Any forward-looking statements in this Annual Report reflect our current views with respect to future events or to our future financial
performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by
these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Part I, Item 1A. Risk Factors and elsewhere in this Annual Report. Given
these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes
available in the future.
This Annual Report also contains estimates, projections and other information concerning our industry, our
business, and the markets for certain diseases, including data regarding the estimated size of those markets, and the incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market
research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless
otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third
parties, industry, medical and general publications, government data and similar sources.
Overview
We are a biopharmaceutical company dedicated to significantly improving the health and well-being of patients affected by metabolic diseases
including type 2 diabetes and obesity. We are focused on developing novel therapeutics that treat the underlying biological mechanisms through the methionine aminopeptidase 2, or MetAP2, pathway. We have pioneered the study of MetAP2 inhibitors in
both common and rare forms of obesity. Our lead product candidate is
ZGN-1061,
a novel fumagillin-class MetAP2 inhibitor administered by subcutaneous injection, which is currently being profiled for its
utility in the treatment of metabolic diseases including type 2 diabetes and obesity. We are conducting a Phase 1 clinical trial of
ZGN-1061
in the Netherlands, and have completed dosing patients in the
single ascending dose, or SAD, portion and are currently dosing patients in the multiple ascending dose, or MAD, portion. This clinical trial is evaluating
ZGN-1061
for safety, tolerability and
pharmacokinetics while also gaining an early indication of weight loss efficacy over four weeks of treatment. We currently expect to complete dosing the patients in this Phase 1 clinical trial by the end of the first quarter of 2017, and report
results early in the second quarter of 2017.
On July 19, 2016, we announced that we were refocusing our resources on the development
of
ZGN-1061
and suspended further development of beloranib, a first generation MetAP2 inhibitor, that we had been developing as a treatment for obesity and hyperphagia in Prader-Willi syndrome, or PWS, and for
hypothalamic injury-associated obesity, or HIAO. The Investigational New Drug application, or IND, for beloranib was placed on full clinical hold in December 2015 by the U.S. Food and Drug Administration, or FDA, as a result of an imbalance in the
number of thrombotic events observed in patients treated with beloranib as compared to patients on placebo in our clinical trials. To address the full clinical hold, we held a Type A meeting with the FDA in June 2016 to discuss the clinical and
pre-clinical
data for beloranib, as well as a proposed risk mitigation strategy for beloranib in PWS. Following our discussions with the FDA, a comprehensive review of our assets and clinical programs, and review of
other considerations, we determined that the obstacles, costs and development timelines to obtain marketing approval for beloranib were too great to justify additional investment in the program, particularly given the promising emerging profile of
ZGN-1061.
In addition, in January 2016, we withdrew the IND submitted to the FDA for
ZGN-839,
a liver targeted MetAP2 inhibitor for the treatment of nonalcoholic
steatohepatitis, or NASH, and abdominal obesity, in order to further support the submission package with additional
pre-clinical
and clinical data requested by the FDA, and in October 2016, we suspended
further development of
ZGN-839.
We are now focusing all of our personnel and financial resources on
ZGN-1061
and the discovery of highly differentiated MetAP2
inhibitors.
Obesity is a complex medical disorder involving appetite dysregulation and altered lipid and energy metabolism that results
in excessive accumulation of fat tissue.
ZGN-1061
acts through potent inhibition of MetAP2, an enzyme that modulates the activity of key cellular processes that control metabolism. MetAP2 inhibitors work, at
least in part, by directing MetAP2 binding to cellular stress and growth factor mediators, thereby reducing the tone of signals that drive lipid synthesis by the liver and fat storage throughout the body. In this manner, MetAP2 inhibition serves the
purpose of
re-establishing
balance to the ways the body stores and metabolizes fat and glucose. MetAP2 inhibitors reduce the production of new fatty acid molecules by the liver and help convert stored fats
into useful energy, while reducing hunger. In the setting of type 2 diabetes, these processes lead to improvement of glycemic control.
ZGN-1061
was discovered by our researchers as part of a multi-year campaign to identify novel compounds that avoided limiting
pre-clinical
safety concerns observed with
beloranib, including teratogenicity and effects on testicular function. To date, the compound has similar efficacy, potency, and range of activity in animal models
4
of obesity as beloranib, but displays highly differentiated properties and improved safety margins in
pre-clinical
studies, supporting the value of the
compound as a more highly optimized MetAP2 inhibitor. Further, the compound displays improved safety margins relative to beloranib for effects on thrombosis in dogs, an effect that correlates with reduced impact on endothelial cell proliferation
in vitro
.
The chart below provides an overview of our product candidate portfolio.
In the figure above, T2D means type 2 diabetes.
Populations of Interest
Obesity, Type 2 Diabetes
and Metabolic Diseases
Obesity is a disease that has been increasing at an alarming rate with significant medical repercussions
and associated economic costs. Since 1980, the worldwide obesity rate has more than doubled, with about 13% of the worlds adult population now being obese. The World Health Organization, or WHO, currently estimates that as many as
600 million people worldwide are estimated to be obese and more than 1.9 billion adults are estimated to be overweight. Being overweight or obese is also the fifth leading risk for global deaths, with approximately 3.4 million adults
dying each year as a result.
According to the WHO, there are over 70 progressive obesity-related diseases and disorders associated with
obesity, which are also known as comorbidities, including type 2 diabetes, hypertension, inflammation, infertility and certain cancers. Worldwide, 44% of the diabetes burden, 23% of the heart disease burden and between 7% and 41% of certain cancer
burdens are attributable to being overweight and obese.
We believe that this epidemic will continue to grow worldwide given dietary
trends in developed nations that favor highly processed sugars, larger meals and fattier foods, as well as increasingly sedentary lifestyles. Despite the growing obesity rate, increasing public interest in the obesity epidemic and significant
medical repercussions and economic costs associated with obesity, there continues to be a significant unmet need for effective treatments.
5
Obesity in the General Population
We are focusing the clinical development of
ZGN-1061
as a treatment for patients with type 2 diabetes
who also are obese. We believe this patient population would benefit from MetAP2 inhibitor treatment through the improvement of type 2 diabetes and reduction of body weight and through improvement of severity or symptoms of other
co-morbid
conditions. We believe that MetAP2 inhibitors have the potential to offer this patient population, most of which is not adequately responsive to available therapies, substantial health and quality of life
benefits. This patient population represents a significant burden to the health care systems globally.
The most effective current
treatment for severe obesity is bariatric surgery, including procedures such as the
Roux-en-Y
gastric bypass, adjustable gastric banding, sleeve gastrectomy and
biliopancreatic diversion. Bariatric surgery produces dramatic and sustained weight loss, ranging on average from 20% to 35% one year post-procedure and has been shown to positively impact overall mortality. However, there is a range of challenges
that exist with bariatric surgery. In the short-term
(1-2
years post-operation), it can result in numerous complications and adverse events including thrombotic events, such as pulmonary embolism, infection,
internal bleeding, pulmonary disease and gastrointestinal obstruction, which sometimes require reoperation during the post-operative period. Over the long-term (up to 5 years post-operation), challenges of bariatric surgery include poor nutrient
absorption, strictures and hernias.
A percentage of patients who undergo bariatric surgery may also experience the challenges of minimal
weight loss and /or the regain of weight that has been lost. Additionally, while in the majority of cases, type 2 diabetes can be resolved in patients who receive bariatric surgery there is a subset of patients who will continue to require
management of their disease. For these patients who have failed bariatric surgery, and over time that group could expand to
30%-50%
of patients who have the surgery there may be no
additional treatment options left for them to utilize.
Bariatric surgery eligibility criteria generally identify surgical candidates as
those patients with body mass index, or BMIs, greater than 40 kg/m2, or those with BMIs over 35 kg/m2 who also have a significant and uncontrolled
co-morbid
condition. Based on these criteria, it is estimated
conservatively that there will be at least 16 million adults in the United States eligible for bariatric surgery by the time a MetAP2 inhibitor could become available commercially. In addition to the BMI and
co-morbidity
eligibility criteria, patients need to satisfy a number of other criteria in order to have bariatric surgery; a severely obese patient must not have any known endocrine causes of obesity, a drug
or alcohol problem, or an uncontrolled psychological condition, and must understand and appreciate the risks of the surgical intervention. According to the American Society for Metabolic & Bariatric Surgery and to HealthGrades, the average
cost of bariatric surgery in the United States is approximately
$22,000-$38,000.
As a result of these limiting criteria and the financial commitments required, only approximately 200,000 patients undergo
bariatric surgery each year even though over 16 million patients in the United States are eligible for the surgery based on BMI alone.
The pharmaceutical industry has undertaken several waves of activity to discover and develop new drugs for the treatment of obesity. Relative
to bariatric surgery, pharmaceutical treatments have produced modest efficacy. In addition, existing pharmacotherapeutics for obesity often have undesirable adverse event profiles.
6
The following table summarizes information from pivotal trials supporting registration for the
current pharmacological treatments for long-term (1 year) treatment of obesity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Treatment
|
|
% Placebo-
Adjusted Weight
Loss* in Patients
without T2DM**
|
|
% Placebo-
Adjusted Weight
Loss* in Patients
with T2DM
|
|
|
% Placebo-
Adjusted A1c
Change in
Patients with
T2DM
|
|
|
Product Limitations***
|
orlistat
|
|
3%
|
|
|
2.9%
|
|
|
|
0.34%
|
|
|
Lower gastrointestinal effects
|
|
|
|
|
|
phentermine/topiramate
7.5mg/46 mg (target)
15mg/92 mg
|
|
3.5%
9.4%
|
|
|
4.9%
6.9%
|
|
|
|
-0.3%
-0.3%
|
|
|
Restricted distribution due to teratogenic potential
|
|
|
|
|
|
lorcaserin
|
|
3.3%
|
|
|
3.1%
|
|
|
|
-0.5%
|
|
|
Serotonin syndrome or neuroleptic malignant syndrome-like reactions
|
|
|
|
|
|
bupropion/naltrexone
|
|
3.2-4.1%
|
|
|
2%
|
|
|
|
-0.5%
|
|
|
Black box warning: antidepressant class labeling of risk of suicide
|
|
|
|
|
|
liraglutide 3.0 mg
|
|
4.5%
|
|
|
3.7%
|
|
|
|
-0.93%
|
|
|
Black box warning: risk of thyroid
c-cell
tumors, injection administration
|
*
|
Placebo-adjusted weight loss or A1c change refers to the mean difference observed in drug-treated patients relative to that observed in placebo-treated patients. This analysis takes into account, at least in part, the
impact of diet and lifestyle interventions employed in drug registration trials.
|
**
|
Type 2 diabetes mellitus (T2DM)
|
***
|
All of the products are contraindicated for use during pregnancy (Category X) because they induce weight loss.
|
Data are from the package inserts or from primary publications when not available in the package insert.
Type 2 Diabetes
According to the
International Diabetes Federation, in 2013, 382 million people worldwide were living with type 2 diabetes and that number is projected to increase to 592 million by 2035. In the United States alone, the Center for Disease Control estimated
that there were 26 million people living with type 2 diabetes and an estimated 79 million people who were
pre-diabetic
in 2011. Standard therapies for type 2 diabetes include physician recommended
diet and exercise, oral hypoglycemic drugs such as biguanides (metformin) for type 2 diabetes, through to a number of insulin options. Metformin is first line pharmacotherapy for the treatment of type 2 diabetes primarily due to the
extensive experience, low cost and favorable benefit risk associated with it. While metformin is likely to remain the initial choice for the treatment of type 2 diabetes,
ZGN-1061
will compete with
sulfonylureas,
GLP-1
receptor agonists, DPP4 inhibitors, SGLT2 inhibitors, thiazoladinediones, insulin, and various combination products. It is estimated that therapeutics have attained an 80% penetration rate
into the diagnosed group of patients. The objective of each is to maintain a daily blood glucose level range recommended by a physician. Each of the current therapies alone has its limitations including numerous side effects. These side effects and
the availability of a high number of treatment options, combined with the difficulty in daily management of glucose levels despite these treatments, creates a number of opportunities for a new agent to positively impact unmet medical need.
According to DR/Decision Resources, LLC, the diabetes drug market is estimated to be $35 billion and is on pace to grow to more than
$71 billion by 2024. Pharmaceutical companies have been investigating new approaches to treating diabetes and market value has been maintained in the industry due to the introduction of
7
these new products. We believe that
ZGN-1061
MetAP2 inhibition serves the purpose of
re-establishing
balance to the
ways the body stores and metabolizes fat and glucose. MetAP2 inhibitors reduce the production of new fatty acid molecules by the liver and help convert stored fats into useful energy, while reducing hunger. In the setting of type 2 diabetes, these
processes lead to improvement of glycemic control.
The following table summarizes the current pharmacological treatments for the
treatment of type 2 diabetes:
|
|
|
|
|
|
|
Treatment
|
|
A1c
Reduction
|
|
Key Advantages
|
|
Product Limitations
|
First line
|
|
|
|
|
|
|
|
|
|
|
biguanide (metformin)
|
|
1-1.5%
|
|
Inexpensive, weight loss (up to ~3 kg from baseline), extensive experience
|
|
Gastrointestinal effects, lactic acidosis, vitamin
B-12
deficiency
|
|
|
|
|
Second line
|
|
|
|
|
|
|
|
|
|
|
sulfonylurea (glimepiride, glipizide, glyburide)
|
|
1-1.5%
|
|
Inexpensive, extensive experience
|
|
Hypoglycemia and weight gain
|
|
|
|
|
GLP-1
Receptor Agonists (albiglutide, dulaglutide, exenatide, liraglutide, lixisenatide)
|
|
1-1.5%
|
|
Weight loss (up to ~ 3 kg from baseline), rare hypoglycemia, improvement in cardiovascular risk factors, improvement in cardiovascular mortality (liraglutide), improved postprandial glucose excursions
|
|
Injection administration, gastrointestinal effects, risk of thyroid
c-cell
tumors
|
|
|
|
|
DPP4 Inhibitors (alogliptin, linagliptin, saxagliptin, sitagliptin)
|
|
0.5-1%
|
|
Rare hypoglycemia, well tolerated
|
|
Immune-mediated dermatological effects
|
|
|
|
|
SGLT2 Inhibitors (canagliflozin, dapagliflozin, empagliflozin)
|
|
0.5-1.5%
|
|
Weight loss (up to ~3 kg from baseline), rare hypoglycemia, improvement in cardiovascular risk factors, improvement in cardiovascular mortality (empagliflozin)
|
|
Genitourinary infections, hypotension, increase in low density lipoproteins, diabetic ketoacidosis
|
|
|
|
|
thiazolidinediones (pioglitazone, rosiglitazone)
|
|
1-1.5%
|
|
Rare hypoglycemia, improvement in triglycerides and cardiovascular events
|
|
Weight gain, edema/heart failure, bone fracture
|
|
Insulins (under some circumstances may be first or second line)
|
|
|
|
|
Regular and Rapid-acting Insulins (aspart, glulisine, lispro, inhaled insulin)
|
|
Varied
|
|
Nearly universal response with theoretical unlimited efficacy
|
|
Largely injection administration, hypoglycemia, weight gain
|
|
|
|
|
Longer-acting Insulins (NPH, glargine, detemir, degludec)
|
|
Varied
|
|
Nearly universal response with theoretical unlimited efficacy
|
|
Injection administration, hypoglycemia, weight gain
|
|
Available combination products include:
biguanide/sulfonylurea, biguanide/meglitinide, biguanide/thazolidinedione, biguanide/DPP4 inhibitor, biguanide/SGLT2 inhibitor, SGLT2 inhibitor/DPP4 inhibitor, long acting
insulin/GLP-1
receptor agonist
|
8
|
|
|
|
|
|
|
Not included in ADA Primary Treatment Algorithm but may be used under specific
circumstances
|
|
|
|
|
Meglitinides (nateglinide, repaglinide)
|
|
0.5-1%
|
|
Improved postprandial glucose excursions
|
|
Hypoglycemia, increased weight
|
|
|
|
|
Alpha-glucosidase inhibitors (acarbose, miglitol)
|
|
0.25-1%
|
|
Rare hypoglycemia, improved postprandial glucose excursions, nonsystemic
|
|
Modest efficacy, gastrointestinal side effects
|
|
|
|
|
Dopamine-2
agonist (bromocriptine)
|
|
0.5%
|
|
Rare hypoglycemia, improvement in cardiovascular events
|
|
Modest efficacy, dizziness/syncope, hypotension, nausea, fatigue, somnolence
|
|
|
|
|
Amylin mimetics (pramlintide)
|
|
0.25-0.5%
|
|
Weight loss (up to ~2.5 kg from baseline), improved postprandial excursion
|
|
Injection administration, modest efficacy, gastrointestinal side effects, hypoglycemia under some conditions, for use with mealtime insulin only
|
|
|
|
|
Bile acid sequestrant (colesevelam)
|
|
0.5%
|
|
Rare hypoglycemia, decreased low density lipoproteins
|
|
Modest efficacy, constipation, drug interaction, increased triglycerides
|
Details derived from the American Diabetes Association, or ADA, Standards of Medical Care in Diabetes-2017:
Pharmacologic Approaches to Diabetes Treatment, Diabetes Care 2017;40(Suppl. 1):S64S74 with supplementary information from The Medical Letter on Drugs and Therapeutics: Drugs for Type 2 Diabetes, January 2017. A1C reduction estimates are from
the package inserts.
Our Strategy
Our objective is to be a leader in the discovery, development and commercialization of novel therapies to significantly improve the health and
well-being of patients affected by type 2 diabetes, obesity, and complex metabolic disorders. Key elements of our strategy include:
|
|
|
Advance the clinical development of MetAP2 inhibitors for the treatment of obese patients in the general population, including those who are candidates for bariatric surgery.
We believe the obese patient
population would benefit from MetAP2 inhibitor treatment through the reduction of body weight and through improvement of other
co-morbid
conditions. Bariatric surgery results in significant weight loss, but
the financial expense and the potential for complications, adverse events and longer-term side effects limit its overall adoption, and is limited in use, with approximately 200,000 patients in the United States undergoing bariatric surgery each
year. Existing pharmacotherapies result in less weight loss than surgical options, and these therapies not only have undesirable side effects, but also have risk of abuse.
|
|
|
|
Advance the clinical development of MetAP2 inhibitors for the treatment of type 2 diabetes.
We believe the patient population of type 2 diabetes would benefit from MetAP2 inhibitor treatment through
concomitant improvements in glycemic control, plasma lipid fractions, and body weight. These benefits were noted in our Phase 2b clinical trial
ZAF-203,
which studied the MetAP2 inhibitor beloranib in patients
with both type 2 diabetes and obesity.
|
|
|
|
Leverage the knowledge of our experienced team of drug developers that have deep expertise in the field of
obesity, the function of MetAP2 inhibitors and metabolic diseases.
Our management team has deep expertise in type 2 diabetes, obesity and related metabolic diseases, the function of MetAP2 inhibitors, the strengths and weaknesses of current
treatments for type 2 diabetes and obesity and the
|
9
|
ability to recognize the potential of novel therapies for the treatment of type 2 diabetes and obesity. Our team is complemented by highly experienced external consultants and collaborators in
the areas of drug discovery, development and regulatory approval.
|
|
|
|
Maintain flexibility in commercializing and maximizing the value of our earlier-stage research programs.
While we intend to develop and commercialize
ZGN-1061
for
indications such as type 2 diabetes, obesity and other complex metabolic disorders, we may enter into strategic relationships with biotechnology or pharmaceutical companies to realize the full value of
ZGN-1061
or our other earlier-stage research programs. For
ZGN-1061,
we may enter into one or more strategic relationships to access broader geographic markets or
additional indications. These relationships could focus on specific patient populations and their caregivers, on regional development, or on distribution and sales of
ZGN-1061.
|
About
ZGN-1061
ZGN-1061
acts through potent inhibition of MetAP2, an enzyme that modulates the activity of key
cellular processes that control metabolism. MetAP2 inhibitors work, at least in part, by directing MetAP2 binding to cellular stress and growth factor mediators, thereby reducing the tone of signals that drive lipid synthesis by the liver and fat
storage throughout the body. In this manner, MetAP2 inhibition serves the purpose of
re-establishing
balance to the ways the body stores and metabolizes fat and glucose. MetAP2 inhibitors reduce the production
of new fatty acid molecules by the liver and help convert stored fats into useful energy, while reducing hunger. In the setting of type 2 diabetes, these processes lead to improvement of glycemic control.
ZGN-1061
was discovered by our researchers as part of a multi-year campaign to identify novel
compounds that avoided limiting
pre-clinical
safety concerns observed with beloranib, including effects on testicular function. The compound has similar efficacy, potency, and range of desired pharmacological
activities in animal models as other MetAP2 inhibitors, including beloranib.
ZGN-1061
displays improved safety margins in
pre-clinical
studies relative to earlier MetAP2
inhibitors, supporting the value of the compound as a more highly optimized drug product candidate.
During
pre-clinical
development of
ZGN-1061,
we conducted research to understand the imbalance of thrombotic events observed in the course of beloranib clinical development.
This research identified biomarkers associated with activation of blood clotting that subsequently were confirmed to be impacted in the setting of beloranib treatment in animals and cultured human endothelial cells. Before committing
ZGN-1061
to clinical development, the compound was evaluated for its potential to augment blood clotting in these same models and was found to have a much larger margin of safety with respect to thrombosis.
Mechanism of Action
First-generation
MetAP2 inhibitors, such as beloranib, were evaluated for their potential for treating obesity following publication of studies in the
Proceedings of the National Academy of Sciences
in 2002 showing anti-obesity efficacy in animals treated
with a prototype MetAP2 inhibitor. These studies showed that MetAP2 inhibitor treatment was associated with loss of fat tissue accompanied by an increase in fat oxidation, indicating a redirection of fuel usage toward utilization of stored fats as a
source of energy. Reduced food intake also was observed in treated animals, suggesting either direct effects of the agent on central feeding regulation or activation of a feedback loop linking the release and oxidation of stored fat to appetite.
The MetAP2 inhibitor fumagillin was shown in 2004 to induce a novel protein-protein interaction involving MetAP2 and
extracellular-signal-regulated kinase 1, or ERK1, a cell stress- and growth factor-stimulated kinase. This complex reduces the activation state of ERK1. A 2005 publication in
Diabetes
showed that animals lacking ERK1 resist both high fat
diet-induced obesity and insulin resistance, supporting the hypothesis that attenuation of ERK activity could be an important component of the beneficial metabolic effects of MetAP2 inhibitor treatment. Additionally, several hormones well-documented
to be involved in energy metabolism are affected by
10
MetAP2 inhibitors, including leptin, adiponectin and fibroblast growth
factor-21.
These hormones are thought to contribute to the weight-reducing effects
of MetAP2 inhibitors like
ZGN-1061,
and also are known to be involved in control of body weight, fat metabolism and glucose metabolism. This series of mechanistic effects leads to rapid and sustained reduction
of excess body weight with
ZGN-1061
treatment, such as has been observed in animal studies and our clinical trial experience to date.
An illustration of the MetAP2 inhibitor mechanism of action and therapeutic effects follows:
In the figure above, LDLc means low density lipoprotein and CRP means
C-reactive
protein.
Clinical Trials
Below
is a summary of the Phase 1 clinical trial that is ongoing with
ZGN-1061
as of the date of this Annual Report.
Phase 1 Clinical Trial
The ongoing
ZGN-1061
Phase 1 clinical trial,
ZAF-1061-101,
is a randomized, double-blind (subject, principal investigator (PI), and site staff), placebo-controlled study consisting of a single ascending dose, or SAD, phase and a multiple ascending dose,
or MAD, phase being conducted in the Netherlands. The SAD phase is designed to assess effects of
ZGN-1061
at six ascending dose levels relative to placebo in male or female healthy volunteers with a BMI of 23
to <30 kg/m
2
(normal weight or overweight individuals). The MAD phase assesses effects of twice-weekly subcutaneous injections (eight doses in total) of
ZGN-1061
over four weeks at three ascending dose levels relative to placebo, in male or female healthy volunteers with BMI
27-40 kg/m
2
(overweight or obese individuals). In addition to conventional safety and PK assessments, exploratory pharmacodynamic endpoints are also assessed. These measures are intended to provide a preliminary
assessment of the potential of
ZGN-1061
for weight management and inform Phase 2 clinical trial design.
Next Steps
We plan to submit an
IND to the FDA after completion of our Phase 1
ZAF-1061-101
clinical trial, in support of a clinical trial to be conducted in the United States. With positive data
from the
ZAF-1061-101
clinical trial we also plan to conduct a Phase 2 clinical trial in Australia in obese patients with a subset of patients also having type 2
diabetes.
Pre-clinical
We have conducted toxicology studies of
ZGN-1061
in support of clinical development. Based on the
pre-clinical
assessment,
ZGN-1061
is not genotoxic. Dose selection and precautions for our ongoing Phase 1
11
clinical trial have been informed by toxicology studies in rats, beagle dogs, and rabbits. Toxicological studies of up to one month in rats and dogs using single, daily or intermittent dosing
have established no observed adverse effect levels at higher exposures relative to the anticipated human doses. At higher doses, the findings of toxicological importance were primarily injection site reactions in rats at high doses, as well as
platelet reductions with bone marrow hypocellularity and morbidity at higher doses in dogs. Three month studies in the rat and dog are
in-progress
and will be complete prior to the start of the Phase 2
clinical trial program. Embryofetal toxicity studies in rats and rabbits are ongoing to determine the potential risk for the developing embryo or fetus to patients who are, or might become, pregnant.
Future Product Candidates
We are
currently evaluating other second-generation MetAP2 inhibitors as potential development candidates for the treatment of type 2 diabetes, obesity, NASH and other metabolic disorders. These studies involve screening compounds with insights
learned in our thrombosis investigations and also looking at whether our second generation compounds could be amenable to
non-injectable
routes of delivery. We anticipate nominating one or more of these
candidates for future development.
For information regarding amounts spent during each of the last three fiscal years on
company-sponsored research and development activities, see Part II Item 6Selected Financial Data of this Annual Report.
Manufacturing and Supply
ZGN-1061
is a small molecule drug that is chemically synthesized from raw materials. The current process to produce
ZGN-1061
for Phase 1 clinical trials involves synthesis of
drug substance, and
just-in-time
formulation and production of sterile liquid drug product which can be stored frozen if needed. We are currently developing a
lyophilized dosage form with longer shelf life for Phase 2 clinical trials. This drug product will include a sterile lyophilized vial and a
pre-filled
diluent syringe for reconstitution. The Phase 2 drug
product is currently being manufactured at our drug product contract manufacturing organization, or CMO. The manufacturing processes for both drug substance and drug product are under active development and optimization and are not yet validated for
commercialization. We control our clinical trial supply chain by periodically meeting to assess clinical trial material needs and status of supply. The clinical supply forecast is managed internally by a cross functional working group and is used to
aid in decision making for current good manufacturing practices, or cGMP, manufacturing as well as clinical kit packaging and labeling.
We currently have no manufacturing facilities and limited personnel with manufacturing experience. We rely on contract manufacturers to
produce both drug substance and drug product required for our clinical trials. Any delays encountered with manufacturing activities, CMO scheduling or raw material supply could delay the manufacturing of finished drug product. No long-term supply
agreements are in place with our contractors, and each batch is individually contracted under a work order, which is governed by a quality agreement. We plan to continue to rely upon contract manufacturers and, potentially, collaboration partners to
manufacture commercial quantities of
ZGN-1061,
if approved. Our current scale of manufacturing is adequate to support all of our current needs for clinical trial supplies. For commercial quantities for larger
populations, we will need to identify contract manufacturers or partners to produce
ZGN-1061
on a larger scale.
Sales and Marketing
Based on our early
stage of development, we have not yet established a commercial organization or distribution capabilities, nor have we entered into any partnership or
co-promotion
arrangements with an established
pharmaceutical or biotechnology company. To develop the appropriate commercial infrastructure to launch
ZGN-1061,
we may either do so on our own or by establishing alliances with one or more pharmaceutical or
other biotechnology company collaborators, depending on, among other things, the applicable indications, the related development costs and our available resources.
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Licenses
CKD License
In July 2009, we
entered into an Exclusive License Agreement with Chong Kun Dang Pharmaceutical Corp. of South Korea, or CKD, pursuant to which we exclusively licensed beloranib from CKD on a worldwide basis, with the exception of South Korea. In consideration of
such exclusive license, we paid an initial license fee to CKD, paid a
one-time
fee following initiation of a proof of concept trial, agreed to make milestone payments of up to $30.0 million (of which
$7.5 million has been paid, including $3.3 million that was paid in the form of our common stock (valued at $3.6 million) as a result of an amendment to our license agreement and entry into a subscription agreement with CKD) to CKD upon
the achievement of certain specified events, and agreed to pay a portion of sublicensing income to CKD. Furthermore, if we receive marketing approval for beloranib, we will pay single-digit royalties to CKD based on annual net sales of beloranib on
a
country-by-country
and
product-by-product
basis until the later to occur of
(i) the expiration of the last to expire patent in such country within the CKD patent rights containing a valid claim covering beloranib or its use for which regulatory approval has been obtained in such country, or (ii) ten years from the
first commercial sale of beloranib in such country. Pursuant to this agreement, we committed to using commercially reasonable efforts to develop and commercialize beloranib. This agreement will remain in effect on a
country-by-country
and
product-by-product
basis until royalties are no longer due in such country, subject to earlier
termination by either party upon mutual consent, or in the event of uncured breach or insolvency on the part of the other party, or by us for any reason up to 60 days prior notice. We are no longer developing beloranib as a treatment for
humans.
Childrens License
In January 2007, we entered into an Exclusive License Agreement with Childrens Medical Center Corporation, or Childrens, pursuant
to which we exclusively licensed certain patent rights from Childrens on a worldwide basis. The licensed patent rights relate to decreasing the growth of fat tissue, and thereby cover the use of
ZGN-1061
and related molecules as anti-obesity agents. In consideration of such exclusive license, we paid an initial license fee upon execution of the license to Childrens and annual maintenance fees through the fifth anniversary of the date of the
license. We also agreed to make milestone payments to Childrens of up to $2.7 million (of which $0.4 million has been paid) with respect to the first licensed product and up to $1.3 million with respect to each subsequent
licensed product, if any, that is a new chemical entity upon the achievement of certain specified events and to pay a portion of sublicensing income to Childrens. If we receive marketing approval for
ZGN-1061,
we will pay single-digit royalties to Childrens based on net sales of
ZGN-1061
until the later to occur of (i) the expiration of the last to expire
patent in such country within the licensed patents containing a valid claim covering
ZGN-1061
or (ii) 15 years from the date of the agreement. This agreement will remain in effect for the longer of
(i) 15 years and (ii) the life of the last expiring licensed patent, subject to earlier termination (x) by Childrens in the event of our insolvency or our failure to cure a breach within 60 days (30 days in the case of
non-payment)
of receiving written notice thereof, or (y) by us for any reason upon 120 days prior written notice. We are no longer developing beloranib as a treatment for humans.
Intellectual Property
We strive to
protect and enhance the proprietary technologies that we believe are important to our business, including seeking and maintaining patents intended to cover our products and compositions, their methods of use and any other inventions that are
important to the development of our business. We also rely on trade secrets to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection.
Our success will depend significantly on our ability to obtain and maintain patent and other proprietary protection for commercially important
technology, inventions and
know-how
related to our business, defend and enforce our patents, preserve the confidentiality of our trade secrets and operate without infringing the valid and
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enforceable patents and proprietary rights of third parties. We also rely on
know-how,
continuing technological innovation and
in-licensing
opportunities to develop, strengthen and maintain the proprietary position of
ZGN-1061
and our other development programs.
As of March 1, 2017, we own one pending U.S. patent application, one pending Patent Cooperation Treaty, or PCT, patent application, and
two pending U.S. provisional patent applications that relate to
ZGN-1061.
As of March 1,
2017, we own 12 issued U.S. patents, and 14 pending U.S. patent applications with pending foreign counterpart applications, all of which relate to our internal efforts to discover novel MetAP2 inhibitors.
The term of individual patents depends upon the legal term of the patents in the countries in which they are obtained. In most countries in
which we file, the patent term is 20 years from the date of filing the
non-provisional
application. In the United States, a patents term may be lengthened by patent term adjustment, which compensates a
patentee for administrative delays by the U.S. Patent and Trademark Office, or U.S. PTO, in granting a patent, or may be shortened if a patent is terminally disclaimed over an earlier-filed patent. In addition, in certain instances, a patent term
can be extended to recapture a portion of the term effectively lost as a result of the FDA regulatory review period. However, the restoration period cannot be longer than five years and the total patent term including the restoration period must not
exceed 14 years following FDA approval. The duration of foreign patents varies in accordance with provisions of applicable local law, but typically is also twenty years from the earliest effective filing date. Our issued patents will expire on dates
ranging from 2020 to 2032. However, the actual protection afforded by a patent varies on a claim by claim and country to country basis for each applicable product and depends upon many factors, including the type of patent, the scope of its
coverage, the availability of regulatory related extensions, the availability of legal remedies in a particular country and the validity and enforceability of the patent.
Furthermore, the patent positions of biotechnology and pharmaceutical products and processes like those we intend to develop and commercialize
are generally uncertain and involve complex legal and factual questions. No consistent policy regarding the breadth of claims allowed in such patents has emerged to date in the United States. The patent situation outside the United States is even
more uncertain. Changes in either the patent laws or in interpretations of patent laws in the United States and other countries can diminish our ability to protect our inventions, and enforce our intellectual property rights and more generally,
could affect the value of intellectual property. Accordingly, we cannot predict the breadth of claims that may be allowed or enforced in our patents or in third-party patents.
The biotechnology and pharmaceutical industries are characterized by extensive litigation regarding patents and other intellectual property
rights. Our ability to maintain and solidify our proprietary position for our drugs and technology will depend on our success in obtaining effective claims and enforcing those claims once granted. We do not know whether any of the patent
applications that we may file or license from third parties will result in the issuance of any patents. The issued patents that we own or may receive in the future, may be challenged, invalidated or circumvented, and the rights granted under any
issued patents may not provide us with proprietary protection or competitive advantages against competitors with similar technology. Furthermore, our competitors may be able to independently develop and commercialize similar drugs or duplicate our
technology, business model or strategy without infringing our patents. Because of the extensive time required for clinical development and regulatory review of a drug we may develop, it is possible that, before any of our drugs can be
commercialized, any related patent may expire or remain in force for only a short period following commercialization, thereby reducing any advantage of any such patent.
As a result of the America Invents Act of 2011, the United States transitioned to a
first-inventor-to-file
system in March 2013, under which, assuming the other requirements for patentability are met, the first inventor to file a patent application will be entitled to the patent. This will
require us to minimize the time from invention to the filing of a patent application.
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We may rely, in some circumstances, on trade secrets and unpatented
know-how
to protect our technology. However, trade secrets can be difficult to protect. We seek to protect our proprietary technology and processes, in part, by entering into confidentiality agreements with our
consultants, scientific advisors and contractors and invention assignment agreements with our employees. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and
physical and electronic security of our information technology systems. While we have confidence in these individuals, organizations and systems, agreements or security measures may be breached and we may not have adequate remedies for any breach.
In addition, our trade secrets may otherwise become known or be independently discovered by competitors. To the extent that our consultants, contractors or collaborators use intellectual property owned by others in their work for us, disputes may
arise as to the rights in related or resulting
know-how
and inventions. For more information, see Risk FactorsRisks Related to our Intellectual Property.
Our commercial success will also depend in part on not infringing the proprietary rights of third parties. It is uncertain whether the
issuance of any third-party patent would require us to alter our development or commercial strategies, or our drugs or processes, obtain licenses or cease certain activities. Our breach of any license agreements or failure to obtain a license to
proprietary rights that we may require to develop or commercialize our future drugs may have a material adverse impact on us. If third parties prepare and file patent applications in the United States that also claim technology to which we have
rights, we may have to participate in interference proceedings in the U.S. PTO, to determine priority of invention.
In addition,
substantial scientific and commercial research has been conducted for many years in the areas in which we have focused our development efforts, which has resulted in third parties having a number of issued patents and pending patent applications.
Patent applications in the United States and elsewhere are published only after 18 months from the priority date. The publication of discoveries in the scientific or patent literature frequently occurs substantially later than the date on which the
underlying discoveries were made. Therefore, patent applications relating to drugs similar to
ZGN-1061
and any future drugs, discoveries or technologies we might develop may have already been filed by others
without our knowledge.
Competition
The biopharmaceuticals industry is highly competitive. There are many public and private biopharmaceutical companies, universities,
governmental agencies and other research organizations actively engaged in the research and development of products that may be similar to our product candidates or address similar markets. It is probable that the number of companies seeking to
develop products and therapies similar to our products will increase. Many of these and other existing or potential competitors have substantially greater financial, technical and human resources than we do and may be better equipped to develop,
manufacture and market products. These competitors may develop and introduce products and processes comparable or superior to ours.
Obesity
Surgical Approaches
Surgical
approaches to treat obesity are becoming increasingly accepted and are believed to be the main form of competition to
ZGN-1061
in this indication. Bariatric surgery eligibility criteria generally identify
surgical candidates as those patients with BMIs greater than 40 kg/m2, or those with BMIs over 35 kg/m2 who also have a significant and uncontrolled
co-morbid
condition. Other potential competitors in the
obesity market include bariatric service providers, and other potential approaches which utilize various implantable devices or surgical tools that have been approved by the FDA, such as EnteroMedics Inc.s recently
FDA-approved
(January 2015) VBlock Therapy, or that are in development by companies such as Allergan, Inc., Boston Scientific Corporation, Covidien Ltd., EnteroMedics, Inc., GI Dynamics, Inc., Johnson &
Johnson and Medtronic, Inc.
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Existing Obesity Drugs
In addition,
ZGN-1061
may compete with orlistat, lorcaserin, phentermine/topiramate,
bupropion/naltrexone and liraglutide, which are approved and currently marketed pharmaceutical products in the United States for the treatment of obesity. Several additional agents are also available in the United States (phentermine,
phendimetrazine, benzphetamine and diethylpropion) however they are only indicated for short-term (a few weeks) administration. Overall, the available products are constrained in their ability to effectively treat patients with obesity either
because of limitations in efficacy or because of safety restrictions.
Despite the large market opportunity for anti-obesity agents, there
are relatively few competitive products in late-stage clinical development. There are a number of other pharmaceutical, biotechnology and device companies that are pursuing treatments for obesity.
Existing Type 2 Diabetes Drugs
Biguanides (metformin) is first line pharmacotherapy for the treatment of type 2 diabetes primarily due to the extensive experience, low cost
and favorable benefit risk associated with it. While metformin is likely to remain the initial choice for the treatment of type 2 diabetes,
ZGN-1061
will compete with sulfonylureas,
GLP-1
receptor agonists, DPP4 inhibitors, SGLT2 inhibitors, thiazoladinediones, insulin, and various combination products. Although these pharmacotherapies are all effective to some extent in the treatment of type 2
diabetes, they each have notable limitations, and have not been found to halt the progression of type 2 diabetes. Therefore, additional effective and durable options are needed.
There are a number of pharmaceutical and biotechnology companies that have type 2 diabetes drugs that are pursuing products with unique
mechanisms of action for the treatment of type 2 diabetes.
Government Regulation
Government authorities in the United States at the federal, state and local level and in other countries extensively regulate, among other
things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export and import of drug
products such as
ZGN-1061.
Generally, before a new drug can be marketed, considerable data demonstrating its quality, safety and efficacy must be obtained, organized into a format specific to each regulatory
authority, submitted for review and approved by the regulatory authority.
U.S. Drug Development
In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or FDCA, and its implementing regulations. Drugs
are also subject to other federal, state and local statutes and regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the
expenditure of substantial time and financial resources. Failure to comply with the applicable United States requirements at any time during the product development process, approval process or after approval, may subject an applicant to
administrative or judicial sanctions. These sanctions could include, among other actions, the FDAs refusal to approve pending applications, withdrawal of an approval, a clinical hold, untitled or warning letters, voluntary product recalls,
withdrawals from the market, product seizures, total or partial suspension of production or distribution injunctions, fines, refusals of government contracts, restitution, disgorgement, or civil or criminal penalties. Any agency or judicial
enforcement action could have a material adverse effect on us.
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Our product candidates must be approved by the FDA through the New Drug application, or NDA,
process before they may be legally marketed in the United States. The process required by the FDA before a drug may be marketed in the United States generally involves the following:
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Completion of extensive nonclinical, sometimes referred to as
pre-clinical
laboratory tests,
pre-clinical
animal studies and formulation
studies in accordance with applicable regulations, including the FDAs Good Laboratory Practice, or GLP, regulations;
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Submission to the FDA of an IND, which must become effective before human clinical trials may begin;
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Performance of adequate and well-controlled human clinical trials in accordance with applicable IND and other clinical trial-related regulations, sometimes referred to as good clinical practices, or GCPs, to establish
the safety and efficacy of the proposed drug for its proposed indication;
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Submission to the FDA of an NDA for a new drug;
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A determination by the FDA within 60 days of its receipt of an NDA to file the NDA for review;
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Satisfactory completion of an FDA
pre-approval
inspection of the manufacturing facility or facilities where the drug is produced to assess compliance with the FDAs current
good manufacturing practice requirements, or cGMP, to assure that the facilities, methods and controls are adequate to preserve the drugs identity, strength, quality and purity;
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Potential FDA audit of the
pre-clinical
study and/or clinical trial sites that generated the data in support of the NDA; and
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FDA review and approval of the NDA prior to any commercial marketing or sale of the drug in the United States.
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The data required to support an NDA is generated in two distinct development stages:
pre-clinical
and
clinical. For new chemical entities, the
pre-clinical
development stage generally involves synthesizing the active component, developing the formulation and determining the manufacturing process, as well as
carrying out
non-human
toxicology, pharmacology and drug metabolism studies in the laboratory, which support subsequent clinical testing. The conduct of the
pre-clinical
tests must comply with federal regulations, including GLPs. The sponsor must submit the results of the
pre-clinical
tests, together with manufacturing information, analytical data, any available clinical data
or literature and a proposed clinical protocol, to the FDA as part of the IND. An IND is a request for authorization from the FDA to administer an investigational drug product to humans. The central focus of an IND submission is on the general
investigational plan and the protocol(s) for human clinical trials. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA raises concerns or questions regarding the proposed clinical trials and places the IND on
clinical hold within that
30-day
time period. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. The FDA may also impose clinical holds on a
drug candidate at any time before or during clinical trials due to safety concerns or
non-compliance.
Accordingly, we cannot be sure that submission of an IND will result in the FDA allowing clinical trials to
begin, or that, once begun, issues will not arise that could cause the clinical trial to be suspended or terminated.
The clinical stage
of development involves the administration of the drug candidate to healthy volunteers or patients under the supervision of qualified investigators, generally physicians not employed by or under the clinical trial sponsors control, in
accordance with GCPs, which include the requirement that all research subjects provide their informed consent for their participation in any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives
of the clinical trial, dosing procedures, subject selection and exclusion criteria, and the parameters to be used to monitor subject safety and assess efficacy. Each protocol, and any subsequent amendments to the protocol, must be submitted to the
FDA as part of the IND. Further, each clinical trial must be reviewed and approved by an independent institutional review board, or IRB, at or servicing each institution at which the clinical trial will be conducted. An IRB is charged with
protecting the welfare and
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rights of clinical trial participants and considers such items as whether the risks to individuals participating in the clinical trials are minimized and are reasonable in relation to anticipated
benefits. The IRB also approves the informed consent form that must be provided to each clinical trial subject or his or her legal representative and must monitor the clinical trial until completed. There are also requirements governing the
reporting of ongoing clinical trials and completed clinical trial results to public registries.
Clinical trials are generally conducted
in three sequential phases that may overlap, known as Phase 1, Phase 2 and Phase 3 clinical trials. Phase 1 clinical trials generally involve a small number of healthy volunteers who are initially exposed to a single dose and then multiple
doses of the product candidate. The primary purpose of these clinical trials is to assess the metabolism, pharmacologic action, side effect tolerability and safety of the drug. Phase 2 clinical trials typically involve studies in disease-affected
patients to determine the dose required to produce the desired benefits. At the same time, safety and further pharmacokinetic and pharmacodynamic information is collected, as well as identification of possible adverse effects and safety risks and
preliminary evaluation of efficacy. Phase 3 clinical trials generally involve large numbers of patients at multiple sites, in multiple countries (from several hundred to several thousand subjects) and are designed to provide the data necessary to
demonstrate the efficacy of the product for its intended use, its safety in use, and to establish the overall benefit/risk relationship of the product and provide an adequate basis for physician labeling. Phase 3 clinical trials may include
comparisons with placebo and/or other comparator treatments. The duration of treatment is often extended to mimic the actual use of a product during marketing. Generally, two adequate and well-controlled Phase 3 clinical trials are required by the
FDA for approval of an NDA, although additional Phase 3 clinical trials may be required for certain indications.
Post-approval
trials, sometimes referred to as Phase 4 clinical trials, may be conducted after initial marketing approval. These clinical trials are used to gain additional experience from the treatment of patients in the intended therapeutic indication. In
certain instances, the FDA may mandate the performance of Phase 4 clinical trials.
Progress reports detailing the results of the clinical
trials must be submitted at least annually to the FDA and written IND safety reports must be submitted to the FDA and the investigators for serious and unexpected suspected adverse events, findings from animal or
in vitro
testing or other
studies that suggest a significant risk for human subjects and any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigator brochure. Phase 1, Phase 2 and Phase 3 clinical
trials may not be completed successfully within any specified period, if at all. The FDA, the IRB, or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects or patients
are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRBs requirements or if the drug
has been associated with unexpected serious harm to patients. Additionally, some clinical trials are overseen by an independent group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board or committee.
This group provides authorization for whether or not a clinical trial may move forward at designated check points based on access to certain data from the clinical trial. We may also suspend or terminate a clinical trial based on evolving business
objectives and/or competitive climate. Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the drug as well as
finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the drug candidate and manufacturers, among other
things, must develop methods for testing the identity, strength, quality and purity of the final drug product. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the drug
candidate does not undergo unacceptable deterioration over its shelf life.
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NDA and FDA Review Process
Following clinical trial completion, clinical trial data are analyzed to assess safety and efficacy. The results of
pre-clinical
studies and clinical trials are then submitted to the FDA as part of an NDA, along with proposed labeling for the product and information about the manufacturing process and facilities that will be used
to ensure product quality, results of analytical testing conducted on the chemistry of the drug, and other relevant information. The NDA is a request for approval to market the drug and must contain proof of safety and efficacy, which is
demonstrated by extensive
pre-clinical
and clinical testing. The application includes both negative or ambiguous results of
pre-clinical
studies and clinical trials as
well as positive findings. Data may come from company-sponsored clinical trials intended to test the safety and efficacy of a use of a product, or from a number of alternative sources, including studies initiated by investigators. To support
marketing approval, the data submitted must be sufficient in quality and quantity to establish the safety and efficacy of the investigational drug product to the satisfaction of the FDA. The submission of an NDA is subject to the payment of
substantial user fees; a waiver of such fees may be obtained under certain limited circumstances. FDA approval of an NDA must be obtained before a drug may be offered for sale in the United States.
In addition, under the Pediatric Research Equity Act, or PREA, an NDA or supplement to an NDA must contain data to assess the safety and
efficacy of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA may grant deferrals for
submission of data or full or partial waivers.
Under the Prescription Drug User Fee Act, or PDUFA, as amended, each NDA must be
accompanied by a user fee. The FDA adjusts the PDUFA user fees on an annual basis. According to the FDAs fee schedule for fiscal year 2017, the user fee for an application requiring clinical data, such as an NDA, is $2,038,100. PDUFA also
imposes an annual product fee for human drugs of $97,750 and an annual establishment fee of $512,200 on facilities used to manufacture prescription drugs. Fee waivers or reductions are available in certain circumstances, including a waiver of the
application fee for the first application filed by a small business.
The FDA reviews all NDAs submitted before it accepts them for filing
and may request additional information rather than accepting an NDA for filing. The FDA must make a decision on accepting an NDA for filing within 60 days of receipt. Once the submission is accepted for filing, the FDA begins an
in-depth
review of the NDA. Under the goals and policies agreed to by the FDA under PDUFA, the FDA has 10 months from the filing date in which to complete its initial review of a standard new molecular-entity NDA
and respond to the applicant, and six months from the filing date for a priority new molecular-entity NDA. The FDA does not always meet its PDUFA goal dates for standard and priority NDAs, and the review process is often significantly extended by
FDA requests for additional information or clarification.
After the NDA submission is accepted for filing, the FDA reviews the NDA to
determine, among other things, whether the proposed product is safe and effective for its intended use, and whether the product is being manufactured in accordance with cGMP to assure and preserve the products identity, strength, quality and
purity. The FDA may refer applications for novel drug products or drug products which present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation
and a recommendation as to whether the application should be approved and under what conditions. In the case of obesity drugs, the FDA normally refers such drugs to the Endocrinologic and Metabolic Drugs Advisory Committee. The FDA is not bound by
the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions. The FDA will likely
re-analyze
the clinical trial data, which could result in extensive
discussions between the FDA and us during the review process. The review and evaluation of an NDA by the FDA is extensive and time consuming and may take longer than originally planned to complete, and we may not receive a timely approval, if at
all.
Before approving an NDA, the FDA will conduct a
pre-approval
inspection of the manufacturing
facilities for the new product to determine whether they comply with cGMPs. The FDA will not approve the product unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements
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and adequate to assure consistent production of the product within required specifications. In addition, before approving an NDA, the FDA may also audit data from clinical trials to ensure
compliance with GCP requirements. After the FDA evaluates the application, manufacturing process and manufacturing facilities, it may issue an approval letter or a Complete Response Letter. An approval letter authorizes commercial marketing of the
drug with specific prescribing information for specific indications. A Complete Response Letter indicates that the review cycle of the application is complete and the application is not ready for approval. A Complete Response Letter usually
describes all of the specific deficiencies in the NDA identified by the FDA. The Complete Response Letter may require additional clinical data and/or an additional pivotal Phase 3 clinical trial(s), and/or other significant and time-consuming
requirements related to clinical trials,
pre-clinical
studies or manufacturing. If a Complete Response Letter is issued, the applicant may either resubmit the NDA, addressing all of the deficiencies identified
in the letter, or withdraw the application. Even if such data and information is submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. Data obtained from clinical trials are not always conclusive and the
FDA may interpret data differently than we interpret the same data.
There is no assurance that the FDA will ultimately approve a drug
product for marketing in the United States and we may encounter significant difficulties or costs during the review process. If a product receives marketing approval, the approval may be significantly limited to specific diseases and dosages or the
indications for use may otherwise be limited, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings or precautions be included in the product labeling or may condition the
approval of the NDA on other changes to the proposed labeling, development of adequate controls and specifications, or a commitment to conduct post-market testing or clinical trials and surveillance to monitor the effects of approved products. For
example, the FDA may require Phase 4 testing which involves clinical trials designed to further assess drug safety and effectiveness and may require testing and surveillance programs to monitor the safety of approved products that have been
commercialized. The FDA may also place other conditions on approvals including the requirement for a Risk Evaluation and Mitigation Strategy, or REMS, to assure the safe use of the drug. If the FDA concludes a REMS is needed, the sponsor of the NDA
must submit a proposed REMS. The FDA will not approve the NDA without an approved REMS, if required. A REMS could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods,
patient registries and other risk minimization tools. Any of these limitations on approval or marketing could restrict the commercial promotion, distribution, prescription or dispensing of products. Product approvals may be withdrawn for
non-compliance
with regulatory standards or if problems occur following initial marketing.
Expedited Development
and Review Programs
The FDA has a Fast Track program that is intended to expedite or facilitate the process for reviewing new
drugs and biological products that are intended to treat a serious or life-threatening condition and demonstrate the potential to address unmet medical needs for the condition. Fast Track designation applies to the combination of the product and the
specific indication for which it is being studied. The sponsor of a new drug or biologic may request the FDA to designate the drug or biologic as a Fast Track product at any time during the clinical development of the product. Unique to a Fast Track
product, the FDA may consider for review sections of the marketing application on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the application, the FDA agrees
to accept sections of the application and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the application.
Any product submitted to the FDA for marketing, including under a Fast Track program, may be eligible for other types of FDA programs intended
to expedite development and review, such as priority review and accelerated approval. Any product is eligible for priority review if it has the potential to provide safe and effective therapy where no satisfactory alternative therapy exists or a
significant improvement in the treatment, diagnosis or prevention of a disease compared to marketed products.
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Any product is eligible for priority review if it treats a serious or life-threatening condition
and, if approved, would provide a significant improvement in safety and effectiveness compared to available therapies. The FDA will attempt to direct additional resources to the evaluation of an application for a new drug or biologic designated for
priority review in an effort to facilitate the review.
A product may be eligible for accelerated approval. Drug or biological products
studied for their safety and effectiveness in treating serious or life-threatening illnesses and that provide meaningful therapeutic benefit over existing treatments may receive accelerated approval, which means that they may be approved on the
basis of adequate and well-controlled clinical trials establishing that the product has an effect on a surrogate endpoint that is reasonably likely to predict a clinical benefit, or on the basis of an effect on a clinical endpoint that can be
measured earlier than irreversible morbidity or mortality, or IMM, that is reasonably likely to predict an effect on IMM or other clinical benefit. As a condition of approval, the FDA may require that a sponsor of a drug or biological product
receiving accelerated approval perform adequate and well-controlled post-marketing clinical trials. If the FDA concludes that a drug shown to be effective can be safely used only if distribution or use is restricted, it will require such
post-marketing restrictions as it deems necessary to assure safe use of the drug, such as:
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distribution restricted to certain facilities or physicians with special training or experience; or
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distribution conditioned on the performance of specified medical procedures.
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The limitations
imposed would be commensurate with the specific safety concerns presented by the drug. In addition, the FDA currently requires as a condition for accelerated approval,
pre-approval
of promotional materials,
which could adversely impact the timing of the commercial launch of the product.
Additionally, a drug or biological product may be
eligible for designation as a Breakthrough Therapy if the product is intended, alone or in combination with one or more other drugs or biologics, to treat a serious or life-threatening condition and preliminary clinical evidence indicates that the
product may demonstrate substantial improvement over currently approved therapies on one or more clinically significant endpoint. The benefits of Breakthrough Therapy designation include the same benefits as Fast Track designation, plus intensive
guidance from the FDA to ensure an efficient drug development program. Fast Track designation, priority review, accelerated approval and Breakthrough Therapy designation do not change the standards for approval but may expedite the development or
approval process.
Pediatric Clinical Trials
The Food and Drug Administration Safety and Innovation Act, or FDASIA, was signed into law on July 9, 2012, and amended the FDCA. FDASIA
requires that a sponsor who is planning to submit a marketing application for a drug or biological product that includes a new active ingredient, new indication, new dosage form, new dosing regimen or new route of administration submit an initial
Pediatric Study Plan, or PSP, within sixty days of an
end-of-Phase
2 meeting or as may be agreed between the sponsor and the FDA. The initial PSP must include an outline
of the pediatric study or studies that the sponsor plans to conduct, including study objectives and design, age groups, relevant endpoints and statistical approach, or a justification for not including such detailed information, and any request for
a deferral of pediatric assessments or a full or partial waiver of the requirement to provide data from pediatric studies along with supporting information. The FDA and the sponsor must reach agreement on the PSP. A sponsor can submit amendments to
an agreed-upon initial PSP at any time if changes to the pediatric plan need to be considered based on data collected from nonclinical studies, early phase clinical trials, and/or other clinical development programs.
Post-Marketing Requirements
Following approval of a new product, a pharmaceutical or biotechnology company and the approved product are subject to continuing regulation by
the FDA, including, among other things, monitoring and recordkeeping activities, reporting to the applicable regulatory authorities of adverse experiences with the
21
product, providing the regulatory authorities with updated safety and efficacy information, product sampling and distribution requirements, and complying with promotion and advertising
requirements, which include, among others, standards for
direct-to-consumer
advertising, restrictions on promoting drugs for uses or in patient populations that are not
described in the drugs approved labeling (known as
off-label
use), limitations on industry-sponsored scientific and educational activities, and requirements for promotional activities
involving the internet. Although physicians may prescribe legally available drugs for
off-label
uses, manufacturers may not market or promote such
off-label
uses.
Modifications or enhancements to the product or its labeling or changes of the site of manufacture are often subject to the approval of the FDA and other regulators, which may or may not be received or may result in a lengthy review process.
Prescription drug advertising is subject to federal, state and foreign regulations. In the United States, the FDA regulates prescription drug
promotion, including
direct-to-consumer
advertising. Prescription drug promotional materials must be submitted to the FDA in conjunction with their first use. Any
distribution of prescription drug products and pharmaceutical samples must comply with the U.S. Prescription Drug Marketing Act, or the PDMA, a part of the FDCA.
In the United States, once a product is approved, its manufacture is subject to comprehensive and continuing regulation by the FDA. The FDA
regulations require that products be manufactured in specific approved facilities and in accordance with cGMP. We rely, and expect to continue to rely, on third parties for the production of clinical and commercial quantities of our products in
accordance with cGMP regulations. cGMP regulations require among other things, quality control and quality assurance as well as the corresponding maintenance of records and documentation and the obligation to investigate and correct any deviations
from cGMP. Drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced
inspections by the FDA and certain state agencies for compliance with cGMP and other laws. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance. These
regulations also impose certain organizational, procedural and documentation requirements with respect to manufacturing and quality assurance activities. NDA holders using contract manufacturers, laboratories or packagers are responsible for the
selection and monitoring of qualified firms, and, in certain circumstances, qualified suppliers to these firms. These firms and, where applicable, their suppliers are subject to inspections by the FDA at any time, and the discovery of violative
conditions, including failure to conform to cGMP, could result in enforcement actions that interrupt the operation of any such facilities or the ability to distribute products manufactured, processed or tested by them. Discovery of problems with a
product after approval may result in restrictions on a product, manufacturer, or holder of an approved NDA, including, among other things, voluntary recall or withdrawal of the product from the market.
The FDA also may require post-approval testing, sometimes referred to as Phase 4 testing, risk minimization action plans and post-marketing
surveillance to monitor the effects of an approved product or place conditions on an approval that could restrict the distribution or use of the product. Discovery of previously unknown problems with a product or the failure to comply with
applicable FDA requirements can have negative consequences, including adverse publicity, judicial or administrative enforcement, untitled or warning letters from the FDA, mandated corrective advertising or communications with doctors, and civil or
criminal penalties, among others. Newly discovered or developed safety or effectiveness data may require changes to a products approved labeling, including the addition of new warnings and contraindications, and also may require the
implementation of other risk management measures. Also, new government requirements, including those resulting from new legislation, may be established, or the FDAs policies may change, which could delay or prevent regulatory approval of our
products under development.
Other Regulatory Matters
Manufacturing, sales, promotion and other activities following product approval are also subject to regulation by numerous regulatory
authorities in addition to the FDA, including, in the United States, the Centers
22
for Medicare & Medicaid Services, other divisions of the Department of Health and Human Services, the Drug Enforcement Administration, the Consumer Product Safety Commission, the Federal
Trade Commission, the Occupational Safety & Health Administration, the Environmental Protection Agency and state and local governments. In the United States, sales, marketing and scientific/educational programs must also comply with state
and federal fraud and abuse laws. Pricing and rebate programs must comply with the Medicaid rebate requirements of the U.S. Omnibus Budget Reconciliation Act of 1990 and more recent requirements in the Patient Protection and Affordable Care Act, as
amended by the Health Care and Education Reconciliation Act of 2010, or ACA. If products are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. The
handling of any controlled substances must comply with the U.S. Controlled Substances Act and Controlled Substances Import and Export Act. Products must meet applicable child-resistant packaging requirements under the U.S. Poison Prevention
Packaging Act. Manufacturing, sales, promotion and other activities are also potentially subject to federal and state consumer protection and unfair competition laws.
The distribution of pharmaceutical products is subject to additional requirements and regulations, including extensive record-keeping,
licensing, storage and security requirements intended to prevent the unauthorized sale of pharmaceutical products.
The failure to comply
with regulatory requirements subjects firms to possible legal or regulatory action. Depending on the circumstances, failure to meet applicable regulatory requirements can result in criminal prosecution, fines or other penalties, injunctions,
voluntary recall or seizure of products, total or partial suspension of production, denial or withdrawal of product approvals, or refusal to allow a firm to enter into supply contracts, including government contracts. In addition, even if a firm
complies with FDA and other requirements, new information regarding the safety or efficacy of a product could lead the FDA to modify or withdraw product approval. Prohibitions or restrictions on sales or withdrawal of future products marketed by us
could materially affect our business in an adverse way.
Changes in regulations, statutes or the interpretation of existing regulations
could impact our business in the future by requiring, for example: (i) changes to our manufacturing arrangements; (ii) additions or modifications to product labeling; (iii) the voluntary recall or discontinuation of our products; or
(iv) additional record-keeping requirements. If any such changes were to be imposed, they could adversely affect the operation of our business.
U.S. Patent Term Restoration and Marketing Exclusivity
Depending upon the timing, duration and specifics of the FDA approval of our drug candidates, some of our U.S. patents may be eligible for
limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to five years as
compensation for patent term lost during product development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years from the products approval date. The
patent term restoration period is generally
one-half
the time between the effective date of an IND and the submission date of an NDA plus the time between the submission date of an NDA and the approval of that
application, minus any time the applicant did not act with due diligence. Only one patent applicable to an approved drug is eligible for the extension and the application for the extension must be submitted prior to the expiration of the patent. The
U.S. PTO, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. In the future, we intend to apply for restoration of patent term for one of our currently owned or licensed patents to add
patent life beyond its current expiration date, depending on the expected length of the clinical trials and other factors involved in the filing of the relevant NDA.
Marketing exclusivity provisions under the FDCA can also delay the submission or the approval of certain marketing applications. The FDCA
provides a five-year period of
non-patent
marketing exclusivity within the United States to the first applicant to obtain approval of an NDA for a new chemical entity. A drug is a new
23
chemical entity if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During
the exclusivity period, the FDA may not accept for review an abbreviated new drug application, or ANDA, or a 505(b)(2) NDA submitted by another company for another drug based on the same active moiety, regardless of whether the drug is intended for
the same indication as the original innovator drug or for another indication, where the applicant does not own or have a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it
contains a certification of patent invalidity or
non-infringement
to one of the patents listed with the FDA by the innovator NDA holder. The FDCA also provides three years of marketing exclusivity for an NDA,
or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example for new
indications, dosages or strengths of an existing drug. This three-year exclusivity covers only the modification for which the drug received approval on the basis of the new clinical investigations and does not prohibit the FDA from approving ANDAs
for drugs containing the active agent for the original indication or condition of use. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA. However, an applicant submitting a full NDA would be required to
conduct or obtain a right of reference to all of the
pre-clinical
studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness. Pediatric exclusivity is another
type of regulatory market exclusivity in the United States. Pediatric exclusivity, if granted, adds six months to existing exclusivity periods and patent terms. This
six-month
exclusivity, which runs from the
end of other exclusivity protection or patent term, may be granted based on the voluntary completion of a pediatric trial in accordance with an
FDA-issued
Written Request for such a clinical trial.
European Union Drug Development
In the European Union, our future products may also be subject to extensive regulatory requirements. As in the United States, medicinal
products can only be marketed if a marketing authorization from the competent regulatory agencies has been obtained.
Similar to the
United States, the various phases of
pre-clinical
and clinical research in the European Union are subject to significant regulatory controls. Although the EU Clinical Trials Directive 2001/20/EC has sought to
harmonize the European Union clinical trials regulatory framework, setting out common rules for the control and authorization of clinical trials in the European Union, the European Union Member States have transposed and applied the provisions of
the Directive differently. This has led to significant variations in the member state regimes. Under the current regime, before a clinical trial can be initiated it must be approved in each of the European Union countries where the clinical trial is
to be conducted by two distinct bodies: the National Competent Authority, or NCA, and one or more Ethics Committees, or ECs. Under the current regime all suspected unexpected serious adverse reactions to the investigated drug that occur during the
clinical trial have to be reported to the NCA and ECs of the Member State where they occurred. In April 2014, the European Union adopted a new Clinical Trials Regulation (EU) No 536/2014, which is set to replace the current Clinical Trials Directive
2001/20/EC. It is expected that the new Clinical Trials Regulation will apply by October 2018. It will overhaul the current system of approvals for clinical trials in the European Union. Specifically, the new legislation, which will be directly
applicable in all member states, aims at simplifying and streamlining the approval of clinical trials in the European Union. For instance, the new Clinical Trials Regulation provides for a streamlined application procedure via a single entry point
and strictly defined deadlines for the assessment of clinical trial applications.
European Union Drug Review and Approval
In the European Economic Area, or EEA, which is comprised of the 28 Member States of the European Union plus Norway, Iceland and Liechtenstein,
medicinal products can only be commercialized after obtaining a Marketing Authorization, or MA. There are two types of marketing authorizations:
The Community MA, which is issued by the European Commission through the Centralized Procedure, based on the opinion of the Committee for
Medicinal Products for Human Use, or CHMP, of the European
24
Medicines Agency, or EMA, and which is valid throughout the entire territory of the EEA. The Centralized Procedure is mandatory for certain types of products, such as biotechnology medicinal
products, orphan medicinal products, and medicinal products containing a new active substance indicated for the treatment of AIDS, cancer, neurodegenerative disorders, diabetes, auto-immune and viral diseases. The Centralized Procedure is optional
for products containing a new active substance not yet authorized in the EEA, or for products that constitute a significant therapeutic, scientific or technical innovation or which are in the interest of public health in the European Union.
National MAs, which are issued by the competent authorities of the Member States of the EEA and only cover their respective territory, are
available for products not falling within the mandatory scope of the Centralized Procedure. Where a product has already been authorized for marketing in a Member State of the EEA, this National MA can be recognized in another Member States through
the Mutual Recognition Procedure. If the product has not received a National MA in any Member State at the time of application, it can be approved simultaneously in various Member States through the Decentralized Procedure. Under the Decentralized
Procedure an identical dossier is submitted to the competent authorities of each of the Member States in which the MA is sought, one of which is selected by the applicant as the Reference Member State, or RMS. The competent authority of the RMS
prepares a draft assessment report, a draft summary of the product characteristics, or SPC, and a draft of the labeling and package leaflet, which are sent to the other Member States (referred to as the Member States Concerned) for their approval.
If the Member States Concerned raise no objections, based on a potential serious risk to public health, to the assessment, SPC, labeling, or packaging proposed by the RMS, the product is subsequently granted a national MA in all the Member States
(i.e. in the RMS and the Member States Concerned).
Under the above described procedures, before granting the MA, the EMA or the competent
authorities of the Member States of the EEA make an assessment of the risk-benefit balance of the product on the basis of scientific criteria concerning its quality, safety and efficacy.
European Union New Chemical Entity Exclusivity
In the European Union, new chemical entities, sometimes referred to as new active substances, qualify for eight years of data exclusivity upon
marketing authorization and an additional two years of market exclusivity. This data exclusivity, if granted, prevents regulatory authorities in the European Union from referencing the innovators data to assess a generic application for eight
years, after which generic marketing authorization can be submitted, and the innovators data may be referenced, but not approved for two years. The overall
ten-year
period will be extended to a maximum
of 11 years if, during the first eight years of those ten years, the marketing authorization holder obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to their authorization, are held
to bring a significant clinical benefit in comparison with existing therapies.
Reimbursement
Sales of our products will depend, in part, on the extent to which our products will be covered by third-party payors, such as government
health programs, commercial insurance and managed healthcare organizations. These third-party payors are increasingly reducing reimbursements for medical products and services.
Additionally, the containment of healthcare costs has become a priority of federal and state governments, and the prices of drugs have been a
focus in this effort. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing cost-containment programs, including price controls, restrictions on reimbursement and requirements for
substitution of generic products. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit our net revenue and results. Decreases in
third-party reimbursement for our product candidate or a decision by a third-party payor to not cover our product candidate could reduce physician usage of the product candidate and have a material adverse effect on our sales, results of operations
and financial condition.
25
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or the MMA,
established the Medicare Part D program to provide a voluntary prescription drug benefit to Medicare beneficiaries. Under Part D, Medicare beneficiaries may enroll in prescription drug plans offered by private entities which provide coverage of
outpatient prescription drugs. Unlike Medicare Part A and B, Part D coverage is not standardized. Part D prescription drug plan sponsors are not required to pay for all covered Part D drugs, and each drug plan can develop its own drug formulary that
identifies which drugs it will cover and at what tier or level. However, Part D prescription drug formularies must include drugs within each therapeutic category and class of covered Part D drugs, though not necessarily all the drugs in each
category or class. Any formulary used by a Part D prescription drug plan must be developed and reviewed by a pharmacy and therapeutic committee. Government payment for some of the costs of prescription drugs may increase demand for products for
which we receive marketing approval. However, any negotiated prices for our products covered by a Part D prescription drug plan will likely be lower than the prices we might otherwise obtain. Moreover, while the MMA applies only to drug benefits for
Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own payment rates. Any reduction in payment that results from the MMA may result in a similar reduction in payments from
non-governmental
payors.
The American Recovery and Reinvestment Act of 2009 provides funding for the
federal government to compare the effectiveness of different treatments for the same illness. The plan for the research was published in 2012 by the Department of Health and Human Services, the Agency for Healthcare Research and Quality and the
National Institutes for Health, and periodic reports on the status of the research and related expenditures are made to Congress. Although the results of the comparative effectiveness studies are not intended to mandate coverage policies for public
or private payors, it is not clear what effect, if any, the research will have on the sales of our product candidates, if any such product or the condition that it is intended to treat is the subject of a trial. It is also possible that comparative
effectiveness research demonstrating benefits in a competitors product could adversely affect the sales of our product candidates. If third-party payors do not consider our products to be cost-effective compared to other available therapies,
they may not cover our products after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow us to sell our products on a profitable basis.
The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively the
ACA, enacted in March 2010, has a significant impact on the health care industry. The ACA is intended to expand coverage for the uninsured while at the same time containing overall healthcare costs. With regard to pharmaceutical products, among
other things, the ACA expands and increases industry rebates for drugs covered under Medicaid programs and makes changes to the coverage requirements under the Medicare Part D program. Pharmaceutical manufacturers are required to track certain
financial arrangements with physicians and teaching hospitals, including any transfer of value made or distributed to such entities, as well as any investment interests held by physicians and their immediate family members. Manufacturers
are required to annually report this information to CMS which posts the information on its website. 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. We do not know at this time what implications such changes, if enacted, would have on the ACAs 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
in the United States since the ACA was enacted. On August 2, 2011, the Budget Control Act of 2011 among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending
a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislations automatic reduction to several government programs. This includes aggregate
reductions to Medicare payments to providers of up to 2% per fiscal year, started in April 2013. On January 2, 2013, then President Obama signed into law the American Taxpayer Relief Act of 2012, or the ATRA, which delayed for another two
months the budget cuts mandated by these sequestration provisions of the Budget Control Act of 2011. The ATRA, among other things, also reduced Medicare payments to several providers,
26
including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five
years. We expect that additional 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, and in turn could significantly
reduce the projected value of certain development projects and reduce our profitability.
In addition, in some foreign countries, the
proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely from country to country. For example, the European Union provides options for its member states to restrict the
range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may
instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical
products will allow favorable reimbursement and pricing arrangements for any of our products. Historically, products launched in the European Union do not follow price structures of the United States and generally tend to be significantly lower.
Employees
As of March 1, 2017,
we employed 32 full-time employees, including 25 in research and development and 7 in general and administrative. We have never had a work stoppage, and none of our employees is represented by a labor organization or under any collective-bargaining
arrangements. We consider our employee relations to be good.
Our Corporate Information
We were incorporated under the laws of the State of Delaware in 2005. Our principal executive offices are located at 175 Portland Street, 4th
Floor, Boston, MA 02114, and our telephone number is
(617) 622-4003.
Our website address is www.zafgen.com.
Available Information
We make available
free of charge through our website our annual report on Form
10-K,
quarterly reports on Form
10-Q,
current reports on Form
8-K
and amendments to those reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We make these reports available through our website as soon as reasonably
practicable after we electronically file such reports with, or furnish such reports to, the SEC. You can find, copy and inspect information we file at the SECs public reference room, which is located at 100 F Street, N.E., Room 1580,
Washington, DC 20549. Please call the SEC at
1-800-SEC-0330
for more information about the operation of the SECs public
reference room. You can review our electronically filed reports and other information that we file with the SEC on the SECs web site at http://www.sec.gov. We also make available, free of charge on our website, the reports filed with the SEC
by our executive officers, directors and 10% stockholders pursuant to Section 16 under the Exchange Act as soon as reasonably practicable after copies of those filings are provided to us by those persons. The information contained on, or that
can be accessed through, our website is not a part of or incorporated by reference in this Annual Report.
Investing in our common stock involves a high degree of risk. You
should carefully consider the risks described below, as well as the other information in this Annual Report on Form
10-K,
or Annual Report, and in our other public filings before making an investment decision.
Our business, prospects, financial condition, or operating results could be harmed by any of these risks, as well as other risks not currently known to us or that we currently consider immaterial. If any such risks or uncertainties actually occur,
our business, financial condition or operating results could differ materially from the plans, projections and other forward-looking
27
statements included in the section titled Managements Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this Annual Report and in our
other public filings. The trading price of our common stock could decline due to any of these risks, and as a result, you may lose all or part of your investment.
Risks Related to Product Development, Regulatory Approval and Commercialization
We currently depend almost entirely on the success of one product candidate,
ZGN-1061,
which is currently in
Phase 1 clinical development. We cannot be certain that we will be able to obtain regulatory approval for
ZGN-1061,
or successfully commercialize
ZGN-1061
if approved.
We currently have only one product candidate,
ZGN-1061,
in Phase 1 clinical development in
the Netherlands, and our business currently depends almost entirely on its successful clinical development, regulatory approval and commercialization. We currently have no drug products for sale and may never be able to develop marketable drug
products. In order to conduct clinical trials in the United States we need to file an Investigational New Drug application, or IND with the U.S. Food and Drug Administration, or FDA. Because our business is almost entirely dependent upon this one
product candidate, any setback in our pursuit of regulatory approval for
ZGN-1061
would have a material adverse effect on our business and prospects. The clinical trials of our product candidates are, and the
manufacturing and marketing of our product candidates will be, subject to extensive and rigorous review and regulation by numerous government authorities in the United States and in other countries where we intend to test and, if approved, market
any product candidate. Before obtaining regulatory approvals for the commercial sale of any product candidate, we must demonstrate through
pre-clinical
testing and clinical trials that the product candidate is
safe and effective for use in each target indication. This process can take many years and will likely include post-marketing studies, or PMS, post-marketing requirements, or PMRs, and surveillance such as Risk Evaluation and Mitigation Strategies,
or REMS, which will require the expenditure of substantial resources beyond the proceeds we currently have on hand.
Furthermore, we are
not permitted to market
ZGN-1061
in the United States until we receive approval of a New Drug application, or NDA, from the FDA, or in any foreign countries until we receive the requisite marketing approval
from such countries. Pursuant to the FDAs draft guidance documents to industry related to the development of weight management drugs, in order to reasonably estimate the safety of a weight-management drug in an NDA, Phase 3 clinical trials
must randomize approximately 3,000 subjects to active doses of the product and 1,500 subjects to placebo in clinical trials of
one-year
duration. Development of diabetes drugs requires approximately 2,500
subjects randomized to active doses of the product with 1,300 to 1,500 subjects exposed for a year and 300 to 500 subjects exposed for 18 months in order to estimate the safety of the drug in an NDA. In addition, it is anticipated that the FDA may
require that their guidance for assessment of cardiovascular risk with diabetes products be followed which may require testing of 5,000 to 10,000 subjects. Meeting the requirements of the FDA or certain European regulatory authorities may require
that we conduct additional pivotal clinical trials. Accordingly, obtaining approval of an NDA or Marketing Authorisation Application, or MAA, is a complex, lengthy, expensive and uncertain process.
The FDA and certain European regulatory authorities may delay, limit or deny approval of
ZGN-1061
for
many reasons, including, among others:
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the FDA may not accept our IND for
ZGN-1061
or may put it on clinical hold;
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we may not be able to demonstrate that
ZGN-1061
is safe and effective to the satisfaction of the FDA and the European Medicines Agency, or EMA;
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the results of our clinical trials may not meet the level of statistical or clinical significance required by the FDA and EMA for marketing approval;
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the FDA and EMA may disagree with the number, design, size, duration, conduct or implementation of our clinical trials;
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the FDA and EMA may require that we conduct additional clinical trials or
pre-clinical
studies;
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the FDA and EMA may not approve the formulation, labeling or specifications of
ZGN-1061;
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the contract research organizations, or CROs, that we retain to conduct our clinical trials may take actions outside of our control that materially adversely impact our clinical trials;
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the FDA and EMA may find the data from
pre-clinical
studies and clinical trials insufficient to demonstrate that
ZGN-1061s
clinical
and other benefits outweigh its safety risks;
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the FDA and EMA may disagree with our interpretation of data from our
pre-clinical
studies and clinical trials;
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the FDA and EMA may not accept data generated at our clinical trial sites;
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if and when our NDA is submitted and reviewed by an FDA advisory committee, the FDA may have difficulties scheduling an advisory committee meeting in a timely manner or the advisory committee may recommend against
approval of our application or may recommend that the FDA require, as a condition of approval, additional
pre-clinical
studies or clinical trials, limitations on approved labeling or distribution and use
restrictions;
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the FDA could require development of a REMS as a condition of approval or post-approval, or may not agree with our proposed REMS, or may impose additional requirements that limit the promotion, advertising,
distribution, or sales of
ZGN-1061;
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the FDA and EMA may find deficiencies with or not approve the manufacturing processes or facilities of third-party manufacturers with which we contract; or
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the FDA and EMA may change their approval policies or adopt new regulations.
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Any of these
factors, many of which are beyond our control, could jeopardize our ability to obtain and/or maintain regulatory approval for and successfully market
ZGN-1061.
Of the large number of drugs in development in
the United States, only a small percentage will successfully complete the FDA regulatory approval process and be commercialized. Accordingly, even if we are able to obtain the requisite financing to continue to fund our development and clinical
trials, we cannot assure you that
ZGN-1061
or any other of our product candidates will be successfully developed or commercialized.
We are focused on developing MetAP2 inhibitors as treatments for metabolic diseases including type 2 diabetes and obesity, but we may be unable to
dissociate effects of MetAP2 inhibitors from
pro-thrombotic
effects or other adverse events observed in clinical development of beloranib which may adversely affect our ability to obtain regulatory approvals
and commercialize our product candidates.
Our lead product candidate,
ZGN-1061,
is a
MetAP2 inhibitor currently being profiled for its utility in the treatment of metabolic diseases including type 2 diabetes and obesity. Our previous product candidate, beloranib, was a MetAP2 inhibitor focused on the treatment of obesity and
hyperphagia in patients with Prader-Willi syndrome, or PWS, and hypothalamic injury-associated obesity, or HIAO. The IND for beloranib was placed on full clinical hold in December 2015 by the FDA as a result of an imbalance in the number of
thrombotic events observed in patients treated with beloranib as compared to placebo in our clinical trials. In July 2016, we announced that we were suspending development of beloranib as we had determined that the obstacles, costs and development
timelines to obtain marketing approval for beloranib were too great to justify additional investment in the program, particularly given the promising emerging profile of
ZGN-1061.
Although our
pre-clinical
animal studies to date suggest that
ZGN-1061
has a reduced potential to impact thrombosis and an improved safety margin compared to beloranib, we are working to better understand the impact of MetAP2 inhibitor treatment on thrombotic activity
more broadly and translate these observations to establish clinically useful biochemical markers. If a relationship between thrombotic events and our MetAP2
29
inhibitors is established at therapeutically relevant exposures, or if we are unable to demonstrate a lack of impact of our MetAP2 inhibitors on thrombosis-associated clinical markers, we may not
be able to obtain regulatory approvals and commercialize our product candidates such as
ZGN-1061.
Favorable
results from
pre-clinical
studies of
ZGN-1061
to date are not necessarily predictive of the results of longer-term
pre-clinical
studies or clinical trials of
ZGN-1061.
Given the thrombosis findings in humans treated with beloranib, development costs for
ZGN-1061
may be higher and we may be unable
to successfully develop, obtain regulatory approval for and commercialize
ZGN-1061.
Favorable results from our
pre-clinical
studies of
ZGN-1061
may
not necessarily be predictive of the results from clinical trials. To date we have shown that
ZGN-1061
has similar potency against the MetAP2 target and similar activity in mouse and rat models of obesity
compared to beloranib. Toxicology studies in rats, rabbits and dogs have shown that
ZGN-1061
is not exhibiting any testicular safety signals and activation of thrombosis-related biochemical markers compared to
beloranib, which showed testicular toxicity and
pro-thrombotic
effects with a very low therapeutic margin and no margin for embryofetal toxicity. However, we can provide no assurance that the results of this
pre-clinical
development program will be replicated in clinical trials of
ZGN-1061.
Many companies in the pharmaceutical and biotechnology industries have suffered significant
setbacks in clinical trials after achieving positive results in
pre-clinical
and early-stage development. In particular, we have suffered significant setbacks in later-stage clinical trials of our former lead
product candidate, beloranib, after achieving positive results in
pre-clinical
and clinical development, and we cannot be certain that we will not face similar setbacks in our development of
ZGN-1061.
The setbacks in later-stage clinical development have been caused by, among other things,
pre-clinical
findings made while clinical trials were underway or safety or
efficacy observations made in clinical trials, including previously unreported or ununderstood adverse events. Moreover,
pre-clinical
and clinical data are often susceptible to varying interpretations and
analyses, and many companies that believed their product candidates performed satisfactorily in
pre-clinical
studies and clinical trials nonetheless failed to obtain FDA and/or EMA approval. If we fail to
produce positive results in our clinical trials of
ZGN-1061,
the development timeline and regulatory approval and commercialization prospects for our leading product candidate, and, correspondingly, our
business and financial prospects, would be materially adversely affected.
Our product candidates may cause undesirable side effects 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 such as the FDA 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 other regulatory authorities. For example, common adverse events observed in patients treated with beloranib versus placebo
include diarrhea, injection site bruising, dizziness, decreased appetite, anxiety and sleep disturbances (insomnia principally manifested as delayed onset of sleep and abnormal dreams), among others. In addition, an imbalance in the number of
thrombotic events observed in patients treated with beloranib as compared to patients on placebo in our clinical trials was observed. We may see similar adverse events with
ZGN-1061
as we saw with beloranib,
and therefore, we will study many of these parameters in
pre-clinical
and clinical development for
ZGN-1061.
Further, if
ZGN-1061
receives marketing approval and we or others identify undesirable side effects
caused by the product (or any other similar product) after the approval, a number of potentially significant negative consequences could result, including:
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regulatory authorities may request that we withdraw the product from the market or may limit their approval of the product through labeling or other means;
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regulatory authorities may require the addition of labeling statements, such as a black box warning or a contraindication or a precaution;
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we may be required to change the way the product is distributed or administered, conduct additional clinical trials or change the labeling of the product;
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we may decide to remove the products from the marketplace;
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we could be sued and held liable for injury caused to individuals exposed to or taking our product candidates; and
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our reputation may suffer.
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Any of these events could prevent us from achieving or maintaining
market acceptance of the affected product candidate and could substantially increase the costs of commercializing our product candidates and significantly impact our ability to successfully commercialize our product candidates and generate revenues.
Failures or delays in the commencement or completion of our planned clinical trials of
ZGN-1061
could
result in increased costs to us and could delay, prevent or limit our ability to generate revenue and continue our business.
ZGN-1061
is currently in Phase 1 clinical development in the Netherlands and will require substantial further clinical development before we can submit an NDA to the FDA or an MAA to the EMA for its marketing
approval.
Despite the guidance we may receive from the FDA and EMA, both of these regulatory authorities can change their positions on
the acceptability of our clinical trial designs or the clinical endpoints selected, which may require us to complete additional clinical trials or impose stricter approval conditions than we currently expect. Successful completion of such clinical
trials is a prerequisite to submitting an NDA to the FDA and an MAA to the EMA and, consequently, the ultimate approval and commercial marketing of
ZGN-1061.
We do not know whether any clinical trials will
begin or be completed on schedule, if at all, as the commencement and completion of clinical trials can be delayed or prevented for a number of reasons, including, among others:
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the FDA, EMA or other governing bodies in Europe may deny permission to pursue clinical trials and/or indications we want to initiate;
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delays in regulatory filings or receiving regulatory approvals of INDs, or clinical trial authorization applications, or CTAs, that may be required;
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unfavorable results from our
pre-clinical
and /or
non-clinical
studies, or the FDA or EMA may require additional
pre-clinical
and /or
non-clinical
studies;
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delays in reaching or failing to reach agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different
CROs and trial sites;
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inadequate quantity or quality of a product candidate or other materials necessary to conduct clinical trials, for example delays in the manufacturing of sufficient supply of finished drug product;
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difficulties obtaining Institutional Review Board, or IRB, and/or ethics committee approval to conduct a clinical trial at a prospective site or sites in the United States or the European Union;
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challenges in recruiting and enrolling patients to participate in clinical trials, including the size and nature of the patient population, the proximity of patients to clinical trial sites, eligibility criteria for the
clinical trial, the nature of the clinical trial protocol, the availability of approved effective treatments for the relevant disease and competition from other clinical trial programs for similar indications;
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severe or unexpected drug-related side effects experienced by patients in a clinical trial, including side effects previously identified in our previous clinical trials for beloranib;
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the FDA or EMA may disagree with our clinical trial design and our interpretation of data from clinical trials, or may change the requirements for approval even after it has reviewed and commented on the design for our
clinical trials;
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difficulties in retaining or recruiting clinical investigators and/or patients in our ongoing or future clinical trials;
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reports from
pre-clinical,
non-clinical
or clinical testing of other weight loss therapies that raise safety or efficacy concerns; and
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difficulties retaining patients who have enrolled in a clinical trial but may be prone to withdraw due to rigors of the clinical trial, lack of efficacy, side effects, screening and monitoring measures, personal issues
or loss of interest.
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Clinical trials may also be delayed or terminated as a result of ambiguous or negative interim
results. In addition, a clinical trial may be suspended or terminated by us, the FDA, other regulatory authorities, the IRBs, or ethics committees, at the sites where the IRBs or ethics committees are overseeing a clinical trial, a data and safety
monitoring board, or DSMB, or Safety Monitoring Committee, or SMC, overseeing the clinical trial at issue or other regulatory authorities due to a number of factors, including, among others:
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failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols;
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inspection of the clinical trial operations or trial sites by the FDA or EMA that reveals deficiencies or violations that require us to undertake corrective action, including the imposition of a partial clinical hold or
a full clinical hold;
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unforeseen safety issues, including any that could be identified in our ongoing
pre-clinical
studies, adverse side effects or lack of effectiveness;
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changes in government regulations or administrative actions;
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problems with clinical supply materials; and
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lack of adequate funding to continue the clinical trial.
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Changes in regulatory requirements, FDA
guidance or guidance from EMA or unanticipated events during our clinical trials of
ZGN-1061
may occur, which may result in changes to clinical trial protocols or additional clinical trial requirements, which
could result in increased costs to us and could delay our development timeline.
Changes in regulatory requirements, FDA guidance
or guidance from EMA or unanticipated events during our clinical trials may force us to adjust our clinical program or the FDA or EMA may impose additional clinical trial and/or
pre-clinical
study
requirements. For instance, the FDA issued draft guidance on developing products for weight management in February 2007, and issued draft guidance on developing products for treatment of diabetes in February 2008 but these guidance documents may be
revised in the near future. In December 2008, FDA established guidance on evaluating cardiovascular risk of new therapies for the treatment of type 2 diabetes. In March 2012, the FDAs Endocrinologic and Metabolic Drugs Advisory Committee
met to discuss possible changes to how the FDA evaluates the cardiovascular safety of weight-management drugs and although new guidance has not been issued yet it may occur at any time. Amendments to our clinical trial protocols would require
resubmission to the FDA or EMA, as well as IRBs and ethics committees for review and approval, which may adversely impact the cost, timing or successful completion of a clinical trial. If we experience delays completing, or if we terminate, any of
our clinical trials, or if we are required to conduct additional clinical trials and/or
pre-clinical
studies, the commercial prospects for
ZGN-1061
may be harmed and our
ability to generate product revenue will be delayed.
32
We rely, and expect that we will continue to rely, on third parties to conduct any future clinical trials
for
ZGN-1061.
If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to develop and obtain regulatory approval for or commercialize
ZGN-1061
and our business could be substantially harmed.
We enter into agreements with
third-party CROs to provide monitors for and to manage data for our ongoing clinical trials. We rely heavily on these parties for execution of clinical trials for
ZGN-1061
and control only certain aspects of
their activities. As a result, we have less direct control over the conduct, timing and completion of these clinical trials and the management of data developed through the clinical trials than would be the case if we were relying entirely upon our
own staff. Communicating with outside parties can also be challenging, potentially leading to mistakes as well as difficulties in coordinating activities. Outside parties may:
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have staffing difficulties;
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fail to comply with contractual obligations;
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experience regulatory compliance issues;
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undergo changes in priorities or become financially distressed; or
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form relationships with other entities, some of which may be our competitors.
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These factors
may materially adversely affect the willingness or ability of third parties to conduct our clinical trials and may subject us to unexpected cost increases that are beyond our control. Nevertheless, we are responsible for ensuring that each of our
clinical trials is conducted in accordance with the applicable protocol, legal and regulatory requirements and scientific standards, and our reliance on CROs does not relieve us of our regulatory responsibilities. We and our CROs are required to
comply with requirements for Good Clinical Practice, or GCPs, which are legal requirements enforced by the FDA, the Competent Authorities of the Member States of the European Economic Area and comparable foreign regulatory authorities for any
products in clinical development. The FDA enforces these GCP regulations through periodic inspections of clinical trial sponsors, principal investigators and clinical trial sites, IRBs, and other vendors that may be involved in the clinical
development of new products. If we or our investigators or CROs fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us
to perform additional clinical trials before approving our marketing applications. We cannot assure you that, upon inspection, the FDA will determine that any of our clinical trials comply with GCPs. In addition, our clinical trials must be
conducted with products produced under current Good Manufacturing Practices, or cGMPs regulations, to assure the identity, strength, quality, and purity of our drug product candidates being used in the clinical trials, as well as the
to-be-marketed
formulation and product. Our failure or the failure of our CROs and/or contract manufacturing organizations, or CMOs, to comply with these regulations may
require us to repeat clinical trials, which would delay the regulatory approval process and could also subject us to enforcement action, up to and including, civil and criminal penalties.
Although we do design our clinical trials for
ZGN-1061,
investigators and CROs conduct all of the
clinical trials. As a result, many important aspects of our drug development programs are outside of our direct control. In addition, the investigators or CROs may not perform all of their obligations under arrangements with us or in compliance with
regulatory requirements, but we remain responsible and are subject to enforcement action that may include civil penalties up to and including criminal prosecution for any violations of FDA laws and regulations during the conduct of our clinical
trials. If the investigators or CROs do not perform clinical trials in a satisfactory manner, breach their obligations to us, or fail to comply with regulatory requirements, the development and commercialization of
ZGN-1061
may be delayed or our development program materially and irreversibly harmed. We cannot control the amount and timing of resources these investigators or CROs devote to our program or
ZGN-1061.
If we are unable to rely on clinical data collected by our investigators or CROs, we could be required to repeat, extend the duration of, or increase the size of our clinical trials and this could
significantly delay commercialization and require significantly greater expenditures.
33
If any of our relationships with these third-party investigators or CROs terminate, we may not be
able to enter into arrangements with alternative investigators or CROs in a timely manner, or at all. If investigators or CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be
replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, any such clinical trials may be extended, delayed or
terminated, and we may not be able to obtain regulatory approval for or successfully commercialize
ZGN-1061.
As a result, our financial results and the commercial prospects for
ZGN-1061
in the subject indication would be harmed, our costs could increase and our ability to generate revenue could be delayed.
We rely completely on third-party suppliers to manufacture our clinical drug supplies for
ZGN-1061,
and we
intend to rely on third parties to produce commercial supplies of
ZGN-1061
and
pre-clinical,
clinical and commercial supplies of any future product candidate.
We do not currently have, nor do we currently plan to acquire, the infrastructure or capability to internally manufacture our
clinical drug supply of
ZGN-1061,
or any future product candidates, for use in the conduct of our
pre-clinical
studies and clinical trials, and we lack the internal
resources and the capability to manufacture any product candidates on a clinical or commercial scale. The facilities used by our CMOs to manufacture the active drug substance and final drug product must be approved by our quality assurance unit and
inspected by the FDA and other comparable foreign regulatory agencies.
We rely on our CMOs to comply with cGMPs for manufacture of raw
materials, active drug substance and finished drug products. If our CMOs cannot successfully manufacture material that conforms to our specifications and the regulatory requirements of the FDA or applicable foreign regulatory agencies, the CMOs will
not be able to secure and/or maintain regulatory approval for their manufacturing facilities. While we manage our quality expectations through an audit program for our vendors and suppliers, we have no direct control over our CMOs ability to
maintain adequate quality control, quality assurance and qualified personnel. Furthermore, our CMOs are engaged with third party vendors to supply and/or manufacture starting materials or components for them, which exposes our CMOs to regulatory
risks for the production of such materials and components. As a result, failure to satisfy the regulatory requirements for the production of those materials and components may affect the regulatory clearance of our CMOs facilities generally.
If the FDA or an applicable foreign regulatory agency does not approve these facilities for the manufacture of our product candidates or if it withdraws its approval in the future, we may need to find alternative manufacturing facilities, which
would adversely impact our ability to develop, obtain regulatory approval for or market our product candidates.
We rely completely on
third-party suppliers to manufacture our
pre-clinical
and clinical drug supplies for
ZGN-1061.
Currently each batch of
ZGN-1061
is individually contracted under a work order, which is governed by a quality and service agreement. The current drug substance manufacturing process will support
pre-clinical
studies and early clinical trials
and will be further optimized to support advanced clinical development and commercialization. Current drug substance in inventory is expected to support Phase 1 clinical development and initiate Phase 2 clinical trials. The current drug
product formulation has limited shelf life and is designed to support Phase 1 clinical development. A new formulation with longer shelf life is currently in development to support Phase 2 clinical development. The Phase 2 product is currently
being manufactured at our drug product CMO.
Even if we receive marketing approval for
ZGN-1061
in the
United States, we may never receive regulatory approval to market
ZGN-1061
outside of the United States.
We intend to pursue marketing approval of
ZGN-1061
in the United States, the European Union and in
other countries worldwide. In order to market any product outside of the United States, we must establish and comply with the numerous and varying safety, efficacy and other regulatory requirements of other countries, including potential additional
clinical trials and/or
pre-clinical
studies. Approval procedures vary among
34
countries and can involve additional product candidate testing and additional administrative review periods. The time required to obtain approvals in other countries might differ from that
required to obtain FDA approval. The marketing approval processes in other countries may implicate all of the risks detailed above regarding FDA approval in the United States as well as other risks. In particular, in many countries outside of the
United States, products must receive pricing and reimbursement approval before the product can be commercialized. Obtaining this approval can result in substantial delays in bringing products to market in such countries. In addition, on
June 23, 2016, a majority of voters in the United Kingdom elected by referendum to leave the European Union, or Brexit. The effects of Brexit will depend on any agreements the United Kingdom makes to retain access to European Union markets
either during a transitional period or more permanently. Brexit could lead to legal uncertainty and potentially divergent national laws and regulation as the United Kingdom determines which European Union laws to replace or replicate. Marketing
approval in one country does not necessarily ensure marketing approval in another, but a failure or delay in obtaining marketing approval in one country may have a negative effect on the regulatory process or commercial activities in others. Failure
to obtain marketing approval in other countries or any delay or other setback in obtaining such approval would impair our ability to market
ZGN-1061
in such foreign markets. Any such impairment would reduce
the size of our potential market, which could have a material adverse impact on our business, results of operations and prospects.
Even if we
receive marketing approval for
ZGN-1061,
it may not achieve broad market acceptance, which would limit the revenue that we generate from its sales.
The commercial success of
ZGN-1061,
if developed and approved for marketing by the FDA or EMA or other
applicable regulatory authorities, will depend upon the awareness and acceptance of
ZGN-1061
among the medical community, including physicians, patients, advocacy groups and healthcare payors. Market
acceptance of
ZGN-1061,
if approved, will depend on a number of factors, including, among others:
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the relative convenience and ease of subcutaneous injections as the necessary method of administration of
ZGN-1061;
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the prevalence and severity of any adverse side effects associated with
ZGN-1061;
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limitations or warnings contained in the labeling approved for
ZGN-1061
by the FDA, EMA, or other regulatory authorities, such as a black box warning;
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availability of alternative treatments, including a number of competitive type 2 diabetes or obesity therapies already approved or expected to be commercially launched in the near future;
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the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
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the strength of marketing and distribution support and timing of market introduction of competitive products;
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publicity concerning our products or competing products and treatments;
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the effectiveness of our sales and marketing strategies;
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our ability to increase awareness of
ZGN-1061
through marketing efforts;
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our ability to obtain sufficient third-party coverage or reimbursement;
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the willingness of patients to pay
out-of-pocket
in the absence of third-party coverage; and
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the likelihood that the FDA may require development of a REMS, as a condition of approval or post-approval or may not agree with our proposed REMS or may impose additional requirements that limit the promotion,
advertising, distribution or sales of
ZGN-1061.
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If
ZGN-1061
is approved but does not achieve an adequate
level of acceptance by patients, advocacy groups, physicians and payors, we may not generate sufficient revenue from
ZGN-1061
to become or remain profitable. Before granting reimbursement approval, healthcare
payors may require us to demonstrate that, in addition to treating type 2 diabetes or obesity in patients,
ZGN-1061
also provides incremental health benefits to patients. Our efforts to educate the medical
community and third-party payors about the benefits of
ZGN-1061
may require significant resources and may never be successful.
If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell
ZGN-1061,
we may not be able to generate any revenue.
We do not currently have an established
infrastructure for the sales, marketing and distribution of pharmaceutical products. In order to market
ZGN-1061,
if approved by the FDA or any other regulatory body, we must build our sales, marketing,
managerial and other
non-technical
capabilities or make arrangements with third parties to perform these services. If we are unable to establish adequate sales, marketing and distribution capabilities, whether
independently or with third parties, or if we are unable to do so on commercially reasonable terms, our business, results of operations, financial condition and prospects will be materially adversely affected.
Even if we receive marketing approval for
ZGN-1061,
we may still face future development and regulatory
difficulties.
Even if we receive marketing approval for
ZGN-1061,
regulatory authorities
may still impose significant restrictions on
ZGN-1061s
indicated uses or marketing or impose ongoing requirements for potentially costly post-approval studies.
ZGN-1061
will also be subject to ongoing FDA and EMA requirements governing the labeling, packaging, storage and promotion of the product and recordkeeping and submission of safety and other post-market
information. The FDA has significant post-market authority, including, for example, the authority to require labeling changes based on new safety information and to require post-market studies or clinical trials to evaluate serious safety risks
related to the use of a drug. The FDA also has the authority to require, as part of an NDA or post-approval, the submission of a REMS. Any REMS required by the FDA may lead to increased costs to assure compliance with new post-approval regulatory
requirements and potential requirements or restrictions on the sale of approved products, all of which could lead to lower sales volume and revenue. Additionally, the FDA may require a PMS and/or PMRs, that could represent and result in additional
restrictions and/or limitations for the product.
Manufacturers of drug products and their facilities are subject to continual review and
periodic inspections by the FDA and other regulatory authorities for compliance with cGMPs and other regulations. If we or a regulatory agency discover problems with
ZGN-1061,
such as adverse events of
unanticipated severity or frequency, or problems with the facility where
ZGN-1061
is manufactured, a regulatory agency may impose restrictions on
ZGN-1061,
the
manufacturer or us, including requiring withdrawal of
ZGN-1061
from the market or suspension of manufacturing. If we or the manufacturing facilities for
ZGN-1061
fail to
comply with applicable regulatory requirements, a regulatory agency may, among other things:
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issue warning letters or untitled letters;
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seek an injunction or impose civil or criminal penalties or monetary fines;
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suspend or withdraw marketing approval;
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suspend any ongoing clinical trials;
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refuse to approve pending applications or supplements to applications submitted by us;
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suspend or impose restrictions on operations, including costly new manufacturing requirements; or
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seize or detain products, refuse to permit the import or export of products, or request that we initiate a product recall.
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Competing technologies could emerge, including devices and surgical procedures, adversely affecting our
opportunity to generate revenue from the sale of
ZGN-1061.
The biotechnology and
pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. We have competitors in a number of jurisdictions, many of which have substantially greater name recognition, commercial infrastructures
and financial, technical and personnel resources than we have. Established competitors may invest heavily to quickly discover and develop novel compounds that could make
ZGN-1061
obsolete or uneconomical. Any
new product that competes with an approved product may need to demonstrate compelling advantages in efficacy, convenience, tolerability and safety to be commercially successful. Other competitive factors, including generic competition, could force
us to lower prices or could result in reduced sales. In addition, new products developed by others could emerge as competitors to
ZGN-1061.
If we are not able to compete effectively against our current and
future competitors, our business will not grow and our financial condition and operations will suffer.
Our future growth depends, in part, on our
ability to penetrate foreign markets, where we would be subject to additional regulatory burdens and other risks and uncertainties.
Our future profitability will depend, in part, on our ability to commercialize
ZGN-1061
in foreign
markets for which we may rely on collaborations with third parties. If we commercialize
ZGN-1061
in foreign markets, we would be subject to additional risks and uncertainties, including:
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our customers ability to obtain reimbursement for
ZGN-1061
in foreign markets;
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our inability to directly control commercial activities because we are relying on third parties;
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the burden of complying with complex and changing foreign regulatory, tax, accounting and legal requirements;
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different medical practices and customs in foreign countries affecting acceptance in the marketplace;
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import or export licensing requirements;
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longer accounts receivable collection times;
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longer lead times for shipping;
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language barriers for technical training;
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reduced protection of intellectual property rights in some foreign countries;
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foreign currency exchange rate fluctuations; and
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the interpretation of contractual provisions governed by foreign laws in the event of a contract dispute.
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Foreign sales of
ZGN-1061
could also be adversely affected by the imposition of governmental controls,
political and economic instability, trade restrictions and changes in tariffs.
We are subject to healthcare laws and regulations, which could
expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.
Healthcare providers, physicians and others will play a primary role in the recommendation and prescription of
ZGN-1061,
if approved. Our future arrangements with third-party payors will expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or
financial arrangements and relationships through which we market, sell and distribute
ZGN-1061,
if we obtain marketing approval. Restrictions under applicable federal and state healthcare laws and regulations
include the following:
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The federal Anti-Kickback Statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or paying remuneration, directly or indirectly, in cash or in kind, to induce or
reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under federal healthcare programs such as Medicare and Medicaid.
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The federal false claims laws impose criminal and civil penalties, including those from civil whistleblower or qui tam actions pursuant to the federal False Claims Act, against individuals or entities for knowingly
presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease, or conceal an obligation to pay money to the federal government.
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The federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act, imposes criminal and civil liability for executing a scheme
to defraud any healthcare benefit program and also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information.
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The federal false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for
healthcare benefits, items or services.
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The federal transparency requirements, sometimes referred to as the Sunshine Act, under the Patient Protection and Affordable Care Act, require manufacturers of drugs, devices, biologics, and medical
supplies to report to the Department of Health and Human Services information related to physician payments and other transfers of value and physician ownership and investment interests.
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Analogous state laws and regulations, such as state anti-kickback and false claims laws and transparency laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by
non-governmental
third-party payors, including private insurers, and some state laws require pharmaceutical companies to comply with the pharmaceutical industrys voluntary compliance guidelines and the
relevant compliance guidance promulgated by the federal government in addition to requiring drug manufacturers to report information related to payments to physicians and other healthcare providers or marketing expenditures and drug pricing.
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Ensuring that our future business arrangements with third parties comply with applicable healthcare laws and regulations
could be costly. It is possible that governmental authorities will conclude that our business practices do 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, including anticipated activities to be conducted by our sales team, were 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 and exclusion from government funded healthcare programs, such as Medicare and Medicaid, any of which could substantially disrupt our operations. If any of the physicians or other
providers or entities with whom we expect to do business is found not to be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.
The FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of
off-label
uses. If we are found to have improperly promoted
off-label
uses, we may become subject to significant liability.
The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription products, such as
ZGN-1061,
if approved. In particular, a product may not be promoted for uses that are not approved by the FDA or such other regulatory agencies as reflected in the products approved labeling. If we receive
marketing approval for
ZGN-1061,
physicians may nevertheless prescribe
ZGN-1061
to their patients in a manner that is inconsistent with the approved label. If we are
found to have promoted such
off-label
uses, we may become subject to significant liability. The federal government has levied large civil and criminal fines against companies for alleged improper promotion and
has enjoined several companies from engaging in
off-label
promotion and required that they enter into corporate integrity agreements with the Office of Inspector General of the Department of Health and Human
Services, or OIG. The FDA has also requested that companies
38
enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed. If we cannot successfully manage the promotion of
ZGN-1061,
if approved, we could become subject to significant liability, which would materially adversely affect our business and financial condition.
Even if approved, reimbursement policies could limit our ability to sell
ZGN-1061.
If approved by regulatory authorities, market acceptance and sales of
ZGN-1061
will depend on
reimbursement policies and may be affected by healthcare reform measures. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish
reimbursement levels for those medications. Cost containment is a primary concern in the U.S. healthcare industry and elsewhere. Government authorities and these third-party payors have attempted to control costs by limiting coverage and the amount
of reimbursement for particular medications. We cannot be sure that reimbursement will be available for
ZGN-1061
and, if reimbursement is available, the level of such reimbursement. Reimbursement may impact
the demand for, or the price of,
ZGN-1061.
If reimbursement is not available or is available only at limited levels, we may not be able to successfully commercialize
ZGN-1061.
In some foreign countries, particularly in Canada and European countries, the pricing
of prescription pharmaceuticals is subject to strict governmental control. In these countries, pricing negotiations with governmental authorities can take six to 12 months or longer after the receipt of regulatory approval and product launch. To
obtain favorable reimbursement for the indications sought or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of
ZGN-1061
with other
available therapies. If reimbursement for
ZGN-1061
is unavailable in any country in which we seek reimbursement, if it is limited in scope or amount, if it is conditioned upon our completion of additional
clinical trials, or if pricing is set at unsatisfactory levels, our operating results could be materially adversely affected.
Our development
programs for our product candidates, which are primarily related to
ZGN-1061,
may require substantial financial resources and may ultimately be unsuccessful.
Our lead product candidate
ZGN-1061
is in Phase 1 clinical development, and there are a number of FDA
and certain European regulatory requirements that we must satisfy before we can commence later-stage clinical trials of
ZGN-1061.
Satisfaction of these requirements will entail substantial time, effort and
financial resources. We may never satisfy these requirements. We believe that our cash, cash equivalents and marketable securities will be sufficient to fund operations for a period of at least one year from the issuance date of this Annual Report,
but we may need to raise more funds to continue development and commercialization of
ZGN-1061
and our other product candidates, which may not be easily available. Furthermore, any time, effort and financial
resources we expend on our other early-stage development programs may adversely affect our ability to continue development and commercialization of
ZGN-1061,
and we may never commence clinical trials of such
development programs despite expending significant resources in pursuit of their development. If we do commence clinical trials of our other potential product candidates, such product candidates may never be approved by the FDA or other regulatory
authorities.
Risks Relating to Our Intellectual Property Rights
If we are unable to adequately protect our proprietary technology or maintain issued patents which are sufficient to protect
ZGN-1061,
others could compete against us more directly, which would have a material adverse impact on our business, results of operations, financial condition and prospects.
Our commercial success will depend in part on our success in obtaining and maintaining issued patents and other intellectual property rights in
the United States and elsewhere and protecting our proprietary technology. If we do not adequately protect our intellectual property and proprietary technology, competitors may be able to use our technologies and erode or negate any competitive
advantage we may have, which could harm our business and ability to achieve profitability. Our owned patent application relates to compositions of matter and methods of treating obesity using
ZGN-1061.
39
As of March 1, 2017, we own one pending U.S. patent application, one pending Patent
Cooperation Treaty, or PCT, patent application, and two pending U.S. provisional patent applications that relate to
ZGN-1061.
As of March 1, 2017, we own 12 issued U.S. patents, and 14 pending U.S. patent applications with pending foreign counterpart
applications, all of which relate to our internal efforts to discover novel MetAP2 inhibitors.
We cannot provide any assurances that any
of our pending patent applications that mature into issued patents will include claims with a scope sufficient to protect
ZGN-1061
and our other product candidates. Other parties have developed technologies
that may be related or competitive to our approach, and may have filed or may file patent applications and may have received or may receive patents that may overlap or conflict with our patent applications, either by claiming the same methods or
formulations or by claiming subject matter that could dominate our patent position. The patent positions of biotechnology and pharmaceutical companies, including our patent position, involve complex legal and factual questions, and, therefore, the
issuance, scope, validity and enforceability of any patent claims that we may obtain cannot be predicted with certainty. Patents, if issued, may be challenged, deemed unenforceable, invalidated, or circumvented. U.S. patents and patent applications
may also be subject to interference proceedings,
ex parte
reexamination, or
inter partes
review proceedings, supplemental examination and challenges in district court. Patents may be subjected to opposition, post-grant review, or
comparable proceedings lodged in various foreign, both national and regional, patent offices. These proceedings could result in either loss of the patent or denial of the patent application or loss or reduction in the scope of one or more of the
claims of the patent or patent application. In addition, such proceedings may be costly. Thus, any patents that we may own or exclusively license may not provide any protection against competitors. Furthermore, an adverse decision in an interference
proceeding can result in a third party receiving the patent right sought by us, which in turn could affect our ability to develop, market or otherwise commercialize
ZGN-1061
and our other product candidates.
Furthermore, though an issued patent is presumed valid and enforceable, its issuance is not conclusive as to its validity or its
enforceability and it may not provide us with adequate proprietary protection or competitive advantages against competitors with similar products. Competitors may also be able to design around our patents. Other parties may develop and obtain patent
protection for more effective technologies, designs or methods. The laws of some foreign countries do not protect our proprietary rights to the same extent as the laws of the United States, and we may encounter significant problems in protecting our
proprietary rights in these countries. If these developments were to occur, they could have a material adverse effect on our potential future sales.
Our ability to enforce our patent rights depends on our ability to detect infringement. It is difficult to detect infringers who do not
advertise the components that are used in their products. Moreover, it may be difficult or impossible to obtain evidence of infringement in a competitors or potential competitors product. Any litigation to enforce or defend our patent
rights, even if we were to prevail, could be costly and time-consuming and would divert the attention of our management and key personnel from our business operations. We may not prevail in any lawsuits that we initiate and the damages or other
remedies awarded if we were to prevail may not be commercially meaningful.
In addition, proceedings to enforce or defend our patents
could put our patents at risk of being invalidated, held unenforceable, or interpreted narrowly. Such proceedings could also provoke third parties to assert claims against us, including that some or all of the claims in one or more of our patents
are invalid or otherwise unenforceable. If any of our patents covering
ZGN-1061
are invalidated or found unenforceable, our financial position and results of operations would be materially and adversely
impacted. In addition, if a court found that valid, enforceable patents held by third parties covered
ZGN-1061,
our financial position and results of operations would also be materially and adversely impacted.
The degree of future protection for our proprietary rights is uncertain, and we cannot ensure that:
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any of our patents, or any of our pending patent applications, if issued, will include claims having a scope sufficient to protect
ZGN-1061
or any other products or product
candidates;
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any of our pending patent applications will issue as patents;
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we will be able to successfully develop and commercialize
ZGN-1061,
if approved, before our relevant patents expire;
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we were the first to make the inventions covered by each of our patents and pending patent applications;
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we were the first to file patent applications for these inventions;
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others will not develop similar or alternative technologies that do not infringe our patents;
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any of our patents will be found to ultimately be valid and enforceable;
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any patents issued to us will provide a basis for an exclusive market for our commercially viable products, will provide us with any competitive advantages or will not be challenged by third parties;
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we will develop additional proprietary technologies or product candidates that are separately patentable; or
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that our commercial activities or products will not infringe upon the patents of others.
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We
rely upon unpatented trade secrets, unpatented
know-how
and continuing technological innovation to develop and maintain our competitive position, which we seek to protect, in part, by confidentiality
agreements with our employees and our collaborators and consultants. We also have agreements with our employees and selected consultants that obligate them to assign their inventions to us and have
non-compete
agreements with some, but not all, of our consultants. It is possible that technology relevant to our business will be independently developed by a person that is not a party to such an agreement. Furthermore, if the employees and consultants who
are parties to these agreements breach or violate the terms of these agreements, we may not have adequate remedies for any such breach or violation, and we could lose our trade secrets through such breaches or violations. Further, our trade secrets
could otherwise become known or be independently discovered by our competitors.
We may infringe the intellectual property rights of others, which
may prevent or delay our product development efforts and stop us from commercializing or increase the costs of commercializing
ZGN-1061,
if approved.
Our success will depend in part on our ability to operate without infringing the intellectual property and proprietary rights of third parties.
We cannot assure you that our business, products and methods do not or will not infringe the patents or other intellectual property rights of third parties.
The pharmaceutical industry is characterized by extensive litigation regarding patents and other intellectual property rights. Other parties
may allege that
ZGN-1061
or the use of our technologies infringes patent claims or other intellectual property rights held by them or that we are employing their proprietary technology without authorization.
Patent and other types of intellectual property litigation can involve complex factual and legal questions, and their outcome is uncertain. Any claim relating to intellectual property infringement that is successfully asserted against us may require
us to pay substantial damages, including treble damages and attorneys fees if we are found to be willfully infringing another partys patents, for past use of the asserted intellectual property and royalties and other consideration going
forward if we are forced to take a license. In addition, if any such claim were successfully asserted against us and we could not obtain such a license, we may be forced to stop or delay developing, manufacturing, selling or otherwise
commercializing
ZGN-1061.
Even if we are successful in these proceedings, we may incur
substantial costs and divert management time and attention in pursuing these proceedings, which could have a material adverse effect on us. If we are unable to avoid infringing the patent rights of others, we may be required to seek a license,
defend an infringement action
41
or challenge the validity of the patents in court, or redesign our products. Patent litigation is costly and time consuming. We may not have sufficient resources to bring these actions to a
successful conclusion. In addition, intellectual property litigation or claims could force us to do one or more of the following:
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cease developing, selling or otherwise commercializing
ZGN-1061;
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pay substantial damages for past use of the asserted intellectual property;
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obtain a license from the holder of the asserted intellectual property, which license may not be available on reasonable terms, if at all; and
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in the case of trademark claims, redesign or rename the trademarks or trade names of our product candidates to avoid infringing the intellectual property rights of third parties, which may not be possible and, even if
possible, could be costly and time-consuming.
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Any of these risks coming to fruition could have a material adverse effect on
our business, results of operations, financial condition and prospects.
We may be subject to claims challenging the inventorship or ownership of
our patents and other intellectual property.
We may also be subject to claims that former employees, collaborators or other third
parties have an ownership interest in our patents or other intellectual property. Litigation may be necessary to defend against these and other claims challenging inventorship or ownership. If we fail in defending any such claims, in addition to
paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are
successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.
Obtaining and maintaining our 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.
The U.S. Patent and Trademark Office, or U.S. PTO, 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.
We may be involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive, time-consuming and
unsuccessful.
Competitors may infringe our patents or the patents of our licensors. To counter infringement or unauthorized use,
we may be required to file infringement claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours or our licensors is not valid, is unenforceable and/or is not infringed,
or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk
of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing.
Interference proceedings
provoked by third parties or brought by us may be necessary to determine the priority of inventions with respect to our patents or patent applications or those of our licensors. An unfavorable outcome could require us to cease using the related
technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms. Our defense of litigation or interference proceedings may
fail and, even if
42
successful, may result in substantial costs and distract our management and other employees. We may not be able to prevent, alone or with our licensors, misappropriation of our intellectual
property rights, particularly in countries where the laws may not protect those rights as fully as in the United States.
Furthermore,
because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. 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 have a material adverse effect on the price of our
common stock.
Issued patents covering our product candidates could be found invalid or unenforceable if challenged in court.
If we or one of our licensing partners initiated legal proceedings against a third party to enforce a patent covering our product candidate,
the defendant could counterclaim that the patent covering our product candidate is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds
for a validity challenge include alleged failures to meet any of several statutory requirements, including lack of novelty, obviousness or
non-enablement.
Grounds for unenforceability assertions include
allegations that someone connected with prosecution of the patent withheld relevant information from the U.S. PTO, or made a misleading statement, during prosecution. Third parties may also raise similar claims before administrative bodies in the
United States or abroad, even outside the context of litigation. Such mechanisms include
re-examination,
post grant review and equivalent proceedings in foreign jurisdictions, e.g., opposition proceedings.
Such proceedings could result in revocation or amendment of our patents in such a way that they no longer cover our product candidates or competitive products. The outcome following legal assertions of invalidity and unenforceability is
unpredictable. With respect to validity, for example, we cannot be certain that there is no invalidating prior act, of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of
invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our product candidates. Such a loss of patent protection would have a material adverse impact on our business.
We do not seek to protect our intellectual property rights in all jurisdictions throughout the world and we may not be able to adequately enforce our
intellectual property rights even in the jurisdictions where we seek protection.
Filing, prosecuting and defending patents on
product candidates in all countries and jurisdictions throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States could be less extensive than those in the United States. In
addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in
all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent
protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. 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.
Many
companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of
patents and other intellectual property protection, particularly those relating to biopharmaceuticals, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary
rights generally. For example, an April 2014 report from the Office of the United States Trade Representative identified a number of countries, including India and China,
43
where challenges to the procurement and enforcement of patent rights have been reported. Several countries, including India and China, have been listed in the report every year since 1989.
Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly,
could put our patent applications at risk of not issuing and could provoke third parties to assert claims 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. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.
We are dependent on licensed intellectual property for certain early-stage product candidates. If we were to lose our rights to licensed intellectual
property, we may not be able to continue developing or commercializing such product candidates, if approved.
We have an exclusive
license with Childrens Medical Center Corporation, pursuant to which we exclusively licensed certain patent rights relating to decreasing the growth of fat tissue on a worldwide basis. We may enter into additional licenses to third-party
intellectual property that are necessary or useful to our business. Current or future licensors may also allege that we have breached our license agreement and may accordingly seek to terminate our license with them. In addition, current or future
licensors may decide to terminate our license at will. If successful, this could result in our loss of the right to use the licensed intellectual property, which could materially adversely affect our ability to develop and commercialize a product
candidate or product, if approved, as well as harm our competitive business position and our business prospects.
We have not yet registered
trademarks for a commercial trade name for
ZGN-1061
and failure to secure such registrations could adversely affect our business.
We have not yet registered trademarks for a commercial trade name for
ZGN-1061.
Any future trademark
applications may be rejected during trademark registration proceedings. Although we would be given an opportunity to respond to those rejections, we may be unable to overcome such rejections. In addition, in the U.S. PTO 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. Moreover, any name we propose to use with our product candidates in the United States must be approved by the FDA, regardless of whether we have registered it, or applied to register it, as a trademark.
The FDA typically conducts a review of proposed product names, including an evaluation of potential for confusion with other product names. If the FDA objects to any of our proposed proprietary product names, we may be required to expend significant
additional resources in an effort to identify a suitable substitute name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA.
If we do not obtain additional protection under the Hatch-Waxman Amendments and similar foreign legislation by extending the patent terms and obtaining
data exclusivity for
ZGN-1061,
our business may be materially harmed.
Depending upon the
timing, duration and specifics of development and FDA marketing approval of
ZGN-1061,
one or more of our U.S. patents may be eligible for limited patent term restoration under the Drug Price Competition and
Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory
review process. However, we may not be granted an extension because of, for example, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements.
Moreover, the applicable time period or the scope of patent protection afforded could be less than we request. If we are unable to obtain
44
patent term extension or restoration or the term of any such extension is less than we request, our competitors may obtain approval of competing products following our patent expiration, and our
ability to generate revenues could be materially adversely affected.
Changes in U.S. patent law could diminish the value of patents in general,
thereby impairing our ability to protect our products.
The United States has recently enacted and is currently implementing the
America Invents Act of 2011, which is wide-ranging patent reform legislation. Further, the U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or
weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain future patents, this combination of events has created uncertainty with respect to the value of patents, once
obtained. Depending on decisions by the U.S. Congress, the federal courts and the U.S. PTO, 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 or future patents.
We may be subject to damages resulting from claims that we or our employees have wrongfully used or disclosed alleged
trade secrets of their former employers.
Our employees have been previously employed at other biotechnology or pharmaceutical
companies, including our competitors or potential competitors. Although we are not aware of any claims currently pending against us, we may be subject to claims that these employees or we have inadvertently or otherwise used or disclosed trade
secrets or other proprietary information of the former employers of our employees. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs
and be a distraction to management. If we fail in defending such claims, in addition to paying money claims, we may lose valuable intellectual property rights or personnel. A loss of key personnel or their work product could hamper or prevent our
ability to develop and commercialize
ZGN-1061,
which would materially adversely affect our business, financial condition and results of operations.
General Company-Related Risks
We have recently
reduced the size of our organization, and we may encounter difficulties in managing this development and restructuring, which could disrupt our operations. In addition, we may not achieve anticipated benefits and savings from the reduction.
In July 2016, our board of directors approved the suspension of further development of beloranib and a restructuring plan,
pursuant to which our workforce was reduced by approximately 31% as of December 2016. The workforce reduction resulted in the loss of longer-term employees, the loss of institutional knowledge and expertise and the reallocation and combination of
certain roles and responsibilities across the organization, all of which could adversely affect our operations. Given the complexity of our business, we must continue to implement and improve our managerial, operational and financial systems,
manage our facilities and continue to recruit and retain qualified personnel. This will be made more challenging given the workforce reduction described above. As a result, our management may need to divert a disproportionate amount of its
attention away from our
day-to-day
activities, and devote a substantial amount of time to managing these activities. Further, the restructuring and possible
additional cost containment measures may yield unintended consequences, such as attrition beyond our intended workforce reduction and reduced employee morale. In addition, we may not achieve anticipated benefits from the workforce
reduction. Due to our limited resources, we may not be able to effectively manage our operations or recruit and retain qualified personnel, which may result in weaknesses in our infrastructure and operations, risks that we may not be able
to comply with legal and regulatory requirements, and loss of employees and reduced productivity among remaining employees. For example, the workforce reduction may negatively impact our clinical and regulatory functions, which would have a
negative impact on our ability to successfully develop, and ultimately, commercialize
ZGN-1061. If
our management is
45
unable to effectively manage this transition and workforce reduction and additional cost containment measures, our expenses may be more than expected and we may not be able to implement our
business strategy. As a result, our future financial performance and our ability to commercialize
ZGN-1061
successfully would be negatively affected.
Our future success depends on our ability to retain our executive officers, and particularly our current President and Chief Executive Officer, and to
attract, retain and motivate qualified personnel.
We are highly dependent on Dr. Thomas E. Hughes, our President and
Chief Executive Officer. We have entered into a severance and change in control agreement with Dr. Hughes, but he may terminate his employment with us at any time. Although we do not have any reason to believe that we will lose the services of
Dr. Hughes in the foreseeable future, the loss of his services might impede the achievement of our research, development and commercialization objectives. We also do not have any
key-man
life insurance on
Dr. Hughes.
Our success also depends upon the principal members of our executive, medical and development teams. We have entered
into a severance and change in control agreement with our executive officers and department vice president level employees, but they may terminate their employment with us at any time. The loss of the services of any of these persons might impede
the achievement of our development and commercialization objectives.
Our Chief Commercial Officer, Alicia Secor, resigned in July 2016,
and our former President, Patrick Loustau, departed from the Company in August 2016. We also implemented a workforce reduction in July 2016 in connection with our restructuring plan following the suspension of further development of
beloranib. With any change in leadership and workforce reduction, there is a risk to retention of employees, including other members of senior management, as well as the potential for disruption to business operations, initiatives, plans and
strategies.
We rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our development
and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us and may not be
subject to our standard
non-compete
agreements. Recruiting and retaining qualified scientific personnel and sales and marketing personnel will also be critical to our success. We may not be able to attract and
retain these personnel on acceptable terms given the workforce reduction and competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific personnel from
universities and research institutions. Failure to succeed in clinical trials may make it more challenging to recruit and retain qualified scientific personnel.
Our employees may engage in misconduct or other improper activities, including violating applicable regulatory standards and requirements or engaging in
insider trading, which could significantly harm our business.
We are exposed to the risk of employee fraud or other misconduct.
Misconduct by employees could include intentional failures to comply with the regulations of the FDA and applicable
non-U.S.
regulators, provide accurate information to the FDA and applicable
non-U.S.
regulators, comply with healthcare fraud and abuse laws and regulations in the United States and abroad, report financial information or data accurately or disclose unauthorized activities to us. In
particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations
restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Employee misconduct could also involve the improper use of, including trading on,
information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. We have
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adopted an insider trading policy and a code of conduct, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity
may be ineffective 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 comply with these laws or regulations. If any such actions are
instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.
We face potential product liability exposure, and, if claims are brought against us, we may incur substantial liability.
The use of beloranib and
ZGN-1061
in clinical trials and the sale of
ZGN-1061,
if developed and approved, exposes us to the risk of product liability claims. Product liability claims might be brought against us by patients, healthcare providers or others selling or otherwise
coming into contact with
ZGN-1061.
For example, we may be sued if any product we develop allegedly causes injury or death or is found to be otherwise unsuitable during product testing, manufacturing, marketing
or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, including as a result of interactions with alcohol or other drugs, negligence,
strict liability and a breach of warranties. Claims could also be asserted under state consumer protection acts. If we become subject to product liability claims and cannot successfully defend ourselves against them, we could incur substantial
liabilities. In addition, regardless of merit or eventual outcome, product liability claims may result in, among other things:
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withdrawal of patients from our clinical trials;
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substantial monetary awards to patients or other claimants;
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decreased demand for
ZGN-1061
or any future product candidates following marketing approval, if obtained;
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damage to our reputation and exposure to adverse publicity;
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increased FDA warnings on product labels;
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distraction of managements attention from our primary business;
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the inability to successfully commercialize
ZGN-1061
or any future product candidates, if approved.
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We maintain product liability insurance coverage for our clinical trials with a $10.0 million annual aggregate coverage limit.
Nevertheless, our insurance coverage may be insufficient to reimburse us for any expenses or losses we may suffer. Moreover, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us
against losses, including if insurance coverage becomes increasingly expensive. If and when we obtain marketing approval for
ZGN-1061,
we intend to expand our insurance coverage to include the sale of
commercial products; however, we may not be able to obtain this product liability insurance on commercially reasonable terms. Large judgments have been awarded in class action lawsuits based on drugs that had unanticipated side effects. The cost of
any product liability litigation or other proceedings, even if resolved in our favor, could be substantial, particularly in light of the size of our business and financial resources. A product liability claim or series of claims brought against us
could cause our stock price to decline and, if we are unsuccessful in defending such a claim or claims and the resulting judgments exceed our insurance coverage, our financial condition, business and prospects could be materially adversely affected.
47
We must maintain effective internal control over financial reporting, and if we are unable to do so, the
accuracy and timeliness of our financial reporting may be adversely affected, which could have a material adverse effect on our business and stock price.
We currently are an emerging growth company, as defined in the Jumpstart our Business Startups Act of 2012, or the JOBS Act, and we
have taken advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including not being required to comply with the auditor attestation
requirements of Section 404(b) of the Sarbanes-Oxley Act.
We must maintain effective internal control over financial reporting in
order to accurately and timely report our results of operations and financial condition. In addition, as a public company, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, requires, among other things, that we assess the effectiveness of
our disclosure controls and procedures quarterly and the effectiveness of our internal control over financial reporting at the end of each fiscal year.
The rules governing the standards that must be met for our management to assess our internal control over financial reporting pursuant to
Section 404 of the Sarbanes-Oxley Act are complex and require significant documentation, testing and possible remediation. These stringent standards require that our audit committee be advised and regularly updated on managements review
of internal control over financial reporting. Our management may not be able to effectively and timely implement controls and procedures that adequately respond to the increased regulatory compliance and reporting requirements that are applicable to
us as a public company. If we fail to staff our accounting and finance function adequately or maintain internal control over financial reporting adequate to meet the demands that will be placed upon us as a public company, including the requirements
of the Sarbanes-Oxley Act, our business and reputation may be harmed and our stock price may decline. Furthermore, investor perceptions of us may be adversely affected, which could cause a decline in the market price of our common stock.
Our ability to use our net operating loss carryforwards and certain tax credit carryforwards may be subject to limitation.
Since our inception in 2005, we have not recorded any U.S. federal or state income tax benefits for the net losses we have incurred in each
year or our earned tax credits, due to our uncertainty of realizing a benefit from those items. As of December 31, 2016, we had net operating loss carryforwards for federal and state income tax purposes of $49.1 million and
$35.9 million, respectively, which begin to expire in 2026 and 2030, respectively. As of December 31, 2016, we did not record deferred tax assets of $12.8 million (gross) that were attributable to stock option exercises which will be
recorded as an increase in additional paid in capital once they are realized in accordance with accounting for stock-based compensation awards. These deductions are not reflected in the federal and state net operating loss carryforwards and the
capitalized research and development expense deferred tax assets in the amounts of $9.4 million, $7.2 million, and $3.4 million, respectively. As of December 31, 2016, we also had available tax credit carryforwards for federal
and state income tax purposes of $13.1 million and $1.9 million, respectively, which begin to expire in 2026 and 2021, respectively. Under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, changes in our
ownership may limit the amount of our net operating loss carryforwards and tax credit carryforwards that could be utilized annually to offset our future taxable income, if any. This limitation would generally apply in the event of a cumulative
change in ownership of our company of more than 50% within a three-year period. Any such limitation may significantly reduce our ability to utilize our net operating loss carryforwards and tax credit carryforwards before they expire. Our
follow-on
public offering, initial public offering, or IPO, private placements and other transactions that have occurred since our inception, may trigger such an ownership change pursuant to Section 382. Any
such limitation, whether as the result of our recent
follow-on
public offering, IPO, prior private placements, sales of our common stock by our existing stockholders or additional sales of our common stock by
us, could have a
material adverse effect on our results of operations in future years. We have not completed a study to assess whether an ownership change
for purposes of Section 382 has occurred, or whether there have been multiple ownership changes since our inception, due to the significant costs and complexities associated with such study.
48
Unfavorable global economic conditions could adversely affect our business, financial condition or results
of operations.
Our results of operations could be adversely affected by general conditions in the global economy and in the global
financial markets. A severe or prolonged economic downturn could result in a variety of risks to our business, including, weakened demand for our product candidates and our ability to raise additional capital when needed on acceptable terms, if at
all. A weak or declining economy could also strain our suppliers, possibly resulting in supply disruption, or cause our customers to delay making payments for our services. Any of the foregoing could harm our business and we cannot anticipate all of
the ways in which the current economic climate and financial market conditions could adversely impact our business.
Our internal computer systems,
or those of our third-party CROs or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of our
ZGN-1061
development programs.
Despite the implementation of security measures, our internal computer systems and those of our third-party CROs and other contractors and
consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we have not experienced any such system failure or accident, if such an event
were to occur and cause interruptions in our operations, it could result in a material disruption of our programs. For example, the loss of clinical trial data for
ZGN-1061
could result in delays in our
regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach results in a loss of or damage to our data or applications or other data or applications relating
to our technology or product candidates, or inappropriate disclosure of confidential or proprietary information, we could incur liabilities and the further development of
ZGN-1061
could be delayed.
We may not be successful in our efforts to identify or discover additional product candidates.
The success of our business depends primarily upon our ability to identify, develop and commercialize products based on our MetAP2 platform.
Although
ZGN-1061
is currently in clinical development, our research programs may fail to identify other potential product candidates for clinical development for a number of reasons. Our research methodology
may be unsuccessful in identifying potential product candidates or our potential product candidates may be shown to have harmful side effects or may have other characteristics that may make the products unmarketable or unlikely to receive marketing
approval.
If any of these events occur, we may be forced to abandon our development efforts for a program or programs, which would have a
material adverse effect on our business and could potentially cause us to cease operations. Research programs to identify new product candidates require substantial technical, financial and human resources. We may focus our efforts and resources on
potential programs or product candidates that ultimately prove to be unsuccessful.
We may 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 or expand our internal efforts and growth.
Our drug development programs and the potential commercialization of our product candidates will require substantial additional cash to fund
expenses. For some of our product candidates, we may decide to collaborate with pharmaceutical and biotechnology companies for the development and potential commercialization of those product candidates in some or all markets.
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 collaborators resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborators evaluation of a number of factors. Those factors may include the
design or results of clinical trials, the likelihood of approval by the FDA or similar regulatory authorities outside the U.S., the potential market for the applicable
49
product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, the potential of competing products, the existence of uncertainty with respect to
our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge and industry and market conditions generally. The collaborator may also consider alternative product candidates or
technologies for similar indications that may be available to collaborate on and whether such collaboration could be more attractive than the one with us for our product candidate. The terms of any collaboration or other arrangements that we may
establish may not be favorable to us.
We may also be restricted under existing license agreements from entering into future agreements on
certain terms with potential collaborators. Collaborations are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have
resulted in a reduced number of potential future collaborators.
We may not be able to negotiate collaborations on a timely basis, on
acceptable terms, or at all. If we are unable or unwilling 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 in some or all markets or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense,
including potentially increasing our infrastructure and investment outside the U.S.. 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. In addition such efforts may require diversion
of a disproportionate amount of our attention away from other
day-to-day
activities, and require devotion of a substantial amount of our time to managing these expansion
activities.
In addition, any future collaborations that we enter into may not be successful. The success of our collaboration
arrangements will depend heavily on the efforts and activities of our collaborators. Collaborators generally have significant discretion in determining the efforts and resources that they will apply to these collaborations. Disagreements between
parties to a collaboration arrangement regarding clinical development and commercialization matters can lead to delays in the development process or commercializing the applicable product candidate and, in some cases, termination of the
collaboration arrangement. These disagreements can be difficult to resolve if neither of the parties has final decision-making authority. Collaborations with pharmaceutical or biotechnology companies and other third parties often are terminated or
allowed to expire by the other party. Any such termination or expiration would adversely affect us financially and could harm our business reputation.
We may acquire businesses or products, or form strategic alliances, in the future, and we may not realize the benefits of such acquisitions or
alliances.
We may acquire additional businesses or products, form strategic alliances or create joint ventures with third parties
that we believe will complement or augment our existing business. If we acquire businesses with promising markets or technologies, we may not be able to realize the benefit of such transactions if we are unable to successfully integrate such
businesses with our existing operations and company culture. We may encounter numerous difficulties in developing, manufacturing and marketing any new products resulting from a strategic alliance or acquisition that delay or prevent us from
realizing their expected benefits or enhancing our business. We cannot assure you that, following any such transaction, we will achieve the expected synergies to justify the transaction.
50
Risks Related to Our Financial Position and Need for Capital
We have not generated any revenue from product sales. We have incurred significant operating losses since our inception, and anticipate that we will
incur continued losses for the foreseeable future.
Biopharmaceutical product development is a highly speculative undertaking and
involves a substantial degree of risk. Our operations to date have been limited primarily to organizing and staffing our company and conducting research and development activities for beloranib,
ZGN-1061
and
ZGN-839.
We have never generated any revenue from product sales. We have not obtained regulatory approvals for any of our product candidates.
Since our inception and until recently, we focused substantially all of our efforts and financial resources on developing beloranib, which was
in Phase 3 clinical development for our lead indication of the treatment of hyperphagia and obesity in patients with PWS and Phase 2 clinical development for the treatment of obesity in patients with HIAO. In December 2015, the FDA put the beloranib
IND on full clinical hold. Due to the uncertainties, costs and risks associated with the development of beloranib, in July 2016, we suspended further development of beloranib and directed our efforts and financial resources to developing
ZGN-1061.
In October 2016, we suspended our development of
ZGN-839
in order to focus all of our resources to developing
ZGN-1061
and
the discovery of novel and highly-differentiated MetAP2 inhibitors.
We have funded our operations to date through proceeds from sales of
redeemable convertible preferred stock, convertible debt and proceeds from our IPO and
follow-on
public offering, and have incurred losses in each year since our inception. Our net losses were
$57.9 million for the year ended December 31, 2016. As of December 31, 2016, we had an accumulated deficit of $237.5 million. Substantially all of our operating losses resulted from costs incurred in connection with our
development programs for beloranib,
ZGN-1061
and
ZGN-839,
licensing milestone fees and from general and administrative costs associated with our operations. We expect to
incur increasing levels of operating losses over the next several years and for the foreseeable future. Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders equity and
working capital. We expect our research and development expenses will increase over time in connection with our clinical trials of
ZGN-1061,
and of any other product candidates we may choose to pursue. In
addition, if and when we obtain marketing approval for
ZGN-1061,
we will incur significant sales, marketing and outsourced manufacturing expenses. We will continue to incur additional costs associated with
operating as a public company. As a result, we expect to continue to incur significant operating losses that would increase over time for the foreseeable future. Because of the numerous risks and uncertainties associated with developing
pharmaceutical products, we are unable to predict the extent of any future losses or when we will become profitable, if at all. Even if we do become profitable, we may not be able to sustain or increase our profitability on a quarterly or annual
basis.
Our ability to become profitable depends upon our ability to generate revenue. To date, we have not generated any revenue from any
of our product candidates, and we do not know when, or if, we will generate any revenue. We do not expect to generate significant revenue unless and until we obtain marketing approval of, and begin to sell,
ZGN-1061.
Our ability to generate revenue depends on a number of factors, including, but not limited to, our ability to:
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initiate and successfully complete clinical trials that meet their clinical endpoints;
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initiate and successfully complete all safety studies required to obtain U.S. and foreign marketing approval for
ZGN-1061
in the indications we are pursuing;
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commercialize
ZGN-1061,
if developed and approved, by developing a sales force or entering into collaborations with third parties; and
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achieve market acceptance of
ZGN-1061
in the medical community and with third-party payors.
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Absent our entering into a collaboration or partnership agreement, we expect to incur significant
sales and marketing costs as we prepare to commercialize
ZGN-1061.
Even if we initiate and successfully complete our clinical trials of
ZGN-1061,
and
ZGN-1061
is approved for commercial sale, and despite expending these costs,
ZGN-1061
may not be a commercially successful drug. We may not achieve profitability soon after
generating product sales, if ever. If we are unable to generate sufficient product revenue, we will not become profitable and may be unable to continue operations without continued funding.
We will need to raise additional funding, which may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when
needed may force us to delay, limit or terminate our product development efforts or other operations.
Developing small molecule
products is expensive, and we expect our research and development expenses to increase substantially in connection with our ongoing activities, particularly as we advance
ZGN-1061
into later stage clinical
trials. Depending on the status of regulatory approval or, if approved, commercialization of
ZGN-1061
or any of our other product candidates, as well as the progress we make in selling
ZGN-1061
or any of our other product candidates, we may require additional capital to fund operating needs thereafter. We may also need to raise additional funds sooner if we choose to pursue additional indications
and/or geographies for
ZGN-1061
or our other product candidates or otherwise expand more rapidly than we presently anticipate.
As of December 31, 2016, our cash, cash equivalents and marketable securities were $129.2 million. We expect that our cash, cash
equivalents and marketable securities will be sufficient to fund our current operations for a period of at least one year from the issuance date of this Annual Report. However, our operating plan may change as a result of many factors currently
unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic
alliances and licensing arrangements or a combination of these approaches. In any event, we will require additional capital to obtain regulatory approval for, and to commercialize, our product candidates. Raising funds in the current economic
environment may present additional challenges. Even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital if market conditions are favorable or if we have specific strategic considerations.
Any additional fundraising efforts may divert our management from their
day-to-day
activities, which may adversely affect our ability to develop and commercialize our product candidates. In addition, we cannot guarantee that future financing
will be available in sufficient amounts or on terms acceptable to us, if at all. Moreover, the terms of any financing may adversely affect the holdings or the rights of our stockholders and the issuance of additional securities, whether equity or
debt, by us, or the possibility of such issuance, may cause the market price of our shares to decline. The sale of additional equity or convertible securities would dilute all of our stockholders. The incurrence of indebtedness would result in
increased fixed payment obligations and we may be required to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights
and other operating restrictions that could adversely impact our ability to conduct our business. We could also be required to seek funds through arrangements with collaborative partners or otherwise at an earlier stage than otherwise would be
desirable and we may be required to relinquish rights to some of our technologies or product candidate or otherwise agree to terms unfavorable to us, any of which may have a material adverse effect on our business, operating results and prospects.
If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of
our research or development programs or the commercialization of any product candidate or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could materially affect our business, financial
condition and results of operations.
52
Raising additional capital may cause dilution to our existing stockholders, restrict our operations or
require us to relinquish rights.
We may seek additional capital through a combination of private and public equity offerings, debt
financings, collaborations and strategic and licensing arrangements. To the extent that we raise additional capital through the sale of common stock or securities convertible or exchangeable into common stock, a stockholders ownership interest
in our company will be diluted. In addition, the terms of any such securities may include liquidation or other preferences that materially adversely affect the rights of our stockholders. Debt financing, if available, would increase our fixed
payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds
through collaboration, strategic partnerships and licensing arrangements with third parties, we may have to relinquish valuable rights to
ZGN-1061,
our intellectual property, future revenue streams or grant
licenses on terms that are not favorable to us.
Risks Related to Our Common Stock
We expect that our stock price may fluctuate significantly.
The market price of shares of our common stock, similar to the market price of shares of common stock of other biopharmaceutical companies, is
subject to wide fluctuations. From January 1, 2016 to December 31, 2016 the daily closing price of our common stock on the NASDAQ Global Market ranged from a high of $10.04 to a low of $2.93 and will continue to be subject to wide
fluctuations in response to many risk factors listed in this section, and others beyond our control, including:
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plans for, progress of, or results from
pre-clinical
studies and clinical trials of
ZGN-1061
and/or other product candidates;
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the failure of the FDA to accept our planned IND for
ZGN-1061;
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the failure of the FDA or the EMA to approve
ZGN-1061;
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our ability to establish an adequate safety margin and profile for
ZGN-1061,
including risk of serious thromboembolic events;
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announcements of new products, technologies, commercial relationships, acquisitions or other events by us or our competitors;
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the success or failure of other type 2 diabetes or weight loss therapies;
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regulatory or legal developments in the United States and other countries;
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failure of
ZGN-1061,
if successfully developed and approved, to achieve commercial success;
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fluctuations in stock market prices and trading volumes of similar companies;
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general market conditions and overall fluctuations in U.S. equity markets;
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variations in our quarterly operating results;
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changes in our financial guidance or securities analysts estimates of our financial performance;
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changes in accounting principles;
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our ability to raise additional capital and the terms on which we can raise it;
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sales of large blocks of our common stock, including sales by our executive officers, directors and significant stockholders;
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additions or departures of key personnel;
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discussion of us or our stock price by the press and by online investor communities; and
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other risks and uncertainties described in these risk factors.
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These and other market and industry factors may cause the market price and demand for our common
stock to fluctuate substantially, regardless of our actual operating performance, which may limit or prevent investors from readily selling their shares of common stock and may otherwise negatively affect the liquidity of our common stock. In
addition, the stock market in general, and NASDAQ listed and biopharmaceutical companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these
companies. In the past, when the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation against the company that issued the stock.
On October 21, 2015, a purported stockholder of the Company filed a putative class action lawsuit in the U.S. District Court for the
District of Massachusetts, against the Company and Thomas E. Hughes, captioned Aviad Bessler v. Zafgen, Inc. and Thomas E. Hughes,
No. 1:15-cv-13618.
An amended
complaint was filed on February 22, 2016. The amended complaint alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule
10b-5
based on allegedly false and
misleading statements and omissions regarding our clinical trials for beloranib. The lawsuit seeks, among other things, unspecified compensatory damages in connection with our allegedly inflated stock price between June 19, 2014 and
October 16, 2015, as a result of those allegedly false and misleading statements, as well as punitive damages, interest, attorneys fees and costs. On April 7, 2016, we filed a motion to dismiss the amended complaint. On
August 9, 2016, the District Court granted the motion to dismiss and dismissed the amended complaint with prejudice. On August 12, 2016, plaintiffs filed a notice of appeal to the First Circuit Court of Appeals and, on January 5,
2017, the parties completed briefing in connection with the appeal. The hearing on the plaintiffs appeal was held on March 7, 2017.
Our
executive officers, directors, and principal stockholders exercise significant control over our company.
As of December 31,
2016, the existing holdings of our executive officers, directors, principal stockholders and their affiliates, including investment funds affiliated with Atlas Ventures, or Atlas, and entities affiliated with Fidelity Investment (FMR LLC), or
Fidelity, represent beneficial ownership, in the aggregate, of approximately 35.4% of our common stock. As a result, these stockholders, if they act together, are able to influence our management and affairs and control the outcome of matters
submitted to our stockholders for approval, including the election of directors and any sale, merger, consolidation, or sale of all or substantially all of our assets. The concentration of voting power among these stockholders may have an adverse
effect on the price of our common stock. In addition, this concentration of ownership might adversely affect the market price of our common stock by:
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delaying, deferring or preventing a change of control of us;
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impeding a merger, consolidation, takeover or other business combination involving us; or
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discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us.
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Future sales of our common stock may cause our stock price to decline.
Sales of a substantial number of shares of our common stock in the public market or the perception that these sales might occur could
significantly reduce the market price of our common stock and impair our ability to raise adequate capital through the sale of additional equity securities.
We have broad discretion in how we use the proceeds of our
follow-on
public offering. We may not use these
proceeds effectively, which could affect our results of operations and cause our stock price to decline.
We have considerable
discretion in the application of the net proceeds of our
follow-on
public offering. We intend to use the net proceeds to advance the clinical development of
ZGN-1061
and
to fund new and ongoing research and development activities, working capital and other general corporate purposes, which may include
54
funding for the hiring of personnel, capital expenditures, early commercialization activities, the costs of operating as a public company and potential business development activities. As a
result, investors will be relying upon managements judgment with only limited information about our specific intentions for the use of the balance of the net proceeds. We may use the net proceeds for purposes that do not yield a significant
return or any return at all for our stockholders. In addition, pending their use, we may invest the net proceeds in a manner that does not produce income or that loses value.
We may be at an increased risk of securities class action litigation.
Historically, 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 us because biotechnology and pharmaceutical companies have experienced significant stock price volatility in recent years.
On October 21, 2015, a purported stockholder of the Company filed a putative class action lawsuit in the U.S. District Court for the
District of Massachusetts, against the Company and Thomas E. Hughes, captioned Aviad Bessler v. Zafgen, Inc. and Thomas E. Hughes,
No. 1:15-cv-13618.
An amended
complaint was filed on February 22, 2016. The amended complaint alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule
10b-5
based on allegedly false and
misleading statements and omissions regarding our clinical trials for beloranib. The lawsuit seeks, among other things, unspecified compensatory damages in connection with the our allegedly inflated stock price between June 19, 2014 and
October 16, 2015, as a result of those allegedly false and misleading statements, as well as punitive damages, interest, attorneys fees and costs. On April 7, 2016, we filed a motion to dismiss the amended complaint. On
August 9, 2016, the District Court granted the motion to dismiss and dismissed the amended complaint with prejudice. On August 12, 2016, plaintiffs filed a notice of appeal to the First Circuit Court of Appeals and, on January 5,
2017, the parties completed briefing in connection with the appeal. The hearing on the plaintiffs appeal was held on March 7, 2017.
We
are an emerging growth company and have availed ourselves of reduced disclosure requirements applicable to emerging growth companies, which could make our common stock less attractive to investors.
We are an emerging growth company, as defined in the JOBS Act, and we have taken advantage of certain exemptions from various
reporting requirements that are applicable to other public companies that are not emerging growth companies including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley
Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any
golden parachute payments not previously approved. In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities
Act, for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we are electing
not to take advantage of such extended transition period, and as a result we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for
non-emerging
growth companies. Section 107 of the JOBS Act provides that our decision to not take advantage of the extended transition period for complying with new or revised accounting standards is
irrevocable. We cannot predict if investors will find our common stock less attractive because we may rely on any of the exemptions available under the JOBS Act. 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. We may take advantage of these reporting exemptions until we are no longer an emerging growth company. We will remain an emerging growth company until the
earliest of (i) the last day of the fiscal year in which we have total annual gross revenue of $1.0 billion or more; (ii) December 31, 2019; (iii) the date on which we have issued more than $1.0 billion in nonconvertible
debt during the previous three years; and (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.
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We have never paid dividends on our common stock and we do not anticipate paying any dividends in the
foreseeable future. Consequently, any gains from an investment in our common stock will likely depend on whether the price of our common stock increases.
We have not paid dividends on any of our common stock to date and we currently intend to retain all of our future earnings, if any, to fund the
development and growth of our business. As a result, capital appreciation, if any, of our common stock will be the sole source of gains for our common stockholders for the foreseeable future. Consequently, in the foreseeable future, our common
stockholders will likely only experience a gain from their investment in our common stock if the price of our common stock increases.
If equity
research analysts do not continue to publish research or reports about our business or if they issue unfavorable commentary or downgrade our common stock, the price of our common stock could decline.
The trading market for our common stock relies in part on the research and reports that equity research analysts publish about us and our
business. We do not control these analysts. The price of our common stock could decline if one or more equity analysts downgrade our common stock or if analysts issue other unfavorable commentary or cease publishing reports about us or our business.
Anti-takeover provisions contained in our amended and restated certificate of incorporation and amended and restated bylaws, as well as provisions
of Delaware law, could impair a takeover attempt.
Our amended and restated certificate of incorporation, amended and restated
bylaws and Delaware law contain provisions which could have the effect of rendering more difficult, delaying or preventing an acquisition deemed undesirable by our board of directors. Our corporate governance documents include provisions:
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creating a classified board of directors whose members serve staggered three-year terms;
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authorizing blank check preferred stock, which could be issued by our board of directors without stockholder approval and may contain voting, liquidation, dividend, and other rights superior to our common
stock;
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limiting the liability of, and providing indemnification to, our directors and officers;
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limiting the ability of our stockholders to call and bring business before special meetings;
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requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our board of directors;
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controlling the procedures for the conduct and scheduling of board of directors and stockholder meetings; and
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providing our board of directors with the express power to postpone previously scheduled annual meetings and to cancel previously scheduled special meetings.
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These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management.
As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation
law, which prevents some stockholders holding more than 15% of our outstanding common stock from engaging in certain business combinations without approval of the holders of substantially all of our outstanding common stock.
Any provision of our amended and restated certificate of incorporation, amended and restated bylaws or Delaware law that has the effect of
delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.
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