Company's efforts during the
period of the Company's performance obligations under the license and research agreements to be substantive and recognizes them as revenue upon the achievement of the milestone, assuming all other
revenue recognition criteria are met. If such milestones are considered not to be substantive because the
Company does not contribute effort to their achievement, the Company initially defers those milestone payments, allocates them to the units of accounting and recognizes them as revenue over the
remaining term of those performance obligations. If no such performance obligation exists, milestone payments that are considered not to be substantive are generally recognized as revenue upon
achievement, assuming all other revenue recognition criteria are met.
F-13
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
The
Company's license agreement includes a provision for the reimbursement of certain out-of-pocket expenses incurred in the performance of research and development services. The Company
classifies reimbursements received for out-of-pocket expenses as revenue.
Amounts
received prior to satisfying the revenue recognition criteria are recorded as deferred revenue in the consolidated balance sheets.
Costs incurred in the research and development of the Company's products are expensed to operations as incurred. Research and development
expenses comprise costs incurred in performing research and development activities, including salaries and benefits, facilities cost, overhead costs, contract services including services provided by
contract research organizations, and other outside costs.
Non-refundable
advance payments for goods or services to be received in the future for use in research and development activities are capitalized. The capitalized amounts are expensed as
the related goods are delivered or the services are performed. If expectations change such that the Company does not expect it will need the goods to be delivered or the services to be rendered,
capitalized non-refundable advance payments would be charged to expense.
The
Company bases its expense accruals related to research and development activities on estimates of the services received and efforts expended pursuant to the terms of its contractual
arrangements. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows and expense recognition. Payments under some of
these contracts depend on trial milestones. There may be instances in which payments made to vendors will exceed the
level of services provided and result in a prepayment of the expense. In accruing service fees, the Company estimates the time period over which services will be performed and the level of effort to
be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, the Company adjusts the accrual or prepaid expense accordingly.
The Company accounts for its stock-based compensation awards to employees and directors in accordance with FASB ASC Topic 718,
CompensationStock
Compensation
("ASC 718"). ASC 718 requires all stock-based payments to employees, including grants of employee stock
options and restricted stock, to be recognized in the statements of operations based on their grant date fair values. For stock-based awards granted to employees, the Company allocates stock-based
compensation expense on a straight-line basis based on the grant date fair value over the associated service period. Stock-based compensation is classified in the accompanying consolidated statements
of operations in the department where the related services are provided. Stock-based awards to non-employees are recorded at their fair values, and are revalued at the end of each reporting period
until the stock-based awards vest. Stock-based compensation expense related to non-employee stock-based awards is recognized over the related service period using an accelerated recognition model in
accordance with the provisions of ASC 718 and FASB ASC Topic 505,
Equity
("ASC 505").
The
Company estimates the fair value of its stock options using the Black-Scholes option pricing model, which requires the input of subjective assumptions, including (a) the
expected stock price volatility, (b) the expected term of the award, (c) the risk-free interest rate, (d) expected dividends and
F-14
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
(e) the
estimated fair value of its Common Stock on the measurement date. Due to the lack of a public market for the trading of its Common Stock prior to the IPO and a lack of Company specific
historical and implied volatility data, the Company has based its estimate of expected volatility on the historical volatility of a group of similar companies that are publicly traded. When selecting
these public companies on which it has based its expected stock price volatility, the Company selected companies with comparable characteristics to it, including enterprise value, risk profiles,
position within the industry and with historical share price information sufficient to meet the expected term of the stock based awards. The Company computes historical volatility data using the daily
closing prices for the selected companies' shares during the equivalent period of the calculated expected term of the stock-based awards. The Company will continue to apply this process until a
sufficient amount of historical information regarding the volatility of its own stock price becomes available. Due to the lack of Company specific historical option activity, the Company has estimated
the expected term of its employee stock options using the "simplified" method, whereby the expected term equals the
arithmetic average of the vesting term and the original contractual term of the option. The expected term for nonemployee awards is the remaining contractual term of the option. The risk-free interest
rates are based on the U.S. Treasury securities with a maturity date commensurate with the expected term of the associated award. The Company has never paid, and does not expect to pay dividends in
the foreseeable future. Refer to Note 2, "
Basis of Presentation and Use of Estimates
," for a discussion of the Company's estimated fair value of
its Common Stock.
The
Company is also required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from its estimates. The Company
uses historical data to estimate forfeitures and records stock-based compensation expense only for those awards that are expected to vest. To the extent that actual forfeitures differ from the
Company's estimates, the differences are recorded as a cumulative adjustment in the period the estimates were revised. Stock-based compensation expense recognized in the financial statements is based
on awards that are ultimately expected to vest. Stock-based compensation expense associated with performance-based stock options is recognized if the achievement of the performance condition is
considered probable using management's best estimates. See Note 12 for further details.
Income taxes are recorded in accordance with FASB ASC Topic 740,
Income Taxes
("ASC 740"), which
provides for deferred taxes using an asset and liability approach. The Company records deferred tax assets and liabilities based on differences between financial reporting and tax bases of assets and
liabilities which are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance if it
is more likely than not that some portion or all of the deferred tax asset will not be realized.
The
Company accounts for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions
to the extent that the benefit will more likely than not be realized. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the
tax position as well as consideration of the available facts and circumstances. As of December 31, 2016 and 2015, the Company does not have any material uncertain tax positions. The Company's
practice is to recognize interest and/or penalties related to uncertain tax positions in income tax expense. See Note 15 for further details.
F-15
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
The Company recognizes tax incentives when there is reasonable assurance that the Company will comply with the conditions attached to the tax
incentive agreement and the tax incentive will be received. The Company evaluates the conditions of each individual tax incentive as of each reporting period to ensure that the Company has reached
reasonable assurance of meeting the conditions of each tax incentive agreement and that it is expected that the tax incentive will be received as a result of meeting the necessary conditions. When tax
incentives are related to reimbursements for cost of revenues or operating expenses, the tax incentives are recognized as a reduction of the related expense in the consolidated statements of
operations when the related expense has been incurred.
The
Company records tax incentive receivables in the consolidated balance sheets in prepaid expenses and other current assets or long-term tax incentive receivable, depending on when the
amounts are expected to be received from the funding agency.
Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and
circumstances from non-owner sources. Comprehensive loss was equal to net loss for all periods presented.
Basic net loss per share attributable to common stockholders is calculated by dividing net loss attributable to common stockholders by the
weighted average shares outstanding during the period, without consideration for Common Stock equivalents. During periods of income, the Company allocates participating securities a proportional share
of income determined by dividing total weighted average participating securities by the sum of the total weighted average common shares and participating securities (the "two class method"). The
Company's redeemable convertible preferred stock participates in any dividends declared by the Company and are therefore considered to be participating securities. Participating securities have the
effect of diluting both basic and diluted earnings per share during periods of income. During periods of loss, the Company allocates no loss to participating securities because they have no
contractual obligation to share in the losses of the Company. Diluted net loss per share attributable to common stockholders is calculated by adjusting weighted average shares outstanding for the
dilutive effect of Common Stock equivalents outstanding for the period, determined using the treasury-stock and if-converted methods. For purposes of the diluted net loss per share attributable to
common stockholders' calculation, Preferred Stock, stock options, warrants and the Convertible Notes are considered to be Common Stock equivalents but have been excluded from the calculation of
diluted net loss per share attributable to common stockholders, as their effect would be anti-dilutive for all periods presented. Therefore, basic and diluted net loss per share were the same for all
periods presented.
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09,
Revenue from Contracts with
Customers
("ASU 2014-09"), which supersedes existing revenue recognition guidance. The standard's core principle is that a
company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects
F-16
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
the
consideration to which the company expects to be entitled in exchange for those goods or services. The standard defines a five-step process to achieve this principle and will require companies to
use more judgment and make more estimates than under the current guidance. The Company expects that these judgments and estimates will include identifying performance obligations in the customer
contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 also requires
additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. In April 2016, the FASB issued ASU 2016-10,
Revenue From Contracts With Customers: Identifying
Performance Obligations and Licensing
("ASU 2016-10"), which addresses certain implementation issues
and clarifies certain core revenue recognition principles of ASU 2014-09. In July 2015, the FASB voted to delay the effective date of this standard such that ASU 2014-09, as amended by ASU 2016-10,
will be effective for the Company for annual periods beginning after December 15, 2017 and for interim periods within those fiscal years. Early adoption of the standard is permitted for annual
periods beginning after December 15, 2016. The Company is evaluating the impact that the adoption of these ASUs will have on its consolidated financial statements.
In
August 2014, the FASB issued ASU 2014-15,
Presentation of Financial StatementsGoing Concern (Subtopic 205-40): Disclosure of Uncertainties about
an Entity's ability to Continue as a Going Concern
("ASU 2014-15"), which provides guidance in GAAP about management's responsibility to evaluate whether there is substantial
doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. The amendments in ASU 2014-15 are effective for the annual reporting period ending after
December 15, 2016 and for annual and interim periods thereafter. Early adoption is permitted. ASU 2014-15 did not have a significant impact on the Company's financial statements. The new
guidance was effective for the Company on January 1, 2016 for the annual period.
In
April 2015, the FASB issued ASU 2015-03,
InterestImputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance
Costs
("ASU 2015-03"), which changes the presentation of debt issuance costs in financial statements. Under this authoritative guidance, an entity presents such costs in the
balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs is reported as interest expense. The new guidance was effective for the Company
beginning January 1, 2016. Early adoption was permitted. ASU 2015-03 did not have a significant impact on the Company's financial statements.
In
November 2015, the FASB issued ASU 2015-17,
Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes
("ASU 2015-17"),
which changes the classification of deferred taxes in financial statements. This update requires that deferred tax liabilities and assets be classified as noncurrent on the balance sheet. The current
requirement that deferred tax liabilities and assets of each jurisdiction of an entity be offset and presented as a single amount is not affected by the amendments in this update. The amendments in
ASU 2015-17 are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is
permitted. The Company does not expect ASU 2015-17 to have a significant impact on its financial statements.
In
February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842
) ("ASU 2016-02"), which changes the presentation of assets and
liabilities relating to leases. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. All leases create an asset and a liability for the
lessee in accordance with FASB Concepts Statement No. 6,
Elements of Financial
F-17
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
Statements
, and, therefore, recognition of those lease assets and lease liabilities represents an improvement over previous GAAP, which did not require lease assets and lease
liabilities to be recognized for most leases. The provisions of this guidance are effective for annual periods beginning after December 15, 2018, and for interim periods therein. The Company
has not yet assessed the impact of this new standard on its financial statements.
In
March 2016, the FASB issued ASU 2016-09,
Stock Compensation (Topic 718)
("ASU 2016-09"), which is intended to simplify several aspects
of the accounting for share-based payment award transactions. The guidance will be effective for the fiscal year beginning after December 15, 2016, including interim periods within that year.
The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.
In
August 2016, the FASB issued ASU No. 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash
Payments
("ASU 2016-15"), which provides clarification regarding how certain cash receipts and cash payment are presented and classified in the statement of cash flows. This
update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. This update is effective for annual and interim periods beginning after
December 15, 2017, which will require the Company to adopt these provisions in the first quarter of fiscal 2019 using a retrospective approach. Early adoption is permitted. The Company does not
expect the adoption of this guidance to have a material impact on its consolidated financial statements.
In
November 2016, the FASB issued ASU No. 2016-18,
Restricted Casha consensus of the FASB Emerging Issues Task Force
("ASU 2016-18"), which provides clarification regarding how entities should present restricted cash and restricted cash equivalents in the statement of cash flows. This update is effective for fiscal
year beginning after December 15, 2017, and interim periods therein. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the potential
impact ASU 2016-18 may have on its financial position.
In
January 2017, the FASB issued ASU 2017-04,
IntangiblesGoodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment
("ASU 2017-04"), that simplifies the accounting for goodwill impairment for all entities by requiring impairment charges to be based on the first step in the current
two-step impairment test under ASC 350. The amendments in the ASU are effective for annual and interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early
adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the potential impact ASU 2017-04 may
have on its financial position.
F-18
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Fair Value Measurements
Below is a summary of assets and liabilities measured at fair value as of December 31, 2016 and 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
|
|
|
Quoted Prices
in Active
Markets
(Level 1)
|
|
Significant
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalentsmoney market funds
|
|
$
|
117,708
|
|
$
|
|
|
$
|
|
|
$
|
117,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
117,708
|
|
$
|
|
|
$
|
|
|
$
|
117,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
|
|
|
Quoted Prices
in Active
Markets
(Level 1)
|
|
Significant
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalentsmoney market funds
|
|
$
|
19,049
|
|
$
|
|
|
$
|
|
|
$
|
19,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
19,049
|
|
$
|
|
|
$
|
|
|
$
|
19,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock tranche rights
|
|
$
|
|
|
$
|
|
|
$
|
2,620
|
|
$
|
2,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
$
|
|
|
$
|
2,620
|
|
$
|
2,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company's cash equivalents consist principally of money market funds. Cash equivalents are stated at fair value and consist of Level 1 financial instruments in the fair value
hierarchy.
Preferred
Stock Tranche Rights are stated at fair value and are considered Level 3 inputs because their fair value measurement is based, in part, on significant inputs not
observed in the market. The Company determined the fair value of Preferred Stock Tranche Rights as described in Note 9.
4. Property and Equipment, net
Property and equipment, net, consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2016
|
|
2015
|
|
Computer equipment and software
|
|
$
|
|
|
$
|
71
|
|
Furniture, fixtures, and other
|
|
|
365
|
|
|
62
|
|
Laboratory equipment
|
|
|
3,642
|
|
|
2,941
|
|
Construction in progress
|
|
|
|
|
|
535
|
|
Leasehold improvements
|
|
|
3,732
|
|
|
793
|
|
|
|
|
|
|
|
|
|
|
|
|
7,739
|
|
|
4,402
|
|
Accumulated depreciation
|
|
|
(2,202
|
)
|
|
(2,259
|
)
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
5,537
|
|
$
|
2,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-19
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Property and Equipment, net (Continued)
Depreciation
expense was $1.2 million, $0.8 million and $0.6 million for the years ended December 31, 2016, 2015, and 2014, respectively.
5. Goodwill and Other Intangible Assets
In February 2011, the Company recorded goodwill of $0.2 million upon the acquisition of Cosmix and its wholly-owned subsidiaries. Goodwill was $0.2 million as of
December 31, 2016 and 2015. There were no impairments recorded against goodwill in the years ended December 31, 2016, 2015 and 2014. As of December 31, 2016 and 2015, the Company
had one reporting unit consisting of Ra Pharmaceuticals, Inc., Cosmix Verwaltungs GmbH and Ra Europe Limited. Based upon relevant qualitative considerations, the Company concluded
that it was not more likely than not that the fair value of the Ra Pharmaceuticals, Inc., Cosmix Verwaltungs GmbH and Ra Europe Limited reporting unit was less than its carrying amount,
including goodwill. Accordingly, the Company did not perform the two-step goodwill impairment test as of December 31, 2016 and 2015.
Intangible
assets of $0.7 million arising from the acquisition of Cosmix in February 2011 are amortized and recorded as a component of research and development expense in the
accompanying consolidated statements of operations on a straight-line basis over an estimated useful life of approximately nine years for acquired intellectual property. Intangible assets were
$0.3 million as of December 31, 2016 and 2015. Amortization expense for each of the years ended December 31, 2016, 2015 and 2014 was $0.1 million.
Estimated
future amortization expense for intangible assets recorded by the Company as of December 31, 2016 is as follows (in thousands):
|
|
|
|
|
Years ending December 31,
|
|
Amortization
Expense
|
|
2017
|
|
$
|
66
|
|
2018
|
|
|
66
|
|
2019
|
|
|
66
|
|
2020
|
|
|
64
|
|
|
|
|
|
|
Total amortization expense
|
|
$
|
262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6. Accrued Expenses
Accrued expenses consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
As of
December 31,
|
|
|
|
2016
|
|
2015
|
|
Payroll and employee-related costs
|
|
$
|
1,451
|
|
$
|
60
|
|
Research and development costs
|
|
|
1,326
|
|
|
545
|
|
Consulting costs
|
|
|
63
|
|
|
122
|
|
Professional fees
|
|
|
289
|
|
|
62
|
|
Other
|
|
|
53
|
|
|
485
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,182
|
|
$
|
1,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-20
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Convertible Notes
On April 1, 2015, the Company entered into a Convertible Note Purchase Agreement (the "Note Agreement") with the holders of its existing Series A Preferred Stock. Upon
entering the Note Agreement, the Company issued Convertible Notes and warrants to purchase 221,521 shares of the Company's common shares. In connection with the issuance, the Company received gross
proceeds of $5.0 million and incurred issuance costs of $6,000. The Convertible Notes bore interest at a rate of 8% per annum and were payable in full at the earliest of March 2018 ("Maturity
Date"), an event of default as defined in the Note Agreement, or the sale of the Company. As discussed in more detail below, the notes and accrued interest thereon converted into shares of
Series B-1 Preferred Stock on July 10, 2015.
The
Convertible Notes included certain features resulting in automatic conversion or possible early redemption. In the event the Company sold or issued shares ("Equity Securities")
resulting in cash proceeds to the Company of no less than $5 million ("Qualified Financing"), the Convertible Notes would automatically convert into the Equity Securities at a conversion price
equal to the price per share paid by the investors purchasing the Equity Securities. In the event of the Company undergoing a change in control prior to the Maturity Date, the Convertible Notes would
automatically convert into the right to receive 3 times the outstanding principal, plus accrued interest. Lastly, the Convertible Notes included a put feature, at the option of the holders, whereby
upon an event of default, repayment of the Convertible Notes could be accelerated in the amount of outstanding principal, plus accrued interest. Each of these three features were embedded derivatives
that required bifurcation and accounting as liabilities to be measured at fair value at each reporting date.
The
embedded features requiring separate accounting were combined and valued upon issuance using a single income valuation approach. The Company estimated the fair value of the combined
embedded derivative identified above using a "with and without" income valuation approach. Under this approach, the Company estimated the present value of the fixed interest rate debt based on the
fair value of similar debt instruments excluding the embedded features. This amount was then compared to the fair value of the debt instrument including the embedded features using a probability
weighted approach by assigning each embedded derivative feature a probability of occurrence, with consideration provided for the settlement amount including conversion terms, prepayment penalties, the
expected life of the liability and the applicable discount rate.
The
Company recorded approximately $0.1 million as the fair value of the combined embedded derivative liability on April 1, 2015, resulting in a debt discount. The debt
discount was being amortized as interest expense over the life of the Convertible Notes under the effective interest method prior to conversion. Changes in the estimated fair value of the embedded
features were recorded as a component of other income (expense) in the consolidated statement of operations.
As
of July 10, 2015 and April 1, 2015, the Company ascribed a probability to the mandatory conversion feature upon a Qualified Financing of approximately 100% and 98%,
respectively. As of July 10, 2015 and April 1, 2015, the Company ascribed a probability to the redemption feature upon a change in control of approximately 0% and 1%, respectively. For
all other features included in the combined embedded derivative, the Company estimated a 0% and 1% probability of occurrence as of July 10, 2015 and April 1, 2015, respectively. The
Company classified the liability within Level 3 of the fair value hierarchy as the probability factors are unobservable inputs and significant to the valuation model.
F-21
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Convertible Notes (Continued)
On
July 10, 2015, the Company received gross proceeds of approximately $24.1 million from the issuance of Series B-1 Preferred Stock to new and existing investors at
a price per share of $0.92667. This transaction was a Qualified Financing and resulted in the automatic conversion of the notes into 5,512,743 shares of Series B-1 Preferred Stock at a
conversion price of $0.92667 per share. Upon conversion, the Company recorded the difference between the fair value of the Series B-1 Preferred Stock issued and the carrying value of the
Convertible Notes plus accrued interest as a $0.6 million loss on debt extinguishment in its consolidated statement of operations.
The
warrants issued in connection with the Convertible Notes may be exercised at any time for shares of Common Stock at an exercise price of $0.07 per share. The warrants were scheduled
to expire in March 2022. The Company estimated the fair value of these warrants as of the issuance date using a Black-Scholes option pricing model with the following assumptions:
|
|
|
|
|
|
|
As of
April 1, 2015
|
|
Risk-free interest rate
|
|
|
1.65
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
Expected term (in years)
|
|
|
7.0
|
|
Expected volatility
|
|
|
86.0
|
%
|
The
proceeds from the Convertible Notes and warrants issuance were allocated between the notes and the warrants on a relative fair value basis. The Company allocated $0.5 million
of the proceeds from the Convertible Notes to the common stock warrants and recognized this amount as additional paid-in capital with a corresponding debt discount upon issuance. In October 2016, upon
the closing of the IPO, all of the outstanding warrants net exercised, in accordance with their terms, into shares of Common Stock.
8. Commitments and Contingencies
In July 2009, the Company entered into an option agreement to acquire a license with an individual. The Company paid the individual $40,000 in
cash upon signing the agreement. In July 2010, the Company extended the option agreement and paid the individual $30,000 in cash. In
December 2010, the Company exercised its option and entered into an exclusive license agreement with the individual. The amount due upon signing of the exclusive license agreement was
$0.2 million. After receiving credit for the previous option payments, the Company paid $0.1 million in connection with this license and is required to pay annual license payments of
$15,000 per year until the expiration or abandonment of all related issued patents and pending patent applications. The Company is also obligated to pay royalties of 0.25% on net sales of licensed
products sold or transferred by the Company. The Company paid annual license payments of $15,000 during the years ended December 31, 2016 and 2015 under the terms of the exclusive license
agreement.
In
April 2013, the Company entered into a multi-target collaboration and license agreement with Merck. Under the Merck Agreement, the Company will use its proprietary drug discovery
technology platform to identify certain orally available cyclic peptides candidates for targets nominated by Merck. In addition, the Company will provide specific research and development services.
See Note 11 for further details.
F-22
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Commitments and Contingencies (Continued)
In September 2010, the Company entered into a lease for approximately 6,500 square feet of research and development laboratories and general
office space in One Kendall Square, Cambridge, Massachusetts. In September 2012, the Company amended the original lease to provide for additional space of approximately 4,000 square feet in the same
facility. The Company's lease expired on April 30, 2016.
In
September 2015, the Company entered into a new lease for approximately 27,000 square feet of research and development laboratories and general office space in 87 Cambridge Park Drive,
Cambridge, Massachusetts. The lease commenced in September 2015 and expires in April 2023. The Company moved its operations to the space in April 2016.
In
connection with the new lease, the Company recorded a lease incentive obligation for reimbursable costs under a tenant improvement allowance provided by the landlord. As of
December 31, 2016 and 2015, the Company has recorded a lease incentive obligation of $2.7 million and $0.4 million in deferred rent in the consolidated balance sheet.
The
Company has accounted for all facility leases as operating leases. Rent expense was $1.1 million, $0.6 million and $0.4 million for the years ended
December 31, 2016, 2015 and 2014, respectively.
Future
minimum commitments due under these non-cancelable operating lease agreements as of December 31, 2016 are as follows (in thousands):
|
|
|
|
|
Years ending December 31,
|
|
Operating
Leases
|
|
2017
|
|
$
|
1,228
|
|
2018
|
|
|
1,365
|
|
2019
|
|
|
1,403
|
|
2020
|
|
|
1,442
|
|
2021
|
|
|
1,483
|
|
Thereafter
|
|
|
2,037
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
8,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016 and 2015, the Company had restricted cash of $1.3 million and $1.5 million, respectively. During
the year ended December 31, 2016, restricted cash decreased pursuant to the return of $0.1 million letter of credit for the Company's facility lease at One Kendall Square that expired
during the period. During the year ended December 31, 2015, restricted cash increased pursuant to a letter of credit of $1.4 million for the Company's facility lease at 87 Cambridge Park
Drive in Cambridge, Massachusetts. Letters of credit are secured by cash equivalents held in a money market fund.
F-23
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Commitments and Contingencies (Continued)
The Company is not a party to any litigation and does not have contingency reserves established for any litigation liabilities.
9. Redeemable Convertible Preferred Stock
Upon the closing of the Company's IPO on October 31, 2016, all of the outstanding shares of convertible preferred stock automatically converted into 13,623,933 shares of Common
Stock at the applicable conversion ratio then in effect. As of December 31, 2016, the Company has 0 shares of Preferred Stock authorized for issuance with none issued or outstanding.
In February 2010, the Company issued 12,887,999 shares of Series A Preferred Stock pursuant to the Series A Preferred Stock
agreement at a price of $0.80176 per share, for gross proceeds of $9.7 million, and the conversion of the principal and accrued interest totaling $0.6 million related to convertible
notes and incurred issuance costs of $0.2 million, (the "First Tranche"). Additionally, in accordance with the terms of the Series A Preferred Stock agreement, investors were granted the
right to purchase up to an additional 21,552,566 shares of the Company's Series A Preferred Stock at a price of $0.80176, in two subsequent closings (the "Second Tranche" and "Third Tranche,"
respectively), upon the Company meeting certain milestone criteria by approval of the Board of Directors and approval of investors holding a majority of the Series A Preferred Stock (the
"Series A Preferred Stock Tranche Rights").
In
February 2012, the Board of Directors waived certain Second Tranche milestone events provided for in the Series A Preferred Stock agreement and the Company issued 10,776,283
shares of Series A Preferred Stock at a price of $0.80176 for gross proceeds of $8.6 million and incurred issuance costs of $6,000.
In
March 2014, the Board of Directors waived certain Third Tranche milestone events provided for in the Series A Preferred Stock agreement and the Company issued 10,776,283 shares
of Series A Preferred Stock at a price of $0.80176 for gross proceeds of $8.6 million and incurred issuance costs of $9,000.
As
of December 31, 2016 and 2015, the total authorized, outstanding and issued Series A Preferred Stock of the Company was 0 and 34,440,565 shares, respectively. In October
2016, upon the closing of the Company's IPO, all outstanding shares of Series A Preferred Stock converted into 4,920,074 shares of the Company's Common Stock.
The Company determined the right of the investors to purchase shares of Series A Preferred Stock in two future tranches met the
definition of a freestanding financial instrument and was recognized as a liability at fair value upon the initial issuance of the First Tranche of Series A Preferred Stock in February 2010.
The Company adjusted the carrying value of the Series A Preferred Stock Tranche Rights liability to its estimated fair value at each subsequent reporting date and immediately prior to the
issuance of the Second and Third Tranche of Series A Preferred Stock through charges to other income (expense) in the consolidated statement of operations. Upon the closing of each tranche, the
F-24
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Redeemable Convertible Preferred Stock (Continued)
marked-to-market
fair value of the liability was included in the carrying value of Series A Preferred Stock issued.
Immediately
prior to the issuance of the Third Tranche of Series A Preferred Stock in March 2014, the Company adjusted the carrying value of the liability to its estimated fair
value of $3.4 million and recorded the adjustment of $1.6 million within other income on the consolidated statements of operations. The fair value of the Third Tranche obligation was
determined using the fair value of the Series A Preferred Stock under the guideline public company option-pricing method on the date of the issuance.
In July 2015, the Company issued 31,564,630 shares of Series B-1 Preferred Stock pursuant to the Series B Preferred Stock
agreement at a price of $0.92667 per share for gross proceeds of $24.1 million and the conversion of the principal and accrued interest totaling $5.1 million related to the April 2015
Convertible Notes (Note 7) and incurred issuance costs of $0.2 million (the "Series B-1 Closing").
Additionally,
in accordance with the terms of the Series B Preferred Stock agreement, investors were granted the right to purchase up to an additional 29,362,452 shares of the
Company's Series B-2 Preferred Stock ("Series B-2 Preferred Stock") at a price of $0.99617 (the "Series B-2 Preferred Stock Tranche Rights"), in any number of subsequent closings
upon the request of each investor (the "Subsequent Closings") or in a mandatory closing upon the Company meeting certain milestone criteria by approval of the Board of Directors and certain investors
(the "Mandatory Closing"). Upon consummation of a Mandatory Closing, if an investor fails to purchase the full amount of Series B-2 Preferred Stock allocated to the investor in the
Series B Preferred Stock agreement at the Mandatory Closing, then all shares of Series A Preferred Stock and Series B Preferred Stock held by such investor will automatically be
converted into shares of Common Stock of the Company initially on a one for one basis. In June 2016, the Board of Directors and required certain investors waived the milestone criteria and triggered
the Mandatory Closing of the Series B-2 Preferred Stock.
In
June 2016, the Company issued 29,362,452 shares of Series B-2 Preferred Stock pursuant to the Series B Preferred Stock Agreement at a price of $0.99617 per share, for
gross proceeds of $29.2 million and incurred issuance costs of $22,000 ("the Series B-2 Closing").
The
Company incurred $0.2 million of costs related to the issuance of the Series B-1 Preferred Stock. $17,000 of the Series B-1 Preferred Stock issuance costs were
allocated to Preferred Stock Tranche Rights relating to the Series B-2 Preferred Stock upon issuance. The amount allocated to the Series B-1 Preferred Stock was offset against the
proceeds upon closing of the issuance of the first tranche of Series B Preferred Stock. The amount allocated to the future tranche rights was recorded as an offset to the tranche right
liability at issuance.
As
of December 31, 2016 and 2015, the total authorized, outstanding and issued Series B-1 Preferred Stock of the Company was 0 and 31,564,630 shares. As of
December 31, 2016 and 2015, the total authorized Series B-2 Preferred Stock of the Company was 0 and 29,362,452 shares, respectively, and no shares were outstanding and issued. In
October 2016, upon the closing of the Company's IPO, all outstanding shares of Series B-1 and B-2 Preferred Stock converted into 8,703,859 shares of the Company's Common Stock.
F-25
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Redeemable Convertible Preferred Stock (Continued)
The Company determined the right of the investors to purchase shares of Series B-2 Preferred Stock in a Subsequent Closing or in a
Mandatory Closing met the definition of a freestanding financial instrument and was recognized as a liability at fair value upon the initial issuance of the Series B-1 Preferred Stock in July
2015.
As
of June 14, 2016, December 31, 2015 and July 10, 2015, the Series B-2 Preferred Stock Tranche Rights liability had a fair value of $3.6 million,
$2.6 million and $2.7 million, respectively. The fair value of the Series B-2 Preferred Stock Tranche Rights liability was determined using the probability-weighted present value
of the benefit of the investment with the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
June 14, 2016
|
|
As of
December 31, 2015
|
|
As of
July 10, 2015
|
|
Probability of Series B-2 Preferred Stock closing
|
|
|
100
|
%
|
|
80
|
%
|
|
85
|
%
|
Expected years until Series B-2 Preferred Stock closing
|
|
|
|
|
|
0.5
|
|
|
0.7
|
|
Discount rate
|
|
|
0
|
%
|
|
19
|
%
|
|
18
|
%
|
Risk-free interest rate
|
|
|
0.0
|
%
|
|
2.7
|
%
|
|
2.9
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
|
0
|
%
|
|
0
|
%
|
The
Company adjusted the carrying value of the Series B-2 Preferred Stock Tranche Rights liability to its estimated fair value at each reporting date subsequent to issuance and
immediately prior to the issuance of the Series B-2 Preferred Stock on June 14, 2016 through charges to other (expense) income in the consolidated statement of operations. During the
years ended December 31, 2016 and 2015, the Company recognized total other expense of $1.0 million and total other income of $0.1 million respectively, related to changes in the
fair value of the Series B-2 Preferred Stock Tranche Rights.
The
change in the carrying value of the Series A Preferred Stock Tranche Rights liability and the Series B-2 Preferred Stock Tranche Rights liability (collectively, the
"Preferred Stock Tranche Rights") on the consolidated balance sheets during the years ended December 31, 2016 and 2015 was as follows:
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2016
|
|
2015
|
|
Beginning Balance
|
|
|
2,620
|
|
|
|
|
Issuance of Series B-2 Preferred Stock Tranche Rights
|
|
|
|
|
|
2,694
|
|
Change in Fair Value
|
|
|
960
|
|
|
(74
|
)
|
Issuance of Series B-2 Preferred Stock
|
|
|
(3,580
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
|
|
|
|
2,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Series B-2 Preferred Stock Tranche Rights liability was extinguished in June 2016 upon the issuance of the Series B-2 Preferred Stock. Immediately prior to the issuance
of the Series B-2 Preferred Stock in June 2016, the Company adjusted the carrying value of the liability to its estimated fair value of $3.6 million.
F-26
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Stockholders Equity
The Company has authorized 5,000,000 shares of Preferred Stock which the Board of Directors is authorized to designate and issue in different
series.
The Company was authorized to issue up to 150,000,000 shares of Common Stock with a $0.001 par value per share as of December 31, 2016
and 2015. As of December 31, 2016 and 2015, the Company had 22,546,165 and 536,690 shares, respectively, of Common Stock issued and outstanding.
The
Common Stock has the following characteristics:
The holders of shares of Common Stock are entitled to one vote for each share of Common Stock held at all meetings of stockholders and written
action in lieu of meetings; there is no cumulative voting.
The holders of shares of Common Stock are entitled to receive dividends, if and when declared by the Board of Directors. Cash dividends may not
be declared or paid to holders of shares of Common Stock until paid on each series of outstanding Preferred Stock in accordance with their respective terms. As of December 31, 2016 and 2015, no
dividends have been declared or paid since the Company's inception.
After payment to the holders of shares of Preferred Stock of their liquidation preferences, the holders of the Common Stock are entitled to
share ratably in the Company's assets available for distribution to stockholders, in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company or upon the
occurrence of a deemed liquidation event.
As
of December 31, 2015, the Company had warrants to purchase 222,775 shares of Common Stock issued and outstanding. In October 2016, upon the closing of the IPO, all of the
outstanding warrants to purchase 222,775 shares of Common Stock net exercised, in accordance with their terms, into 221,573 shares of Common Stock.
F-27
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Stockholders Equity (Continued)
Reserve for future issuance
The Company has reserved for future issuances the following number of shares of Common Stock:
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2016
|
|
2015
|
|
Conversion of Series A Preferred Stock
|
|
|
|
|
|
4,920,074
|
|
Conversion of Series B-1 Preferred Stock
|
|
|
|
|
|
4,509,228
|
|
Conversion of Series B-2 Preferred Stock
|
|
|
|
|
|
|
|
Stock-based compensation awards
|
|
|
3,496,603
|
|
|
1,513,727
|
|
Warrants to purchase Common Stock
|
|
|
|
|
|
222,775
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,496,603
|
|
|
11,165,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11. Revenue Recognition
In April 2013, the Company entered into a multi-target collaboration and license agreement with Merck to use its proprietary drug discovery
technology platform to identify orally available cyclic peptides for non-complement program targets nominated by Merck and provide specific research and development services. Under the agreement, the
Company granted Merck licenses under certain of its intellectual property rights to manufacture, develop and commercialize compounds and products directed to selected program targets. The agreement
consists of a research phase, where the Company and Merck collaborated on identifying and pre-clinically developing orally available cyclic peptides suitable for further development by Merck, and a
development and commercialization phase pursuant to which Merck has sole discretion and responsibility, including financial responsibility, for further development and commercialization of these
peptides, on a program-by-program basis, from the collaboration. In April 2015, the Merck Agreement was amended to extend the research term of the collaboration to April 2016.
At
the signing of the Merck Agreement, Merck made an upfront non-refundable, technology license fee of $4.5 million to the Company. In addition, during the research term, which
ended in April 2016, the Merck Agreement provided for reimbursement of research and development services provided by the Company in accordance with pre-specified limits for the number of the Company's
full-time equivalent employees ("FTEs") working under the Merck Agreement. At the conclusion of the research term, Merck elected to continue the development of a non-complement cardiovascular target,
for which the Company had received $3.5 million in preclinical milestone payments as of December 31, 2016.
The
Company has identified two deliverables in connection with the Merck Agreement: (1) rights to access the Company's technology platform for each program target, and
(2) the research & development services provided during the research term. The Company has determined that none of the deliverables have standalone value. Since the separability criteria
have not been met for any of the deliverables, the deliverables are being accounted for as a single combined unit of accounting at the outset of the arrangement.
F-28
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Revenue Recognition (Continued)
The
Company has recognized revenue in connection with the upfront non-refundable license fee ratably over the research term of the Merck Agreement. Payments for research and development
services and reimbursement for certain lab supplies and reagents have been recognized as services are performed, and milestone payments are recognized as these milestones are achieved, assuming all
other revenue recognition criteria are met.
The
Company has determined that the $3.5 million in milestone payments received through December 31, 2016 were substantive in nature as they were commensurate with the
enhancement of value under the Merck Agreement and because the Company concluded at the start of the collaboration that there was no certainty that these milestones would be successful. Accordingly,
the Company has accounted for these milestone payments under the milestone method. The Company is entitled to receive future aggregate milestone payments of up to $61.5 million for the
non-complement cardiovascular target selected, consisting of remaining preclinical and clinical milestones of $16.5 million, regulatory milestones of $19.0 million, and commercial
milestones of $26.0 million, and low-to-mid single digit percentage royalties on future sales, if any. Following the end of the research term, any future milestone payments will be recognized
as revenue upon achievement as no further performance obligations exist for the Company under the Merck Agreement.
The
Company recognized revenue of $4.2 million, $1.0 million and $1.3 million during the years ended December 31, 2016, 2015 and 2014, respectively, related
to upfront, non-refundable payments. The Company recognized revenue of $0.7 million $2.8 million and $3.2 million during the years ended December 31, 2016, 2015 and 2014,
respectively, related to research and development services performed under the agreement. In addition, the Company also recognized approximately $0.1 million, $0.2 million and
$0.4 million during the years ended December 31, 2016, 2015 and 2014, respectively, in revenue related to reimbursable expenses under the terms of the Merck Agreement.
As
of December 31, 2016 and 2015, the Company had $0 and $1.9 million, respectively, of deferred revenue, and, $0 and $6,000, respectively, of billed and unbilled accounts
receivable pursuant to the agreement with Merck.
12. Stock Incentive Plans
In February 2010, the Company adopted the 2010 Stock Incentive Plan (the "2010 Plan") under which it was able to grant incentive, non-qualified stock options and restricted stock grants
to employees, consultants, advisors, and directors, as determined by the Board of Directors. Stock options and restricted stock granted under the Plan vest over periods as determined by the Board of
Directors,
which generally are equal to four years. The options generally expire ten years from the date of grant. The Company had reserved 2,495,607 shares of Common Stock under the 2010 Plan, prior to the
establishment of the 2016 Stock Award and Incentive Plan (the "2016 Plan"), as described below. As of December 31, 2016, options to purchase 2,095,494 shares of common stock were outstanding
under the 2010 Plan.
In
October 2016, the Company's Board of Directors and stockholders approved, effective upon the closing of the Company's IPO, the 2016 Plan and the termination of the 2010 Plan with
respect to the future issuance of awards under the 2010 Plan. Upon the closing IPO, there were 101,109 shares available for future issuance under the 2010 Plan that were added to the shares available
for future issuance under the 2016 Plan.
F-29
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Stock Incentive Plans (Continued)
A
total of 1,401,109 shares of Common Stock were reserved for issuance under the 2016 Plan, which includes 1,300,000 shares initially reserved plus the 101,109 shares available for
future issuance under the 2010 Plan. In addition, the number of shares of Common Stock that may be issued under the 2016 Plan will automatically increase on each January 1, beginning on
January 1, 2017 and ending on January 1, 2026, by a number of shares equal to the lesser of (i) 2,000,000 shares of Common Stock, (ii) 4% of the Company's shares of Common
Stock outstanding on the immediately preceding December 31 or (iii) an amount determined by the administrator of the 2016 Plan appointed by the Company's Board of Directors. On
January 1, 2017, the number of shares issuable under the 2016 Plan increased by 901,847 shares.
The
2016 Plan provides for the grant of incentive, non-qualified stock options and restricted stock grants to employees, consultants, advisors, and directors, as determined by the Board
of Directors. During the year ended December 31, 2016, the Company granted to employees stock options to purchase 72,856 shares of Common Stock. As of December 31, 2016, the Company has
1,328,253 shares available for future issuance under the 2016 Plan. Shares of Common Stock issued upon exercise of stock options are generally issued from new shares of the Company. The 2016 Plan
provides that the exercise price of incentive stock options cannot be less than 100% of the fair market value of the Common Stock on the date of the award for participants who own less than 10% of the
total combined voting power of stock of the Company, and not less than 110% for participants who own more than 10% of the Company's voting power. Options and restricted stock granted under the 2016
Plan vest over periods as determined by the Board of Directors, which generally are equal to four years. Options generally expire ten years from the date of grant.
Total
stock-based compensation expense recorded in research and development and general and administrative expenses, respectively, for employees, directors and non-employees during the
years ended December 31, 2016, 2015 and 2014 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Research and development
|
|
$
|
361
|
|
$
|
58
|
|
$
|
58
|
|
General and administrative
|
|
|
665
|
|
|
94
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,026
|
|
$
|
152
|
|
$
|
88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31, 2016 and 2015, the total unrecognized compensation expense related to non-vested, employee and non-employee director stock options, net of related forfeiture
estimates, was $5.1 million and $1.2 million, respectively. As of December 31, 2016 and 2015, the total unrecognized compensation cost related to non-vested, non-employee stock
options, net of related forfeiture estimates, was $0.1 million and $0, respectively. The Company expects to recognize its remaining unrecognized stock-based compensation expense over a
weighted-average period of approximately three years. The weighted-average grant date fair value per share for awards granted was $3.74, $1.89 and $1.96 during the years ended December 31,
2016, 2015 and 2014, respectively.
F-30
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Stock Incentive Plans (Continued)
The
fair value of each stock option granted to employees and directors was estimated on the date of grant using the Black-Scholes option-pricing model, with the following range of
assumptions for the year ended December 31, 2016, 2015 and 2014 as follows:
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Risk free interest rate
|
|
1.23% - 1.59%
|
|
1.76% - 1.86%
|
|
1.76% - 1.88%
|
Expected dividend yield
|
|
|
|
|
|
|
Expected term (in years)
|
|
5.6 - 6.4
|
|
5.9 - 6.1
|
|
5.9 - 6.1
|
Expected volatility
|
|
74.1% - 92.8%
|
|
72.3% - 74.7%
|
|
76.4% - 79.9%
|
The
following table summarizes the activity of the Company's stock option plan for the year ended December 31, 2016, (intrinsic values in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted-
Average
Exercise Price
|
|
Average
Remaining
Contractual
Life (in years)
|
|
Aggregate
Intrinsic Value
|
|
Outstanding at December 31, 2015
|
|
|
834,946
|
|
$
|
2.66
|
|
|
9.1
|
|
$
|
174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,537,828
|
|
$
|
4.92
|
|
|
|
|
|
|
|
Exercised
|
|
|
(57,354
|
)
|
$
|
1.90
|
|
|
|
|
|
|
|
Cancelled or forfeited
|
|
|
(147,070
|
)
|
$
|
2.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
|
2,168,350
|
|
$
|
4.27
|
|
|
9.2
|
|
$
|
23,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2015
|
|
|
122,453
|
|
$
|
1.75
|
|
|
5.4
|
|
$
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest at December 31, 2015
|
|
|
764,521
|
|
$
|
2.66
|
|
|
9.1
|
|
$
|
172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2016
|
|
|
336,245
|
|
$
|
2.95
|
|
|
8.3
|
|
$
|
4,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest at December 31, 2016
|
|
|
2,024,792
|
|
$
|
4.24
|
|
|
9.2
|
|
$
|
22,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
total intrinsic value of options exercised during each of the years ended December 31, 2016, 2015 and 2014 was $0.1 million.
During the year ended December 31, 2016, 2015 and 2014, the Company granted 28,571, 19,999 and 22,857, respectively of non-qualified
stock options to non-employees, excluding grants to non-employee directors. Stock-based compensation expense related to stock option grants to non-employees during the years ended December 31,
2016, 2015 and 2014 was $0.2 million, $0.1 million and $30,000, respectively. The fair value of each non-qualified stock option granted to non-employees was estimated on the date of
grant and at each revaluation date using the Black-Scholes option-pricing
F-31
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Stock Incentive Plans (Continued)
model,
with the following range of assumptions, excluding performance-based awards, during the years ended December 31, 2016, 2015 and 2014 is as follows:
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Risk free interest rate
|
|
1.46% - 2.38%
|
|
1.93% - 2.31%
|
|
2.15% - 2.18%
|
Expected dividend yield
|
|
|
|
|
|
|
Expected term (in years)
|
|
9.2 - 10.0
|
|
9.2 - 10.0
|
|
9.9 - 10.0
|
Expected volatility
|
|
78.4% - 90.9%
|
|
75.1% - 79.9%
|
|
75.1% - 75.3%
|
In December 2015, the Company granted 5,714 non-qualified stock options to a non-employee consultant of the Company, which contain
performance-based vesting criteria. Milestone events are specific to the Company's development and progression in clinical trial studies. Stock-based compensation expense associated with this
performance-based stock options is recognized if the achievement of the performance condition is considered probable using management's best estimates. As of December 31, 2015, management
determined that it was not probable these conditions would be met, and therefore no stock-based compensation expense relating to performance-based awards was recorded. As of December 31, 2016,
management determined these conditions were met, and therefore stock-based compensation expense of $10,500, relating to this performance-based award was recorded during the year ended
December 31, 2016.
In
February 2016, the Company granted 29,285 shares of qualified stock options to an employee of the Company. Vesting of the stock option award only commences upon the occurrence of a
Trigger Event, which is defined in the employee's equity agreement as the consummation of either (i) an initial public offering of the Company's Common Stock and (ii) a private placement
financing, in one or a series of related closings, resulting in gross proceeds to the Company of at least $20 million (the "Trigger Event"). Stock-based compensation expense associated with
this performance-based stock options is recognized if the achievement of the performance condition is considered probable using management's best estimates. In October 2016, upon the closing of the
initial public offering, the vesting of this stock option award commenced. As of December 31, 2016, management determined these conditions were met, and therefore stock-based compensation
expense of $2,400, relating to this performance-based award was recorded during the year ended December 31, 2016.
In
October 2016, the Company's stockholders approved the 2016 Employee Stock Purchase Plan (the "ESPP"), effective upon the closing of the Company's IPO, A total of 175,000 shares of
Common Stock were reserved for issuance under the ESPP. In addition, the number of shares of Common Stock that may be issued under the ESPP will automatically increase on each January 1,
beginning on January 1, 2017 and ending on January 1, 2026, equal to the lesser of (i) 300,000 shares of Common Stock, (ii) 1% of the Company's shares of Common Stock
outstanding on the immediately preceding December 31 or (iii) an amount determined by the administrator of the ESPP appointed by the Company's Board of Directors.
F-32
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. 401(k) Savings Plan
In 2010, the Company adopted a tax-qualified employee savings and retirement 401(k) Plan, covering all qualified employees. Eligible employees may make pretax contributions to the 401(k)
Plan up to statutory limits. At the election of its Board, the Company may elect to match employee contributions. The Company makes matching contributions at a rate of 50% of the first 4% of employee
contributions. The Company made matching contributions of $0.1 million for the year ended December 31, 2016.
14. Changes in Accumulated Other Comprehensive Income (Loss)
During the year ended December 31, 2014, the Company reclassified $17,000 of accumulated other comprehensive income (loss) to net loss. This reclassification adjustment related to
translation losses realized upon the complete liquidation of Cosmix Molecular Biologicals GmbH on March 18, 2014.
The
$17,000 of translation losses realized upon the liquidation of Cosmix Molecular Biologicals GmbH during the year ended December 31, 2014 were recorded to "Other income
(expense)" in the consolidated statement of operations.
15. Income Taxes
The following table presents domestic and foreign components of loss before income taxes for the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Domestic
|
|
$
|
(28,886
|
)
|
$
|
(13,961
|
)
|
$
|
(5,478
|
)
|
Foreign
|
|
|
4
|
|
|
(1
|
)
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations before benefits from income taxes
|
|
$
|
(28,882
|
)
|
$
|
(13,962
|
)
|
$
|
(5,503
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
benefit from income taxes consists of the following components (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Current income tax benefit:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
$
|
|
|
$
|
|
|
State
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current income tax benefit
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax benefit:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
|
|
|
|
|
|
|
|
State
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
18
|
|
|
19
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax benefit
|
|
$
|
18
|
|
$
|
19
|
|
$
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-33
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. Income Taxes (Continued)
A
reconciliation setting forth the differences between the effective tax rate of the Company for the periods ended December 31, 2016, 2015 and 2014 and the U.S. federal statutory
tax rate is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Income tax benefit at federal statutory rate
|
|
$
|
(9,820
|
)
|
$
|
(4,749
|
)
|
$
|
(1,872
|
)
|
State and local income taxes net of federal tax benefit
|
|
|
(1,525
|
)
|
|
(737
|
)
|
|
(289
|
)
|
Foreign tax rate differential
|
|
|
|
|
|
|
|
|
1
|
|
Nondeductible / nontaxable permanent items
|
|
|
256
|
|
|
272
|
|
|
(595
|
)
|
Tax credits
|
|
|
(1,261
|
)
|
|
(857
|
)
|
|
(546
|
)
|
Other
|
|
|
125
|
|
|
7
|
|
|
(234
|
)
|
Change in valuation allowance
|
|
|
12,207
|
|
|
6,045
|
|
|
3,508
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
$
|
(18
|
)
|
$
|
(19
|
)
|
$
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
0.06
|
%
|
|
0.14
|
%
|
|
0.49
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
significant components of the Company's deferred tax assets are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
As of December 31
|
|
|
|
2016
|
|
2015
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
Net operating losses
|
|
$
|
17,484
|
|
$
|
8,844
|
|
R&D credits
|
|
|
3,498
|
|
|
2,237
|
|
License payments book expense
|
|
|
218
|
|
|
225
|
|
Intangible assets and amortization
|
|
|
20
|
|
|
23
|
|
Accrued expense & other
|
|
|
1,212
|
|
|
326
|
|
Equity compensation
|
|
|
218
|
|
|
26
|
|
Capitalized R&D costs
|
|
|
6,316
|
|
|
4,819
|
|
Deferred revenue
|
|
|
|
|
|
95
|
|
Foreign net operating losses
|
|
|
17
|
|
|
18
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
28,983
|
|
|
16,613
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
Depreciation
|
|
|
(145
|
)
|
|
19
|
|
Purchased intangibles
|
|
|
(76
|
)
|
|
(95
|
)
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(221
|
)
|
|
(76
|
)
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(28,821
|
)
|
|
(16,614
|
)
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(59
|
)
|
$
|
(77
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31, 2016 and 2015, the Company had federal net operating loss carryforwards of $45.1 million and $22.8 million, respectively, and state net operating
loss carryforwards of $40.9 million and $20.5 million, respectively. The net operating loss carryforwards expire at various dates beginning in 2030 through 2037 for United States federal
and state purposes. As of December 31, 2016 and 2015, respectively, the Company has trade net operating loss carryforwards of $0.1 million and $0.1 million,
F-34
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. Income Taxes (Continued)
at
the Cosmix Verwaltungs GmbH subsidiary in Germany. There is no expiration of the German net operating loss carryforwards.
Management
assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets.
A significant piece of objective negative evidence evaluated was the cumulative losses incurred over the three-year period ended December 31, 2016. Such objective evidence limits the ability to
consider other subjective evidence, such as our projections for future growth.
On
the basis of this evaluation, as of December 31, 2016 and 2015, a valuation allowance of $28.8 million and $16.6 million has been recorded to recognize only the
portion of the deferred tax asset that is more likely than not to be realized. The valuation allowance increased by $12.2 million in 2016, $6.0 million in 2015 and increased by
$3.2 million in 2014. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or
increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for growth.
As
of December 31, 2016 and 2015, the Company also had available research and development credits for federal income tax purposes of $2.5 million and $1.5 million,
respectively, and available research and development credits for state income tax purposes of $1.5 million and $1.0 million, respectively. If not utilized, the available research and
development credits for federal and state income tax purposes expire at various dates through 2035 and 2031, respectively.
The
Company has not, as yet, conducted a study of its research and development credit carryforwards. This study may result in an adjustment to the Company's research and development
credit carryforwards; however, until a study is completed and any adjustment is known, no amounts are being presented as an uncertain tax position. A full valuation allowance has been provided against
the Company's research and development credits and, if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance.
Under
the provisions of Section 382 of the Internal Revenue Code of 1986, certain substantial changes in the Company's ownership, including a sale of the Company, or significant
changes in ownership due to sales of equity, may have limited, or may limit in the future, the amount of net operating loss carryforwards and tax credits, which could be used annually to offset future
taxable income.
With
the exception of the deferred tax assets recorded at Cosmix Verwaltungs GmbH, a full valuation allowance for the net deferred tax asset has been recorded in the accompanying
consolidated financial statements to offset the deferred tax assets because it is more likely than not that all of the deferred tax asset will not be realized. This determination is based primarily on
historical losses, without considering the impact of any potential upturn in the Company's business. Accordingly, future favorable adjustments to the valuation allowance may be required, if and when
circumstances change.
The
Company's reserves related to taxes are based on a determination of whether and how much of a tax benefit taken by the Company in its tax filings or positions is more likely than not
to be realized following resolution of any potential contingencies present related to the tax benefit. The Company recognized no material adjustment for unrecognized income tax benefits. The Company
will recognize interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2016, the Company had no unrecognized tax benefits and no accrued interest or
penalties related to uncertain tax positions.
F-35
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. Income Taxes (Continued)
The Company files income tax returns in the U.S. federal, Massachusetts and foreign jurisdictions. The statute of limitations for assessment by the Internal Revenue Service and state tax
authorities remains open for all years since the Company's inception.
16. Net loss Per Share Attributable to Common Stockholders
The Company computes basic and diluted earnings (loss) per share using a methodology that gives effect to the impact of outstanding participating securities (the "two-class method"). As
the years ended December 31, 2016, 2015 and 2014 resulted in net losses, there is no income allocation required under the two-class method or dilution attributed to weighted average shares
outstanding in the calculation of diluted loss per share.
Basic
and diluted net loss per common share are calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(28,864
|
)
|
$
|
(13,943
|
)
|
$
|
(5,476
|
)
|
Gain on extinguishment of redeemable convertible preferred shares
|
|
|
|
|
|
1,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholdersbasic and diluted
|
|
$
|
(28,864
|
)
|
$
|
(12,270
|
)
|
$
|
(5,476
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares used in net loss per share attributable to common stockholdersbasic and diluted
|
|
|
4,135,331
|
|
|
497,073
|
|
|
439,597
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to common stockholdersbasic and diluted
|
|
$
|
(6.98
|
)
|
$
|
(24.68
|
)
|
$
|
(12.46
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following Common Stock equivalents, presented on an as converted basis, were excluded from the calculation of net loss per share for the periods presented, due to their anti-dilutive
effect:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Convertible preferred stock
|
|
|
|
|
|
9,429,302
|
|
|
4,920,074
|
|
Common stock warrants
|
|
|
|
|
|
222,775
|
|
|
11,481
|
|
Outstanding stock options
|
|
|
2,168,350
|
|
|
834,946
|
|
|
290,948
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,168,350
|
|
|
10,487,023
|
|
|
5,222,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-36
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17. Quarterly Financial Information (unaudited, in thousands, except share and per share data)
The following table contains selected quarterly financial information from 2016 and 2015. The Company believes that the following information reflects all normal recurring adjustments
necessary for a fair statement of the information for the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
2016
|
|
June 30,
2016
|
|
September 30,
2016
|
|
December 31,
2016
|
|
Revenue
|
|
$
|
1,884
|
|
$
|
3,044
|
|
$
|
|
|
$
|
|
|
Operating expenses
|
|
|
6,248
|
|
|
7,590
|
|
|
8,121
|
|
|
10,993
|
|
Net loss attributable to common stockholders
|
|
|
(5,056
|
)
|
|
(4,806
|
)
|
|
(8,114
|
)
|
|
(10,888
|
)
|
Net loss per share attributable to common stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(9.42
|
)
|
$
|
(8.90
|
)
|
$
|
(14.22
|
)
|
$
|
(0.73
|
)
|
Weighted-average common shares outstanding used in net loss per share attributable to common stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
536,690
|
|
|
539,931
|
|
|
570,558
|
|
|
14,815,949
|
(a)
|
-
(a)
-
On
October 31, 2016, the Company completed its initial public offering of common stock which resulted in net proceeds of approximately $82.9 million
from the issuance of 8,106,615 shares of common stock, which includes the sale of 1,057,385 shares under the underwriter's over allotment option. Upon the closing of the IPO, all of the outstanding
shares of convertible preferred stock automatically converted into 13,623,933 shares of common stock at the applicable conversion ratio then in effect and the outstanding warrants to purchase 222,775
shares of common stock net exercised, in accordance with their terms, into 221,573 shares of common stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
2015
|
|
June 30,
2015
|
|
September 30,
2015
|
|
December 31,
2015
|
|
Revenue
|
|
$
|
849
|
|
$
|
1,328
|
|
$
|
1,096
|
|
$
|
821
|
|
Operating expenses
|
|
|
3,803
|
|
|
3,773
|
|
|
4,566
|
|
|
5,308
|
|
Reconciliation of net loss to net loss attributable to common stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(2,955
|
)
|
|
(2,493
|
)
|
|
(3,932
|
)
|
|
(4,563
|
)
|
Gain on extinguishment of redeemable convertible preferred shares
|
|
|
|
|
|
|
|
|
1,673
|
|
|
|
|
Net loss attributable to common stockholders
|
|
|
(2,955
|
)
|
|
(2,493
|
)
|
|
(2,259
|
)
|
|
(4,563
|
)
|
Net loss per share attributable to common stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(6.16
|
)
|
$
|
(5.14
|
)
|
$
|
(4.57
|
)
|
$
|
(8.63
|
)
|
Weighted-average common shares outstanding used in net loss per share attributable to common stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
479,722
|
|
|
485,251
|
|
|
494,302
|
|
|
528,511
|
|
F-37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
|
RA PHARMACEUTICALS, INC.
|
Date: March 6, 2017
|
|
By:
|
|
/s/ DOUGLAS A. TRECO
Douglas A. Treco, Ph.D.
President and Chief Executive Officer
(Principal Executive Officer)
|
Date: March 6, 2017
|
|
By:
|
|
/s/ DAVID C. LUBNER
David C. Lubner
Executive Vice President and Chief Financial
Officer
(Principal Financial and Accounting Officer)
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities
and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
|
/s/ DOUGLAS A. TRECO
Douglas A. Treco, Ph.D.
|
|
Chief Executive Officer and Director
(Principal Executive Officer)
|
|
|
March 6, 2017
|
|
/s/ DAVID C. LUBNER
David C. Lubner
|
|
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|
|
March 6, 2017
|
|
/s/ EDWARD T. MATHERS
Edward T. Mathers
|
|
Director
|
|
|
March 6, 2017
|
|
/s/ ROBERT HEFT
Robert Heft
|
|
Director
|
|
|
March 6, 2017
|
|
/s/ JASON LETTMANN
Jason Lettmann
|
|
Director
|
|
|
March 6, 2017
|
|
/s/ RAJEEV SHAH
Rajeev Shah
|
|
Director
|
|
|
March 6, 2017
|
|
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
|
/s/ TIMOTHY PEARSON
Timothy Pearson
|
|
Director
|
|
|
March 6, 2017
|
|
/s/ PETER TUXEN BISGAARD
Peter Tuxen Bisgaard
|
|
Director
|
|
|
March 6, 2017
|
|
EXHIBIT INDEX
|
|
|
|
Exhibit No.
|
|
Exhibit Index
|
|
3.1
|
|
Third Amended and Restated Certificate of Incorporation of the Registrant, as currently in effect (incorporated by reference to Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q (File
No. 333-213917) filed November 29, 2016)
|
|
|
|
|
|
3.2
|
|
Amended and Restated By-laws of the Registrant, as currently in effect (incorporated by reference to Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-Q (File No. 333-213917) filed
November 29, 2016)
|
|
|
|
|
|
4.1
|
|
Investors' Rights Agreement among the Registrant and certain of its stockholders, dated July 10, 2015 (incorporated by reference to Exhibit 4.1 to the Registrant's Registration Statement on Form S-1 (File
No. 333-213917) filed September 30, 2016)
|
|
|
|
|
|
4.2
|
|
Specimen Stock Certificate evidencing shares of common stock (incorporated by reference to Exhibit 4.4 to the Registrant's Registration Statement on Form S-1/A (File No. 333-213917) filed October 17,
2016)
|
|
|
|
|
|
10.1
|
#
|
2010 Stock Option and Grant Plan and forms of award agreements thereunder (incorporated by reference to Exhibit 10.1 to the Registrant's Registration Statement on Form S-1 (File No. 333-213917) filed
September 30, 2016)
|
|
|
|
|
|
10.2
|
#
|
2016 Stock Award and Incentive Plan and forms of award agreements thereunder (incorporated by reference to Exhibit 10.2 to the Registrant's Registration Statement on Form S-1/A (File No. 333-213917) filed
October 13, 2016)
|
|
|
|
|
|
10.3
|
#
|
Senior Executive Cash Incentive Bonus Plan (incorporated by reference to Exhibit 10.3 to the Registrant's Registration Statement on Form S-1/A (File No. 333-213917) filed October 13, 2016)
|
|
|
|
|
|
10.4
|
#
|
Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.4 to the Registrant's Registration Statement on Form S-1/A (File No. 333-213917) filed October 13, 2016)
|
|
|
|
|
|
10.5
|
#
|
Form of Indemnification Agreement (incorporated by reference to Exhibit 10.5 to the Registrant's Registration Statement on Form S-1/A (File No. 333-213917) filed October 13, 2016)
|
|
|
|
|
|
10.6
|
|
Collaboration and License Agreement, dated as of April 1, 2013, by and between the Registrant and Merck Sharp & Dohme Corp., as amended on November 25, 2013, October 3, 2014, October 24, 2014
and April 21, 2015 (incorporated by reference to Exhibit 10.6 to the Registrant's Registration Statement on Form S-1/A (File No. 333-213917) filed October 13, 2016)
|
|
|
|
|
|
10.7
|
|
Indenture of Lease, dated as of September 15, 2015, between the Registrant and King 87 CPD LLC, as amended on March 29, 2016 (incorporated by reference to Exhibit 10.7 to the Registrant's Registration
Statement on Form S-1 (File No. 333-213917) filed September 30, 2016)
|
|
|
|
|
|
10.8
|
#
|
Employment Agreement, by and between the Registrant and Douglas A. Treco (incorporated by reference to Exhibit 10.8 to the Registrant's Registration Statement on Form S-1/A (File No. 333-213917) filed
October 17, 2016)
|
|
|
|
|
|
10.9
|
#
|
Employment Agreement, by and between the Registrant and David C. Lubner (incorporated by reference to Exhibit 10.9 to the Registrant's Registration Statement on Form S-1/A (File No. 333-213917) filed
October 17, 2016)
|
|
|
|
|
|
|
|
|
Exhibit No.
|
|
Exhibit Index
|
|
10.10
|
#
|
Employment Agreement, by and between the Registrant and Simon Read (incorporated by reference to Exhibit 10.10 to the Registrant's Registration Statement on Form S-1/A (File No. 333-213917) filed
October 17, 2016)
|
|
|
|
|
|
10.11
|
#
|
Employment Agreement, by and between the Registrant and Ramin Farzaneh-Far (incorporated by reference to Exhibit 10.11 to the Registrant's Registration Statement on Form S-1/A (File No. 333-213917) filed
October 17, 2016)
|
|
|
|
|
|
10.12
|
|
Exclusive License Agreement, effective as of November 29, 2010, between the Registrant and Anthony C. Forster, M.D., Ph.D. (incorporated by reference to Exhibit 10.12 to the Registrant's Registration Statement
on Form S-1/A (File No. 333-213917) filed October 13, 2016)
|
|
|
|
|
|
10.13
|
|
Research and Development Collaboration and License Agreement, dated as of August 28, 2003 between Gryphon Therapeutics Inc. and Phylos, Inc. (incorporated by reference to Exhibit 10.13 to the
Registrant's Registration Statement on Form S-1/A (File No. 333-213917) filed October 13, 2016)
|
|
|
|
|
|
21.1
|
|
Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 to the Registrant's Registration Statement on Form S-1 (File No. 333-213917) filed September 30, 2016)
|
|
|
|
|
|
23.1
|
*
|
Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm
|
|
|
|
|
|
31.1
|
*
|
Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
31.2
|
*
|
Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
32.1
|
**
|
Certifications of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
101.INS
|
*
|
XBRL Instance Document
|
|
|
|
|
|
101.SCH
|
*
|
XBRL Taxonomy Extension Schema Document
|
|
|
|
|
|
101.CAL
|
*
|
XBRL Taxonomy Extension Calculation Document
|
|
|
|
|
|
101.DEF
|
*
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
|
|
|
|
101.LAB
|
*
|
XBRL Taxonomy Extension Labels Linkbase Document.
|
|
|
|
|
|
101.PRE
|
*
|
XBRL Taxonomy Extension Presentation Link Document.
|
-
*
-
Filed
herewith.
-
**
-
Furnished
herewith.
-
-
An
order for confidential treatment of certain provisions has been granted by the Securities and Exchange Commission. Omitted material for which
confidential treatment has been granted has been filed separately with the Securities and Exchange Commission.
-
#
-
Indicates
a management contract or any compensatory plan, contract or arrangement.
QuickLinks
TABLE OF CONTENTS
Ra Pharmaceuticals, Inc. Annual Report on Form 10 - K for the Fiscal Year Ended December 31, 2016
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
PART I
PART II
MARKET INFORMATION
HOLDERS OF COMMON STOCK
STOCK PERFORMANCE GRAPH
COMPARISON OF CUMULATIVE TOTAL RETURN
DIVIDEND POLICY
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
RECENT SALES OF UNREGISTERED SECURITIES
USE OF PROCEEDS FROM PUBLIC OFFERING OF COMMON STOCK
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
PART III
PART IV
RA PHARMACEUTICALS, INC.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
RA PHARMACEUTICALS, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data)
RA PHARMACEUTICALS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share data)
RA PHARMACEUTICALS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
RA PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIGNATURES
EXHIBIT INDEX
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